Crypto is driving innovation like never before. With a market cap of over USD $300B, it’s officially a trend that’s here to stay. But despite the fact that you almost can’t turn on the news or browse social media without seeing some mention of crypto, there is still a lot of confusion about the topic.
Even if you’ve been following cryptocurrencies for a while, certain concepts of crypto may still be confusing to you. Talk about cryptocurrency broker, altcoin, NFTs, etc. As such, we’ve put together this list of top 10 cryptocurrency concepts to help you understand many concepts as they are used in the crypto world. You definitely will be meeting them a lot in your journey!
Top 10 Crypto Concepts You Should Know
Bitcoin is the first and the largest cryptocurrency. It was created in 2008 by a group of unknown developers. It is a currency that only exists digitally. It is not backed by any government or financial institutions like the central bank, so no one body or organization has full authority over it. Because of that, it is referred to as a decentralized currency. Bitcoin can be transferred from one person to another and can be exchanged for goods or services with vendors that accept it as a payment method in their stores.
Altcoins, or “alternative coins,” are any bitcoins alternatives. That is any digital currencies that aren’t Bitcoin. Bitcoin was the first-ever cryptocurrency and still remains the most valuable and most widely used cryptocurrency today. All other cryptocurrencies that aren’t Bitcoin are collectively referred to as altcoins.
The full meaning of ICO is initial coin offering. It is a fundraising method that trades future crypto coins for cryptos that already have a liquid value. Typically, when a crypto asset is coming to the market, a percentage of the tokens will be bought by ICO participants while the rest of it is kept back for the company’s needs.
#4: Fiat Currency
Fiat currency, which is also known as fiat money, is a government-issued currency and has no physical commodity such as gold backing it. The word fiat has its origin in the Latin language, and it means “let it be done.” In most cases, fiat currencies are often used as a contrast to cryptocurrencies. Examples of fiat currencies include the U.S. dollar, euro, yen, etc.
#5: Smart Contract
Smart contracts are computer programs that can automatically execute the terms of a contract. The program is a set of rules that will trigger certain actions based on certain conditions. The smart contract can be programmed to execute when certain conditions are met.
The advantage of this system is that it’s completely trustless; it runs on its own and cannot be altered. It also removes the need for a third party to facilitate transactions between two parties.
dApp is the short form of decentralized application. It is a blockchain-based app in which the back-end code is running on a decentralized peer-to-peer network. A dApp has its own token (cryptocurrency), has an algorithm that enables it to be rewarded with tokens, and has an interface.
Dapp can run on several platforms such as Ethereum, NEO, and EOS. While most of these apps are built on Ethereum, there are many built on other platforms as well.
An NFT is a digital asset with a unique identifier that allows the buyer to own and transfer the asset. The uniqueness of the digital asset is stored on a blockchain, which allows for secure trading and ownership.
NFTs can be in any digital format, from images, videos, and audio clips to collectibles like CryptoKitties or NBA Top Shot cards and even virtual real estate.
#8: Private Key
A private key is a secret piece of data on your cryptocurrency wallet, proving your right to access the crypto in the wallet. Every crypto wallet has a private key that serves as your unique password to access the fund inside the wallet. That means if you forget your private key, you will be losing control over your cryptocurrency.
At the same time, if a stranger gains access to your private key, the person can spend the crypto in the wallet at any time. This key is usually a long combination of letters and numbers.
Here is an example of a private key in Bitcoin’s wallet import format: 5Kb8kLf9zgWQnogidDA76MzPL6TsZZY36hWXMssSzNydYXYB9KF
#9: Cold Storage
Cold storage is the term that is used to refer to the practice of storing your Bitcoin in an offline wallet. The primary advantage of a cold storage wallet is that it ensures your cryptocurrency cannot be hacked or stolen from an online source.
There are two main types of cold storage: hardware wallets and paper wallets. Both are suitable for long-term Bitcoin storage and can be accessed offline, making them both extremely secure.
Cold storage is recommended for anyone who owns a significant amount of Bitcoin, especially if you are dealing with large amounts of Bitcoin.
#10: Mining Pool
A mining pool is a group of miners who combine their computational resources over a network. They share their processing power over a network, thus splitting the reward equally according to the amount of work they contributed to solving the puzzle.
By working together, participants in a pool share the workload and the payouts as well. That way, miners can always have a steady flow of crypto without having to face the cost of getting mining equipment alone.
These cryptocurrency concepts are just a few of the numerous things that investors should know before they get started trading. Of course, there are many more concepts that you might want to research when it comes to investing in cryptocurrency, but these are some of the most basic ones.