In order to understand how cryptocurrency works and more complicated matters like cryptocurrency mining, first you have to learn and understand a few key terminologies. This sets the base of your knowledge, it is the building block of your understanding, which you can later build on.

Address

This identifies senders and receivers of cryptocurrency. It is quite similar to an email address and it is made up of numbers and letters which are unique to each individual.

Altcoin

This is short for “alternative coin” and it is any cryptocurrency other than Bitcoin.

Blocks

Blocks store information about previous blocks, which are later verified by a network and only when they are verified can a new block be created. These are created as transactions are made, as crypto is sold and bought.

Blockchain

This is formed when blocks build upon one another and build a chain.

Cryptocurrency

A decentralised, digital currency not controlled by the government.

Cryptography

It involves writing and solving codes, so the sender encrypts a message which it wishes to send and the receiver decrypts the message to get the original text, it protects data from third parties as they don’t understand the message as it is encrypted.

Decentralisation

There is no one entity in control, rather data is held across multiple devices across multiple locations. Therefore, the power over the system isn’t held by one entity so it may be more inclusive and potentially less corrupt.

Decentralised apps (dApps)

These are decentralised apps, in a similar way to how crypto is also decentralised.

Decentralised finance (DeFi)

This includes peer to peer financial services and it eliminates financial intermediaries from the process, this is also similar to how cryptocurrencies are decentralised.

Distributed ledger

They use independent computers to record and synchronise transactions, spread across different locations.

Hash

This is made up of a combination of unique numbers and letters, used to identify blocks.

Initial Coin Offering (ICO)

This is a way that funds can be raised by a company, it involves a company creating a new cryptocurrency which they can sell in exchange for Fiat or cryptocurrencies. It is similar to an IPO.

Market cap

The monetary value of a currency. You can calculate a coins market cap by multiplying the price of the coin by the supply or number of coins in the market.

Mining

This is how more of a cryptocurrency is created through solving puzzles and it also verifies the authenticity of transactions.

Node

This is a computer that connects to a blockchain network.

Non Fungible Token (NFT)

These are digital representations of physical assets.

Proof of authority

This is more centralised than proof of work and under PoA a few nodes have the right to approve a miner’s ability to create a block.

Proof of stake

This allows an individual to mine crypto depending on how many coins the individual owns.

Proof of work

Under PoW mining and processing transactions is difficult. PoW or proof of work is used to confirm that miners calculate valid hashes.

Private key

This is like your bank account password, this gives access to your cryptocurrency so you shouldn’t share it with others.

Public key

This is like your bank account number, you can share this number with others to make or receive payments.

Public ledger

It is a record keeping system. Here users balances and transfers can be found, and it keeps all the information anonymously.

Ticker symbol

These identify different currencies. For example, Bitcoins ticker symbol is BTC.

Token

These currencies do not have their own blockchain and so they use the blockchain of another currency.

Wallet

This is where you can store your cryptocurrencies.

To learn more about crypto check out my other blogs: CLICK HERE

Cryptocurrency explained: the basics

Blockchain explained

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