Just as any other asset, the cryptocurrency world itself is full of terminologies that the beginners might be unaware of.
Crypto enthusiasts like to discuss in such terms in the discussion forums and coming across them might lead to confusion.
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We are here to reduce the chances of confusion and to get acquainted with terms related to cryptocurrency.
In this article
- 1. MINING
- 2. ASIC MINER
- 3. BLOCKCHAIN
- 4. BLOCK
- 5. BLOCK HEIGHT
- 6. BLOCK REWARD
- 7. ADDRESS
- 8. NODE
- 9. P2P
- 10. DISTRIBUTED AND CENTRAL LEDGER
- 11. CONFIRMATION
- 12. BITCOIN
- 13. ALTCOIN
- 14. WHITEPAPER
- 15. HODL
- 16. FOMO & FUD
- 17. SATOSHI
- 18. EXCHANGES
- 19. WALLETS
- 20. INITIAL COIN OFFERING
- 21. DUST TRANSACTIONS
- 22. SMART CONTRACT
- 23. FORK
- 24. 51% ATTACK
- 25. ORPHAN BLOCK
- 26. HARD & SOFT FORK
- 27. MARGIN TRADING
- 28. BULLISH EXPECTATIONS
- 29. BEARISH EXPECTATIONS
- 30. MOONING
- 31. WHALE
- 32. HALVING
- 33. HASH & HASH RATE
- 34. SIGNATURE
- 35. MULTI SIGNATURE
- 36. DDOS
- 37. OFFLINE STORAGE
- 38. PRIVATE KEY
- 39. PUBLIC KEY
- 40. PROOF OF CONCEPT
- 41. PROOF OF WORK
- 42. PROOF OF STAKE
- 43. SHORTING & SHILLING
- 44. ARBITRAGE
Mining serves a very vital purpose in cryptocurrency. It is the way to generate and add more cryptocurrency into circulation.
In other words, it is the way of “minting” currency.
Also, transactions are verified here and added to the blockchain. One can earn Cryptocurrency without having to spend any money on buying in through the process of mining.
Miners can earn a lot of mining currencies.
2. ASIC MINER
It is a method of mining the currencies in an easier way and a faster rate than any normal laptop or desktop would mine at.
ASIC stands for Application Specific Integrated Circuit. It is just a chip created to execute one task.
That one task could be anything from solving mathematical problems to processing any other process. Although in recent years coins are made in a way as to make it possible to mine with an ASIC.
The blockchain is a data system that makes the creation of digital ledger possible. It allows the creation of digital ledger of transactions on a non-centralized network.
It digitally records unchangeable data in the form of blocks. The network is protected and enabled by the help of cryptography. Cryptography helps the users to engage with the ledger.
Blockchain keeps on growing as new records and data keeps on getting added so that everyone can see it.
These are important pages in the ledger where data related to the network are stored forever. We cannot alter the data stored in the block. Blocks are therefore basically files that store unaltered data.
5. BLOCK HEIGHT
The first block of the chain is called as the genesis block.
Block height is the number of blocks that precede the genesis block on the chain. Although as nothing precedes the genesis block, its height will always be zero.
Now the question arises: what is the importance of block height?
Suppose a bitcoin is mined every 10 minutes. Then using the block height we can find out some certain time-related importance.
6. BLOCK REWARD
Block reward is the reward allocated for solving a mathematical problem that is related to a block or also for hashing. The miner gets a reward for mining a new block.
The reward is in the form of a block that is they are given a particular amount of coin base. Bitcoin miners get 12.5 bitcoins as a reward for mining new block or they get around $150000 as a reward.
When bitcoin was first created the block reward was 50 bitcoins and now it is 12.5 bitcoins. The reward is halved after every 210000 blocks.
This is in accordance with the price demand theory so as to keep increasing the prices of bitcoin.
Just like our home address, cryptocurrencies have their home address.
Basically, it is the location from which one will be able to send, receive or hold the currency. These are long strings of alphanumeric characters.
They will be something like this A123efhgloe343hsagd.
This was about the currency address. There is also a wallet address that is necessary for a currency holder to verify or accept the transaction.
A computer connected to a bitcoin network is known as the node. By validating and relaying the transactions it supports the network and it also receives a full copy of the blockchain. There are three ways of participation possible.
First is the Light Client. Participation is possible by keeping a shallow copy of blockchain. Second is the Full Node.
In a full node, participation happens by keeping the full copy of a blockchain.
And the last method of participation is by verifying the transactions and that is known as mining.
Basically, p2p means peer to peer.
What this means is that it will act as a computer networking architecture where each and every peer will act as a server for others.
Every peer will get equal privileges. It supports the direct interaction of individuals and there is no need of a middleman which makes these transactions easier and faster by decentralizing the blockchain.
Peer to peer seems a logical fit to blockchain for its easier and faster process.
10. DISTRIBUTED AND CENTRAL LEDGER
A distributed ledger is an agreement to share, replicate and synchronize data which are spread across multiple networks and CPU’s.
A central ledger is synchronized and replicates data but is controlled by a single network or individual, unlike the distributed ledger.
It is the verification of the blockchain transaction by the network. One cannot reverse a confirmed transaction.
We all know what bitcoin is. For starters, it is the first cryptocurrency that was created in 2009 by Satoshi Nakamoto. But there is definitely a lot more to bitcoins.
Bitcoin is a cryptocurrency, a digital resource designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities like the other medium of exchange do.
In simple language, bitcoin is a digital currency.
No bills to print or coins to mint. It is decentralized and there is no government, institutions (like a bank) or other authority that controls it.
Owners are anonymous and bitcoin connects buyers and sellers through encryption keys.
And it isn’t issued from the top down like long-established currency, rather, bitcoins are mined by powerful computers connected to the internet.
Any cryptocurrency other than bitcoin is known as Altcoin.
It is the alternative currency.
It was launched by using a technique called faucet. There is a long list of altcoins and may of it are doing well as an investment asset class.
It is a document that contains all the protocols of the cryptocurrency.
Hodl is used instead of hold in the field of cryptocurrency.
This means to not sell or buy the currency and just hold for a particular amount of time until a buy or sell signal appears.
This was a typo error by someone and since then is used as hodl instead of hold.
16. FOMO & FUD
FOMO is the fear of missing out on the rewarding experiences that others might have.
FUD stands for Fear, Uncertainty, and Doubt.
These are intentionally spread out to lower the price of a currency. People, based on rumors and speculations start to sell a coin.
Satoshi, which is named after the inventor of bitcoin, is the smallest fraction of cryptocurrency that is available for transactions.
It is approximately 0.00000001 Bitcoin.
Exchanges are intermediaries that move money and cryptocurrency between users and networks. These are centralized bodies.
Digital address where cryptocurrencies are stored, sent or received. It is accessible through the private key.
There are two kinds of wallets: Software wallet and Hardware wallet.
Software wallet stores cryptocurrencies as software files on computers whereas hardware wallets are devices that store the cryptocurrencies in the most secure way.
There is another kind of wallet known as the paper wallet. These stores altcoin as a physical piece of the paper printout.
20. INITIAL COIN OFFERING
We all know what an IPO (Initial Public Offering) is. An ICO, just like IPO’s, offers new coins to the investors.
If a cryptocurrency project is looking to raise funds for any reason, they offer a coin to the public at a given price through ICO.
21. DUST TRANSACTIONS
These type of transactions takes up space in the blockchain for a small amount of bitcoin. It is a purchase or sale of a tiny amount of cryptocurrency.
22. SMART CONTRACT
A smart contract is akin to a real-world contract.
It is an unaltered agreement that is stored on a blockchain and has a specific set of operations. A smart contract once signed can never be altered.
These are benchmarks which have to be met in case of money transfer or verification of certain things such as land rights. These are coded and autonomously executed transactions that direct the flow of money.
The fork is a means of changing the software of cryptocurrency in order to create two versions of the blockchain that will have the shared history.
It is a permanent divergence of the current blockchain as it creates an alternative version of it.
The existence of fork depends on certain things such as the occurrence of 51% attack or a bug in the program. You must be thinking what a 51% attack is but don’t worry we will face the attack soon.
The fork also comes into existence when the developers of the coin create and insert substantial changes in the system. Its success will be determined by the height of the block.
24. 51% ATTACK
If more than half of the computing power on the network is operated by a single individual or a group then this situation is referred as a 51% attack.
This gives the individual or group total control over the network.
25. ORPHAN BLOCK
Although it is not a part of the blockchain, it was once a part of the fork but is discarded now.
26. HARD & SOFT FORK
Hard Fork changes the difficulty rules of bitcoin by altering the block structure. It is a change in protocol that can make a previously valid block as invalid and vice versa.
Whereas the soft fork changes the software protocol of previously valid blocks or transactions and is made invalid.
A soft fork is backward-compatible since new blocks will be recognized as valid.
27. MARGIN TRADING
Margin Trading also allows you to magnify the intensity of your trade. It is a risky proposition as it increases the risk of the trade. It is like taking a loan to invest.
Risk and return come together so this trading will result in more return as well.
28. BULLISH EXPECTATIONS
The sentiments turn bullish when the investors expect the prices to go up in the coming time.
Bullish expectations can be for a day that is if a trader is trading on the intraday basis or the expectations can also be for a long duration.
29. BEARISH EXPECTATIONS
Similarly, investors go bearish when they expect the prices to fall in the coming future.
Mooning happens when the price of the currency changes drastically.
An individual or group is considered to be the whale when it possesses a large amount of a cryptocurrency.
As discussed earlier in this article, the block reward of bitcoin gets halved after every 210000 bitcoins.
Similarly, it happens for every digital currency but the value after which it gets halved might vary for different coins.
This process of reduction in the block reward after a particular amount of coin is known as halving.
33. HASH & HASH RATE
Hash is complex and random mathematical formula that takes variable data to produces shorter length output.
Hash Rate is the rate at which the problem is solved and a block is discovered. There are tools that can create higher hash rates.
If someone wants to prove their identity they have to do it through a mathematical operation known as a signature.
The identity is proved using the private key. Signatures are impossible to generate mathematically and are owned by the user.
35. MULTI SIGNATURE
It was created to add an extra layer of security for transactions. To get recorded in the blockchain more than one user needs to sign the transaction.
DDOS or Distributed Denial of Service is a form of attack that uses a large number of computers to drain the resources of a target.
37. OFFLINE STORAGE
This is a way of storing a cryptocurrency in an external drive which can be disconnected from the computer and can also be printed out and stored in a paper wallet. It is irreversible and untraceable.
38. PRIVATE KEY
It is a key that gives access to a specific wallet.
Private keys have the value of the address that gives the owner the right to spend the balance of the wallet and this is the reason that private keys must not be revealed to anyone.
Private key also helps in verifying the signature of the person and validate the match.
39. PUBLIC KEY
The public key is a cryptographic key that any party can utilize to encrypt a message. It is shared among multiple users.
40. PROOF OF CONCEPT
Proof of Concept is the realization that some concept or theory can be used and therefore there is a need for some idea or method to verify the same.
41. PROOF OF WORK
Proof of Work ties mining to the power of computation.
A proof of work is a piece of data which was difficult to produce in terms of cost and time consumption so as to meet certain requirements.
Producing a proof of work can be a random process with low probability so that a lot of trial and error is needed on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work.
It was originally designed to prevent DDOS attacks. It is very costly to produce. It asks the prover to do a certain amount of computational work.
42. PROOF OF STAKE
Proof of Stake has been considered an eco-friendly approach and alternative to PoW.
It requires the prover to show ownership of some amount of money or stake.
43. SHORTING & SHILLING
Shorting is a method to gain profit by selling the currency and then hoping it to buy at a later stage when the prices are low.
Shilling is a process where someone advertises another digital currency.
It is a process of taking advantage of the differences in prices of the cryptocurrency in different exchanges resulting in profit making.
While some of the above terms are relevant to all cryptocurrencies, some terms are very specific to certain coins only.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.