What’s Bitcoin? Key cryptocurrency phrases and definitions

How does Bitcoin work? The most important phrases in cryptocurrency and what they signify

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Investors’ aspirations for Bitcoin to hit a record high in 2024 have brought the contentious topic of cryptocurrencies back into the public eye.

However, many people are still somewhat confused about important words related to cryptocurrency, including blockchains, wallets, and more lately, spot ETFs.

Don’t worry, however. Here are some crucial words and their definitions in case you’re new to them or just want a reminder.

Bitcoin

Although many may find it difficult to understand the nuances of cryptocurrency, almost everyone is aware of its most well-known product: Bitcoin. However, what is it in reality?

One kind of digital currency is a cryptocurrency, such as Bitcoin. In contrast to conventional currencies such as the dollar or pound, Bitcoin is not subject to central bank supervision or backing. This makes it attractive among those who believe that financial independence can be achieved through decentralization, but it also makes it quite volatile, with its value fluctuating based on the whims of buyers and sellers of Bitcoin.

Its price has been climbing quickly since February 2024, which is fantastic news for Bitcoin owners. However, the decline was not that long ago; this is a trend that has shown several times since the cryptocurrency’s introduction.

Blockchain

All cryptocurrencies and several associated items, such as non-fungible tokens (NFTs), are based on blockchain technology. It is essentially a virtual spreadsheet that keeps track of every cryptocurrency purchase and sale. The term comes from the way they are arranged—in blocks that are connected in a massive chain.

A vast network of volunteers records each Bitcoin transaction separately onto the blockchain, using computer programs to confirm the transaction’s legitimacy. The network of Bitcoin is encouraged to do this since the first individual to validate a transaction will receive a Bitcoin reward. In addition to being potentially profitable, mining is also contentious due to the enormous amount of energy required as individuals compete globally to update the blockchain first.

And now for the “halving” part. There is a limit of 21 million Bitcoins that may be mined. Additionally, the majority of them are already in use. However, the quantity of Bitcoins awarded to those who successfully build fresh blocks of the cryptocurrency is divided in half about every four years. It is anticipated that the next Bitcoin “halving” will occur in the spring of 2024.

ETFs, or exchange-traded funds

With ETFs, investors may wager on a variety of assets without having to own any of them directly. They are exchanged on stock exchanges, much like shares, and the performance of the entire portfolio in real time determines their worth. They may consist of bullion in both gold and silver or a blend of shares in insurance and technological firms.

Throughout the day, a spot Bitcoin ETF makes direct purchases of the cryptocurrency “on the spot” at the going rate. Although Bitcoin was previously indirectly included in certain ETFs, the US approved multiple spot Bitcoin ETFs in January 2024. This made it possible for new investors—including investment management companies like Fidelity and Blackrock—to access the speculative Bitcoin market without having to worry about using cryptocurrency exchanges or digital wallets.

Cryptocurrency Trading

The online marketplace where investors may purchase, sell and trade cryptocurrency is known as a crypto exchange. A cryptocurrency exchange functions as a brokerage, much like a typical investment bank, where users may move fiat currency, such as dollars or pounds, from their bank into cryptocurrencies, such as Bitcoin or Ethereum. The majority of transactions come with costs.

Digital Currency Wallet

An investor’s cryptocurrency is kept in a crypto wallet. It similarly keeps the digital assets to how a conventional wallet keeps cash. There are two types of wallets: hot wallets and cold wallets. Since hot wallets are online, they may be accessed more easily and quickly for transfers. Cold wallets are actual physical objects, similar to USBs with specific designs, that are used to store cryptocurrency offline for longer-term and safer storage.

Ethereum

The term Ethereum refers to both the blockchain that powers it and the second-largest cryptocurrency after Bitcoin, which is symbolized by the Ether token. This facilitates a wide range of digital assets and applications, including non-fungible tokens. It operates similarly to Bitcoin and other cryptocurrencies, but in 2022 it made the move to a more environmentally friendly operating system that uses less computers and energy.

 

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