The 17 most common crypto terms you need to know
For beginners, the crypto world can be difficult to understand. You're constantly coming across terms you've never seen before. To become a crypto trader, it's important that you know the most important crypto terms.
Therefore, in this article, we are going to explain the most common crypto
terms that you should know. We do this in a simple way, so even beginners can understand the terms quickly and easily.
The address is the address where crypto coins and tokens can be sent to. You could compare it to a bank account number. We also call this the public key and it’s a piece of code that may be shared with the outside world.
Altcoins are all crypto coins and tokens except Bitcoin
. As you may know, Bitcoin was the world's first cryptocurrency. The crypto coins issued after that are alternative coins compared to Bitcoin. So that's also where the name comes from.
There are thousands of different altcoins, of which Ethereum, Cardano, Dogecoin and Ripple are some of the best known.
We speak of an altseason
when the market share of altcoins becomes larger than that of Bitcoin. There is often more potential to be found in altcoins then.
consists of a network of different nodes. These nodes check the transactions that have been made for authenticity and then add them to a block. The block is then added to the blockchain.
Each node contains a copy of all the blocks. Therefore, we also call the blockchain a decentralized database.
The nodes can also all check if the blockchain is still valid because everyone holds a copy. This makes it impossible to modify the history of the blockchain.
You can compare the consensus algorithm to a law book. This algorithm encodes the rules for the blockchain. All nodes participating in the blockchain network must act according to the consensus algorithm.
The consensus algorithm allows nodes to validate transactions, add blocks to the blockchain, and check others for the work they are doing. There are several types of consensus algorithms, the best known being Proof of Work (PoW) and Proof of Stake (PoS).
A crypto exchange is a platform on which you can buy and sell crypto coins and tokens. Coinmerce, for example, is a crypto exchange. By creating an account, you can buy Bitcoin or altcoins using iDeal, PayPal or credit card.
You could compare a crypto exchange with a broker for shares, or a kind of marketplace. When you buy something, there must also be someone who sells it. The exchange, therefore, acts as an intermediary.
We speak of a fork when a blockchain is created from a split off from another blockchain. This can happen when one part of the network wants to work in a different way as the other part. In that case, we talk about a hard fork. Ethereum Classic and Bitcoin Cash are examples of this.
A fork can also occur when an update is performed. Everyone in the network then moves to a temporary split off, only to move back again. In this case, we speak of a soft fork.
We speak of hodl'ing when someone keeps their crypto coins and/or tokens for a long time, despite price increases or decreases. The idea behind this is that the price will eventually rise even more, which will also increase the value of the tokens.
An ICO (Initial Coin Offering) allows a project to raise money to get the project off the ground. It is in fact a kind of fundraising.
If you want to participate in an ICO, it is important to do good research on the project. There are many known cases of scams around ICOs.
A miner is a machine that validates transactions and adds blocks to the blockchain when using the Proof of Work consensus algorithm.
A node is a participant in the blockchain network. This does not mean that a node also always participates in validating transactions and adding blocks to the blockchain.
Pump and dump
We speak of pump and dump when a token is created to make only its owners rich. This is also called a scam coin.
The team behind the coin owns many coins themselves and ensures that the price rises quickly. Once the price reaches a certain value, they sell all the coins, after which the price collapses.
Proof of Work
Proof of Work
, abbreviated PoW, is a consensus algorithm used by several blockchains. The best-known blockchain that uses Proof of Work is Bitcoin.
In Proof of Work, miners must ensure that they are the first in the network to have validated all transactions. So, there is a kind of competition going on, the winner of which gets to add a block to the blockchain. For this, the winner receives a reward.
Therefore, Proof of Work is all about being able to provide the best computing power. The better the hardware, and therefore your computer power, the greater the chance that you will be the first to validate all transactions.
Proof of Stake
Proof of Stake
, abbreviated PoS, is a particular type of consensus algorithm. This algorithm is not about the computing power you must provide, but about the stakes you make. The stake is a sum of money in the form of crypto coins, and you can think of it as a kind of deposit.
The bigger your stake, the bigger the chance that you will be selected to add a block to the blockchain. For adding blocks, the validators are rewarded.
If a validator does not do his job well, the network may decide to take away his stake. The stake is therefore a means to make validators do their job well.
A smart contract
is a contract that is executed on the blockchain. You can compare it to a traditional contract, only here no intermediary (such as a notary) is needed.
Smart contracts can check themselves whether the parties involved have fulfilled the agreements, after which they perform the preset action of their own accord. This creates more trust between the parties involved because no one can get out of the agreements.
A validator is a machine that validates transactions and adds blocks to the blockchain when using the Proof of Stake consensus algorithm.
You can store crypto coins and tokens in a wallet, and therefore it can be compared to an online wallet or bank account. There are different types of wallets, such as a hot wallet (also called a software wallet) and a cold wallet (also called a hardware wallet).
A hot wallet is a wallet that is always connected to the internet and is therefore not physical. The wallet you use by default at Coinmerce, for example, is a hot wallet.
A cold wallet, on the other hand, is physical and often in the form of a USB stick. This means you can disconnect it from the Internet, which is why it is generally considered safer than the hot wallet.