Cryptocurrency has been so popular lately, and you've probably heard about it everywhere. It was first launched in 2009, but it was only until these past two years that it is all over the news or on the internet.
Since cryptocurrency is a new subject for many people, many of them are not aware of how it works and what the terms used for it mean. It is important that you know the basic terms used in cryptocurrency before you start trading and mining, according to Fox News.
Also, knowing the basic terms of cryptocurrency can prevent you from getting scammed. Below are the top five cryptocurrency terms that you should familiarize yourself with.
Every single cryptocurrency transaction goes through a strict process. Then it is verified and recorded on a virtual ledger called the blockchain.
Whenever someone buys or sells something using cryptocurrency, an entry is automatically made on the virtual ledger, according to Time.
Just think of blockchain as a series of boxes in a warehouse. When a cryptocurrency transaction is made, a box gets added. Blockchains are decentralized.
This means that it is not stored on a single machine or across a single network. Instead, it exists on computers and is spread globally since it is accessible through the internet.
In cryptocurrency, the term fiat means virtual money. Cryptocurrencies are currently not backed by governments or any standard that is applied to traditional currency.
Each token represents the amount that you own. The worth of the token depends on the market value, according to CNBC.
Any digital currency that is not Bitcoin is called altcoin. Currently, there are thousands of cryptocurrencies, with new ones being added constantly.
The five currencies with the highest market caps are Bitcoin, Ethereum, Binance Coin, Tether, and Solana. But since crypto moves fast, there is a possibility that the top five rankings will change.
To purchase cryptocurrency, you need to start with an exchange. You can think of it like a crypto middleman wherein an online service allows you to exchange your fiat for crypto or change the crypto into fiat.
If you are familiar with traditional investing, a crypto exchange functions as a brokerage. You can also deposit money through a bank transfer, by wire, through a debit card, and other standard deposit methods. You can also expect to pay fees for most transactions.
In basic terms, a cryptocurrency wallet is an app, or a physical storage device, that lets you store and get your digital currency. Wallets can hold numerous cryptocurrencies, so you are not limited to just Bitcoin.
Whether you use a physical wallet or an app, it is important to note that the currency is not stored there.
Instead, cryptocurrency wallets store the location of your currency on the blockchain.
Wallets come in two different categories: Hot and cold. A hot wallet in the cryptocurrency world is connected to the internet. The most secure way to store your cryptocurrency is with a cold wallet that is not connected to the internet.
You may have heard of the term linked with Bitcoin, which is created by mining. Computers solve complicated math problems, and it mins coins if successful.
The most powerful the computer is, the faster it can think. If your computer is fast in solving a problem, you get one unit of the cryptocurrency that you are mining.
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Written by Sophie Webster