The Basic Crypto Terms That You Need To Understand
If you are starting your crypto investing or trading journey, you are going to come across some terms that are going to be confusing. Moreover, learning about the workings of this industry can be really challenging. Therefore, we have put together basic crypto terms to help you navigate in this space.
Basic Crypto Terms
A blockchain is a distributed ledger that contains information such as records of financial transactions. These records can be shared with a massive decentralized and publicly accessible network. The transactions are grouped together until they form a block and a sequence of these blocks forms a blockchain.
Bitcoin is one of the largest cryptocurrencies in the crypto space. It is a digital currency used for peer-to-peer online transactions. Bitcoin can also be used as an alternative payment method, which is accepted by many companies such as Whole Foods, Microsoft, Home Depot, and more.
Cryptographic assets or digital assets are referred to as tokens or coins. The main difference between a coin and a token is their functionality, but in practice, these terms can be used interchangeably.
A form of cryptocurrency that only has a digital form that is not issued by a central authority and uses a decentralized ecosystem (blockchain) to record transitions can be termed as a cryptocurrency. New cryptocurrencies are minted on a blockchain and use cryptography to stop fraudulent transactions.
Cryptography can be called the enciphering and deciphering of messages in secret code and the encoding and decoding of information. Cryptography ensures that the rules of a cryptocurrency system are encoded and safe.
Fiat currency is paper money that we use in our daily lives. It has little to no intrinsic value on its own and cannot be converted into gold or silver. However, by a government’s order, it has been made legal tender. For instance, USD or the Euro.
Here mining refers to crypto mining. Mining is a process of combing through a massive amount of information to find specific data. To be exact, in mining, a miner solves a computation puzzle, verifies a transaction on the blockchain, and publishes a block. In return, he is awarded a freshly minted cryptocurrency for this effort.
Miners are the individuals to perform the mining activity. They solve the computational puzzle. For this, they need a heavy-duty computer system, which can handle the complex puzzle without heating up. Miners are the ones who secure the blockchain and in turn, receive a reward for providing their resources.
Using and Acquiring Crypto
Now, these crypto terms are related to cryptocurrencies.
Sales are the activity of selling your cryptocurrencies. Whenever you sell your cryptocurrencies, it is considered a taxable event.
If you receive digital currency as payment for goods sold or services provided, it is included in gross income at fair market value on the date it is received. Since it is considered property, if exchanged for goods or services, it results in its disposal. As a result, there are short-term or long-term gains or losses.
If you swap one cryptocurrency for another, it is looked at by the IRS as the same as selling it for fiat currency and buying another with USD.
These were some of the most basic crypto terms that a newbie in the cryptocurrency space needs to understand. As you gradually move up in the crypto space and learn more and more, you’ll need to understand more terms. However, it takes a lot of time to reach the expert level and even then these basic crypto terms come in handy.
1. What does HODL stand for?
HODL stands for “hold on for dear life.” It started when a Reddit user accidentally misspelled HOLD for HODL and then went with it and gave it its own full form when the crypto market was not doing so well.
2. What does 10X mean in crypto?
For newbies in the crypto world, 10x means “ten times.” It is a ratio that refers to the potential growth of a cryptocurrency or stock. For instance, if a coin has great growth potential, investors/traders usually say, it has 10x growth potential or its value is going to grow ten times in the future.
3. What does FUD stand for?
FUD stands for “fear, uncertainty, and doubt.” It represents the general mindset of negativity regarding a particular market or asset. If the founder of a coin or crypto exchange has been involved in some illegal activities, it creates FUD in the crypto space. Also, sometimes, the emotions of the market are also manipulated so that the investors/traders succumb to FUD.