Become a better investor
Lesson in Course: Crypto (beginner, 5min )
Let's learn the commonly used words in the world of crypto.
Overwhelming language makes learning about finance and investing more challenging. Crypto adds a whole new level by introducing technical terminology. Let's start by simplifying some of the basics.
We will want to get comfortable with the list of terms below. We'll come across these words and concepts in news articles, social media, and other lessons on Archimedes. If things don't click right away, we can always return to this lesson for a quick reminder.
Blockchain is a new technology that allows people to track ownership of assets through digital ledgers of ownership distributed worldwide. Blockchain technology gave rise to cryptocurrencies.
A cryptocurrency is the asset of a blockchain network that can be traded, utilized as a medium of exchange, and used as a store of value. Bitcoin, Litecoin, Ethereum, Dogecoin are all popular cryptocurrencies. It is important to note that within the big umbrella of cryptocurrencies, things can be further divided between coins and tokens.
Fiat refers to global currencies regulated by the central banks of each country. Examples include US dollars, Yen, Euro, Pesos, Yuan, Crowns, Rupee, etc.
A CEX is a digital platform by a financial intermediary that connects crypto buyers and sellers. This centralized exchange provides custody which handles our crypto assets just as a bank would with our deposits.
A DEX is a peer-to-peer (P2P) marketplace that connects cryptocurrency buyers and sellers. Unlike CEXs, there isn't an intermediary, and DEXs allow buyers and sellers to stay pseudo-anonymous.
DeFi is a movement to create an open-source, permissionless, and transparent financial service ecosystem available to everyone and operates without any central authority.
Assets are things investors can buy or sell. A digital asset is different from a traditional asset because the digital asset was created completely within our computerized world. The three most popular cryptocurrencies in the form of digital assets include coins, tokens, and digital collectibles like NFTs. All cryptocurrencies are digital assets, while not all digital assets are cryptocurrencies.
Coins are native assets of a blockchain that are meant to act as both mediums of exchange and long-term stores of value. Coins often have inflationary or deflationary controls to supply, and are meant to compete with and potentially replace some of the modern fiat currencies. Popular coins are Bitcoin, Litecoin, and Dogecoin. All coins are cryptocurrency but not all cryptocurrencies are coins.
Mining is the process of creating new coins of a cryptocurrency. Miners validate and add new blocks to the blockchain in a Proof of Work system.
Proof-of-work is the original consensus mechanism for the decentralized network. It's how everyone agrees on things like account balances and the order of transactions.
Proof-of-stake is a consensus mechanism that is faster and requires less resources. This was created to address the scalability pitfalls of proof-of-work.
Tokens are units of value that blockchain-based organizations or projects develop on top of existing blockchain networks. Similar to coins, tokens have a monetary value. However, unlike coins, tokens have additional utility tied to the blockchain. Tokens effectively allow blockchains to become the Legos baseboard where other organizations can build services. Popular tokens are ETH, BNB, and FTM. All tokens are cryptocurrency but not all cryptocurrencies are tokens.
Stablecoins are cryptocurrencies with limited price fluctuations. Their value is fixed to another underlying asset, usually to a fiat currency like the US dollar. They can also be backed by a commodity or other cryptocurrencies. Some are just supported by an algorithm that controls the supply.
ICOs are the crypto equivalent of IPOs. They are a form of fundraising for a company that wants to create a new coin, product, or service. Investors buy a token representing ownership in the company. Tokens can also provide utility for the product or service that the company is developing.
NFTs represent digital assets, often art or collectibles, created on the Ethereum blockchain. The blockchain certifies that they are unique and not interchangeable.
Fungible assets are stores of value that are interchangeable with another of the same type. For example, a dollar bill is fungible, identical to any other dollar bill.
A smart contract is just code on the Ethereum blockchain that outputs a result if we or another contract inputs ETH.
Fiat currency is the global currencies regulated by the central banks of each country. Examples include US dollars, Yen, Euro, Pesos, Yuan, Crowns, Rupee, etc.