Introduction to Basic Terminologies of Digital Currencies

Cryptocurrency:

Cryptocurrencies are a subset of digital currencies that utilize encryption techniques to secure transaction data. They can be either centralized or decentralized, with Bitcoin being the first and most well-known decentralized cryptocurrency.

Cryptography:

Cryptography involves encrypting information using codes as a method to protect data and communication, ensuring privacy. It plays a crucial role in digital currencies for creating secure wallets, digital signatures, and consensus mechanisms among users and miners.

Blockchain:

Blockchain is a digital ledger for a digital currency, recording all transactions made within a cryptocurrency network. It utilizes encryption methods to prevent data tampering and hacking. Blockchain consists of multiple blocks, each containing transaction data. It's a decentralized technology, meaning no single entity controls it, and all information is shared among users.

Public Blockchain:

Public Blockchains are widely known and operate democratically, allowing anyone to join the network without permission. Examples include Bitcoin and Ethereum, where all transaction data is visible to everyone, and decisions are made through consensus mechanisms.

Private Blockchain:

Private Blockchains are used by government entities or private companies to record information. They lack decentralization, requiring permission to access and operate within the network. A central authority manages and determines user access.

Consortium Blockchain:

Consortium Blockchains are semi-decentralized networks managed by organizations. They're used when multiple organizations intend to collaborate, allowing secure data sharing among them.

Hybrid Blockchain:

Hybrid Blockchains combine features of both public and private blockchains, minimizing their respective drawbacks. They provide better scalability and privacy while still maintaining some level of decentralization.

Cross-Chain:

Cross-Chain technology facilitates interoperability between different blockchain networks, enabling the transfer of value and data between them without intermediaries. It ensures compatibility and seamless interaction among multiple blockchains.

Consensus Process:

The consensus mechanism is used as a method for decision-making by a group of individuals. This mechanism applies to nodes responsible for maintaining the entire blockchain ledger to reach consensus when processing transactions. In the consensus mechanism, individuals who are completely strangers and unfamiliar with each other come to an agreement through a mechanism involving rewards.

Block:

A block is a collection of transactions that miners verify and confirm. Blocks form the blockchain and are recognized as a database of all transactions made, with each block being permanent and immutable.

In essence, each block in the blockchain serves as a unit for recording transaction data and includes information about transaction details and block connections to each other. Block sizes, the number of transactions inside a block, the time required to register a block, etc., vary for different blockchains. The records recorded in each block are permanent and immutable.

Block Height:

The number of blocks before the previous and desired block in the blockchain is referred to as block height; for example, height 0 is the first block, also known as the genesis block.

Block Explorer:

A block explorer is a search engine for finding digital currencies that allows users to find necessary information about transactions, addresses, and other details. In the block explorer, information related to transactions that have occurred in a blockchain is displayed.

Additionally, by using a block explorer, transparency of information is created for all individuals worldwide, and all transactions of the main coin network and tokens created on it are traceable. Besides its functionality, a block explorer can provide a lot of information about digital currency holding addresses and their mining status.

Whitepaper:

A whitepaper is a report in which developers detail their plan or system, and every digital currency project publishes its technology through it to familiarize the public. The main section of a whitepaper concerns the project's goals and the problem it solves, where the project team explains the existing problem and its technology, providing the proposed solution to the problem.

Additionally, a whitepaper refers to the problems that developers intend to solve with their cryptocurrency. In fact, a good whitepaper includes the project roadmap, economic information related to the token or coin project, management team, and project investors, and it is usually called the project's marketing version, used to attract public attention to the project.

Yellow Paper:

The yellow paper is the technical and scientific version of the whitepaper, where scientific information about the project is fully examined. The beige paper is a simplified version of the yellow paper and is written to facilitate understanding of complex scientific topics. It should be noted that in some cases, a LitePaper is also referred to as a simplified version of the whitepaper, and most digital currency projects only publish whitepapers and yellow papers.

Algorithm:

Mathematical instructions are encoded and implemented by computer software to produce desired results. The term algorithm can be seen in many whitepapers and points of weakness and strengths of tokens.

Proof of Work (PoW) Algorithm:

The Proof of Work algorithm is a type of consensus mechanism used to prevent spam attacks and disruptions in access by authorized users to a computer network. One of the main features of the Proof of Work system is its asymmetry, meaning that the sender of the message needs some time to prove that the work has been done. However, the recipient can confirm in a very short time that the work has been done by the sender.

Proof of Stake (PoS) Algorithm:

The Proof of Stake algorithm is recognized as a replacement for the Proof of Work algorithm, created to solve the problems of the Proof of Work algorithm. In the Proof of Stake algorithm, instead of using mining, you need to have a stake or coins in the system; thus, if you have 10% stake or coins, you will have a 10% chance of mining the next block.

Peer-to-Peer (P2P):

In a peer-to-peer network, two or more computers, buyers, and sellers of digital currencies are in contact with each other without the involvement of a third party as an intermediary. In this method, there is no centralized intermediary institution to verify transactions and information, and data is disseminated directly among users.

In centralized systems like banks, when a transaction is made, transaction information first goes to the bank's central servers, and the bank checks the account information of the sender and receiver. If the transaction can be made, it is confirmed, and the desired amount is deposited into the receiver's account.

In many centralized systems like social networks, data transfer is done in this way. It should be noted that the confirmation of this information is done by a decentralized system by users worldwide, and one of the main features of cryptocurrencies is the ability to make peer-to-peer transactions with them.

 

Exchange:

The largest digital currency exchange in the country is a platform through which users in the world of cryptocurrencies can engage in buying and selling Bitcoin and other cryptocurrencies. In exchanges, currencies can be exchanged online between individuals. Additionally, exchanges may differ in offering various cryptocurrencies and their associated fees.

Decentralized Exchange (Dex):

Decentralized exchanges of digital currencies are blockchain-based programs that facilitate the trading of large cryptocurrency assets among many users. These exchanges perform this task through their own algorithms and act as financial intermediaries between buyers and sellers.

Arbitrage:

Arbitrage refers to buying digital currency from one exchange and profiting from selling it using the price difference of that currency in other exchanges. Arbitrage provides an opportunity for profit with low risk, and considering that digital currencies are offered on various exchanges and have significant fluctuations, arbitrage is possible in the world of digital currencies.

Confirmed:

In the world of digital currencies, when a transaction is confirmed, it means it has been validated by the network. In the cryptocurrency industry, the confirmation criterion indicates exactly how many blocks of time have passed since a transaction was added to a blockchain.

Centralized:

The term centralized refers to an institution or organization controlled by an individual or group.

Decentralized:

Decentralized means that in digital currency transactions, exchanges occur peer-to-peer and without centralization. For example, the seller and buyer directly communicate with each other, and there is no intermediary organization between them.

Decentralized Autonomous Organization (DAO):

DAO is a familiar term in the world of digital currencies, standing for Decentralized Autonomous Organization. DAO refers to self-governing decentralized organizations where each member of the group, regardless of position or role, has equal rights to make changes. DAOs are smart contracts, many of which are executed on the Ethereum blockchain, but any blockchain supporting smart contract technology can host a DAO.

Decentralized Finance (DeFi):

The term DeFi stands for Decentralized Finance, referring to a decentralized financial system including digital assets, protocols, smart contracts, and decentralized software on blockchain. DeFi applies blockchain technology to bypass intermediary institutions. DeFi draws inspiration from the underlying technology of Bitcoin and allows various entities to maintain a version of transaction history, thus avoiding centralized control.

Decentralized Application (dApp):

dApp, short for Decentralized Application, is a type of open-source distributed software application that runs on a peer-to-peer (P2P) blockchain network. These applications resemble other software applications supported P2P on a website or mobile device.

Market Capitalization:

Cryptocurrencies are ranked based on market capitalization, which is calculated by multiplying the current price of the desired digital currency by the total number of circulating coins. Market capitalization includes its cash value. To view the market capitalization of a particular digital currency, you can visit the CoinMarketCap website and check the rankings of cryptocurrencies. For example, Bitcoin is currently ranked 1st among other digital currencies.

Bitcoin (BTC and XBT):

Bitcoin is probably the first coin that comes to mind when you hear the term digital currency. Bitcoin operates in a decentralized manner, meaning no one can control it. This makes it more valuable than the official currency of any country, and most suppliers accept Bitcoin as a form of payment.

Satoshi:

Satoshi Nakamoto is the name of the creator of Bitcoin, and Satoshi refers to the smallest unit of Bitcoin. Each Bitcoin can be divided into 100 million units, and each Satoshi is one hundred millionth of a Bitcoin.

 

Token:

The second type of cryptocurrencies is known as tokens. Tokens are cryptocurrencies that do not have their own blockchain and are created on a blockchain using smart contracts. In essence, a token is like a chip that is purchased with money and used to buy goods or services, such as purchasing food at a restaurant.

Altcoin:

Altcoins are cryptocurrencies created after Bitcoin, and this term refers to all digital currencies invented after Bitcoin. Altcoin is derived from the words "Bitcoin Alternative" or "Coin Alternative," and currently, there are close to ten thousand altcoins.

Altseason:

Altseason refers to a period when the prices of altcoins have grown more than Bitcoin. It's a short period during which money moves out of Bitcoin, causing a significant and rapid increase in the prices of most digital currencies.

Stablecoin:

In the world of cryptocurrencies, stablecoins have values pegged to a stable asset such as the dollar. Stablecoins are designed to reduce market fluctuations and unlike other cryptocurrencies that lack stable prices, they can protect traders' capital.

Initial Coin Offering (ICO):

Initial Coin Offering is a method where a company sells a new digital currency to raise capital. In an ICO, investors can invest in the desired project using other cryptocurrencies like Bitcoin or fiat currencies like the dollar, and receive tokens from the company.

Circulating Supply:

Circulating supply refers to coins or tokens that are accessible to the public. It's different from total supply or max supply. This term refers to the total number of unique tokens of a project currently available for trading and used by the public.

Burned:

The term "burned" in the world of digital currencies means permanently removing a certain number of tokens from circulation. This is usually done by transferring the desired tokens to an irretrievable wallet address. When you transfer your coins to a specific address, the private address from which the coins were sent no longer exists, making it impossible to withdraw the coins. Burning coins may seem illogical, but it serves various purposes.

Pump & Dump:

When some investors decide to artificially increase or decrease the price of cryptocurrencies, a pump and dump occurs. A group of investors buys a cryptocurrency when its price is low and then artificially increases the price through promotions and fake news, which is called pumping. These investors then sell their cryptocurrencies at the highest price to profit-seeking investors. After some time, when the prices drop, inexperienced individuals lose some of their capital in this market, which is called dumping.

HODL:

HODL, first used for Bitcoin, now refers to holding and not selling digital currencies during market fluctuations. This term originated when a BitcoinTalk forum user posted "I AM HODLING" instead of "I AM HOLDING," which was a typing mistake. Eventually, the term HODL became popular in the crypto community, referring to long-term holding of Bitcoin and other cryptocurrencies.

Depth Chart:

A depth chart is used to understand the supply and demand of a digital currency at a specific moment for a wide range of prices. It displays buy orders, known as bids, and sell orders, known as asks, on a chart. Depth charts, with two modes: cumulative, or line, and non-cumulative, or bar, help traders analyze the overall view of orders placed and the volume of supply and demand at different prices for specific symbols.

FOMO:

FOMO stands for Fear of Missing Out and refers to the fear of missing potential opportunities and taking emotional actions based on excitement when the value of some assets increases. When someone doesn't buy a share, and its value goes up, the feeling of being left out leads them to buy, which is called FOMO. In general, FOMO refers to emotions that cause a shareholder to make wrong decisions during price increases, not specific to digital currencies.

 

ATH:

 ATH stands for All-Time High and is used to describe the condition where a digital currency has reached its highest price ever. This term is one of the most hopeful terms and signifies an increase in the value of digital currencies.

 

ATL: 

ATL stands for All-Time Low and is the opposite of ATH. It is used when the value of a digital currency has reached its lowest level in history.

 

TO THE MOON:

The term TO THE MOON is used to describe significant upward trends in the value of a digital currency. Some believe TO THE MOON refers to a sharp increase in the value of digital currencies in the near future.

 

Rekt:

Rekt is used to describe severe financial losses due to bad investments. It also refers to a significant decrease in market value and the loss of the entire investment.

 

Bear:

Bears are individuals who are always pessimistic about the prices of assets and predict a downward market trend. This term refers to bearish market conditions and is used when investors lack confidence in market conditions.

 

Bear Trap:

A bear trap is a false signal created in technical analysis when the temporary decline in the value of shares leads investors to sell their shares at a loss.

 

Whale:

Whales are individuals who conduct transactions with very high volumes, having a lot of money in the market to buy a large amount of cryptocurrency, shares, or any other asset. Whales, as capital traders, are optimistic about the future of a digital currency and often invest heavily in it..

 

Wallet:

The digital currency wallet is one of the common terms in the world of cryptocurrencies, which allows users to store digital currencies and conduct transactions through it. Public and private keys are used in wallets.

 

Cold Wallet:

A cold wallet is one type of digital currency wallet that users can access offline. In this case, online access to cryptocurrencies is eliminated, resulting in increased security. Cold wallets are considered to be more secure because hackers need physical access to them. It's worth noting that offline storage of digital currencies in cold wallets costs more compared to hot or online methods.

 

Hot Wallet:

A hot wallet is another type of digital currency wallet that users can access online. These wallets are connected to the internet and can be a web-based program or a mobile application. While hot wallets are easy to use, they are less secure compared to other wallets because hackers may gain access to them via the internet.

 

Software Wallet:

Software wallets are a common form of wallets in which the private key is stored on the user's computer in software files. Trust Wallet is an example of software wallets.

 

Hardware Wallet:

A hardware wallet is a physical device similar to a USB that stores cryptocurrency data. It is considered the safest way to store cryptocurrencies.

 

Paper Wallet:

Storing the wallet's private key on a physical document turns it into a paper wallet.

 

Cold Storage:

The term cold storage is used for a paper wallet or a hardware wallet. Cold storage is a method of offline storage of digital currency tokens, aiming to prevent hackers from accessing their assets through traditional methods.

 

Wallet Address:

The wallet address is a string of letters and numbers used as an encrypted account number for cryptocurrency transactions. Each coin has a unique address, indicating its position on the blockchain. Wallet addresses can be shared publicly for buying and selling cryptocurrencies.

 

Public Key:

The public key is known as a unique wallet address, consisting of a string of numbers and letters. It functions similarly to a bank account number and is used to receive cryptocurrencies.

 

Private Key:

The private key is a string of numbers and letters used to access the user's wallet. It acts as the password for the cryptocurrency wallet, and users must safeguard it. When selling or withdrawing cryptocurrencies, this key is required as it serves as a digital signature.

 

Signature:

When a transaction is made on the blockchain network, it is signed with the user's private key. This encrypted signature allows users to prove their ownership. A digital signature is a form of encryption calculated from the data and a private key known only to the signer. In the real world, the message recipient needs to be sure that the message belongs to the sender, and the sender should not be able to deny its origin.

 

Mining is one of the methods of earning income in the world of cryptocurrencies. Below, we become familiar with the digital currency terms in the field of mining.

 

Miner:

A miner refers to a computer or equipment that mines a specific cryptocurrency based on its computational power.

 

Mining:

Mining refers to the process in which transactions are confirmed using computers and solving math problems in an encrypted manner. It should be noted that in the final stage, after verifying the validity of the transaction, a new block is added to the previous block chain.

 

Mining Farm:

The mining or mining process is performed by specialized hardware that consumes a lot of electricity. Some individuals place a large number of these devices outside the city in a warehouse and start the mining process. The area where these devices are located is called a mining farm, and if Bitcoin is mined in these areas, it is called a Bitcoin Farm.

 

Mining Rig:

A mining rig refers to the equipment necessary for mining cryptocurrencies. Mining rigs may be specialized for mining or may be dedicated to personal computers.

 

Cloud Mining:

Cloud mining is a term used when a person pays a monthly amount to a mining company to mine digital currencies without having personal equipment for mining. The profit from cloud mining is less compared to direct mining, and there is a possibility of loss. However, it should be noted that the costs of equipment, maintenance, electricity, premises, etc., are eliminated with this method.

 

Mining Pool:

When a number of miners combine their computational power and try to complete the necessary transactions to start a new block in the chain together, they are essentially in a mining pool. The rewards of these miners are distributed among those participating in the pool based on their contribution. The main goal is to increase the chances of successful hashes by participating in a mining pool.

 

Block Reward:

Miners confirm each block transaction, causing the block to close and be added to the blockchain. Miners receive cryptocurrency rewards for the work they do on the blockchain network.

 

Proof of Work (PoW):

Proof of Work is a term in the world of digital currencies where miners prove that they have worked on solving a mathematical problem in the network. Any miner who can solve the desired problem can add a new block to the blockchain.

 

Proof of Stake (PoS):

Proof of Stake is a consensus mechanism where miners are selected based on the number of cryptocurrencies they hold. The more assets or stakes a miner has, the more chances they have to confirm new blocks.

 

Digital currency transactions encompass the core of this exciting world. Below, we become familiar with the common terms about digital currency transactions:

 

Confirmation:

Each time a new transaction is made on the network, miners verify and confirm the validity of the transaction. In order for user transactions to take place, the required confirmations must be received from the network.

 

Transaction Fees:

To perform a transaction on the cryptocurrency network, users must pay a fee for transaction confirmation. These fees vary depending on the network's status and traffic, and if users want their transactions to be confirmed faster, they must pay a higher fee.

 

Recovery Phrase:

The recovery phrase consists of 24 words and users must keep it out of the reach of others. This phrase can be used to transfer cryptocurrencies from one digital wallet to another.

 

Tx ID (Transaction ID):

A cryptocurrency transaction is the process in which users receive new cryptocurrencies or send them to another person. Each transaction made in digital currency transactions has an ID. The ID of each transaction is unique and different from other transactions, which are used to track and investigate the status of transactions.

 

Stop Limit:

Stop Limit is one of the terms you encounter in digital currency exchanges. Stop Limit allows users to determine their profit and loss in the market.

 

Hash:

Hash is a type of output obtained from input data. The hash algorithm receives input data of any size and produces an output of a fixed size. Hash can also be called a digital fingerprint generated by processing information through a hash function. This process is linear and one-way, meaning the original data or input cannot be retrieved from the generated hash. It's worth noting that the Bitcoin hash is 64 digits long and starts with zero.

 

Hash Rate:

Hash rate indicates how much computational power a user's computer has and the speed of performing mining operations and its performance. One of the most important factors in choosing mining equipment is hash rate.

 

Hard Fork:

A hard fork refers to fundamental changes in the cryptocurrency protocol that essentially turn it into two different currencies. In a hard fork, the new version is not compatible with the previous versions. For example, Bitcoin Cash (a Bitcoin fork) increased the size of blocks. A hard fork occurs when some miners decide to create new rules for the desired cryptocurrency. Those who have no problem with these changes join the new fork, while others who disagree can continue to use the previous version.

 

Soft Fork:

In a soft fork, a minor change is made to the protocol of the desired cryptocurrency that remains compatible with previous versions.

 

Central Ledger:

A central ledger refers to an organization that maintains transaction data and other similar records in an organized manner.

 

Distributed Ledger:

A distributed ledger system in which all transaction data and asset amounts are widely recorded. In distributed ledgers, the ledger is a record of transactions shared among all users, ensuring information security. The distribution of information in a distributed ledger increases data security and reduces the risk of hacking. Tampering with or deleting data in this technology is very difficult, and by creating a decentralized network of transaction validators, a distributed system can be accessed without the need for intermediary entities.

 

Double Spending:

Double spending occurs when users attempt to spend a cryptocurrency simultaneously in two different places. It is considered a risk that a digital currency can be used twice or more. However, under certain conditions, transaction data in a blockchain can be changed. This allows modified blocks to enter the blockchain, and if this happens, the person initiating the change can reclaim the spent coins.

 

51% Attack:

In a blockchain, to achieve consensus and validate and record transactions, at least 51% of network users must confirm the desired transaction. If someone or a group can obtain 51% of the network's power, they can create the transactions they need in the network using their power and tamper with previously created data. In proof-of-work networks, this requires collecting 51% of the network's processing power, but in proof-of-stake networks, having 51% of the blockchain tokens is required.

 

Know Your Customer (KYC):

The term "Know Your Customer" (KYC) is used to describe regulations where the seller must have complete information about the identity of the buyer. It is worth noting that this information is used to verify and authenticate user identities and is essential for high-volume transactions.

 

Understanding common terms in the world of digital currencies is an effective step towards entering the cryptocurrency world. For investment and entry into any market, gaining knowledge in that field and becoming familiar with related terms is essential.