If you’re just getting into the world of cryptocurrency, it’s important to know what your financial advisor isn’t telling you. It may include terms that they are neglecting or are not finding very important to share. Here are 10 important crypto terms that every crypto investor should know before investing. Also if you are into crypto trading, you might consider knowing these strategies to reduce Bitcoin Trading Risks.
- Decentralized Applications (DApps)
So, what are decentralized applications? Commonly known as dApps, these applications run on a peer-to-peer network rather than functioning on a central server. Blockchains like Ethereum, for example, provide developers with an open-source code base to use as a foundation for DApps. Decentralized apps also distribute data throughout their networks, increasing reliability and resiliency compared to traditional data-storage solutions.
2. Blockchain Technology
After decentralized applications, Blockchain comes into the list as a popular crypto term. In simple words, a Blockchain functions through recording and verifying every transaction of Bitcoins. Every time one person or entity buys an asset, it updates all relevant ledgers. After a trade is recorded, it cannot be changed; it’s permanent. Each transaction remains open to all, anyone can see it. Blockchain technology makes recording data easier for businesses, organizations, and governments.
It also ensures secure transactions (no buyer or seller manipulation), keeps records transparent (anyone can see them), and makes fraud more difficult to commit because every blockchain has multiple record keepers on standby to cross-check with each other at any given moment.
3. Private Keys and Public Addresses
Every digital currency wallet has a unique address, much like an email address. The public key can be used to send cryptocurrency to your wallet. It’s similar to a username, but instead of being tied to an individual person, it is tied to your digital wallet (also known as an address). The private key allows you access into your account—it’s similar to a password—and should be guarded carefully at all times because anyone who knows it can access your funds.
4. Cold Storage Coins
Often referred to as cold storage, coins that are stored offline, away from digital and physical access, are considered to be cold. Typically coins that are kept in cold storage belong to large cryptocurrency companies or those individuals with a substantial amount of assets. Coins stored on an exchange, which can be easily accessed via a hot wallet, would not be considered cold storage coins.
These coins could potentially be hacked or stolen by an external party with knowledge on how they were accessed. Cold Storage is recommended for both large-scale and long-term investors who do not plan on selling their crypto holdings anytime soon. It’s important for consumers to have some form of security when storing their money online and offline is considered much safer than having it available online at all times.
5. Proof-of-Work (PoW) Mining
Proof-of-work, or PoW for short, is a protocol that dictates how new transactions are added to a blockchain. In cryptocurrency, it means mining a currency by solving complex mathematical equations. For example, if you mine Ethereum, you can earn ether—Ethereum’s coin—in exchange for verifying transactions and contributing to network security.
As PoW becomes more difficult (and therefore less profitable), miners will turn to alternatives like proof-of-stake (PoS) and proof-of-capacity (PoC). The latter is based on one’s hard drive space rather than processing power.
6. Smart Contracts
Like a traditional contract, a smart contract sets out what two parties need to do. However, unlike a traditional contract, it doesn’t involve lawyers or courts. It also enforces itself when one party fails to follow through on their side of the deal (i.e., delivering a shipment on time).
If you need an incentive for following through on your commitments, think about a smart contract as an automatic court case against you if you don’t deliver. The possibilities that smart contracts bring are endless and exciting. For example, Uber has used them to define ride-sharing regulations and limitations for its drivers and passengers.
Whether you’re a blockchain newbie or industry insider, these essential crypto terms are sure to help you better navigate your way through every facet of blockchain technology. After all, it is important for people to come out of the dark while planning something with it.