Cryptocurrency can be an exciting opportunity for investors, and trading digital currency is increasingly mainstream. But cryptocurrency can feel complex and overwhelming if you’re not familiar with the terminology.
Here’s a rundown of the most common cryptocurrency terms so you can make informed decisions as you explore the crypto landscape.
What is cryptocurrency?
Cryptocurrency is a type of digital or virtual currency that uses cryptography for security.
Unlike traditional currencies issued by governments, like dollars or euros, cryptocurrencies operate on a decentralized system called blockchain — a distributed ledger that records all transactions across a network of computers. Blockchain removes financial middlemen — traditional institutions, like banks — while ensuring the security of transactions.
Cryptocurrencies can serve different functions depending on their design.
For example, Bitcoin was created to enable money transfers, though it’s rarely accepted as currency and operates slower than many payment systems. Ethereum, on the other hand, powers “smart contracts” that self-execute under set conditions. Dogecoin, meanwhile, began as a playful take on Bitcoin.
While some cryptocurrencies serve specific purposes, many people use them for speculation. Most people trade coins in hopes of profiting from price swings rather than for any underlying fundamentals. For many, this speculative play is cryptocurrency’s biggest draw.
Common cryptocurrency terms defined
Here is a list of the most common cryptocurrency terms.
A | B | C | D | F | G | H | I | L | M | N | P | S | T | W
Altcoin
Any cryptocurrency that is not Bitcoin. Some sources estimate the number of individual altcoins at about 15,000.
Blockchain
The technology underpinning cryptocurrency, enabling it to exist as a secure method of moving and validating transactions and information. It’s a kind of database that tracks and secures data in blocks and then chains them together chronologically. Blockchain is sometimes referred to as a digital ledger.
BTC
Common symbol for the Bitcoin cryptocurrency.
Centralized exchange
A type of crypto exchange where trades are processed by a company or organization. Coinbase and Kraken are two popular centralized exchanges.
Coin
A digital asset that operates independently on its own blockchain. For example, Bitcoin is the coin for the Bitcoin blockchain, and Ether is the coin for the Ethereum blockchain.
Cold storage
A method of storing cryptocurrencies offline to increase security.
Decentralized exchange
A type of crypto exchange that operates without a central authority.
Decentralized finance (DeFi)
DeFi — short for decentralized finance — is a financial system based on peer-to-peer payments through blockchain technology. Via blockchain, DeFi lets users sidestep traditional financial middlemen like banks or brokers. DeFi can cover a wide range of financial activities, including payments, investments and lending.
Fiat currency
Government-issued currency not backed by physical commodities, such as gold. The value of fiat currency is supported by the issuing government and its economic strength.
Gas fee
The cost required to perform a transaction or execute a smart contract on the Ethereum network.
Halving
A halving is a process that cuts the mining rewards in half roughly every four years to reduce the issuance rate of Bitcoin. (New Bitcoins are issued when high-powered computers called Bitcoin miners process complex math problems.)
ICO
Initial coin offering. Similar to an initial public offering (IPO) for stocks, an ICO is a fundraising method used by cryptocurrency projects.
Ledger
A record of all cryptocurrency transactions on the blockchain.
Memecoin
A type of cryptocurrency inspired by internet memes, pop culture or social media trends. Unlike mainstream cryptocurrencies like Bitcoin or Ethereum, memecoins often lack a clear utility or technological innovation. Instead, their value is largely driven by online hype and humor. Examples include Dogecoin and Shiba Inu.
Mining
The process of verifying and adding transactions to a blockchain. Successfully Bitcoin mining rewards miners with a predetermined amount of Bitcoin.
NFT
Non-fungible token. Built on blockchain technology, NFTs provide a secure and transparent way to record ownership of digital assets. NFT transactions are permanently recorded, making it nearly impossible to counterfeit or dispute ownership. A NFT can represent various digital products, such as artwork, collectibles, video clips, in-game items or music albums.
Proof of stake (PoS)
In a proof-of-stake system, cryptocurrency holders can stake their coins to validate transactions and earn rewards. To become a validator, a minimum amount of coins is required. Validators ensure the security and integrity of the blockchain. Those who don’t meet the minimum staking requirement can delegate their coins to validators and earn rewards that way. While many popular cryptocurrencies, such as Ethereum, use proof-of-stake validation, not all do.
Proof of work (PoW)
Proof of work uses a process known as mining to validate transactions and manage that coin’s blockchain. The first miner to solve a puzzle adds a new block of transactions to the blockchain and is rewarded with cryptocurrency. Bitcoin uses a proof-of-work system, a process that consumes significant energy and resources.
Smart contract
Self-executing contracts with the terms of the agreement directly written into code. Built on blockchain technology, smart contracts automatically fulfill their obligations once specific conditions are met. This transparency and automation eliminates the need for intermediaries, like banks, reducing the risk of errors or disputes.
Stablecoin
A type of cryptocurrency designed to maintain a stable value, often pegged to a fiat currency like the U.S. dollar. To achieve this, stablecoins often rely on backing assets like U.S. dollars, or they use algorithmic mechanisms to adjust supply and demand. Unlike highly volatile cryptocurrencies, stablecoins are meant to offer a more predictable and reliable store of value.
Staking
The process of locking up funds in a cryptocurrency to support the network and earn rewards.
Token
A digital asset representing ownership of a specific project or service.
Wallet
A cryptocurrency wallet is a device used to store and manage crypto holdings. It safeguards private keys, which are essential for accessing and controlling your coins. These wallets can be either software-based or hardware-based. Hardware wallets (cold wallets) operate offline. They’re the most secure but carry the risk and responsibility of self-custody. Software wallets (hot wallets), are more accessible but are less secure and require strong security measures to protect against potential hacks.
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