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October 2, 2022

Cryptocurrency Terminology Explained

Cryptocurrency Terminology Explained

When you first dive into the world of cryptocurrency and decentralized finance, you discover there’s a library of new words and acronyms you need to learn. So you don’t feel overwhelmed, we’ve put together a cryptocurrency terminology glossary, giving you the basics needed to get going in crypto.

If you don’t know your DeFi from your FIAT or are trying to grasp the difference between PoW and PoS, you’re in the right place.

Glossary of Crypto Terms

What is DeFi?

DeFi is an acronym that stands for decentralized finance. This is a new monetary system that doesn’t rely on centralized banks and financial institutions. Operated by blockchain technology, it allows people all over the world to complete transactions with one another.

What is Fiat Money?

Next up in the crypto glossary is Fiat money. Fiat is what people would deem to be traditional currency, such as the US Dollar, British Pound, and Japanese Yen. These currencies are all backed by centralized financial institutions and national banks.

What is the Blockchain?

Blockchain is the one source of truth when it comes to cryptocurrency. It is the technology used to log, store, and verify all transactions. Once a transaction takes place, it forms a new block in the code of the blockchain. This block can never be changed or tampered with, giving an irrefutable source of transaction logs.

What Is A Crypto Digital Wallet?

A cryptocurrency wallet is an application, web service, or hardware that enables its owner to complete cryptocurrency transactions. They are available in three categories – hot, cold, and warm.

A hot wallet is stored online and is always active.

A cold wallet is not connected to the internet and is usually in physical form.

A warm wallet is online but offers the security of a cold wallet.

What Is A Digital Address?

A digital address is essentially a bank account number. It is a unique code that comprises 27 to 34 letters and represents a specific digital crypto wallet. Unlike a traditional bank, to interact with your digital wallet, you only need the wallet address. This keeps all your personal information secure.

Centralized Crypto Exchange (CEX)

A centralized crypto exchange is the most popular place to buy and sell cryptocurrency. They are centralized because they are owned and run by large companies, and they allow FIAT to allow crypto transactions to take place.

Examples of popular platforms include Coinbase and Binance.

Decentralized Crypto Exchange (DEX)

Next in the crypto terminology list is DEX. A decentralized crypto exchange is an exchange that operates without a central authority. The main advantage of buying and selling crypto on a decentralized exchange is its added security protocols.

What Does DAO Stand For?

Most cryptocurrency and Defi projects are operated as a Decentralized Autonomous Authority. Essentially, they aren’t run by a central government – they’re usually controlled by shareholders who must follow a specific set of rules. Often, holders of the DAO’s cryptocurrency will have voting powers on the future of the project.

What Are dApps?

dApps, also known as decentralized apps, are as the name suggests. They are apps built on the blockchain that does not have a central operational authority.

What is Market Cap?

Market cap is calculated by multiplying the value of 1 token by the total number of tokens in circulation. This can be done for every cryptocurrency. Sometimes, the market cap is used to gauge how safe of an investment a cryptocurrency is. The higher the market cap, the safer the investment – in some cases.

What is Crypto Mining?

Mining is most commonly associated with Bitcoin, but it is used by all cryptocurrencies that use a proof of work consensus. It is the process of creating a new Bitcoin. To create new Bitcoin, miners across the globe are racing against each other to successfully complete mathematical equations.

What is Crypto Staking?

Staking is used by cryptocurrencies that use the proof of stake consensus model. When you buy some crypto tokens, you will be given the option to stake them in exchange for rewards, usually on APY.

The blockchain then uses your staked crypto to validate transactions and keep the blockchain secure.

Proof of Work

Proof of work was the traditional consensus model for cryptocurrencies. As explained in mining, it is the process of miners competing to complete mathematical equations, resulting in a new block being added to the blockchain.

Proof of Stake

Proof of stake is a new, more environmentally friendly way of securing the blockchain. Holders lock in a stake for a prolonged period. In return, they receive rewards, while their tokens are used to validate new blocks.

Private Keys

Each digital crypto wallet has a private key. This is a unique and prolonged piece of code supplied to the owner upon creation of the digital address. To gain access to their wallet, the owner must enter the seed phrase – a combination of 12+ random words.

Crypto Terminology Explained – Summary

As we said at the beginning, there is a lot of cryptocurrency terminology to get to grips with. Don’t be overwhelmed as a beginner. Your best solution is to seek definitions as you come across words you aren’t familiar with.

You’ll gradually build your vocabulary and be talking in acronyms in no time!

In the meantime, if you’re looking for the most secure and user-friendly digital crypto wallet – check out Escrypto.

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