Cryptocurrency 101: Important Cryptocurrency terms and definitions


Cryptocurrencies is one word that sparks interest from finance experts to speculative individual investors alike. To many of us, they seem like a confusing futuristic invention that is hard to get your head around. It’s important to be able to understand something before you make any type of investment decision and this is true for crypto investors. As with all things in finance there is a dictionary of complicated sounding words that can be difficult to understand. This page serves as your one stop shop for the most important words to understand when it comes to crypto investing.

Cryptocurrency

A digital currency (no physical notes or tokens) in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. Examples include Bitcoin, Ethereum, and Ripple (XRP).

Cryptography

The methods used to encrypt ordinary plain text into unintelligible text and then be able to decrypt it back to its original state. This modern day science emerged in World War 2 as a way to covertly send messages to parts of an army away from the headquarters without interception from the enemy. It has evolved to be used to ensure that information is reliably and securely transported across the internet. It ensures data integrity (unaltered), confidentiality (not understood by unwelcomed listeners), non-repudiation (sender unable to deny intentions of sending message), and authentication (the senders and receivers are who they say they are).

Blockchain

The blockchain is a distributed ledger that contains a series of blocks. Each block contains verified transactions that have occurred on the network. It is designed to be decentralized and immutable (both these terms are defined lower down) to ensure that people can trust transactions made on the network. Everyone on the network has the same access to the blockchain. This technology was first brought to the world with a white paper created to explain Bitcoin and is fundamental to all cryptocurrency.

Block

Blocks are files of data that contain information about verified transactions on a network. A block acts as a record of all the most recent transactions that have not yet been recorded on the blockchain. Each block on the blockchain is unique.

Crypto Mining

Cryptocurrency mining is the process in which transactions between users are verified and added to the blockchain public ledger. The process of mining is also responsible for introducing new coins into the existing circulating supply. Typically, for a block to be added to the blockchain a cryptographic puzzle must be solved. The miner that successfully solves the puzzle (therefore adds the block to the blockchain) is rewarded with a cryptocurrency token.

Encryption

The process of converting information or data into a code, especially to prevent unauthorized access. This code typically has a method of decryption to be able to convert back to the original information. With cryptocurrency this is done via cryptography.

Public Key

This is a key that is distributed to everyone in a network. A sender uses the receivers public key to encrypt information being transmitted. Therefore, it must be public information so that users on the network can send information to other users on the network.

Private Key

The private key is only for the user. The information that has been encrypted using the complimentary public key can only be decrypted using the private key.

Decentralized

This is the concept that no central authority has control over the network and everyone on the network has equal access to public information. However, there is one (centralized) method for verifying cryptocurrency transactions across the network. Unlike centralized currencies, there is no single point of failure on a decentralized network.

Proof of Work

A system of proving that a digital currency's transactions have been verified. Many digital currencies, including bitcoin, use proof of work. In this type of system, miners must do "work" that is difficult for them to contribute, but easy for the broader network to verify. Miners are rewarded for this work with cryptocurrency tokens.

Proof of Stake

This is another method of verifying transactions. The digital currencies that use this approach to verification frequently provide all their digital tokens up front, and miners are selected based on how many units they have (their stake). In these cases, users who confirm transactions, sometimes referred to as "forgers," receive transaction fees for their contributions.

Hashing

A hash is a function that converts a series of characters into a standardized length encrypted output. Each block on the blockchain is put through a hashing algorithm to attach the block to the block chain. This hashed block is a record of verified transactions.

Immutability

To be immutable means to be unchangeable. In the realm of cryptocurrency, this immutability means that transactions cannot be reversed (or altered once committed) and it also means that only the holder of the private key can make transactions

Nodes

A node, in the world of digital currency, is a computer that connects to a cryptocurrency network. The node or computer supports the network. It supports it through validation and relaying transactions. At the same time, it also gets a copy of the full blockchain.

Address

A Bitcoin address is a destination. A Bitcoin address is a string of letters and numbers that represents a destination on the Bitcoin network, nothing more. Bitcoin addresses are only really used when receiving Bitcoin. Unlike our real-world addresses, they are only meant to be used once. The idea is that for each Bitcoin transaction, receivers will generate a unique, single-use address to provide senders.

Altcoin

All cryptocurrencies that are not Bitcoin. Given Bitcoin’s dominance as the largest in terms of market capitalization, all other coins are loosely referred to as Altcoins. Generally, they sell themselves as better alternatives to Bitcoin for a variety of reasons.

Wallet

A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency like Bitcoin. Most coins have an official wallet. In order to use cryptocurrency, you’ll need to use a cryptocurrency wallet.

ATH

ATH means all time high. This is the highest value that a cryptocurrency has achieved against fiat money.

Arbitrage

In the crypto world not all exchanges list at exactly the same prices. So if you see that on one exchange Bitcoin is listed at $10,000 and $9,000 on another, you may buy on one and sell on the other to make a quick buck.

Fork

Some cryptocurrencies are run by developers that may change or update the rules or protocols in that network. Some forks are called hard forks which is when the protocols for the new blocks are incompatible with the old blocks.

Exchanges

Exchanges are just places where cryptocurrency can be bought and sold. If you’re looking to get a hold of a certain cryptocurrency, this is your fastest bet. Some popular crypto exchanges are Binance, Coinbase, and Cash App.

Please send us a message if there’s any more key definitions you think we’re missing!