Basic Terms & Design Language (Part 2)
15 Basic crypto terms you need to know
Moving around the crypto Metaverse can be really confusing to new users, especially those that aren’t tech-savvy, but even if you are tech-savvy it can still be extremely confusing. There are so many terms to learn along with different protocols, rules, standards, and fees. To be quite honest sometimes it’s confusing as f***. (Someone had to have the gall to say it.) 🤷🏾♂️
We 1000% feel your pain and that’s why we have compiled a list of 15 basic terms that will give you a better understanding of how to move around the crypto Metaverse. Before you get too deep into the article you should bookmark it or do whatever it is that kids these days do to save important articles.
Alright, so without further ado, here are the 15 terms we think are essential for beginners.
Basic Terms of Crypto
🏦 Cryptocurrencies (or “crypto”) are digital currencies that are not controlled by any individual governing body; i.e. a government or a bank. Instead, each currency exists on a transparent network across many different computers, this is called a blockchain- we’ll explain more about that a little later. But for now, what you need to know is that every time cryptocurrencies change hands, each transaction is recorded across that network of computers.
The reason why each transaction is recorded transparently on the blockchain is that the users are the “governing” body sending and verifying the assets circulating on the blockchain. By now, I’m sure you’ve heard of Bitcoin. It’s one of the most well-known cryptocurrencies, but there are over 6,000 other tokens or projects on the blockchain, each with its own specifications.
While this can sound dizzying almost, but don’t worry, at this point, no exchange supports all 6,000 coins. And based on the explosive growth in this space there’s a very good chance that the number of coins will only increase, but just like you may know a few other foreign currencies, you will likely only know and keep up with only a handful of currencies. For example, if you live in the US, you’re rarely worried about the price of the South African Rand or the Chinese Yuan, similarly, if you generally use a few coins you won’t be worried about each individual cryptocurrency coming out.
Bitcoin (BTC) is the most well-known cryptocurrency and is often mistakenly conflated with cryptocurrency itself. The confusion comes in because Bitcoin was the first currency to introduce the Blockchain concept way back (not way back, 2009 wasn’t that long ago, but you get my drift, it’s been here the longest.) In 2009, Bitcoin was blazing trails and paving the way for the other cryptocurrencies that followed the innovative concept of putting money on the blockchain.
I’m sure there are some wondering, “If Bitcoin has been around this long, why is it popular now?” Ahhh, that’s a very good question my young Jedi. Let me explain what led to Bitcoin being a household name. In 2017, Bitcoin had a big boom at the end of the year which led to an insane media frenzy (it still hasn’t stopped) that brought a ton of new speculators to the table and drove the price up to nearly $20K per BTC. Since then, the price has stabilized some, but it’s still relatively volatile. Even with these facts, Bitcoin remains the most heavily traded cryptocurrency on the planet.
Ethereum (ETH) is the second-largest cryptocurrency blockchain after Bitcoin’s blockchain. “Ether” is the underlying currency that operates on the Ethereum blockchain, but there are almost 200 other projects that leverage the Ethereum blockchain to operate. The Ethereum blockchain allows developers to create decentralized apps called “DApps”. Decentralized applications that run on the Ethereum blockchain generally utilize one of the three Ethereum token standards: ERC-20, ERC-721, and ERC-1155. Because of its open-source platform, Ethereum is used in a number of blockchain projects and its popularity is only growing every day.
If you’re interested in learning more about Ethereum Token Standards, check out our article on Token Standards.
A blockchain is a public digital ledger that a specific database uses to store its data and transactions.
Okay, what does that mean?
So basically, a blockchain is a database of transparent transactions conducted between users and entities in that database. When a certain amount of data from each transaction is saved on what is called a “block” it is then published in chronological order and chained together with the existing data.
Simple, right? Well, here’s where it gets a little more tricky (hint: this is where security and validation come in). In order to validate the data that is on the block trying to be published, all of the transactions are sent to a decentralized network of independent computers that all agree on the same immutable ledger. When the network accepts the transaction and renders it valid, a block is then published and chained together with the previous group of transactions.
🪙 Tokens are programmable digital units that represent an asset on a specific blockchain. Tokens can either be fungible or non-fungible stores of value.
For example, you can have a token represent many assets including physical and digital items. If the item is unique, then it would likely be minted as a non-fungible token, however, if the item represents the same store of value then it’s fungible.
Fungible assets are assets that can be replaced with identical assets. For example, if you were to rip a $100 bill in half, you could mail the money to the U.S. Treasury Department, and they would send you a brand new crisp $100 bill. This is an example of a fungible asset.
The way that we access our tokens is through a wallet which is an address that holds your “tokens”.
If you’re interested in learning more about tokens you can check out our article on Token Standards.
NFTs/Non-Fungible Tokens are unique individual tokens that are issued to represent a unique asset on the blockchain. Similar to the way that most collector’s items work, NFTs can be bought and sold by collectors. They have a robust secondary market, and because of this, they can be a great investment for some. The first NFTs created on the Ethereum blockchain are CryptoKitties. It went viral for its unique concept and eventually ended up making gas fees on the Ethereum network sky-rocket and it also helped to increase the value in Ethereum.
If you’re interested in learning more about NFTs you can check out our article on NFTs.
💳Digital wallets are an address on a specific blockchain that allows users in the network to send and receive tokens. Each digital wallet comes with a public key or address that will be used to identify each of your transactions on the blockchain. Each wallet comes with a unique private key that is used to access the assets in your wallet.
If you’re interested in learning more about wallets, you can check out our article on Crypto Wallets.
Alright, you’re halfway through the article! Before you forget to share, now would be a good time to share this out to someone you know.
⛏ Mining- is the processing power that it takes for the computers on the network to verify your transaction on the blockchain. In crypto, because there’s no one governing body in charge of the currency being created, the network creates tokens using computers that are connected to the blockchain network. This sounds great until you realize that someone has to pay for all of the electricity and resources being used to power each transaction. This is where mining comes in. When the network mines your crypto transactions, they’re essentially just giving you the costs of what it’s going to take for someone on the network to verify your transaction.
Minting is usually defined as making a coin out of metal. In crypto, the meaning is similar except there’s no metal being used in this process. Minting is actually the work that the computer has to do to process and validate your information to create a new block and record information on the blockchain. Each time you make a new transaction on the blockchain, miners have to mine your transaction and validate it with their computers and then create a block with that new information.
📄Smart contracts are basically the rules and parameters of a deal that a user wants to execute on the blockchain. With smart contracts, users are able to set certain parameters for the blocks on the network to release assets when certain conditions are met.
For example, in a smart contract, you could put certain conditions on the chain like, when I receive the keys to my home, release the payment to the previous homeowner and deactivate their house key. With smart contracts, once conditions are set they can’t be changed and are automatically executed.
🏢 Decentralized Autonomous Organizations (DAOs) are networks of people and computers that use blockchain technologies to vote on decisions. DAOs have become a popular way to create a consensus-based platform that can’t be manipulated by outside vectors. The reason why the DAO was created was to eliminate the additional human error that is introduced when human beings get together to make a decision.
DAOs essentially work by sending an identical to a network of trusted sources that all provide an answer to that query. When a consensus is met, the network moves forward. This allows for the system to come up with the best possible answer, rather than an answer that’s influenced by the status of peers or other superficial features that influence our decision-making.
On-Chain transactions is simply a valid transaction, that occurs on the blockchain.
Off-Chain transactions are transactions that occur outside of the blockchain network. An example of this would be any and every transaction you’ve ever made in a physical store.
⛓Side Chains are blockchains that are linked together. The way that it works is that one blockchain functions as the main chain that is then linked with another chain that functions with its own rules and regulations from that on the main chain. The information and rules conducted on the dependent chain don’t impact the interactions or transactions on the main chain. On top of this, with sidechaining, users can easily move their currency between chains.
⛽️ Gas Fees are the fees paid by users to compensate the miners (aka the backbone of every blockchain network and God’s gift to this earth) for paying their electric bill and continuing to put in the work to validate all of our transactions on the Ethereum blockchain and other blockchains. Before you even have a transaction mined, you can set a “gas limit” that allows users to decide how much they’re willing to spend to mine a transaction.
Thanks so much for checking out our segment! If you’ve got any questions or terms that you think should be added, feel free to leave a comment or Tweet us @binarylawyer
Disclaimer: None of the information above constitutes as financial or legal advice.