With the entry of NFTs, cryptocurrencies and digital assets have become hotter than barbeque right now. If you are hearing these terms for the first time or if you have a vague idea about all these, now is the time to be updated. Here is a list of 20 commonly used cryptocurrency terms that you must know. Though you will find these on the internet separately, for your convenience we have combined them here. And here it goes.
20 common cryptocurrency term
The term cryptography is made with the combination of two words, “crypt” means “hidden” and “graphy” means “writing”. Cryptography is a technique of using codes to protect information and communications. It is a process of converting plain and easily readable text into unintelligible text and vice-versa. This is the technique that is used to protect your digital assets from theft or alteration, as well as for user authentication. The purpose is to provide an extra level of security to protect the data.
Generally, there are three types of cryptographic techniques:
- Symmetric-key cryptography
In this encryption system, both the sender and receiver of messages use a common key for encryption and decryption of messages. Data Encryption System(DES) is the most popular symmetric-key cryptography system.
- Hash functions
There is no role of any key in a hash function, rather a hash value with fixed length is computed as per the plain text making it impossible for contents of plain text to be recovered. Several operating systems use this algorithm to encrypt passwords.
- Public-key cryptography
In Public-Key Cryptography two related keys: public and private are used. As two keys are used, the public key may be freely distributed, but the private key remains a secret. For encryption, the public key is used whereas for decryption the private key is used.
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Currency is the medium of exchanging units. Each unit is valued to be worth something and is used to pay for things, services and debts. Bitcoin is one of the most popular and known currencies in the crypto world.
Cryptocurrency is digital currency secured by cryptography. It is not a physical coin, it is all online with no central bank involved in between, but as a physical coin, it can be used to buy goods and services. According to CoinMarketCap.com, there are over 6,700 different cryptocurrencies. Bitcoin is the first cryptocurrency that was introduced in 2009.
Blockchain is like a book of records with each block attached to each other and stores the transaction history of each transfer. It is a type of database with a collection of information that is stored on a computer system.A blockchain stores information together in blocks. Each block has a certain information storage capacity and when it is filled it is chained onto the previously filled block. This way it forms a chain of data which is known as the “blockchain”. When one block is filled and attached to other filled blocks, the new and fresh information is stored in the new block which will be also added to the chain once filled and the process continues. To know more, read here:
Blocks are the files that record cryptocurrency transactions. It maintains the record of each transfer and helps users track what was paid for and by whom which removes the chances of using the same currency multiple times.
A block contains information about its past and future and represents the ‘present’. In a blockchain, when a block is completed it becomes part of the past and opens a way to a new block. All the past transactions are recorded in the filled block whereas the current one carries the new transactions.
The whole digital asset system works on this cycle. Also, it offers a higher level of privacy and security to digital assets.
Bitcoin is the first virtual currency invented by the mysterious and pseudonymous Satoshi Nakamoto in 2008 and came into use in 2009. It is created by the process called mining and used worldwide. Anyone who owns bitcoin can use it to exchange for other currencies, products, and services. It is one of the most used cryptocurrencies. In 2017, there were 2.9 to 5.8 million unique users of a cryptocurrency wallet and most of them were using bitcoin. The figure was estimated based on research done by the University of Cambridge.
Like fiat currency, bitcoin is not controlled by any central authority rather it uses peer-to-peer technology to facilitate instant payments. Bitcoin is created, distributed, traded, and stored using a decentralized ledger system known as a blockchain.
All other cryptocurrencies except for bitcoin are known as Altcoin. It is a combination of two words “alternative” and “coin” or you can say that it is an alternative bitcoin. Altcoins was launched after the huge success of bitcoin and hence most of them are built upon the basic framework provided by Bitcoin.
Currently, there are almost 9,000 cryptocurrencies. In March 2021, altcoins accounted for over 40% of the total cryptocurrency market according to CoinMarketCap. Based on market cap, Ethereum, Ripple, Tether, Bitcoin Cash, Bitcoin SV, and Litecoin are some of the most well-known Altcoins.
The main types of Altcoins are:
- Mining-based: In mining-based altcoins, new coins are generated by solving challenging problems to unlock blocks. Ethereum is the best-known mining-based altcoin.
- Stablecoins: Stablecoins are designed to stay at a fixed value. To stabilize the price, the value of stablecoins is tied to an outside asset, such as the U.S. dollar or gold.
- Security tokens: Security token altcoins are initial coin offerings (ICO) generated coins and linked to a business.
- Utility tokens: these altcoins provide a claim on services, and are sometimes sold as part of an ICO. One of the excellent examples of a utility token offered in an ICO is Filecoin.
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Do you know who developed bitcoin? Nobody knows whether it was an individual or a group of people. All we know is Satoshi Nakamoto is the name used to author the bitcoin white paper. Satoshi is the smallest unit of bitcoin named after its founder or founder Satoshi Nakamoto.
Bitcoin can be split into smaller units and 1 Satoshi is equivalent to 100 millionth of a bitcoin.
9. Market Capitalization
Market capitalization is the market value of a publicly traded company's outstanding shares. It is calculated by multiplying the share price with the number of shares outstanding.
In the case of cryptocurrency, it is equal to the total number of coins by the latest price. For example, let us suppose there are a total of 16,500,000 coins each worth $4,000. So, its market cap will be $66,000,000,000 or 66 billion dollars. Click here to know the cryptocurrency prices by market cap.
10. Distributed ledger
A distributed ledger is a database that is consensually shared and accessible by multiple people. It is synchronized across multiple sites, institutions, or geographies to have public "witnesses" of all the transactions.
Let us understand it thoroughly, in a distributed system, multiple computers working independently toward the same goal as one large system. A ledger is like a book that records all transactions, not just transactions but any data.
Whenever any changes or additions are made to the ledger, it is reflected and copied to all participants within a second. Blockchain Is the first type of distributed ledger technology.
Mining is the process of earning cryptocurrency without putting money into it. Bitcoin miners receive bitcoin as a reward for solving cryptographic equations through the use of computers.
It is a record-keeping process that ensures the payment network is trustworthy and secure. The whole mining process is executed through immense computing power. Each Bitcoin miner tries to solve complex mathematical problems to acquire Bitcoin and when a solution is found the block of confirmed transactions is added as the next link in the blockchain.
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A hash function is a non-reversible process in which a computer program takes information and turns it into a series of letters and numbers of a certain length.
In the blockchain, transactions of varying lengths are run through a given hashing algorithm. And all give an output that is of a fixed length regardless of the length of the input transaction. The output is what we call a hash. Hashing is the process of using a given hash function to process a transaction. Click here to have the detain idea of hashing.
Any divergence, be it simple or complex, in the blockchain’s protocol is called a fork. It is used by the software to decide whether a transaction is valid or not. When something fundamental about a cryptocurrency is changed by the developers, then the fork occurs. The reason behind this change can be a major hack, as was the case with Ethereum, or as a fundamental disagreement within the community.
There is mainly two variety of fork:
- Soft fork
A soft fork is a change made to cryptocurrency technology where only previously valid transaction blocks are made invalid by creating a temporary split in the group of recordings (blockchain). Soft forks are backward compatible as the older nodes still recognize new transactions as valid.
- Hard fork
Contrary to a soft fork, a hard fork is a permanent change to cryptocurrency technology resulting in breaking backward compatibility. The changes are so much that any computer that is not updated with the new technology will be seeing the new blocks as invalid. A hard fork can be done by the majority of support from coin holders with a connection to the coin network because the change results in part of the group splitting off to form their cryptocurrency.
14. Private key
A private key is like a password in the form of a string of letters or numbers which is known only by the owner. If you lose your private key to somebody or share it with anyone else, you give them access to all your crypto coins. It is usually depicted as a series of alphanumeric characters so that it is not prone to hackers.
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15. Public key
Public keys allow users to receive cryptocurrencies into their accounts through the cryptography code. When a user initiates the first transaction, a private key and a public key are created. The public key is used to prove ownership of the private key by verifying the digital signature. In the public key, anyone can send the transaction, but only the person with the private key can unlock them and prove that they are the owner of the cryptocurrency received in the transaction.
A wallet is the physical medium, program, or service that lets users send, receive, and store their digital money. In the case of Blockchain wallets, one can not store the money, instead, they do not get access to it and the only way to get access is by providing the “key” which we discussed previously.
These wallets can be physical as well as digital, each with its advantages and disadvantages. Physical wallets offer more security features but they take longer to access your crypto. To know about some of the best bitcoin wallets, read here:
17. Paper wallet
It is very clear from the term itself, a paper wallet is a printed piece of paper that contains public and private keys as well as QR codes that are needed to access and spend your cryptocurrency. In the early years of Bitcoin, paper wallets were very popular and also considered to be one of the safest ways to store bitcoins. As it is removed from the internet, it is considered an extremely secure way to keep bitcoins safe from cyber-attacks, malware, etc.
18. Hardware wallet
A hardware wallet is a high-security wallet that locks away access to your cryptocurrency and enables you to store your funds offline. As hardware wallets are disconnected from the Internet and other computers and are virtually virus-proof, so it is extra secure. Whenever you need to manage your funds you have to connect them to your computer, enter the PIN to unlock it, and then create a transaction.
19. Software wallet
Software wallets are non-physical computer programs that you download onto your computer and are designed to secure your cryptocurrency while allowing only you to access it. The wallet is encrypted and to have the access to coins you have stored in it, you need a password. However, software wallets are not offline and hence more prone to cyber-attacks. But, at the same time, it is convenient for users to exchange and send currencies.
Fungible means the ability of a good or asset to be interchanged with other individual goods or assets of the same type. It means that one thing can be a substitute for another without changing its value. When you exchange fungible goods or assets, you neither gain nor lose anything as both of them implies equal value.
For example: If you give a $50 bill to somebody, that person can repay you with another $ 50 bill as both are mutually substitutable. But, in non-fungibility, let us suppose you give your car to somebody and he/ she is giving you a different car, it will not be acceptable to you because both of them do not have the same value.
Contributor: Jyotsana Rani
Jyotsana is very keen to express her views on new topics and wants readers to remember her through her writing. She is passionate about reading and believes that words wield the power of changing the scenario and she uses them to encourage people to the best of her knowledge.
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