As crypto adoption continues to gain momentum across the board, one can’t help but notice the language barrier that exists between newcomers and the world of cryptocurrencies.

From the perspective of a would-be crypto investor, the confusion is understandable. The burden of due diligence is heavier when looking into an asset class that is built on a nascent and emerging technology whose inner workings are complex for the average person. On top of that, cryptocurrency is not just another investment option; it has become a part of the digital culture and the discourse surrounding it is very dynamic because of it. These digital equivalents of traditional currencies are born and continuously evolving in an era where memes and tweets are a part of every conversation, contributing to the ever-expanding terminology in the world of crypto investment.

This is not to say that traditional investments such as bonds and stocks don’t have their fair share of terms and jargon. But since they have been around for a few centuries, their various concepts are much more consolidated and widely understood.

If you want to dabble in crypto investment, you should explore many areas to get a basic grasp of what crypto is and how it differs from conventional investment instruments. And the best place to start is to familiarize yourself with the terminology.

Basic Crypto Vocabulary Worth Knowing

Blockchain

Starting with the most fundamental and perhaps the most confusing buzzword within the cryptocurrency space, blockchain can be described as a publicly distributed digital ledger in which the details of all transactions ever made in a certain cryptocurrency are permanently inscribed.

This information is recorded in a chain of blocks in a way that prevents tampering or manipulation. Each of these blocks contains a mathematically calculated fingerprint known as a “hash”. The hash is calculated based on the content of the block—the details of a transaction. In addition to its own hash, each block also contains the hash of its previous block. And since every block in a blockchain refers to its previous one, a change in one block makes all the following ones invalid, making it easily detectable. Obviously, there is more to blockchain security than that but this is the basic explanation.

Bitcoin

Bitcoin is the original cryptocurrency released in January 2009 as open-source software by the anonymous developer(s) Satoshi Nakamoto. As alluded to in the previous entry, Bitcoin is a decentralized currency which means it is free of a central authority and its transactions are made on a public ledger that requires no involvement from a third-party entity such as a bank (peer to peer).

Altcoin

The word “altcoin” is a portmanteau of “alternative” and “coin” and basically refers to all cryptocurrencies other than Bitcoin. As of February 2022, there are more than 10,000 active altcoins in existence, of which the largest by market cap are Ethereum (ETH), Tether (USDT), and Binance Coin (BNB).

Fiat Currency

Fiat is a term that comes up a lot in the cryptocurrency space. Fiat currencies refer to currencies such as the U.S. dollar or Euro that are issued by governments and are not backed by any commodity. They have value because people collectively agree on their worth. Since fiat currencies are not representative of other assets, governments who control the supply can issue them at will which typically leads to inflation. While cryptocurrencies are not backed by commodities either, they are not considered fiat because they are not legal tenders. 

Private Key

This is a string of numbers and letters that is generated uniquely (almost) for you. Private keys are similar to passwords and should never be shared with others unless you want someone else to have access to your funds. For every transaction, you will need this key.

Public Key

You can receive crypto transactions using a cryptographic code called a public key. This key is paired to your private key and while anybody may submit transactions to your public key, you’ll need the private key to be able to authorize and get access to the crypto you received in the transaction.

Wallet

As apparent by its name, a crypto wallet is a tool in software or hardware form that lets you store, send, and receive digital currency. Since cryptocurrencies and account balances exist on blockchains distributed around the world, a crypto wallet essentially interacts with these blockchains to let you trade various types of crypto. In general, there are two types of crypto wallets: hot wallets and cold wallets.

A hot wallet generates and stores your private keys online and is always connected to the Internet. These are pieces of software that operate on your desktop computer or smartphone. A cold wallet generates and stores your private keys offline. These wallets may be kept on a physical thumb drive, an offline computer, or a smartphone dedicated to cryptocurrency storage. Cold wallets may also refer to paper wallets, which are a hybrid of a physical and a digital wallet. Since cold wallets are physical and not connected to a network, they are not prone to hackers and online attacks. However, this extra layer of protection comes at the cost of other risks such as theft or a disaster.