Bitcoin, Ethereum, Litecoin, Ripple. Some of the biggest names in cryptocurrency. But what exactly is cryptocurrency? How does it differ from blockchain? And does it really matter?
Here are the answers that’ll help you get caught up.
A cryptocurrency is digital money. Rather than numbers in a bank account, cryptocurrencies are operated by users around the world. No one person can manipulate account standings, as every participant in a cryptocurrency’s network has to agree on each transaction that’s made.
For most cryptocurrencies, anyone can join in and start verifying transactions with their own computer and some freely available software. With no central authority (such as a bank), it’s difficult to hack, censor, or otherwise stop cryptocurrency—and this is why it’s so brilliant.
Have you ever tried sending money abroad? In particular, sending money to a sanctioned country? Your bank complies with national and international laws by charging you fees to send that money to other countries, and may even prevent you from sending money to certain ones. When making a cryptocurrency transfer, it makes no difference if the receiver is five miles or 5,000 miles away. It goes through.
Cryptocurrencies are “decentralized,” meaning there is no central store of data. No single person or entity has complete control over it.
Bitcoin was the first cryptocurrency, invented in 2008 by Satoshi Nakamoto (a pseudonym for a person or group who still remains unknown). People like you and me can start verifying Bitcoin transactions with nothing more than a computer (such people are called “miners”). Each computer on the Bitcoin network is a “node.” By figuring out a way to ensure that every node agrees on every transaction, Satoshi invented a radical new technology that revolutionized finance.
Since then, thousands of new cryptocurrency projects have spawned. Many aim to improve on Bitcoin in some way (e.g. faster transaction validations, greater security or privacy, etc.) while others aim to offer something entirely new that Bitcoin doesn’t. Each project is different, but they all base their work on the original Bitcoin concepts.
The Cryptocurrency Terms You Need to Know
During your exploration of cryptocurrency, you may encounter the following terms:
Blockchain: The technology that drives cryptocurrencies.
BTC: The symbol for Bitcoin. Each cryptocurrency has its own shorthand “ticker” symbol like this.
Crypto: A shorthand name for cryptocurrency.
DAO: Short for Decentralized Autonomous Organization. The DAO used the same principles behind Bitcoin to distribute share capital. Almost dead after a huge and embarrassing hack.
DApp: Short for “decentralized application”, DApps run applications on the blockchain. Rather than transferring cryptocurrencies, users can transfer data, contracts, and more.
Exchange: Like a stock exchange, users can buy, sell, and trade cryptocurrencies.
Fork: The splitting of a cryptocurrency or blockchain project into two or more different pieces of code. Learn more about forks in our guide to cryptocurrency forks.
FUD: Fear, uncertainty and doubt. Not unique to cryptocurrencies, but generally used when publications are pushing agendas and manipulating markets, or worrying new traders with misinformation or lies.
HODL: An alleged typo on a Bitcoin forum, HODL is a cryptocurrency war cry. A quick reminder to others that they should stand strong and keep hold of their currency, even if the market is struggling.
ICO: Initial Coin Offering. These are a way to raise money for cryptocurrency projects which don’t exist yet. They might be worth something in the future, but they could also be worth nothing, or be a scam.
Lambo: The dream of cryptocurrency owners, hoping that one day their coins will be worth enough to buy a Lamborghini, circa $250,000.
Miner: A person who verifies transactions. Essential for any cryptocurrency to survive.
Node: A computer or other machine used by a miner to verify transactions.
Satoshi Nakamoto: The anonymous inventor of Bitcoin.
Satoshi: The smallest unit of Bitcoin. One hundred millionth of a Bitcoin (0.00000001 BTC).
To the moon: Another cryptocurrency enthusiast warcry, often spoken in jest, used when a coin is experiencing a large price rally.
Wallet: Like a bank account for cryptocurrencies. Used to store your virtual coins.
Phew, that’s a lot of slang terms. At least now you can HODL and post “when moon?” memes from the back of your Lambo (that’s assuming you mined Bitcoin back in 2010, and didn’t pump it all into the DAO). Learn even more in our blockchain and cryptocurrency glossary.
Cryptocurrency Is Not Blockchain
You know what cryptocurrencies are, but it’s also important to know that cryptocurrency is not the same thing as blockchain. The terms are sometimes used interchangeably, and wrongly so. They are two separate things.
Blockchain refers to the underlying technology of cryptocurrency. When Bitcoin first arrived, the two concepts were so deeply intertwined that many just referred to them as the same thing, but once other projects, currencies, and blockchains arrived, the distinction grew clearer.
Blockchain technology simply stores data on a distributed ledger. Different blockchain projects aim to store different types of data on their blockchains, from real estate details, to contracts, and, of course, virtual currency values. Cryptocurrency is just one type of data that can be stored on a blockchain.
All cryptocurrencies implement blockchain technology, but not all blockchain projects involve cryptocurrency. Learn more in our What Is Blockchain? article.