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Posted on Apr 16th, 2021

Cryptocurrency 101 Glossary

Have trouble telling the difference between Bitcoin and Ether? Want to confidently drop the term NFT in a sentence?

The crypto landscape is ever evolving and can seem complex at times. To help you navigate this world, we’ve created a glossary of common terms used in the digital asset lexicon. Our cryptocurrency 101 glossary defines all the crypto terms you need to know from Altcoin to Zero-Knowledge Proof.

  • Altcoin: Altcoin is derived from the word “alternative coins.” It refers to coins (or tokens) that are not Bitcoin. This includes coins that are the result of Hard Forks (see below for definitions) of the Bitcoin blockchain (e.g., Litecoin) or coins that are part of a new blockchain (e.g., Ether/Ethereum). The term altcoins came into being when Bitcoin was the dominant cryptocurrency and is not used a frequently these days since there has been a proliferation of coins, primarily application coins on Ethereum.
  • Bit: You can always buy and sell less than one bitcoin. A sub-unit of Bitcoin is known as a bit. One Bitcoin (BTC) equals 1,000,000 bits.
  • Bitcoin ETF: A Bitcoin ETF is an exchange-traded fund you can invest in to buy and sell Bitcoin like stocks, without a digital wallet. We launched the world’s first Bitcoin ETF in February 2021. Read more about Purpose Bitcoin ETF and how it works.
  • Bitcoin Wallet (Hardware, Software, Mobile wallet): A physical device or software object on your computer or mobile phone where your private key is stored. The private key is like a password and proves your ownership of a token by allowing you to transfer it.
  • Block Reward: A reward in the form of native cryptocurrency given to miners for solving a computationally difficult problem, which allows that miner to mine the next sequential block on a blockchain. Bitcoin miners now get 6.25 BTC for solving such problem first, which allows them to add blocks to the blockchain.
  • Cold Storage: A kind of storage of private keys where such private keys are held offline.
  • Confirmation: When a Bitcoin transaction takes place, the blockchain confirms the transaction’s validity. The confirmation is done by miners every 10 minutes when a block is mined. It is customary to wait for at least six confirmations (approx. 1 hour) so that the transaction has appropriate finality.
  • Crypto Exchange: A business that helps one buy/sell cryptocurrencies.
  • dApp: A decentralized application (dApp) is a computer application that runs on a distributed computer system like a blockchain. It has been popularized by distributed ledger technologies (DLT) such as the Ethereum blockchain, where dApps are often referred to as smart contracts.
  • Ethereum: An open-source blockchain with smart contract functionality. Ethereum’s native cryptocurrency, Ether, is used to pay for transactions on the Ethereum blockchain.
  • Faucet: A service or website that pays you in cryptocurrencies in exchange for playing games or doing certain tasks.
  • Halving: It is the 50% reduction in the Bitcoin block reward after a certain number of blocks are mined. In Bitcoin, the halving happens after every 210,000 blocks. Read more about Bitcoin halving.
  • Hard Fork: A software update or an update on the blockchain protocol that is not backward compatible, meaning that it can’t be completed with older legacy systems. A hard fork can mean that two separate blockchains are running in parallel with different properties (e.g., Litecoin came to be via a Hard Fork of Bitcoin that shortened block times from 10 minutes to 2.5 minutes). Hard Forks can be contentious (e.g., Bitcoin vs. Bitcoin Cash) or non-contentious (e.g., Ethereum’s multiple Hard Fork upgrades, which don’t give rise to a new chain).
  • Hardware Wallet: A hardware device that stores private keys.
  • Hash: A digital fingerprint of a fixed size produced by an algorithm via the processing data of any arbitrary size (numbers, alphabets, media files). Any unique string of data produces a unique hash. It is easy to validate that a piece of data gives you a certain hash but it is extremely difficult to go vice-versa (that is, go from the hash itself back to the data). The only way to get the data from the hash is trial and error, which is the essence of how Bitcoin mining’s computationally difficult problem is set up.
  • Hash Rate: Hash rate or hash power is the measuring unit of the computational power that Bitcoin miners bring to the network in order to solve the computationally difficult problems given by the Bitcoin software.
  • HODL: It is a meme term that basically means “hold” or “hold on for dear life,” advising investors to hold their cryptocurrency and ignore volatility or contrary sentiments.
  • ICO: The Initial Coin Offering (ICO) of new coins or tokens offered to buyers by builders of a new protocol or dApp. The ICO is a new way of decentralized crowd funding.
  • Mining: The process of computer hardware doing mathematical calculations for the Bitcoin network to confirm transactions and increase security. Users who use their computers and/or rent resources for mining are called miners. We explain the process of Bitcoin mining here.
  • NFTs: Non-fungible tokens (NFTs) are one-of-a-kind assets in the digital world that can be bought or sold like any other piece of property but have no tangible form of their own. The digital tokens can be thought of as certificates of ownership for an asset that may be virtual or physical in form. A large proportion of NFTs currently represent in-game items and crypto collectibles, but they have innumerable potential use cases, many of which are currently being explored. NFTs are stored as data on a blockchain and are held in in a wallet like any other blockchain asset.
  • Non-fungible: A fungible asset is something with units that can be readily interchanged—you can swap a $10 note for two $5 notes and it will have the same value. However, if something is non-fungible, this is impossible—non-fungible assets have unique properties that cannot be interchanged with something else. An example of an NFT could be a family home, or a one-of-a-kind painting such as the Mona Lisa. You can take a photo of the painting or buy a print but there will only ever be the one original painting.
  • Private Key: A secret, alphanumeric password/number used to spend or send your bitcoins to another address on a blockchain network.
  • Proof-of-Stake: A decentralized consensus mechanism in which your existing stake in digital asset is used to mine or produce blocks to reach consensus. Proof of stake is an alternative to proof of work, where proof of work is the computationally intensive form of mining used in Bitcoin. Ethereum is currently undergoing a transition from proof of work to proof of stake.
  • Proof-of-Work: A decentralized consensus mechanism that is done by mining algorithms by using computational power to solve a problem issued by the blockchain software.
  • Public Key/Address: This is another alphanumeric address/number derived from a private key that is used to publicly receive cryptocurrency. You can easily determine a public key or address from a private key but you cannot determine a private key from a public key or address. This is referred to as a “one-way function” and underpins the security of cryptocurrency storage.
  • Smart Contracts: Computer programs that automatically execute the actions necessary to fulfill an agreement between several parties on the internet. They were designed to reduce the need for trusted intermediates between contractors, thus reducing transaction costs while also increasing transaction reliability.
  • Soft Fork: A software update or an update on the blockchain protocol that is backward compatible with the prior version of the software.
  • Stablecoin: A stablecoin is a new class of cryptocurrency that attempts to offer price stability and is backed by a reserve asset. Stablecoins have gained traction as they attempt to offer the best of both worlds—the instant processing and payment privacy of cryptocurrencies, with the stable valuation of fiat currencies.
  • Transaction fees: Transactions on any blockchain include a transaction fee to incentivize miners to include those transaction in a block. A transaction fee is analogous to a “tip” to the miner who mines the block in which your transaction is posted.
  • Transaction ID: Another alphanumeric string through which you can publicly see the transfer details (amount sent, sending/receiving address, as well as the date of transfer) on a blockchain.
  • Zero-knowledge proof: This mathematical formula allows someone to prove the validity of data without disclosing the data itself.