Crypto in 2017 has really become a hot asset to own, the digital currency behemoth Bitcoin recently hit the $18,000 mark (11th December 2017) and looks to continue to rise in value.
So what’s it all about? In layman’s terms, (and a common definition that’s found across the web) cryptocurrencies are limited entries in a database no one can change without fulfilling specific conditions.
In addition, they can be exchanged or speculated on just like any conventional or fiat currency. The only difference is that they are decentralised.
There’s a wide range of cryptocurrencies on offer and they all have different features, these include Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin Gold (BTG), Ethereum (ETH), Litecoin (LTC), Dash (DSH) (formerly known as Darkcoin and Xcoin), and Ripple (XRP).
The Cryptocurrency landscape has a lot of its own terms and they can be a tad confusing, below is a list of meanings that you’ll need to become familiar with and will help you get your bearings.
In a nutshell Altcoin refers to any digital coin that isn’t bitcoin.
All-Time-High – we’ve witnessed a lot of them this year!
To put it simply, the blockchain is a way of recording data and also the foundation for cryptocurrencies such as Bitcoin. This innovative form of technology is made up of blocks of transactions (think of it like strands of DNA being joined together), and are added in chronological order.
It acts as a public decentralised ledger, which means that it is simple to query any block by using an explorer (detailed information about Bitcoin blocks, addresses, and transactions can be found at Blockchain Info) and there is no centralised issuing authority.
Block(s) are like a record keeping book. The transaction data is bundled up into a block that is then verified and ‘chained’ to the most recently verified block and permanently saved on the blockchain.
This term refers to taking cryptocurrency wallets (your public and private keys) offline as a way of protecting your digital assets from potential cyber attacks. There are quite a few ways of using cold storage. Some of the popular methods include printing a hard copy of a QR code from a software wallet to storing your wallet on a USB drive, or simply just writing down on a piece of paper your keys, but make sure you don’t get them wrong! Hardware wallets that encrypt the contents and control access are popular, especiallly for large sums. Market leaders are Nano Ledger and Trezor.
This occurs when a blockchain splits into two separate chains. It can happen when a new rule is decided by developers. The new chain keeps the network transaction history of the original chain up until the block where it forks.
This is the first block that’s created on a blockchain.
A hard fork is a software upgrade that introduces a new rule set by developers that isn’t compatible with the previous software. For example, a new rule that allows a block size capacity of 3MB instead of 2MB would require a hard fork.
A hash algorithm encrypts data into a fixed-length hash. Hashes are large numbers are written as hexadecimal.
The Hash Rate how powerful a miner’s machine is. It measures the number of times a hash function can be computed per second.
As you’ve already guessed, hot storage is the opposite to the cold storage process. Hot storage is a hardware wallet that’s connected to the internet.
Think of hot storage/having a hot wallet as carrying a real wallet around all the time.
The main risk with this method is that there is more of a chance of your digital coins being stolen from hackers. If you go for this option make sure you have a back-up.
An ICO (Initial Coin Offering) is a way of fundraising a new project and selling crypto tokens in exchange for bitcoin or ether. It’s similar to an IPO (Initial Public Offering) where investors purchase company shares.
The crypto term refers to the process of verifying transactions, packaging them into blocks along writing them to the blockchain by mathematically solving complexed algorithms. Miners are incentivised to do this work through the payment of a mining reward. For the bitcoin network the mining reward is 12.5 bitcoins per block.
Pump and Dump
This term is used when an altcoin gets a lot of attention and gains a rapid price increase until the bubble bursts.
A signature in the crypto world is a mathematical operation that shows a user’s ownership of their coins, wallets, etc. Each transaction is ‘signed’ with the owner’s signature and is impossible to hack; they are protected by complex algorithms.
SegWit (Segregated Witness) involves certain parts of a transaction being removed in order to free up space to add more transactions to the blockchain. The concept was coined by Bitcoin Core developer Dr. Pieter Wuille.
A smart contract consists of code that’s capable of monitoring and enforcing an agreement. For all you developer types out there you’ll be familiar with creating statements – “if X occurs then do Y”, smart contracts are no different. They take such coding and interact with the blockchain. A two-way smart contract is stored on it and is unalterable.
A soft folk is where old nodes accept blocks that are created by new nodes. In this instance, miners can upgrade to a new version to handle the new blocks but can continue to accept old block versions. Users of that particular crypto and merchants respectively can continue to run older nodes which will be recognised by the newer blocks.
In crypto terms, tokens refer to “currency” of projects that have raised money by issuing their own tokens. For example, anyone familiar with the Ethereum network might have heard of the likes of Golem (GNT), Augur (REP), and Iconomi (ICN), all big projects that have issued digital tokens. The token usually gives the owner access to, for example, certain services on the associated network, a share of profits or perhaps the right to buy a product.
Cryptocurrency wallets come in many forms from online, desktop, and mobile to paper and hardware wallets. They store the public and private key associated with your coin holding. The various types of wallets represent the numerous ways a user can keep their private key(s) safe. (Refer back to cold and hard storage in the glossary).