If you’re new to the world of cryptocurrencies, it’s easy to get lost in a sea of incredibly complicated information, and some sources may be more reliable than others. The cryptocurrency glossary below explains the basic terms used every day in the world of digital currencies.
Essential Cryptocurrency Glossary
Bitcoin (network): a network of nodes (computers) that manage the virtual currency in distributed mode, peer-to-peer (i.e. without hierarchies: the connected PCs act as both client and server ). It is a digital payment system, based on a distributed ledger that can be read and modified by several nodes of a network.
Bitcoin (currency): a virtual currency that supports peer-to-peer payments and transactions.
Block: a packet of digitally recorded data; a group of transactions.
Blockchain: a transparent and permanent ledger that keeps track of each transaction and cryptographically links a series of blocks in order to prevent the modification of the previous ones. It is also the underlying technology of Bitcoin and other cryptocurrencies.
If you want to learn more about blockchains you can read my article about Blockchain Technology.
Cold storage: A type of long-term cryptocurrency storage that involves archiving entirely offline to reduce the risk of theft and hacking.
Consensus algorithm: the process used to establish agreement on the value of a single data through a decentralized network of computers. In a blockchain, these algorithms are used to establish agreement on the content of the new blocks.
Cryptocurrency: a virtual and decentralized currency, generated through a process of solving complex cryptographic “puzzles”.
Defi: the whole scope of decentralized finance, which concerns many key aspects of the financial infrastructure that are evolving to become more open and not based on traditional intermediaries (banks, brokers, etc.). Defi represents a paradigm shift from traditional financial systems to new models based on integrated, programmable, and interconnected protocols.
Dogecoin: cryptocurrency inspired by the Japanese Shiba-Inu dog breed and created for fun in 2013 to make fun of the wild speculation on virtual coins.
Ether: The native currency used by the Ethereum platform. In addition to serving as a digital currency and store of value, Ether is also used to feed computing power on the network, execute smart contracts (see below) and compensate for miners, i.e. those who “mine” cryptocurrencies, ie create them.
Ethereum: A decentralized global network of computers that supports smart contracts and peer-to-peer applications. You can check out Ethereum price predictions here.
Ethereum 2.0: A major technology update that has been approved by the Ethereum community and is currently being implemented on the Ethereum blockchain. One of the main updates is the change of the security architecture from proof of work to proof of stake (see below).
Fiat currency: a form of currency or medium of exchange established by government regulation that has no intrinsic value. One example is the US dollar after President Nixon unanchored it from the Gold standard in 1971.
FOMO: short for fear of missing out (fear of being excluded): emotional reaction to the high returns obtained by other investors that can lead to higher stock prices and speculative bubbles.
HODL: short for hold on for dear life. Originally a typo on an overnight message forum thread, it has become an abbreviation for investors who are in favor of holding cryptocurrencies for the long term, despite volatility. New cryptocurrency investors often attempt to take advantage of short-term price movements, but it is generally known that this strategy often underperforms the HODL one.
Hot storage: a method of storing cryptocurrencies that uses public and private keys (a sort of password) for security and uses browser “wallets” or specific applications to store virtual currencies. Since these wallets are always connected to the Internet, they expose users to the risk of hacking.
Miners: computer users who process algorithms with their PC to process and validate transactions in the blockchain.
Open-source: source code (the basic instructions used to write a computer program) that is freely available to users who can modify and redistribute it. Open-source code allows anyone in the world to discover work that has already been done, improve it without asking for permission, and send it back to the original developer (open collaboration).
Private key: A series of random characters (similar to a password) that test the ability to access bitcoin or other cryptocurrencies in a specific wallet. It can be used to verify ownership through a cryptographic signature. An owner of a private key can generate a public key that is verifiable like their own but cannot be used to discover the private key.
Proof of stake: A type of protocol for securing a cryptocurrency network and for achieving distributed consensus. It is based on the principle that each user is required to prove possession of a certain amount of virtual currency.
Proof of work: A system that involves the use of a high-powered computer to test a series of algorithms, or hash functions, to validate and confirm transactions. It relies on trial and error to generate a random series of numbers and letters until the program finds one that matches the original value. The protocol is highly secure, but also inefficient because it requires a lot of computing power and electricity consumption. Cryptocurrencies that use it generally use around 1,000 times more electricity than those that use proof of stake.
Satoshi Nakamoto: The pseudonym of the person or persons who conceived and described Bitcoin in a white paper published in 2008. Satoshi was a member of the “cypherpunk” community in the 1990s, which originally thought of cryptographically secure currencies. The publication of the Bitcoin paper is seen as a response to the distrust of major financial institutions following the global financial crisis that year. You can read about the history of Bitcoin here.
Smart contracts: IT protocols that include contractual clauses and automatically execute when the terms of the agreement are met, eliminating the need for intermediaries such as lawyers and banks.
Trustless system: a system that is based on digital verification and algorithms instead of on personal trust (knowing the person with whom the transaction is made) or the intermediation of a third party (bank, lawyer, or other).
Wallet: A storage method (virtual or in hardware form such as a USB stick) that allows users to store private keys for cryptocurrencies, allowing users to send and receive coins.
To wrap things up
The reason why I published this cryptocurrency glossary on Daily Money Tree is that I remember how confusing and overwhelming it is to try and understand the crypto landscape as a beginner. I spent months researching, reading, learning…
That’s why I decided to make this collection of the essential expressions, acronyms, and phrases to help you on your way.
If you want to avoid the hassle and endless hours of trying to figure out cryptocurrencies (including this cryptocurrency glossary), the best thing I can recommend is to check out Copy my Crypto. If you don’t know what Copy my Crypto is by now, you can read the inside story here.
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To your success!