Cryptocurrency and fiat currency can be likened to several things, a hardcopy letter and the soft copy equivalent, a passport photograph, and the softcopy in our phone or memory card. Physical cash as a store of value had since had its pitfalls. Such as: being centrally regulated by the Government, no longer tied to valued commodities like gold or silver, et al.

What is Cryptocurrency?

Like our softcopy equivalent of passports, cryptocurrencies or digital coins can also be regarded as the same when you think about money or physical assets. Cryptocurrencies are digital assets as much as they are digital money. They can be traded just like stock and gold. More importantly, it can serve as a store of value if you understand the technicalities behind it.

How crypto transactions happen using blockchain technology

In simple terms, blockchain technology uses the concept of a ledger that holds records of all transactions. For this to be secured and decentralized, these transactions are duplicated across multiple systems known as blocks. When a transaction is processed, the ledger is updated alongside every other system in the network. When a transaction is altered in one computer on the network, that change makes that computer a red flag in the network because its record is different.

Types of cryptocurrency

Cryptocurrencies can best be categorized according to how they are used. That is their unique proposition. Some coins act as currency for example bitcoin and XRP. Listed below according to coindex.com, are different categories a coin can fall under and examples of such coins · Stable coin (Tether) · Software platforms (Ethereum) · Meme coin (Dogecoin) · Application token (Uniswap) · Currency (Bitcoin)

Terms associated with cryptocurrency

Mining

Mining as seen in any other field is a means by which a new supply of a particular coin is injected into the ecosystem. When it comes to cryptocurrency, we have broadly two ways this is done. Proof of Work and Proof of stake mechanism.

Proof of work

In the proof of work scheme, complex computational problems need to be solved. The reward for solving these computational problems are certain chunks or numbers of the cryptocurrency. However, this model has been heavily criticized because of the amount of energy consumed. It’s now estimated that the electricity being consumed for mining bitcoin alone is equivalent to what other countries consume annually. This problem has given rise to the proof of stake model.

Proof of stake

The proof of stake model allows users who hold a particular coin to participate in validating transactions. As explained earlier, for a transaction to happen, it must be validated by several systems or nodes after which it is added to the ledger. Individuals who participate in this validation process are known as “stakers”. The reward for validation is a new supply of such coins into the ecosystem.

Trading

Just with our native meaning to trading, the same applies to trading in cryptocurrency. It is the act of buying and selling a coin. Price movement can be predicted using analysis which can be fundamental or technical analysis to buy coins at a lower or higher value.

Exchanges and wallets

Exchanges are like a marketplace where one can purchase or sell a coin. Wallets on the other hand are likened to your physical wallet where you keep your fiat money. After purchasing a particular coin from an exchange, you can transfer it to your wallet for keep. Exchange platform can also hold your coin but it’s generally advisable to transfer your coin to wallets that are designed specifically for those purposes.

Bull and Bear Market

We’ve all heard experts saying cryptocurrency prices are highly volatile. Well, it is. The volatility often results in what people refer to as a bear market or bull market. This is just another way of saying the price is either going up or coming down. When it is a bear market, it means the price is crashing down and when it is a bull market, it means the price is going up.

Shit coins

Shit coins are generally referred to as other coins that are not bitcoin. However, a shit coin is not just any other coin aside from bitcoin. Shit coins are coins with no real utility tied to them. Hence, there is a potential for an investor to get scammed when an investment goes into this kind of coin. They are highly associated with our next term, pump-and-dump. After enough manipulation in the market, when the price of these coins goes up, the manipulators or founders sell all of their coins leaving investors with coins with no real values and utilities.

Pump-and-Dump

Pump and dump is a manipulation scheme that individuals or an entity do by buying and accumulating a coin, thereby artificially inflate the price through means of spreading misinformation. Once the price is increased, which is known as pumping, they will start selling it off. This works because of the law of demand and supply. When the demand for an item is high, the price goes up and when supply is higher than demand, the price comes down. Note that pump-and-dump usually works well for coins with no real utilities or solving any particular problem. This makes it easy for founders or investors of such coins to move out of the market.