Cryptocurrencies are a type of digital asset that can serve various purposes. Bitcoin, for instance, was designed as a decentralized payment method, while Ethereum allows developers to build automated applications in the field of decentralized finance. Tether, on the other hand, is a stablecoin whose value is pegged to the US dollar. The name "cryptocurrency" refers to the cryptographic techniques that enable secure transactions without the need for a third-party intermediary, such as a financial institution or government.
If you're planning to enter the cryptocurrency market, it's essential to become familiar with these 10 frequently used terms.
Blockchain
In a blockchain network, transactions
and cryptocurrency data are continually added to the chain, creating an
unchangeable and ongoing process. When the blockchain reaches capacity, a new
block is added to the chain to continue the process.
Fiat Currency
Fiat currency, such as the US dollar,
euro, and pound, is authorized and recognized by governments and is centralized
and governed by a single authority. Banks are often used to facilitate the
movement of fiat currency.
Tokens
Tokens are a type of cryptocurrency
that may not be stored within the blockchain in which they are used. Instead,
they can be created and supported by a third party, allowing for the creation
of tokens without the need for a blockchain. Security tokens and utility tokens
are two examples, with the former being used for ecosystem-wide transactions,
and the latter resembling company stock.
Cryptocurrency Exchange
A cryptocurrency exchange is a
platform where digital currency can be bought and sold. Customers can use fiat
currency, such as the US dollar, to purchase digital currency or trade one
digital currency for another.
Bitcoin and Altcoin
Bitcoin and altcoins are both types
of digital currency, with Bitcoin being the most widely recognized and
accepted. Bitcoin can be used as a payment method, and exchanges utilizing
Bitcoin are typically free from regulatory mechanisms. Altcoin, on the other
hand, is any digital currency that is not bitcoin and may include banks and
other financial intermediaries in addition to buyers and sellers.
Exchange
An online exchange allows you to
exchange your digital assets or convert cryptocurrency to fiat, depending on
their market values. You can also trade one cryptocurrency for another. The
exchange accepts deposits through net banking, debit card, bank transfers, and
other standard methods, allowing you to cash out or deposit funds just like a
traditional brokerage.
Wallet
A wallet stores the location of your
cryptocurrencies on the blockchain, but not the currencies themselves. It comes
with a unique code that represents your blockchain address, enabling you to
store and retrieve digital currencies.
Gas
The Ethereum network charges a fee known as gas to allocate resources for the Ethereum virtual machine, ensuring the safe self-execution of decentralized applications like smart contracts. Smart contracts are blockchain programs that execute when predetermined conditions are met.
Minting
Minting is the process of creating a
new coin for use in the cryptocurrency ecosystem. Though similar to mining,
there are fundamental differences on a deeper level. Mining involves the
proof-of-work validation of a block’s transactions.
DeFi
DeFi refers to managing financial transactions without involving banks, financial institutions, or any intermediaries. Cryptocurrency is one of the digital currencies that can be traded in DeFi projects. Transactions between buyers and sellers are direct, with no intermediaries involved. Some DeFi projects' decentralized exchange protocols automate crypto transactions between buyers and sellers.
Disclaimer
The following article is for educational and informational purposes only and is not intended to provide financial advice. Cryptocurrencies are a highly volatile and speculative investment, and readers are advised to conduct their own research and consult with a financial professional before making any investment decisions. The author and publisher of this article do not assume any liability for any financial losses incurred by readers as a result of their investments.
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