Newcomers to the cryptocurrency industry are often overwhelmed by all of the concepts that come their way. This industry lingo has a steep learning curve, yet all of these terms are essential knowledge. We will cover all of the most important ones in this ultimate crypto guide.
Table of contents
- Understanding Cryptocurrency Lingo
- Smart Contracts
- Public Key
- Private Key
- Proof Of Stake
- Delegated Proof Of Stake
- Hard Fork
- Soft Fork
- Mining Rig
- Distributed Ledger
- Fiat Currencies
- Cold Storage
- Paper Wallet
- Hardware Wallet
Understanding Cryptocurrency Lingo
When taking part in the cryptocurrency industry, there is a lot of industry jargon or lingo to take note of. Sometimes, it can be challenging to make sense of what others are talking about exactly. In this ultimate guide, we help you get acquainted with the most important concepts to get you ready to take part in cryptocurrency-related discussions and debates.
Perhaps the essential technology in the cryptocurrency world, a blockchain is akin to a ledger that records all transactions and data transfers of a specific network. Most cryptocurrencies have their blockchain, with their own set of rules and governance models.
A smart contract is an extension of blockchain technology. These contracts are written code that can be validated by the native blockchain to execute specific actions.
Cryptocurrencies flow and move between different addresses on the blockchain. A string of alphanumeric characters represents one’s unique cryptocurrency address. This address is also known as the public key.
Every public key is an address to share with others who use the same cryptocurrency blockchain. Bitcoin’s public keys are different from those of Ethereum or EOS, for example.
For cryptocurrency users, every public key is created through a private key. To access one’s funds, having access to the private key is mandatory. It is often a good practice to store private keys in a designated wallet, controlled only by yourself.
The wallet system of cryptocurrency ecosystems allows users to store funds without exposing their private key. A bitcoin wallet can hold private keys associated with Bitcoin, whereas Ethereum private keys only work with an Ethereum wallet.
The meaning of “Satoshi” is double in the cryptocurrency world. On the one hand, it refers to the creator of Bitcoin, Satoshi Nakamoto. Among Bitcoin enthusiasts, 1 Satoshi represents the smallest unit of one full bitcoin or 0.00000001 BTC.
Every cryptocurrency network is a peer-to-peer network in which users are in control. The term “peer-to-peer” or “P2P” refers to the direct connection between two or more users and their computers. Leveraging the peer-to-peer approach removes the need for intermediaries.
To achieve consensus on the Bitcoin network, Satoshi Nakamoto opts for the Proof-of-Work algorithm. It requires miners (see below) to mine network blocks to help validate and process network transactions. Otherwise, the Bitcoin network grinds to a complete halt.
Bitcoin – and many other cryptocurrency networks – rely on proof-of-work to process transactions and data. The mining concept occurs by letting one’s computer solve tricky mathematical puzzles and validating data blocks on the network.
One of the primary discussions taking place in the cryptocurrency space is how a centralized approach poses issues. The term centralized refers to having a central point, either physically or otherwise.
For a network, a central point can refer to a database with records or a specific server controlling data flow. A central point poses a significant security vulnerability that needs to be removed. Creating a literal “point of attack” is one reason why data breaches and other hacks continue to run rampant.
As the name suggests, decentralized is the complete opposite of centralized. It refers to a state in which there is no central point of failure. Instead, data is distributed over as many servers or users as possible. Achieving a higher degree of decentralization will lead to better security in the cryptocurrency world.
One way to achieve decentralization is by relying on nodes capable of storing and processing network data. Bitcoin, for example, has thousands of network nodes to ensure the network remains operational without interruptions.
Running a cryptocurrency node can be done with any computer or by using a Virtual Private Server (VPS). The latter approach is more convenient but will also lead to more centralization, as it requires a third party’s infrastructure.
Bitcoin does not have supernodes, but the concept does exist on specific blockchains. A supernode is responsible for validating transactions on a network leveraging the proof-of-Stake consensus mechanism. A supernode is also known as a masternode, allowing users to earn rewards for providing network support.
A network such as Ripple – and soon Ethereum 2.0 – relies on validators to process network data at a higher throughput. Such a validator has an active ‘stake” in the network financially yet is also rewarded for validating transactions. For Ethereum 2.0, anyone can become a validator by contributing at least 32 ETH to the network.
Proof Of Stake
Rather than opting for Proof-of-Work consensus like Bitcoin, specific networks use Proof-of-stake. It does not require miners to generate new network blocks. Instead, users need to stake cryptocurrency on the network to validate transactions. In return for doing so, they will receive staking rewards.
Depending on whom you ask, proof-of-stake may be more efficient than Proof-of-Work.
Delegated Proof Of Stake
A slight variation on the traditional Proof-of-Stake approach is Delegated Proof-of-Stake or DPoS. It uses supernodes to validate transactions instead of regular users staking coins. Running a supernode on a DPoS network often requires much more coins and capital.
A rather intriguing aspect of cryptocurrencies is their fungibility or lack thereof. More specifically, fungibility determines if something can be interchangeable with something else. To be given this label, the currency needs to have the same value everywhere. A complicated status to attain, given the volatility of cryptocurrencies.
One of the core components of cryptocurrency networks is the hash. This cryptographic function decrypts information to create network blocks. Bitcoin miners, for example, decrypt hashes to mine a block. A hash is a complex mathematical puzzle that can increase or decrease in difficulty, depending on network conditions.
No cryptocurrency network can exist without achieving consensus among its users. This consensus pertains to agreeing on the blockchain regarding whether exchanges of value or data have taken place. Without an agreement, transactions and data exchanges are not valid.
It may happen that a cryptocurrency network will undergo a hard fork. It represents a crucial change at the technology level that introduces upgrades or changes for all users. A hard fork will require all users, exchanges, nodes, and other service providers to upgrade their associated software supporting the network. Failure to do so can result in a blockchain split, such as Bitcoin and Bitcoin Cash.
Changes to a cryptocurrency network can also occur through a soft fork. This is a less intrusive change, which is backward compatible with exchanges, nodes, and other operators running an older version of software supporting that specific blockchain. Soft forks can occur regularly, and it remains advised for all users to upgrade their software sooner or later.
For those who explore the blockchain segment, dApps will become important sooner or later. The term refers to decentralized applications or applications built on top of a decentralized blockchain. dApps exist in many different ecosystems, including Ethereum, EOS, TRON, and so forth.
In the first article of this series, we explain the concept of “mining” in the cryptocurrency world. Users who engage in this activity label their hardware setup as a “mining rig”. This structure houses cryptocurrency mining hardware, whether it be graphics cards or dedicated ASICs.
As all cryptocurrency transactions – either monetary or data-related – are recorded on the blockchain or distributed ledger, they are accessible by anyone. New data is written to the native distributed ledger around the clock in a blockchain or cryptocurrency ecosystem.
The concept of “immutability” is prominent in the cryptocurrency and blockchain world. An immutable ecosystem ensures all recorded data on the blockchain – present and future- cannot be altered in the past, present, and future. For Bitcoin, this means its record of all transactions to date will remain intact.
Although it sounds like a derogatory term, fiat currencies are an encompassing term to indicate any form of money issued by governments or central banks. Notable examples include the US Dollar, Europ, Pound Sterling, and so forth.
There are thousands of cryptocurrencies beyond Bitcoin and Ethereum. An “altcoin” or alternative cryptocurrency is an encompassing term for any cryptocurrency that isn’t Bitcoin. As such, even Ethereum is an altcoin in the eyes of many.
Contrary to what some may think, a token and an altcoin are not always the same. A token is an underlying digital asset of a cryptocurrency used to complete transactions or pay for specific network features. Ethereum, for example, is home to thousands of different tokens.
Different ways exist to store one’s cryptocurrency holdings. Cold storage is a solution everyone needs to explore. This terminology refers to keeping the private keys of one’s wallet(s) offline. Using a device not connected to the internet for this information prevents the data from being hacked.
Another way to store one’s cryptocurrency is through a paper wallet. It is akin to cold storage, but it requires users to print their private key and public key on a piece of paper. Paper wallets are popular to send Bitcoin gifts to others but are not ideal as long-term storage solutions.
Perhaps the most common way of storing cryptocurrencies is by using a hardware wallet. A hardware wallet is an external physical device designed to hold one’s private keys without being connected to the internet. Interfacing with this type of wallet occurs through a computer or mobile application.
The post Ultimate Crypto Guide – The Most Important Concepts appeared first on Vaultoro.
Original source: https://vaultoro.com/ultimate-crypto-guide/