Cryptocurrency is fast becoming the most important decentralized economic force of the 21st century. eCommerce and other merchants are now adopting crypto tokens and accepting cryptocurrencies at their online stores. If you want your business to thrive in the modern market, you should consider doing the same.
To jump into the crypto market and fully understand what it means, you need to know some key terms. Today, let’s break down important crypto terms you should know as an eCommerce store owner or as a user of cryptocurrencies.
A crypto miner is someone who solves cryptographic hash problems to verify blockchain information. They do this automatically using their computers, which search for algorithmic problem solutions over time.
Miners compete against one another for tokens for their networks. For example, a Bitcoin (BTC) miner works against other miners on the Bitcoin platform to receive a reward of some BTC. Mining is the primary means through which information on the blockchain is verified and through which new crypto tokens enter circulation.
A crypto wallet is a digital (and sometimes physical) wallet in which crypto tokens, like Bitcoin or Ethereum, are stored. Crypto wallets are usually only found on computers, though some “cold storage” wallets operate essentially like thumb drives and allow users to carry their crypto wallets with them.
Most importantly, crypto wallets are encrypted and very difficult to break through. Crypto wallets have distinct addresses; these are used when sending or receiving crypto tokens to or from other users.
Crypto tokens are the key units of currency for blockchain and crypto financial systems. For example, 1 Bitcoin is one token for the Bitcoin network. Each network has its own crypto tokens, though some can be used on more than one network or blockchain.
A fiat currency is any government-issued currency backed by the government rather than a physical commodity or good, like gold or silver. For example, the US dollar is no longer backed by the gold standard and is now a fiat currency. It derives its value entirely from the government that issues it.
The issue with fiat currencies is that they are very susceptible to inflation and other market forces. Furthermore, they are completely controlled by federal governments and big banks.
Proof of Work/Proof of Stake
Proof of work and proof of stake are competing consensus methods by which crypto miners verify blockchain information on their networks. The proof of work consensus mechanism is the older of the two and was originally used by Bitcoin.
Proof of work relies on miners to use lots of processing power to verify blockchain information and keep the entire process secure. The miners race against one another to verify transactions by solving encryption algorithms.
Proof of stake, on the other hand, does not require as much processing power. Instead, users “buy in” to the validation system or consensus mechanism. Those who receive the biggest rewards of crypto tokens must stake the most processing power, but all validators who participate receive a crypto token reward. Rewards are handed out proportionally to ensure maximum fairness.
A smart contract is an electronic contract that includes certain conditions that may be triggered automatically. Smart contracts are frequently used on the Ethereum 2.0 system.
For example, a smart contract might indicate that, upon receipt of a good or service, the buyer for the transaction automatically sends crypto tokens to the seller. Smart contracts as fast, modifiable, and secure to prevent fraud.
NFT (Non-Fungible Token)
An NFT or nonfungible token is a relatively new force in the crypto market. In a nutshell, it’s a digitized receipt of authenticity that may be traded, bought, or sold between individuals for digital goods, including icons, gifs, digital artwork, and more.
NFTs are quickly bought and sold using crypto tokens given their decentralized nature.
The block reward is the rewarding cryptocurrency that a miner receives for validating a block of information. Block rewards are given out in their host network’s native token (i.e. Bitcoin miners receive Bitcoin as block rewards).
Although this slang term began as a misspelling of “hold,” it now stands for “Hold on for Dear Life.” This refers to the practice of holding onto cryptocurrency even when prices are fluctuating, instead of selling it off.
Decentralized Autonomous Organization (DAO)
A DAO or decentralized autonomous organization is a means of organizing individuals or interests using a blockchain system (see below). In simpler terms, a DAO is an organization or entity that doesn’t have central leadership.
Instead, important decisions are made from the ground up, usually through democratic voting processes. DAOs can include financial systems, fintech organizations, or even blockchain groups.
The transaction fee is the cut of cryptocurrency that the network takes out of each crypto transaction. Transaction fees can fluctuate throughout the day based on how long it takes to validate the information and how much time miners must devote to that transaction.
Crypto protocols are the rules and systems used by a crypto network that all users must follow. For example, Bitcoin’s crypto protocols are different from those of Ethereum or Dogecoin.
DeFi (Decentralized Finance)
DeFi is a simplified phrasing of decentralized finance, which can refer to an industry or a type of business. Regardless, decentralized finance revolves around decentralized financial technology and services, including cryptocurrencies, blockchain systems, and other digital assets on the Internet.
Initial Coin Offering (Ico)
The Initial Coin Offering is similar to an IPO or initial public offering for a publicly-traded company. Entrepreneurs use initial coin offerings to raise money to launch new cryptocurrencies. They offer bundles of initially worthless cryptocurrencies to investors; investors take these offers if they believe the cryptocurrencies in question will rise in value in the future.
The Genesis Block is the first block of transactions or other information in a blockchain. Each blockchain has one. Bitcoin’s Genesis Block was made by the digital currency creator, Satoshi Nakamoto.
Altcoins are alterations of “core” cryptocurrencies like Bitcoin or Ethereum. For example, Bitcoin Lite can be considered an altcoin, as it uses a “forked” version of the Bitcoin protocol and blockchain and is similar to its parent coin or asset.
A 51% attack is a means by which a group of individuals (or, hypothetically, even a single individual) can gain control of a cryptocurrency. They gain at least 51% of a crypto token’s hashing or processing power, thus gaining the means to take control of any new crypto tokens for that system. This is one of the only potential threats to the security and potential of cryptocurrencies.
A fork occurs when a blockchain system or protocol splits to use a new network or system. A hard fork means that both the old version of the blockchain in the new version exist side-by-side and software is updated accordingly.
In contrast, a soft fork means that only one blockchain remains valid. This happens when blockchain creators try to update their blockchains without splintering the userbase, usually for technical or security improvements.
Cold storage refers to a cold storage crypto wallet, which allows users to hold their crypto tokens offline. These hard wallets are similar to thumb drives or external hard drives and prevent digital attackers from gaining possession of their crypto tokens.
The blockchain is the series of information blocks upon which a crypto token runs. Blockchains are sequences of unchangeable and near unhackable information that form public ledgers or records of transaction information.
A crypto client is any application that can run access and/or process blockchain transactions on computers. The most common version of a client is a crypto wallet.
A crypto Merkle tree is a data structure used for computer science applications, including cryptocurrencies like Bitcoin. Merkle trees essentially encode blockchain data securely and efficiently to prevent fraud.
A crypto full node is any program that can fully validate transactions and blocks. These include the powerful computers used by crypto miners.
A crypto green address is any trustworthy address used by Bitcoin users. They’re most often identified through repeat crypto transactions.
Whether you’re an online store owner or just someone interested in crypto, we all need to be literate in these terms as crypto tokens become important economic forces. This is doubly true if you plan to accept Bitcoin and other cryptocurrencies at your eCommerce store soon.