Cryptocurrencies or digital currencies have become an important payment settlement pedagogy in the modern times. A major section of the society has started showing interest in the crypto domain to take advantage of the lucrative returns promised by the industry.
As the year 2019 is about to bid adieu, many of you might be planning to invest their hard-earned cash on cryptocurrencies. This article will help you understand the basic terms involved in the crypto domain in the simplest manner.
The Important Terms Associated With Cryptocurrencies and Blockchain
- Altcoin: Altcoin is the term coined for any digital cryptocurrency that is not Bitcoin. With the successful launch of Bitcoin, the arena was flooded with an array of digital currencies. These offerings are termed as altcoins and were presented as better substitutes, alternates, etc. to Bitcoin. Ripple, Zcash, Monero, Dash are some of the popular altcoins present in the market.
- Cryptocurrency: Cryptocurrencies are referred to as digital currencies, which can be used as a medium of exchange to execute financial transactions in a secured, transparent, and immutable manner. The digital assets are created on a distributed ledger or blockchain using cryptography. These currencies have become quite popular in modern times as they do not involve a third-party and are not controlled by a government-regulated organization.
- Cryptography: In simple terms, it refers to the science of hidden information. It is a method of creating protocols that protect the information using codes that cannot be accessed by third parties without the necessary permission. The science helps to achieve the highest standards of data confidentiality, authentication, data integrity, and non-redundancy.
- Dapp: Dapp is the abbreviation used for Decentralized Applications, which are computer applications operating on a distributed computing system. These may run on top of distributed ledger technologies like Ethereum and Bitcoin blockchains. They are stored on and operated by a blockchain network.
- Distributed Ledgers: A distributed ledger is a database that uses nodes or independent computers to record, share, and synchronize transactions across multiple sites, institutions, or locations. Each node participant can have access to the data shared on the network and can also hold an identical copy for their records. The changes made to the data stored on the ledgers get evident to all the participants within seconds.
- Hard Fork: A hard fork is a sudden change in the network’s protocol that leads to a permanent divergence in the blockchain. It occurs when a single cryptocurrency splits into two resulting in the existence of both old and a new version. The non-upgraded nodes fail to validate the blocks created by the newly upgraded nodes following the changed consensus rules.
- Hash Rate: A hash rate is defined as the measuring parameter used to track the processing power of the Bitcoin network. In simpler terms, it refers to the speed at which the system is completing an operation in the Bitcoin blockchain. During mining, it is good to have a higher hash rate as it helps to reach the next block at a faster speed.
- Hyperledger: Created by Linux Foundation in December 2015, the hyperledger is a consortium-like project which provides the required framework, standards, guidelines, and tools for the building of open-source blockchains and concerning applications for utilization across various industrial domains. At present, the umbrella project comprises of over 100 member firms who work together to develop the distributed ledger technology ecosystem as a whole.
- Initial Coin Offering: An ICO is a strategic tool that helps the crypto firms and entities to raise capital using cryptocurrencies for their potential projects. The investors are given the digital tokens of the new firm in lieu of their crypto holdings invested. Usually, the investment pooling is done by crowdfunding; however, private ICOs have gained popularity in modern times.
- Initial Exchange Offering: An IEO is a token sale managed and operated by a single or a group of crypto exchanges on behalf of the startup. The developers release the project’s tokens and transfer them to the crypto exchange, which involves the selling of the tokens to individual contributors.
- Lightning Network: The Lightning Network was designed as a “Layer 2” protocol on a decentralized blockchain network to enhance the speed of payment settlement across a network of participating nodes. It was launched to make the bitcoin payments faster, economical, and more private.
- Mining: Mining refers to the addition of transaction records to Bitcoin’s blockchain network. In order to keep the volume of blocks steady on a daily basis, mining is created to be resource-intensive. It also helps to introduce new units of digital currencies into the system.
- Proof of Work: Proof of work is a consensus mechanism which requires a substantial amount of investment and time for production but is open for verification after the completion of certain requirements. These mechanisms run hashing algorithms to validate the transactions. Bitcoin uses the Hashcash proof of work system.
- Proof of Stake: Proof of Stake is also a consensus mechanism which helps to enter a cryptocurrency network by urging users to authenticate ownership of a certain amount of their digital holdings.
- Public Address: A public address is an identifier code of 26-35 alphanumeric characters that signify the destination for a crypto payment.
- Private Key: It is a randomly created secret number that the user has to keep to himself/herself with the utmost security. They are contained in a crypto wallet and are mathematically linked to the corresponding public keys of the associated address.
- Smart Contracts: Smart contracts are self-executed contracts with the terms of agreement stored on the blockchain network. These contracts allow the execution of agreements without the involvement of third parties.
- Wallets: A crypto wallet is not like the typical traditional wallet; rather, it describes an app, software, or hardware that safeguards the wallet addresses and private keys of the investors. It does not hold cryptocurrencies but controls the private and public keys, which help in accessing the wallet addresses on the blockchain network.