Top 10 Cryptocurrency Terms

#10 – Cryptocurrency

A cryptocurrency is a digital medium of exchange – just like money.
It uses cryptography to secure transactions and regulate the creation of additional units.
Cryptography is a science used to make digital information systems resistant against manipulation and fraud.

#9 – Blockchain

A blockchain is a decentralized database for transactions between different parties.
It records every change transparently. At blockchain.info you can monitor the Bitcoin blockchain.

#8 – Marketcap

The market capitalization or marketcap is calculated easily:
Coinprice x Circulating Supply = Marketcap
Example: Bitcoin in August 2017
3,250$/BTC x 16,492,000BTC = 53,599,000$

What does that mean?
Some people think that the market cap is the amount of money all investors together invested in one certain cryptocurrency.
But that´s not true. It´s the aggregated value of all circulating coins with today´s price. An investor in 2015 had to pay much less 3,250$.

#7 – Wallet

In the context of cryptocurrencies a digital wallet is where you store you cryptocurrencies. It is secured by your password (and hopefully 2-Factor-Authentication).
Other people can send you money to this address. And you can send them money from your wallet to their wallet.
Make sure to have a secure wallet. Here you can find an overview of different wallets, their security-level and their usability.

#6 – Exchange

An exchange is a market where you can trade certain assets with other people.
In contrast to regular exchanges like the New York Stock Exchange, cryptocurrency-exchanges like CEX (affiliate link) offer 24/7 trading.

#5 – Mining

Short and simple: Mining is the process of creating additional coins of a certain cryptocurrency.
In order to mine e.g. new bitcoins expensive hardware is needed. This hardware has to solve complex mathematical formulas.
It is so complex that often electricity is more expensive than the value of newly mined coins.

#4 – ICO

Is the abbreviation for Initial Coin Offering. The word ICO is derived from IPO (Initial Public Offering).
An IPO happens when a company begins to offer shares on a securities exchange for the first time.
Cryptocurrency startups use ICOs to raise money for their projects. Early investors can buy coins in an ICO before they are sold on an exchange.
Often they hope that the price will increase soon. Some people say that most of the new coins are overpriced and call them “shitcoins”.

#3 – Decentralized vs. Centralized

When asking whether a cryptocurrency is centralized or decentralized you have to think about the following questions:

1. Who maintains the ledger?
2. Who has authority over which transactions are valid?
3. Who creates additional coins?
4. Who determines how the rules of the system change?

Every of those four aspects can be centralized or decentralized. While in a centralized system, one authority is in charge, a decentralized systems requires different parties.
Let´s have a look at bitcoin. Bitcoin has a decentralized architecture. The creation of new coins depends on many (= decentralized) miners.
But it depends on their computer-capacity for mining. So there are many parties with a different level of authority.

#2 – Smart Contracts

Smart contracts help two or more parties to exchange any asset (cryptocurrency, money, property…) in a conflict-freeway without the necessity of any middleman.
You can define rules and penalties in the code of a smart contract that will automatically be enforced. Ethereum is the most-known enabler of smart contracts.

#1 – Cold Storage

In order to prevent your cryptocurrency portfolio from being hacked you can use cold storage.
Cold storage means you don´t store your coins online, but offline.
Here´s three different methods for cold storage:

1. On a USB drive or other data storage medium (CD…)
2. Use a offline Hardware wallet (affiliate)
3. On a paper wallet

A hardware wallet is the safest way to secure your cryptocoins and has never been hacked yet.