Crypto crashed recently, should you still learn about crypto? Yes! Crypto is no longer a fad and it will be a key part of our technological future. Despite the recent crash, crypto will still move forward. The technology behind it is useful and will continue to advance. The recent crash might be useful for the crypto world giving it much-needed prudence.
It is not the time to abandon crypto completely but it may be a good time to get educated before the next wave of crypto trend arrives. We have put together a list of terms for you to get started in the crypto world. This list is not exhaustive and every term is complex enough to have pages written to explain it. Our objective in this article is to introduce the terms. It is meant for beginners to get basic information and get educated about this important technology.
This article is for learning and knowledge. It does not equate to any financial advice. Crypto is subject to high volatility and complete loss is possible.
Blockchain is a shared ledger that can record transactions or track assets that occur on a network. These transactions cannot be changed once it is on the chain. Each transaction is known as a block. Anyone with access to the blockchain can see all the records or blocks. There are many different types of blockchain networks but there are common characteristics that make them attractive for adoption. We will explore some of them here.
Common Characteristics of a Blockchain Network
- Everyone on the network can access the distributed ledger’s transactions. These transactions are immutable and they can only be added when they are approved. There are no duplicates in a blockchain network thus there is efficiency.
- Immutable transactions are a key part of a blockchain network. This is one key characteristic that makes blockchain network attractive. There are so many use cases that we want to confirm the veracity of a transaction. Once a transaction is added onto a blockchain, it cannot be removed. If there are errors, a new block needs to be added. In this way, both the error and the modification can be seen on the network.
- There are many details in a transaction like who owns the transaction, what item is being transacted, and where the item is being transacted. All these details can be added as a transaction or a block onto a network. Each transaction is added in sequence like a chain. Anyone who views the blockchain network can have peace of mind that the sequence and details of every transaction are valid.
- Every blockchain network operates with consensus mechanism. The blockchain network applies a process to determine how a block can be added to a network.
Differences in Blockchain Network
- There are public, private, permissioned, and consortium blockchain networks. Public networks allow anyone to participate on the network. Private networks are controlled by an organisation and they determine who can participate. Usually, private networks are permissioned networks as they govern transaction and participation access. Consortium networks can be controlled by multiple organisations and are used mainly for businesses.
- Different blockchain networks are created with different purposes in mind. Some are used simply for a store of value, some for financial transactions, and some to run decentralised apps.
- Blockchain networks use different consensus mechanism. The two most well-known are “proof-of-work” and “proof-of-stake”.
- Different consensus mechanism will affect the speed of the transactions. There are different costs required for every transaction on networks.
Examples of Blockchain Network
Some well-known blockchain networks are Bitcoin, EOS, Liquid Network, Omni, Tron, Solana.
Tokens & Coins
Token and coins are the terms everybody gets to know first in cryptocurrency but it is the most difficult to understand the difference between the two. You cannot tell them apart by their names and some coins can have token functions. To be clear, you do not need to understand the difference to start trading in cryptocurrency. However, it is useful knowledge.
One example I use is an arcade. To play in an arcade, I need to swap my coins for tokens. Tokens represent a value in the arcade and perform a function. Unlike my original coins, the tokens cannot be used as money in other places. Coins have value because there is a whole financial system built around it, allowing it to be money in many places. In crypto, this financial system is equivalent is a blockchain network. A crypto coin must have a blockchain network behind it. A crypto token is created based on an existing blockchain platform through a smart contract. Some coins start off as token, when the token becomes popular and a blockchain network is built for it, the token can be upgraded to a coin.
Now that you have some basic knowledge and you want to start buying crypto. You go to an exchange and buy your crypto. After buying, you noticed that your crypto is “kept” in a wallet. The term wallet is a great way to explain its function. A real wallet is used to keep your money (coins), you take out coins from your wallet to buy things, or to pass someone the money. When you receive any money, you put it in your wallet.
You can understand crypto wallet in a similar way, but there are some differences to take note.
Crypto wallets do not store your crypto, but it holds information about your crypto on the blockchains so that it can execute transactions, send, and receive crypto.
Not every coin or token is supported by your wallet. Take note of the crpyto or blockchain supported by your wallet. This is especially important when sending your crypto. You can lose your sent crypto forever if crypto is sent to a wrong wallet or an unsupported blockchain address.
There are software wallets and hardware wallets. There are also different types of software wallets.
You will realise that there is much more to learn, and there are many more terms. You can buy and sell crypto on an established exchange like Binance, Crypto.com, or Gemini. These exchanges will give you a default wallet to store your crypto. Right now, you can create an account but don’t buy any crypto first. You can explore how crypto exchanges work and see the price trends of the coins and tokens.
Comment below on your thoughts on the future of crypto.