What is cryptocurrency?
Cryptocurrency is a decentralized, digital and virtual currency secured by cryptography. The complex algorithms involved in generating cryptocurrencies make it impossible to counterfeit. Immune to any government manipulation, the virtual currency has attained wide acceptance across the globe and a rapid penetration within the financial markets.
Cryptocurrency has grown substantially in popularity over the past couple of years. With it, crypto terms have entered into mainstream media, investing publications, and family dinners. But crypto is more than just a new investment option. With developments such as the Metaverse, NFTs, and Decentralized Autonomous Organizations (DAOs), it is building an entirely new universe in the digital space. With that new universe comes a new language, which is constantly being expanded and updated.
Cryptocurrency isn’t just a novel investment option, and in many ways represents a different world altogether compared to traditional stocks and bonds. Between unfamiliar acronyms, emerging technologies, and keeping up with memes and tweets, just learning the basics takes time, even for seasoned traditional investors. As with any investment, it’s important to understand exactly what you’re investing in before you start. That’s especially true when it comes to a speculative — and still evolving — asset like crypto.
To benefit from the meteoric rise of this new space, you have to understand how to speak the crypto language. Here are 6 of the most commonly used crypto terms, explained simply with assistance from Blockster.
Every cryptocurrency transaction is processed, verified, and recorded on a virtual ledger known as a blockchain. When someone buys or sells using cryptocurrency, another entry is made on this virtual ledger. Think of the blockchain as a series of boxcars from a train. When a cryptocurrency transaction is made, another boxcar gets added to the train.
The blockchain is decentralized. This means it’s not stored on one machine or even across one network. Instead, the blockchain exists on computers all over the world that are accessible because of the internet. People and companies help verify each transaction that gets added to the blockchain using their own computer’s processing power on a decentralized peer-to-peer network. Each transaction is timestamped, individually encrypted, and cannot be reversed or changed.
Decentralized finance (DeFi)
DeFi is a blanket term for decentralized alternatives to traditional (centralized) finance. DeFi includes banking, money management, payment processing, insurance, etc. DeFi products and services enable democratized access to a historically exclusive industry.
Start paying attention, and you’ll see this term thrown around on Twitter. You should probably know what it stands for.
Fiat currency is 1) government-backed and 2) not backed by any commodity (like gold). For example, the US dollar, the value of US dollars relies solely on our collective faith in the institution of the United States government. If the US crumbles, so does your fiat. In a broader sense, fiat is used to describe any currency controlled by a central authority. Bitcoin, in its decentralized design, serves as a counterpoint to traditional fiat currencies.
When you make a transaction on the blockchain, you have to pay a fee. That fee is called a gas price. You are basically paying a miner to go out and receive crypto for you. You can choose to pay higher fees for faster transaction speeds, or lower fees for slower transaction fees.
Gas prices are one of the biggest challenges facing cryptocurrency markets. If we find a better way to drive down energy costs for transactions, crypto will become more ubiquitous.
Non-fungible tokens (NFTs)
If you’ve been following ONE37PM at all these past two months, you’ve probably heard about NFTS. Non-fungible tokens enable virtual transactions between collectibles like art, music and trading cards using smart contracts. NFTs are a type of token that are going to completely revolutionize entire industries by changing the way we share and consume pretty much everything.
A “fungible” asset refers to something that is interchangeable with another unit of that same asset. A good example of a fungible asset is the US dollar. If I exchange my $1 bill for your $1 bill, nothing really changes. While they are two different pieces of fancy paper, both bills represent the same exact value. That’s fungibility.
Conversely, a non-fungible asset refers to something of a distinct value. There are no two exactly the same. A good example of a non-fungible asset is a house or a car.
Segregated Witness (SEGWIT)
Another tech term, SEGWIT refers to the process that separates digital signature data from transaction data. This allows more transactions to fit on one block, increasing the speed of transactions. Put simply, it’s a good value-add for blockchains.
Blockster also maintains an excellent resource that decrypts the cryptocurrency jargon with remarkable simplicity, click here to view.