More than just a novel investment option
cryptocurrencies represent a whole different world in many ways compared to
traditional stocks and bonds. Between unfamiliar acronyms emerging technologies
and keeping up with memes and tweets learning the basics takes time even for
seasoned folks traditional investors.
As with any investment it's important to
understand exactly what you're investing in before you start. This is
especially true when it comes to speculative and still evolving assets like
cryptocurrencies.
Before you buy cryptocurrency we
recommend that you meet some prerequisites such as stocking up your emergency
fund to pay off high-interest debt and secure a traditional retirement plan.
Like we said before you should only invest in cryptocurrencies what you are
willing to lose and experts It is recommended to dedicate no more than 5% of
the portfolio to these digital assets.
However another item you should add to
your list is at least a beginner's understanding of your field including how
crypto differs from other investment strategies and the different factors that
can affect the market value of cryptocurrencies.
Here are some terms and phrases that
will help beginners better understand the world of crypto investing.
Crypto Terms You Should Know
Block
Data groups in the blockchain. On
cryptocurrency blockchains blocks consist of records of transactions when users
buy and sell coins. Each block can only hold a certain amount of information.
Once that limit is reached a new block is formed to continue the chain.
Blockchain
A digital form of record keeping and the
underlying technology behind cryptocurrencies. A blockchain is the result of
successive blocks that build upon each other creating a permanent and immutable
ledger of transactions (or other data).
Coin
A representative digital store of value
that exists on a given blockchain or cryptocurrency network. Some blockchains
have the same name for the network and coins like Bitcoin. Others can have
different names such as the Stellar blockchain which has a native token called
Lumen.
Cold Wallet/Cold Storage
A secure way to store cryptocurrencies
completely offline. Many cold wallets (also called hardware wallets) are
physical devices that look similar to USB drives. This kind of wallet can help
protect your cryptocurrency from hacking and theft although it comes with its
own risks - such as Lost along with your password.
Fork
When users of the blockchain change
their rules. These changes to the blockchain protocol often lead to two new
paths - one that follows the old rules and one that separates the new
blockchain from the previous one. (Example: A fork of Bitcoin gave rise to
Bitcoin Cash.
Hot Wallet
Software-based cryptocurrency wallet
connected to the internet. While more convenient and quick to access your
cryptocurrency these wallets are more vulnerable to hacking and cybersecurity
attacks than offline wallets - just as your files stored in the cloud may be
more vulnerable to hacking than offline wallets The ones locked in your home
safe.
Smart Contract
An algorithmic program that
automatically formulates contract terms based on its code. One of the main
value propositions of the Ethereum network is its ability to execute smart
contracts.
Stablecoin or Digital Fiat
Stablecoins tie their value to some other
non-digital currency or commodity. Digital fiat currencies represent fiat or
government-backed currencies on the blockchain. (Example: USD-pegged Tether).
Coinbase
Coinbase is one of the best trading
platforms. It is highly secure and easy to use to trade leading
cryptocurrencies like Bitcoin Ethereum. Coinbase has APIs that allow developers
to link with third-party applications and exchanges. Coinbase is on this list
because it's easy It is highly safe to use and low cost.
Wallet
A place to store your crypto assets.
Many exchanges offer digital wallets. Wallets may be hot (based on online
software) or cold (usually offline on the device).
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