If you keep up with the news then you’ve probably seen headlines about cryptocurrency and how much profit the industry is bringing in. You might have heard how Bitcoin was a top-performing asset in the 2010s and how some of the earliest crypto investors became millionaires.
You might have seen all of these and decided to get into crypto investments. But if you’re like the average person, you probably don’t quite know where to start and are hearing all these confusing terms. In this article, we’ll explain some of the common crypto terms and what they mean.
Cryptocurrency
Cryptocurrency refers to digital assets that are based on decentralized ledger technology. These assets are basically currencies that are not issued by a central bank but instead, by a private individual or entity. Unlike traditional currencies, they only exist in the online space and can be sent and received using crypto wallets and via their blockchains.
The value of cryptocurrencies is tied to their supply and demand in the market. If the token is a stablecoin, it is pegged to the value of another asset or a fiat currency like the US dollar. Cryptocurrencies can be used as a currency or an investment vehicle, depending on user preferences.
Crypto Casino
Crypto casinos are online betting platforms that accept cryptocurrency alongside or instead of fiat currencies for placing wagers. These casinos usually offer both traditional casino games and more modern ones. Depending on the casino in question, certain cryptos might be accepted and others might not be. Sergio Zammit writes that certain casinos accept 10 or fewer tokens, but others accept an impressive 150+ different coins.
Crypto casinos have become very popular over the last few years and can offer a convenient way to spend your tokens for fun while also making money.
Blockchain
Blockchains are digital ledgers where transactions are stored. These transactions are public and are confirmed in ‘blocks’ by network users who do so in return for rewards. One of the unique things about blockchains is that networking power is split across a large number of computers so no one person can control a blockchain unless they somehow control over 50% of the network’s power.
Transactions that are confirmed on a blockchain cannot be reversed or removed from the public record and this applies to the digital assets that are built upon them. As such, crypto transactions cannot be reversed.
Crypto Mining
Crypto mining is the process through which new cryptos are created or brought into the world. As we’ve explained, transactions are confirmed and recorded on blockchains. The people who confirm these transactions are called validators and this process (in a proof-of-work system) is quite labour-intensive and requires a lot of computing power.
In exchange for confirming transactions on a blockchain, validators are given tokens. The process of validating transactions and being rewarded for it is what is called crypto mining. It is one of the common ways to make money from crypto and is also an essential activity to keep a blockchain running.
Crypto Exchange
A crypto exchange is a platform that facilitates the buying and selling of cryptocurrency. Most crypto users do not opt to mine their crypto directly so they have to buy it. Exchanges come in several forms, including centralized crypto exchanges where user's funds are held in the exchange wallet until they manually withdraw them.
There are also decentralized exchanges that do not hold onto the funds but automatically deposit them into users’ external wallets. Finally, there are peer-to-peer exchanges that let users buy and sell cryptocurrency to one another using various payment methods and at different rates.
Crypto Wallet
A crypto wallet is a device or service that stores users' private keys through which they can access their cryptocurrency. Cryptocurrency itself isn’t stored in the wallet per se but on an address on the blockchain. It is by having the keys to this address that the crypto can be accessed.
There are cold wallets which are not connected to the internet and are considered the safest way to store tokens. There are hot wallets that are connected to the internet. There are also paper wallets where users write down their wallet address, password, and recovery phrase on a piece of paper.
Gas Fees
When you send money through a blockchain, the transaction has to be confirmed by validators. Besides the block rewards that they receive, a fee is also charged per transaction and is referred to as a gas fee. Oftentimes, this fee structure is determined by the blockchain itself and can change based on demand and supply.
In some cases, users can ‘bid’ by offering higher gas fees for their transactions. This puts their transaction as a priority and ensures that it will be confirmed first. In times of high demand, gas fees for blockchains have been known to be in the hundreds or even thousands of dollars.
Staking
In proof-of-stake protocols, a certain amount of the native token is needed to be ‘locked’ up to support the validation of transactions. As such, some blockchain users volunteer their tokens for a certain amount of time to support the network. In return, they are given a percentage of their initial deposit as interest.
This is what we call staking in the crypto sector and can be a great way to passively make income from your tokens. Some users stake through exchanges and other platforms and others join staking pools with other users.
Halving
As we’ve explained, crypto transactions are grouped in blocks and have to be confirmed by validators in exchange for rewards. On the Bitcoin blockchain, the number of rewards per block has already been determined but every few years, the network experiences something called a halving.
A halving basically means the rewards per block are cut in half and this creates an artificial scarcity of Bitcoin in the market. That is why, in the lead-up to and shortly after, the value of Bitcoin goes up because fewer tokens are entering the market.
Conclusion
So there you have it. If you’ve been meaning to get into cryptocurrency but were confused by the many terms in the market, some of the above should help you get started. From halving to what blockchains even are, this knowledge will help you approach your crypto journey with more confidence.
