Cryptocurrency Terms You Need to Know

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As the world's greatest investor Warren Buffet famously said, "never invest in in something you do not understand." In order to successfully invest in cryptocurrencies, investors must understand them including knowing their jargon.


Cryptocurrencies: digital currencies using cryptography to moderate the generation of new coins and verify transactions

Fiat Currency: currency backed by a government; cryptocurrencies are non-fiat currencies

Blockchain: Database shared across a network that forms the backbone of cryptocurrencies. Records of transactions are grouped together into blocks that get added to an ordered chain. Here is how a transactions gets included in the chain:

1. The transaction gets recorded
2. The computers in the network, known as nodes, verify the transaction
3. The approved transactions are added to a block with other recorded transactions. Each block contains a unique code called a hash as well as all the hashes from previous blocks
4. The block is added to a chain of blocks, called the blockchain, where hash codes determine the order
Why Hacking Blockchain is almost impossible: Each hash is a string of numbers and letters with the same length. If a hacker changes the hash of one block, a new hash is created. However, since all the other blocks in the chain have the old hash, a hacker would have to change the hashes of every single block to change the chain or else the new hash will get deleted.

Joining the Network: Due to no centralized control, trust is a problem. To get around this, blockchains require new computers to solve difficult computational problems to add a block to the chain; this process is known as mining.

Potential Uses for Blockchain:

1. Cryptocurrency
2. Banking
3. Recording trades to check history of products part of supply chain
4. Storing medical records
5. Voting
6. Storing Property Records
Bitcoin: first peer to peer,meaning no third parties like banks, electronic currency that solved problem of double spending

Satoshis: the smallest unit of a bitcoin, equal to .00000001 BTC

Altcoin: all cryptocurrencies excluding Bitcoin

Shit-coin: derogatory term used by people to describe digital currencies they deem worthless

Bitcoin Maximalism: the belief that Bitcoin should be the only cryptocurrency

Relationship Between Bitcoin and Altcoins

1. When Bitcoin soars, Altcoins drop quickly because people transfer funds from Altcoins to Bitcoins
2. When Bitcoin rises slowly, Altcoin prices rise rapidly as money flows from Bitcoins to Altcoins
3. When Bitcoin declines rapidly, money leaves Altcoins and they get slaughtered
4. When Bitcoin falls slowly, Altcoin prices drop quickly as money exits cryptocurrencies

Cryptocurrency Wallet: They store public and private keys. Public keys are analogous to a username that everyone can see while private keys are analogous to a password only known by the user. People use public keys to transfer money and private keys to access their individual funds.

Cold Wallet: used to store larger amounts of coins for a longer time period

Paper Wallet: piece of paper with public and private keys

Hardware Wallet: type of bitcoin wallet that stores private keys in a secure hardware device

HODL (Hold on For Dear Life): strategy of buying and holding a cryptocurrency for a long time

DYOR (Do Your Own Research): research coins independently

Fundamental Analysis: the study of the fundamentals of a coin including the team behind the coin and the goal of the coin

Technical Analysis: understanding charts to find repeating cycles

Ethereum: a platform utilizing blockchain technology and smart contracts that allows developers to create decentralized applications

Smart Contracts: programmed contracts that automate the transfer of money; for example, a smart contract could store money and a house key and only transfer rent to a landlord and the house key to the tenant if both parties released these items to a storage bank

ERC20 token: ERC20 token standards define common rules among all new ERC20 tokens on Ethereum network

ICO (Initial Coin Offering): similar to an initial public offering (IPO), investors buy the new coin, which is usually an ERC20 token

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