Basics for Crypto Beginners

If you are new to the crypto world, there is some basic knowledge that you should have before starting to explore it. This post with basics for crypto beginners will navigate you in that digital world.

Basic terminology

First of all, you need to know what is what, thus learn basic terminology.

• Blockchain: a chain of blocks, each containing transaction data. Corrections cannot be made to blocks. In other words, blockchain is a database with advanced protection against manipulation.
• Fiat currency: regular money, such as rubles, dollars, euros, etc.
• Cryptocurrency: electronic currency (code) that uses its own blockchain for data storage.
• Bitcoin (BTC): the first cryptocurrency (coin). It was released in 2009 by an individual (or a group of people) using the pseudonym Satoshi Nakamoto. Currently, Bitcoin is the leader in the crypto market with a 59% market share.
• Token: an electronic currency that uses blockchain technology. There are various tokens that allow the creation of different projects on a single blockchain. Ethereum is a prominent example.
• Native token: a token used for paying fees, rewards, and other service-related actions within a system.
• Stablecoin: tokenized fiat currency, often pegged to the value of the US dollar (examples include Tether (USDT), USD Coin (USDC), Binance USD (BUSD), TerraUSD (UST), Dai (DAI), TrueUSD (TUSD), Pax Dollar (USDP)).
• Seed phrase: a set of 12 or 24 English words from a predefined dictionary that provides access to a wallet.
• DeFi (Decentralized Finance): a collective term for projects in the decentralized finance sector.
• NFT (Non-Fungible Token): a unique digital token where each token is distinct (unlike regular cryptocurrencies where all units are the same and interchangeable). In investment contexts, NFTs are often used as a collectable term, although the technology’s applications are much broader.
• Initial Coin Offering (ICO): a method of raising initial capital using cryptocurrency, similar to an IPO in the stock market. Projects sell tokens to investors and use the proceeds for development.
• Initial Exchange Offering (IEO): an alternative to ICOs where a project conducts its initial token sale through a specific centralized exchange.
• Initial DEX Offering (IDO): a project conducts its initial token sale through a specific decentralized exchange.
• Token sale: the initial sale of tokens on any platform using various distribution channels.
• Launchpad: a platform designed to launch new crypto projects and their tokens, enabling a broad audience to participate in token sales and assisting new projects with development.
• Staking: a method of confirming transactions and creating blocks on the blockchain, only applicable to cryptocurrencies using Proof of Stake algorithms (e.g., Ethereum 2.0, Tezos, Solana). Users receive rewards in the form of new coins, similar to a bank deposit for the user.
• Farming: a process of earning tokens as rewards for providing liquidity to a project by depositing a specific pair of tokens into a pool. A liquidity pool is a repository where traders can quickly exchange one currency for another.
• Futures: derivative financial instruments, contracts to buy or sell a crypto asset in the future, often allowing for leverage (borrowed money) to conduct trading operations.
• Spot: a financial instrument that allows the purchase of a crypto asset here and now, without futures or derivatives involved.

Cryptocurrency types

Getting started with the cryptocurrency market can be a complex and overwhelming process. Newcomers have likely heard of Bitcoin, but what about the thousands of other coins and blockchain projects in the industry?

To gain a proper understanding of the market, cryptocurrencies are typically divided into two categories: coins and tokens.

1️⃣ Coins refer to any cryptocurrencies that operate on their own separate and independent blockchains. These cryptocurrencies are created from scratch, and their networks are designed with specific goals in mind. Developers of coins often draw inspiration from existing technologies or other cryptocurrencies and then implement innovative solutions into a dedicated network created for a specific purpose.

2️⃣ Tokens are digital certificates that represent a company’s commitment to the token holder, akin to stocks on the stock market in the world of cryptocurrencies. Tokens do not have their own blockchain and operate on the network of another coin. Essentially, they leverage the advantages of the blockchain on which they operate.

3️⃣ Additionally, there is another type of cryptocurrency called Stablecoin.

A Stablecoin is an asset that is more stable compared to regular cryptocurrencies. Economically, they are directly pegged to the US dollar or other global currencies like the euro, Japanese yen, Russian ruble, etc.

The most popular centralized stablecoin pegged to the USD is USDT (USD Tether). Here’s how the USD Tether operates: the company issues a certain amount of USDT and holds an equivalent amount of real dollars in a separate bank account. This maintains balance—there is an equal amount of virtual USDT and traditional fiat funds (USD).

Summary

Understanding the cryptocurrency market can be challenging. However, grasping the basic distinctions between different types of crypto-assets will help you reduce risks and make informed decisions in this ever-changing ecosystem!