If you have come across terms such as blockchain, wallets, or HODL and don’t know what they mean, do not fret; you might not be the only one! Even though crypto is a thrilling space for many, it can be difficult or daunting for newcomers. Knowing the fundamental words is the first thing you should do to feel confident here.
If you are trading, investing, or talking about finance, knowing relevant financial terms matters the most. In this simple guide, we sort through 20 key terms in crypto so you can understand them easily. Let’s break down crypto and try to get you up to speed!
1. Blockchain
A blockchain is a digital system that records transactions on various computers within a network. Blocks contain the data from each group of transactions and are connected to the blocks before them. It has strong security, is open to view, and cannot be changed once the data is in.
Imagine it like a shared Google spreadsheet where thousands of people can view and add to the sheet, but nothing can be changed in the past.
2. Cryptocurrency
A cryptocurrency is a currency that exists only online and is protected by cryptography. Cryptocurrencies are decentralized and run on blockchain, unlike fiat currencies like the US Dollar or the INR, which are not decentralized. Examples of popular cryptocurrencies are Bitcoin, Ethereum, and Solana.
3. Bitcoin (BTC)
Bitcoin, which was introduced in 2009 by an anonymous person called Satoshi Nakamoto, is the most well-known type of cryptocurrency. The goal of Bitcoin was to allow people to trade directly with one another without depending on a traditional bank. To get deeper into Bitcoin’s origins, functionality, and impact on digital finance, check out this comprehensive guide on Bitcoin.
4. Altcoin
Any digital currency apart from Bitcoin is usually called an “altcoin.” Ethereum, Cardano, Ripple, and Polkadot are examples of altcoins.
5. Ethereum (ETH)
Not only is Ethereum a cryptocurrency, but it also enables programmers to develop dApps with the help of smart contracts. Ethereum is like the app store that exists in the blockchain industry.
6. Wallet
A crypto wallet, whether software or a device, is used to keep your private keys to access and handle your digital currencies. People classify them as one of two types:
- For hot wallets, you are connected to the internet via wallets such as MetaMask or Trust Wallet.
- Use a Cold Wallet to store your coins when security is most important (for example, Ledger Nano).
7. Private Key
A special alphanumeric sequence that gives you access to your cryptocurrencies. If you misplace or lose your seed phrase, you also lose access to your cryptocurrency. Do not let anyone else read your notes. There’s a reason why “not your keys, not your crypto” is a popular phrase.
8. Public Key / Address
Your public key works much like an email address, and sharing it allows others to send you digital payments. It’s made using your private key.
9. Exchange
A cryptocurrency exchange helps you buy, sell, or trade virtual coins. The list includes Coinbase, Binance, Kraken, and WazirX.
There are actually two main types of exchanges.
- Centralized (CEX) Mean – A company manages them
- DEX (Decentralized Exchange) – Trading solutions available with smart contracts.
10. DeFi (Decentralized Finance)
DeFi allows users to bypass banks and still participate in services such as lending, borrowing, or earning interest, thanks to the underlying tech of blockchain. The use of smart contracts, found on Ethereum, enables decentralized financing.
11. Smart Contract
The rules in a smart contract are contained within the code, so they execute without anyone checking them. Applying rules happens automatically as soon as the criteria are met, and no one else needs to get involved.
12. NFT (Non-Fungible Token)
NFTs connect you to items such as art, music, or virtual homes as unique digital assets. Unlike cryptocurrencies, a single NFT cannot be swapped for another. Getting an NFT is similar to keeping the genuine Mona Lisa, which has proof of authenticity on the blockchain.
13. Gas Fees
Users pay these charges to take part in transactions on the Ethereum blockchain. Once the network becomes busier, the fees increase.
14. Mining
The procedure of checking and including transactions in the record on the blockchain is called mining. In Bitcoin’s proof-of-work system, miners compete by solving tricky problems to receive rewards.
15. Staking
Some blockchains, such as Ethereum 2.0, use the Proof of Stake (PoS) system, where people “stake” their cryptocurrencies to participate in verifying transactions and receive rewards. It’s a way to earn additional income from keeping your money stored.
16. Token
An asset that is launched on an already running blockchain. USDT (Tether) and SHIBA are tokens that exist on the Ethereum network. Not every digital token acts as a currency; some stand for ownership, membership, or access.
17. Stablecoin
A digital currency that is linked to how much fiat currency it should be equal to, for example, USD or INR. It aims at lowering the fluctuation in prices. USDT, USDC, and DAI are widely used among the general public.
18. HODL
HODL originally stood for “hold,” but later turned into a way to say “to not sell your crypto, even when prices drop.” It demonstrates that you are thinking about your investments for a long time. Example: “HODLing” is what I’m doing during the decline in prices.
19. Whale
An individual or company that stores a high concentration of cryptocurrency. Because they make such big trades, their actions may move the market.
20. FOMO / FUD
- FOMO: Fear of Missing Out—tends to result in purchasing something without really considering it.
- FUD: This trio includes fears, doubts, and uncertainty, and often results in panic selling.
It usually helps in crypto investing to stay calm during times of both fear and excitement.
Final Words
If you understand these terms, it will help you on your first steps into involving yourself with crypto. Since the crypto world is always developing, learning its basics helps you handle it wisely. We should look beyond the buzz around crypto, as it is reinventing our relationship with money, assets, and technology.
If you’re not well informed, it’s tough to avoid being excluded or losing a lot of money. You now have the basics you need to feel secure getting started with crypto. With what you’ve learned so far, you are fit to look into, invest in, or make sense of what’s going on in cryptocurrencies.
