The term – cryptocurrency has not been very popular until recent times. However, once it started gaining momentum, the number of users increased exponentially leading to a massive surge in the prices of the cryptos and the financial assets. With any up-and-coming arena, especially those involving finances and capital, it is vital to have an understanding of the terms associated with it. Most novices or even veterans feel the need to conduct extensive research educating themselves about the new nomenclature so that they can complete the transactions with ease and complete knowledge.
The reason why it is important to be aware of the important terminology and nomenclature, not only to be able to conduct smooth transfers of funds, it is also for the ease of each user due to the familiarity with the area. It is tough to get stuck and paralyzed when you have a good amount of information at your disposal. Here are a few terms you should know if you are planning on entering this vast world of cryptocurrencies and trying your hand at investing.
1. Blockchain – This is one of the most common terms you might hear when you decide to invest in crypto and are creating an account to trade in the famous currencies. A blockchain essentially means a virtual ledger that is used to conduct and process and transaction in a verified and safe manner. All the transfers are recorded in real-time on all the devices that have access to the particular blockchain. It is a completely decentralized platform which means that it works across several networks and can be accessed anywhere in the world. Most cryptos work on this platform. For example, if you are thinking of buying dogecoin in India, you would have to go through the particular blockchain that takes care of DOGE.
2. Wallet – A digital wallet is essentially where the cryptocurrency coins are stored and the information can be retrieved. The qualities of a good wallet would be to consist of seeds, keys, and addresses to fulfill all the functions it is required to complete. Wallets are primarily of two types – hardware and software. Hardware would be wherein an external device is used to access the crypto and the information. The software ones would simply be the ones you can download onto your smartphones or laptops with the internet. Of course, hardware is considered to be safer than software wallets as those are not easily hacked and are protected from malware. Wallets can hold multiple cryptocurrencies.
3. Mining – This is the process of the verification of new transactions on any particular blockchain. In other words, it can also be defined as the process of creating new units or parts of a digital currency. For example, every time a bitcoin is mined, the network releases new bitcoins to purchase. Confirming the transactions and creating blocks out of them is what mining involves. The results are achieved with the use of mathematical problems and are secure in the process.
4. Fiat – Deviating from the well-known definition of the word ‘fiat’, in the context of cryptos, fiat money refers to any government-issued currency. For example, for a resident of Japan, this would mean Yen, and for an Indian, this would mean the Rupee. Cryptocurrencies do not fall under this category. They are digital or virtual money that is not backed by governments. Each crypto can have its own amount. For example, dogecoin can have an amount that is governed by the current standings and trends, and therefore, DOGE price in INR would differ at different moments in time depending on the fluctuations.
5. Altcoin – An altcoin, essentially, is any digital currency other than bitcoin. There are more than 1,000 altcoins present currently on data sources. More and more altcoins keep emerging – some become popular and go on to shape the trends in the industry while others cease to exist after a while. Currently, the world’s largest altcoin is Ethereum.
6. DeFi – DeFi or Decentralized finance is an umbrella term that is used to define this non-centralized alternative to financial transactions and finance systems. It can provide access to exclusive systems and open them up to the general public with no governing power exerting control over them, thus basically being democratic. Any financial transaction that can happen without a middleman such as the government or bank or institution is DeFi.
7. KYC – KYC stands for ‘know your customer’ and has become an essential part of registering for the platforms that help you buy and sell cryptos. The process ensures security as it attempts to attract genuine customers and filter out the ‘bad crowd’. It verifies the background information such as an address, identity, and bank details to understand the customer better.
8. NFT – This word has created quite the buzz throughout 2021. Non-fungible tokens or NFTs are gaining momentum in their usage as they enable a vast number of transactions in the form of art, music, logos, pictures, etc. Buying or selling an NFT would entail the reception of a certificate that is secure via a blockchain. This would make the person the verified owner of the particular digital asset. Each NFT can have only one official owner and are non-replicable.
9. Private Key – A private key, as the name suggests, is a piece of information that a customer receives upon purchasing particular crypto. It would consist of letters or numbers that would be unique and can be used to access the digital currency. It is vital to protect the information of the private key and not lose/forget it
10. ICO – Initial Coin Offering (ICO) is the first time that the creator of a new crypto would place the currency out on the market for purchase. It is a good way to secure funding for private companies and raise money as they have the potential to become huge. Any person can participate in the purchase of ICOs.
Understanding and familiarizing yourself with these words would give you an edge over others when it comes to investing in this form of currency. Enter this largely untapped but growing world at the earliest and make the most of it.