New to Crypto? We've collected the most important terms for you:
A type of currency that is digital and decentralized. It can be used to buy and sell things or as a long-term investment.
The principle of distributing power away from a central point is called decentralization. Blockchains have traditionally been decentralized because they require the consent of the majority of all users to function and make changes, rather than a central authority as in the case of a country’s banking system.
A system for recording information in a way that makes it difficult or impossible to change, hack or cheat the system. A blockchain is a digital list of records that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains multiple transactions and each time a new transaction takes place on the blockchain, a record of that transaction is added to the existing chain of all participants. The decentralized database, which is managed by multiple participants, is called Distributed Ledger Technology (DLT). Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature, a hash. With cryptocurrency blockchains, blocks consist of transaction records when users buy or sell coins. Each block can only contain a certain amount of information. Once it reaches this limit, a new block is formed to continue the chain.
When a transaction has been verified and needs to be added to a block in the chain, it is generated to a hash by a hash algorithm. It is converted into a series of unique numbers and letters, similar to a random number generator for passwords. Then two transactional hashes are combined and converted with the help of the hash algorithm to create another unique hash. This process of combining multiple transactions into new hashes continues until finally only one hash remains – the “root” hash of multiple transactions. The special thing about hashes and an important security feature for blockchains is that they only work in one direction. While the same data always produces the same hash of numbers and letters, it is impossible to undo the process by using the numbers and letters to decipher the original data. (This essentially means that while you can make a crypto transaction to transfer a certain amount from A to B, in the event of a wrong transaction, you cannot reverse the transaction from B to A as would be possible with a bank transaction.)
A place where you store your cryptocurrency holdings digitally. Crypto wallets keep your private keys – the passwords that give you access to your cryptocurrencies and make them secure and accessible, so you can send and receive cryptocurrencies like Bitcoin and Ethereum. They come in many forms, from hardware wallets like ledgers (which look like a USB stick) to mobile apps that make using cryptocurrencies as easy as shopping online with a credit card.
This was the first and is the most valuable cryptocurrency. In 2009, it was released as open source software. Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products and services, but the real value of the coins is extremely volatile. Although the value has risen steadily since 2009, it has been subject to violent fluctuations.
The term crypto mining refers to the extraction of cryptocurrencies by solving cryptographic equations using computers. This process involves validating blocks of data and adding transaction records to a public directory (ledger) known as blockchain.
Any cryptocurrency that is not Bitcoin is an altcoin. Altcoins are alternative cryptocurrencies that were introduced after the success of Bitcoin. They generally present themselves as a better alternative to Bitcoin. The rise of Bitcoin as the first peer-to-peer digital currency paved the way for many to follow. Most altcoins try to compensate for the supposed disadvantages of Bitcoin and offer competitive advantages in newer versions. The term “altcoin” is a combination of two words: “old” and “coin,” where alt stands for “alternative” and coin for “cryptocurrency.” Together, they denote a category of cryptocurrencies that represent an alternative to the digital currency Bitcoin. After Bitcoin’s success story, many other peer-to-peer digital currencies have emerged that are trying to mimic this success. Altcoins, despite many overlaps, differ greatly in their characteristics from each other.
Cryptocurrency exchanges are online platforms where you can exchange one type of digital asset for others based on the market value of the respective assets. The most popular exchanges are currently Binance and GDAX. It is important not to confuse cryptocurrency exchanges with cryptocurrency wallets or wallet brokers. With cryptocurrency wallets and wallet brokers, you can usually buy and sell a small selection of popular digital assets (Bitcoin and Ethereum), which you can then send to another exchange to exchange for other digital assets such as altcoins. However, most cryptocurrency exchanges usually limit their users to exchanging only digital assets for digital assets, but a few allow trading fiat currencies such as U.S. dollars for cryptocurrencies.
When users of a blockchain make changes to their rules, it’s called a fork. These changes to the protocol of a blockchain can lead to two new paths, one that follows the old rules and a new blockchain that splits off from the previous one (example: a fork of Bitcoin led to Bitcoin Cash). Blockchain forks are essentially a split of the blockchain network. The network is an open source software and the code is freely available. This means that anyone can suggest improvements and change the code. The ability to experiment with open source software is a fundamental part of cryptocurrencies and also facilitates software updates for the blockchain. Forks occur when the software of different miners no longer matches. It is up to the miners to decide which blockchain they want to continue using. If there is no unanimous decision, it can lead to the creation of two versions of the blockchain. Such events can lead to periods of increased price volatility.
Instead of proof-of-work (PoW), many newer cryptocurrencies use a proof-of-stake algorithm (PoS). This ensures that transactions become cheaper and faster. In addition, the power consumption is significantly lower compared to the PoW. Staking is the holding of certain amounts of the corresponding cryptocurrencies in the blockchain protocol. This confirms the correctness of the transactions (consensus). For this participation in the functioning of the blockchain, the owners of the cryptocurrency receive a premium, similar to interest.
Cryptocurrencies are based on the cryptography scheme of the signature. This means that users use a private key for transactions, which serves for a kind of digital signature, the digital signature. This consists of a sequence of numbers. The public key, to which a private key is assigned in each case, can be viewed by the network. In combination, it is possible to check whether the associated private key was used for the digital signature during a transaction. This is usually done via the wallet software.
Unlike fiat currencies such as the euro or US dollar, the token value is not determined by a single entity such as a central bank, but by supply and demand. So the value of the token reflects how much people are willing to pay for it.
With liquidity, there are 2 actors. The exchangers who use the pools to exchange tokens and the liquidity providers who provide their liquidity to the exchangers. The liquidity providers act roughly as traders. You get the exchange fees that the exchangers pay for each exchange. Liquidity mining refers to the process of providing coins in a DeFi pool, which is rewarded by the issuance of new tokens. An important factor to consider as a liquidity provider is the so-called temporary loss. So if the price of the token increases relative to the time of the deposit, the total value of the liquidity deposited in the pool decreases as well. Because of this fact, it is important to be careful which tokens are made available as liquidity. If a token collapses too much, it will be difficult to compensate for the temporary loss via interest rates. The loss is called temporary because it balances out when the token price rises again to the ratio at the time of the deposit. The whole thing also works in the opposite direction.
The unpredictabilityin the development of securities, sometimes referred to as the zigzag price, means a risk for investors.Nevertheless, it is mathematicallypossible to measure the developments of an investment and to predict potential risksfor investors. However, there are funds with higher or lower volatilityand newcomers to the stock market are advised to keep the risk low at the beginning. Basically, the more experienced, the more risk-averse you may be.With regard to the stock market, the important role of volatility as a risk measurebecomes apparent. This indicates how strongly and regardless of trends market prices will be scattered or spread by an average.
The abbreviation DeFi – Decentralized Finance – refers to a special ecosystem in the blockchain sector that enables digital financial services. Usually based on the Binance smart chain, decentralized applications (DApps) can be created, which are specifically geared to the financial sector. The special feature is that these DApps are programmable at will. Different building blocks can be joined together like in a Lego box. As soon as the DApp is implemented on the blockchain, it runs independently and decentrally, depending on the design. A DeFi DApp, a structure of DeFi smart contracts, runs completely independently of banks, is accessible 24/7 and cannot be switched off centrally.
You are responsible for what you do
Each investor has his or her own responsibility for each action. Every action of investments, transactions and trades must be thought through, every misconduct is inherent in the crypto business, faulty transactions can not be reversed and are lost. Never invest in a project that you don’t know.