Crypto Basics (Beginning Crypto)

A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services, but uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.

Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. ... Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant's ledger.

The biggest difference between a cryptocurrency and a token is that cryptocurrencies are the native asset of a blockchain like BTC, RBTC, or ETH, whereas tokens are built on an existing blockchain, using smart contracts. Most commonly, these are EIP-20 tokens.

A crypto exchange is a marketplace where you can buy, sell, trade, or store cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Dogecoin, and others.

A decentralized exchange (DEX) is a peer-to-peer (P2P) marketplace that connects cryptocurrency buyers and sellers. In contrast to centralized exchanges (CEXs), decentralized platforms are non-custodial, meaning a user remains in control of their private keys when transacting on a DEX platform.

A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.

In the term "centralized cryptocurrency exchange," the idea of centralization refers to the use of a middle man or third party to help conduct transactions. Buyers and sellers alike trust this middle man to handle their assets. This is common in a bank setup, where a customer trusts the bank to hold his or her money.

In a centralized crypto exchange, most of the control over your account remains in the hands of the third party which runs the exchange. On the other hand, with a decentralized exchange, all the control of the account remains with you. Also, decentralized remains OUTSIDE of the governments reach while centralized crypto is reported. This is another prominent reason why decentralized exchanges are becoming popular.

A cryptocurrency wallet stores the public and private keys required to buy Bitcoin or other cryptocurrencies, and provides digital signatures authorizing each transaction. These digital wallets can be a device, a program on an app or online website, or a service offered by crypto exchanges.

What is a hardware wallet? A hardware wallet is a cryptocurrency wallet which stores the user's private keys (critical piece of information used to authorise outgoing transactions on the blockchain network) in a secure hardware device.

A private key is a sophisticated form of cryptography that allows a user to access their cryptocurrency. A private key is an integral aspect of bitcoin and altcoins, and its security makeup helps to protect a user from theft and unauthorized access to funds.

A cryptocurrency wallet refers to a program that allows an investor to store all their cryptocurrency. On the other hand, a cryptocurrency exchange refers to a website or service where one can sell or buy digital currency or convert fiat currency into digital currency.

Stablecoins are cryptocurrencies that are designed to maintain a stable price over time. Stablecoins are often pegged to fiat currency, such as the US dollar, and backed by collateral. People primarily use stablecoins on DeFi platforms and to hold money within the crypto ecosystem.

A Central Bank Digital Currency (CBDC) is also known as digital base money or digital fiat currencies, a CBDC is no different from hard cash, apart from the fact that they are in a digital or virtual form. ... However, unlike these private cryptocurrencies, CBDCs are centralised and legal tenders issued by central banks.

Introduction of a central bank digital currency (CBDC) has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs and reduced settlement risk.

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DeFi is a collective term for financial products and services that are accessible to anyone who can use Ethereum – anyone with an internet connection. With DeFi, the markets are always open and there are no centralized authorities who can block payments or deny you access to anything.

An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same way a regular stock can. ... ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types.

The cryptocurrency market thrives on speculation. Investors bet that the prices would go up or go down to make profits. These speculative bets cause a sudden influx of money or a sudden outgo, leading to high volatility.

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Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.

Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary's involvement or time loss.

Automated crypto trading buys and sells cryptocurrencies based on advanced algorithms, and different bots will use different algorithms. Depending on how you set it up, your trades could be based on market indicators, asset price, or simply allocated to continuously rebalance your portfolio.

Market capitalization refers to how much a company is worth as determined by the stock market. It is defined as the total market value of all outstanding shares. To calculate a company's market cap, multiply the number of outstanding shares by the current market value of one share.

Liquidity pools are crypto assets that are kept to facilitate the trading of trading pairs on decentralized exchanges.

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Protocols are crucial components of Blockchain technologies that enable information to be shared automatically across cryptocurrency networks securely and reliably. In the field of computing, protocols are essentially rules that define how data is allowed to be transferred between different computer systems.

By mining, you can earn cryptocurrency without having to put down money for it. Bitcoin miners receive Bitcoin as a reward for completing "blocks" of verified transactions, which are added to the blockchain.

Inflation is the decline of purchasing power of a given currency over time. ... The rise in the general level of prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods

Staking is a way to put your crypto to work and earn rewards on it. ... Staking cryptocurrencies is a process that involves committing your crypto assets to support a blockchain network and confirm transactions. It's available with cryptocurrencies that use the proof-of-stake model to process payments.

The proof-of-stake model allows owners of a cryptocurrency to stake coins and create their own validator nodes. Staking is when you pledge your coins to be used for verifying transactions. ... If so, they add the block to the blockchain and receive crypto rewards for their contribution.

Proof of work is the older of the two, used by Bitcoin, Ethereum 1.0, and many others. The newer consensus mechanism is called proof of stake, and it powers Ethereum 2.0, Cardano, Tezos and other (generally newer) cryptocurrencies. 

Proof of work (PoW) is a form of cryptographic zero-knowledge proof in which one party (the prover) proves to others (the verifiers) that a certain amount of a specific computational effort has been expended. Verifiers can subsequently confirm this expenditure with minimal effort on their part.

Proof of Work (POW) mining requires huge amounts of energy consumption to fuel computational power; Proof of Stake (PoS) gives mining power based on the percentage of coins held by a miner. ... Bitcoin, the largest cryptocurrency, runs on proof of work rather than proof of stake.

Dollar-cost averaging is a simple technique that entails investing a fixed amount of money in the same fund or stock at regular intervals over a long period of time. If you have a 401(k) retirement plan, you're already using this strategy.

Yield farming, also known as yield or liquidity harvesting, involves lending cryptocurrency. In return, you get interest and sometimes fees, but they're less significant than the practice of supplementing interest with handouts of units of a new cryptocurrency. The real payoff comes if that coin appreciates rapidly.

A fork in a blockchain can occur in any crypto-technology platform—not only Bitcoin. ... So when you want to change those rules you need to "fork it"—like a fork in a road—to indicate that there's been a change in or a diversion to the protocol. The developers can then update all of the software to reflect the new rules.