Crypto Glossary
Hello Myners! From today we are launching our feature on the crypto glossary. We hope this feature will serve to increase your understanding of cryptocurrency and the NFT world. Each week we plan to publish 3 terms (no more, so you don’t get bored) with their meaning over here. Make sure you have your notebook and pen with you and start writing down. So, let’s get started!
What’s a cryptocurrency?
A cryptocurrency is just like a digital form of cash. You can use it to buy books, clothes, order food, or book flights and hotels for your holiday. Because cryptocurrency is digital, you can also send it to friends and family anywhere in the world.
The difference from digital payments like PayPal or bank transfers is that these traditional online payment opportunities are dependent on a regulating authority. Banks hold your money for you, and you need to ask them to transfer it on your behalf when you want to spend it.
In cryptocurrencies, there isn’t an organization. They don’t rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments. This virtual currency is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Cryptocurrency enables secure online payments without the use of third-party intermediaries.
Cryptocurrency received its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets (where cryptocurrency is stored) and to public ledgers (where the transactions are recorded). Encryption aims to provide security and safety.
Cryptocurrencies are decentralized networks based on blockchain technology — a distributed ledger.
What is blockchain?
Blockchain is a digital ever-growing list of data records. Such a list is comprised of many blocks of data, which are organized in chronological order and are linked and secured through cryptography. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.
Blockchains store data in blocks that are then linked together via cryptography. These blocks hold sets of information. They have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is recorded into a newly formed block that will then also be added to the chain once filled.
Blockchains are resistant to modification of their data because once recorded, the data in any given block cannot be altered.
What is NFT?
The acronym NFT stands for non-fungible token. When something is fungible, like a dollar bill, it is equivalent to, and can thus be exchanged for, any other dollar bill. In contrast, a non-fungible token is a unique asset in digital form that cannot be exchanged for any other NFT. This means that every NFT is a ‘one-of-a-kind’ item. NFTs are transferred from one owner to another using blockchain technology, which creates a digital trail from the seller to buyer that verifies the transaction. This encodes the unique ownership rights to the buyer (new owner).
These digital assets are verifiable on blockchain technology. Assets include artwork, music, or in-game assets such as unique avatars. Because they are unique, NFTs are becoming sought after as collectibles.
The physical world counterpart would be a unique collectible asset such as a piece of art, for which you might have a certificate of ownership attesting to its authenticity. The NFT with its blockchain technology replaces the need for certificates of ownership.
NFTs became a popular investment in 2021, even though they’ve been around since 2014. As cryptocurrency investing exploded, so did the idea of taking certain digital assets and selling them to investors to buy online.
