Cryptocurrency Terms to Know Before You Invest: A Beginners Guide – NextAdvisor

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HODL. DApp. Ethereum.

No, these are not words from a newly-discovered alien language. Theyre among the many new and key terms in the language of cryptocurrency.

Cryptocurrency isnt just a novel investment option, and in many ways represents a different world altogether compared to traditional stocks and bonds. Between unfamiliar acronyms, emerging technologies, and keeping up with memes and tweets, just learning the basics takes time, even for seasoned traditional investors.

As with any investment, its important to understand exactly what youre investing in before you start. Thats especially true when it comes to a speculative and still evolving asset like crypto.

There are a few prerequisites we recommend before you buy into crypto, like stocking your emergency fund, paying down high-interest debts, and securing a traditional retirement plan. And, like weve said before, you should only ever put into crypto what youre willing to lose, and experts recommend dedicating no more than 5% of your portfolio to these digital assets.

But another item you should add to your checklist is at least a beginners understanding of what youre getting into, including how crypto differs from other investment strategies, and the different factors that can affect a cryptocurrencys market value.

Here are some of the terms and phrases that will help beginners better understand the world of crypto investing.

Any coin thats not Bitcoin. Altcoins can be anything from the second-most popular coin, Ethereum, to any of the thousands of coins with very minimal market value. Experts say you should largely stick to the bigger, more mainstream cryptocurrencies as an investment.

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The first and most valuable cryptocurrency, launched on Jan. 3, 2009. While its value has climbed steadily since then, it has seen wild fluctuations. In the past months alone, the price of Bitcoin has fluctuated from a record high of $60,000 to below $30,000.

A peer-to-peer electronic cash system that formed from a fork of the original Bitcoin. Where Bitcoin is widely accepted as too volatile to be useful as a currency, Bitcoin Cash is designed to be better optimized for transactions.

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Groups of data within a blockchain. On cryptocurrency blockchains, blocks are made up of transaction records as users buy or sell coins. Each block can hold only a certain amount of information. Once it reaches that limit, a new block is formed to continue the chain.

A digital form of record keeping, and the underlying technology behind cryptocurrencies. A blockchain is the result of sequential blocks that build upon one another, creating a permanent and unchangeable ledger of transactions (or other data).

A representative store of digital value that lives on a given blockchain or cryptocurrency network. Some blockchains have the same name for both the network and the coin, like Bitcoin. Others can have different names for each, like the Stellar blockchain, which has a native coin called Lumen.

A popular centralized cryptocurrency exchange. Coinbase made history recently as the first cryptocurrency exchange to go public on the Nasdaq.

A secure method of storing your cryptocurrency completely offline. Many cold wallets (also called hardware wallets) are physical devices that look similar to a USB drive. This kind of wallet can help protect your crypto from hacking and theft, though it also comes with its own risks like losing it, along with your crypto.

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A type of currency thats digital and decentralized. Cryptocurrency can be used to buy and sell things, or as a long-term store of value.

The principle of distributing power away from a central point. Blockchains are traditionally decentralized because they require majority approval from all users to operate and make changes, rather than a central authority.

Financial activities conducted without the involvement of an intermediary, like a bank, government, or other financial institution.

Applications designed by developers and deployed on a blockchain to carry out actions without intermediaries. Decentralized finance activities are often completed using decentralized apps. Ethereum is the main network supporting activities in decentralized finance.

Experts sometimes compare specific cryptocurrencies to real gold based on the way it can store and increase in value. Bitcoin is commonly referred to as digital gold.

The second largest cryptocurrency by trade volume, Ethereum is a crypto network and software platform that developers can use to create new applications, and has an associated currency called ether.

A digital marketplace where you can buy and sell cryptocurrency.

When a blockchains users make changes to its rules. These changes to the protocol of a blockchain often result in two new paths one that follows the old rules, and a new blockchain that splits off from the previous one. (Example: a fork of Bitcoin resulted in Bitcoin Cash).

A fee that developers have to pay to the Ethereum network in order to use the system. Gas is paid in ether, the native cryptocurrency of Ethereum.

The first block of a cryptocurrency ever mined.

Stands for Hold On for Dear Life though the term originated from a user typo on a Bitcoin forum in 2013. It refers to a passive investment strategy in which people buy and hold onto cryptocurrency instead of trading it in the hopes that it increases in value.

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A feature written into Bitcoins code in which after a certain number of blocks are mined (typically every four years) the amount of new Bitcoin entering circulation gets halved. The halving can have an impact on Bitcoins price.

A unique string of numbers and letters that identify blocks and are tied to crypto buyers and sellers.

A software-based cryptocurrency wallet connected to the Internet. While more convenient for quickly accessing your crypto, these wallets are a bit more susceptible to hacking and cybersecurity attacks than offline wallets just as files you store in the cloud may be more easily hacked than those locked in a safe in your home.

A way that funds are raised for a new cryptocurrency project. ICOs are similar to Initial Public Offerings (IPOs) of stocks.

For cryptocurrency, market cap refers to the total value of all the coins that have been mined. You can calculate a cryptos market cap by multiplying the current number of coins by the current value of the coins.

The process whereby new cryptocurrency coins are made available and the log of transactions between users is maintained.

A computer that connects to a blockchain network.

Non-fungible tokens are units of value used to represent the ownership of unique digital items like art or collectibles. NFTs are most often held on the Ethereum blockchain.

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Two users interacting directly without a third party or intermediary.

Your wallets address, which is similar to your bank account number. You can share your public wallet key with people or institutions so they can send you money or take money from your account when you authorize it.

The encrypted code that allows direct access to your cryptocurrency. Like your bank account password, you should never share your private key.

The pseudonymous creator of Bitcoin. No one knows the true identity of Nakomoto or if its more than one person.

An algorithmic program that enacts the terms of a contract automatically based on its code. One of the main value propositions of the Ethereum network is its ability to execute smart contracts.

A stablecoin pegs its value to some other non-digital currency or commodity. A digital fiat represents a fiat, or government-backed currency on the blockchain. (Example: Tether, which is pegged to the U.S. dollar)

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A unit of value on a blockchain that usually has some other value proposition besides just a transfer of value (like a coin).

Programmer who invented Ethereum in 2015.

A place to store your cryptocurrency holdings. Many exchanges offer digital wallets. Wallets may be hot (online, software-based) or cold (offline, usually on a device).

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Cryptocurrency Terms to Know Before You Invest: A Beginners Guide - NextAdvisor