Cryptocurrency is the top investment product right now. It has attracted many investors, turning them into crypto enthusiasts. Those who have no idea what a cryptocurrency is or how do they work, then don’t worry. We are going to show you a list of general cryptocurrency terms for your knowledge.
As soon as Bitcoin’s value shot up by the end of December 2016, the cryptocurrency market boomed, affecting altcoin’s values and making them valuable as well. Before understanding cryptocurrency in detail, you need to understand what some of the general cryptocurrency terms mean.
General Cryptocurrency Terms
Here are some of the general cryptocurrency terms you need to know.
Blockchains can be best described as distributed ledgers that are secured by cryptography. Essentially, they are public ledgers that is accessible to everyone for reading. However, the data can only be updated in the ledgers by the data owners.
The data does not reside on a single centralized server. Instead, it is duplicated across thousands and thousands of computers available in the world.
A node is basically a computer, possessing a copy of the blockchain and at the same time working to maintain it.
In order to validate a transaction on the blockchain, the users (miners) have to solve the next block. It means they have to solve a complex mathematical equation to validate a transaction. The one who solves the problem first is entitled to receive a reward in the form of a crypto coin.
The mining process requires insane amounts of computer processing power to solve the problems effectively.
Proof of Work (PoW)
Proof of Work is the validation of the work being done by the miners and then proving it is right. Bitcoin and many altcoins are following this blockchain system to make sure each block of transactions is authentic enough to be added in the blockchain.
Proof of Stake (PoS)
The Proof of Stake works in contrary to PoW and was created with a goal to tackle the issues found in the latter. PoS is a different way of verifying and validating the transactions within each block. Though the purpose of PoS is quite similar to that of PoW the process to reach the objective is entirely different.
Sharding is the scaling solution for blockchains. Usually, every node present in a blockchain network inhibits a complete copy of the blockchain. To increase the overall network performance and the speed of the consensus, sharding is used to allow nodes to have fractional copies of the complete blockchain.
A software wallet is a storage system for the cryptocurrency that exists as software files on a computer. You can get hold of software wallets for free from a number of sources. MyEtherWallet is one of the most popular software wallets right now.
A hardware wallet is a device used to securely store cryptocurrency. These wallets are regarded as the most secure way to store your cryptocurrency.
Ledger Nano S / Trezor
These are the most popular hardware wallet models you would come across.
The cold storage accounts for a process in which cryptocurrency is moved offline as a way of securing the cryptocurrency from getting hackers. Several ways can be used to do this. However, some of the most common methods are as follows:
– Print out the QR code of a software wallet and then store it someplace that is safe, for instance, a safety deposit box.
– Move the files of a software wallet to your USB drive and then store it somewhere else where it is safe.
– Use a hardware wallet.