Cryptocurrencies have cemented their place in the modern financial landscape, and with Bitcoin recently reaching the symbolic milestone of $100,000, public interest in digital currencies is soaring. However, the jargon associated with cryptocurrencies—like blockchains, ETFs, and cold wallets—can be perplexing for newcomers and seasoned investors alike.
This guide explains some of the most common cryptocurrency terms, helping you navigate this ever-evolving industry.
Bitcoin
Bitcoin is the world’s most recognised cryptocurrency. Unlike traditional currencies such as the pound or dollar, Bitcoin operates without a central authority, offering a decentralised form of digital money. Its price is highly volatile, often swayed by market sentiment and major events.
For instance, in December 2024, Bitcoin surpassed $100,000 following Donald Trump’s U.S. election victory. However, such peaks are often followed by significant price drops. Despite this, Bitcoin remains a pioneer and a benchmark for the crypto world.
Bitcoin “halving”
The Bitcoin network has a unique mechanism known as “halving” (or “halvening”). Roughly every four years, or when the blockchain reaches a certain size, the rewards for mining Bitcoin are halved. This event controls Bitcoin’s supply, maintaining its scarcity.
The most recent halving occurred on 20 April 2024, reducing mining rewards from 6.25 to 3.125 bitcoins per block. While this helps prolong Bitcoin’s availability, it can also dissuade miners due to decreased incentives, potentially impacting network operations.
Blockchain
At the heart of all cryptocurrencies is blockchain technology. A blockchain is essentially a decentralised digital ledger that records every cryptocurrency transaction.
These transactions are grouped into “blocks” and linked in a continuous “chain,” hence the name. Validations are carried out by a global network of volunteers using computational power, a process incentivised by rewards like Bitcoin. Despite its revolutionary nature, blockchain technology is energy-intensive and a subject of environmental debates.
Crypto exchange
Crypto exchanges are online platforms where users can buy, sell, and trade cryptocurrencies. Operating similarly to traditional brokerages, these exchanges allow people to convert their fiat currency (e.g., pounds or dollars) into digital assets like Bitcoin or Ethereum. However, transactions usually come with associated fees.
Crypto wallet
To store cryptocurrencies securely, users rely on crypto wallets. These come in two forms:
- Hot wallets are internet-connected, offering convenience for frequent transactions.
- Cold wallets are offline devices, such as USBs, providing enhanced security for long-term storage.
Ethereum
Ethereum refers to both a cryptocurrency (Ether) and its blockchain network. As the second-largest cryptocurrency, Ethereum supports various applications, including smart contracts and non-fungible tokens (NFTs). In 2022, Ethereum shifted to a more energy-efficient mechanism, making it a greener alternative in the crypto space.
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Exchange-traded funds (ETFs)
ETFs are investment portfolios traded on stock exchanges. They allow investors to speculate on assets like Bitcoin without directly purchasing them.
In January 2024, the U.S. approved spot Bitcoin ETFs, enabling firms like BlackRock to invest directly in Bitcoin at current market prices. This development opened the doors for more mainstream participation in cryptocurrency markets.
Stablecoins
Stablecoins aim to reduce cryptocurrency volatility by pegging their value to traditional assets such as the US dollar or gold. They are often viewed as a bridge between fiat currencies and the crypto ecosystem.
However, the collapse of prominent stablecoins like TerraUSD has highlighted potential risks, leading to increased regulatory scrutiny.
XRP
XRP is the cryptocurrency powering the XRP Ledger, a platform designed for quick and affordable transactions. Developed by Ripple Labs in 2012, XRP enables efficient cross-border payments and boasts a unique consensus-based verification system, unlike Bitcoin’s energy-intensive mining process.
Although it appeals to financial institutions for its speed and low costs, XRP has faced its share of legal challenges and market fluctuations.
Conclusion
Cryptocurrencies are reshaping the financial world, offering opportunities and challenges alike. Understanding key terms like Bitcoin, blockchains, and ETFs is crucial for navigating this transformative space, whether you’re an investor, developer, or curious onlooker. As the market evolves, staying informed will be your best asset in this dynamic arena.
