How often have you heard the phrase “Bitcoin is the currency of the future” and that the “best time to invest is now”? Probably enough times to make you feel obligated to jump on that bandwagon since no one ever wants to be left behind, especially where finances and wealth are concerned.
Bitcoin searches on Google hit a historic high in 2017 during its first-ever bull tun, and everyone was rushing in to make a quick buck, riding the high wave. That didn’t last, however, as the crash that followed trampled on the crypto industry for almost a year and a half later.
Bitcoin and cryptocurrency are a novelty, futuristic idea, and it’s great that you are here reading this article since that means you’ve been persistent in your quest for crypto knowledge. Congratulations on joining the multitude of self-taught crypto enthusiasts, who all had to start somewhere.
If you are relatively new to the concept of Bitcoin and blockchain technology, this list is for you. It will keep you anchored as you advance and help you get past the fancy or new words that come with the technology. Consider it your crypto-glossary.
There are two ways to define Bitcoin. Lowercase bitcoin (BTC) is the digital currency or coins that people use to trade on exchanges, pay for goods and services, or even store in wallets as an investment.
Bitcoin, with capitalization, refers to the network behind all bitcoin activities. The best way to picture bitcoin is to understand that all operations happen inside the network. In turn, the network is run globally by Bitcoin enthusiasts who get rewarded for processing transactions and securing the network.
There is no central server, which means that even if ten people were to go offline, the network is still running securely on all other active terminals (nodes) anywhere in the world.
A cryptocurrency is simply a digital currency based on cryptography. Cryptography involves sophisticated programming which encrypts and secures the digital currency so that it can be transferred safely between the transacting parties.
Bitcoin is the most widely recognized of all cryptocurrencies and is also the first successful attempt to develop a fully decentralized cryptocurrency.
Altcoins or Alternative coins are all the other cryptocurrencies and tokens that came after Bitcoin. These include ETH and some popular Bitcoin hard forks like Bitcoin Cash and Litecoin. Programmers perform a hard fork to break away from a blockchain network to modify or add some functionalities like transaction speed to the new network.
Altcoins have different use cases and are supported by their own blockchain networks, just like Bitcoin. They may differ in their programming fundamentals, but their goals are to enable fast, reliable, and cheap transactions worldwide.
- DLT and Blockchain
Blockchain is based on the concept of Distributed Ledger Technology (DLT), which ensures that data entered into distributed ledgers reflect the truth of all ledgers and cannot be altered later. This ensures that data is reliable, secure, and provides a permanent record of a transaction or entry.
A blockchain stores transaction data in blocks, which are given unique identifying signatures and validated by the network nodes. It then allows node operators to create the next block based on the signature of the preceding block. For instance, in the Bitcoin network, transactions are grouped into a block of 1mb capacity.
Once verified, the block is assigned a signature and added to the sequential chain of all the other blocks on the network dating back to the first transaction that ever happened on the Bitcoin network.
Blockchain permanently records transactions as they occur after they have been first verified by the people maintaining the nodes. If a false block is detected, the network votes to reject it, and the block is discarded.
- Bitcoin/Crypto Wallet
A Bitcoin or crypto wallet is a software that grants you access to a blockchain network. It stores unique logins details that prove your crypto ownership and allows you to transact with crypto.
Unlike bank accounts, crypto wallets make you your own bank, which means only you have access to your crypto. Crypto wallets secure your funds using private and public keys.
The private key is a unique address that identifies you as the owner and enables you to access your funds, while the public key, which is generated from the private key, allows you to receive crypto.
When someone says they have a Bitcoin address, they are referring to a derivative of the public key. You will notice that when you want to receive some crypto, your wallet address will be different each time.
Additionally, when you sign up for a crypto wallet, it gives you a seed phrase or a mnemonic phrase of 12 random words that act as a backup for your account.
The seed phrase is the only way you can recover your wallet in case you forget your password since a decentralized network does not store user login details.
- Cryptocurrency Exchanges
These are the crypto marketplaces, where you can buy or sell cryptocurrencies. They can either be centralized or decentralized exchanges.
Centralized exchanges are useful for fiat/crypto transactions. They are more popular, with a wide variety of trading pair collections, large market capital, and high liquidity. However, they represent a single point of failure since they store all trader funds in their accounts.
Decentralized exchanges are less popular, but they enable peer-to-peer transactions. Two traders can transfer crypto directly to each other’s wallets without having to go through a central authority.
Both parties use automatic escrow services to guarantee trust on both sides. It represents the concept of a free market, which eliminates the necessity of a middleman.
- Crypto Tokens and ICOs (Initial Coin Offerings)
Blockchain technology started as a digital ledger for recording permanent Bitcoin transactions. Soon enough, developers started to explore and realized the massive potential of blockchain technology, not only in finance but also in other sectors of the economy.
Crypto tokens have rapidly grown from the increasingly diverse application areas of blockchain technology. They are coins that support the development and growth of a blockchain project.
An Initial Coin Offering is similar to an IPO (Initial Public Offer), but it uses crypto tokens to attract investors to get a stake in the development of the project by buying token percentages. It also allows enthusiasts to support their favourite crypto projects in their early phases.
Airdrops are free cryptocurrencies or tokens that crypto projects offer to their fans or followers. They can also be used to promote a project and market its viability to the relevant target market.
Usually, airdrops are awarded after you’ve completed a few tasks, including signing up on the project’s website and following them on social media platforms. Airdrops are a great way to earn coins and diversify your portfolio while you learn more about various blockchain application projects.
- Smart Contracts and DApps
Ethereum introduced the concept of smart contracts to increase scalability and transaction speeds in the Bitcoin network, which were bugging developers at the time. Smart contracts are codes written into a blockchain that enables transactions to execute automatically once the pre-set conditions have been met.
The concept of smart contracts has given rise to blockchain development platforms, which allow other developers to create decentralized applications for various purposes, including gambling, crypto lending, crypto trading, and so on.
One of the most famous DApps is CryptoKitties, a game built on the Ethereum blockchain that rewards users with tokens.
- Decentralized Finance
Decentralized Finance (DeFi) encompasses all the ways in which blockchain technology can be and is being used to develop models similar to the traditional finance market-but way better- if not perfect.
Cryptocurrencies enable cheap, fast, and borderless transfer of money and are inclusive of all, especially marginalized people who have for more than 100 years been cut off by traditional banking institutions.
Simply put, decentralized finance represents a fair and global economic model that makes it easier for people to take part in building the economy and enjoying its rewards.
There are, of course, so many more words you will come across, but the above features the terms waiting at the door. As you access other information about crypto, this knowledge will help you stay afloat and get a deeper understanding of crypto concepts.
The crypto community is super keen on pushing for mainstream crypto adoption, but you’ll find sources with unfamiliar terms or phrases. It can be intimidating or discouraging, and this guide will hopefully be a great reference point for you.