Blockchain basics
A blockchain is a ledger that groups transaction records into blocks and links them in order. Computers that hold copies of the ledger and verify it are called nodes. The rule for deciding who adds the next block is the consensus mechanism; the main types are proof of work, decided by a computing race, and proof of stake, based on how many coins participants have locked up. A block explorer is a website that lets anyone search the ledger's contents.
- Block: a bundle of transaction records
- Node: a computer holding and verifying the ledger
- Proof of work, proof of stake: rules for the next block
- Block explorer: a site for searching the ledger
Coins and tokens
An asset with its own blockchain is often called a coin, while one issued to a standard on an existing blockchain is called a token, though everyday use mixes the two. Mainnet means the real network where value actually moves, as opposed to a test network. Everything other than bitcoin is lumped together as altcoins, and coins designed to hold their value against a currency such as the dollar are stablecoins.
Wallets and keys
An address is the public value you share to receive coins; a private key is the secret value that can move the coins at that address. A wallet does not store coins; it stores private keys and signs transactions for you. A seed phrase is a list of words that can restore your private keys, so it must never be shown to anyone. Wallets are also split into custodial ones, where someone like an exchange holds the keys, and non-custodial ones where you hold them, and into hot wallets connected to the internet and cold wallets kept offline.
Numbers on an exchange screen
A trading pair shows which asset you use to buy or sell which, and markets quoted in local currency are separate from those quoted in stablecoins. Market capitalisation is price times circulating supply. Circulating supply is what is currently on the market, total supply is what has been created so far, and maximum supply is the ceiling that will never be exceeded. Twenty-four-hour volume is the value traded over the past day, and dominance is one coin's share of total crypto market cap.
- Trading pair: what you trade against what
- Circulating, total and maximum supply
- Market cap = price × circulating supply
- Dominance: share of total market cap
Words about how you trade
Spot trading means buying and selling the coin itself; futures trading means buying and selling contracts on its price. The perpetual futures common in crypto have no expiry; to keep their price close to spot, longs and shorts exchange funding payments at regular intervals. A long bets on the price rising, a short on it falling. Leverage lets you trade a position larger than your margin, and when losses approach that margin the position is forcibly closed, which is liquidation. The risks are covered in the article on trading with borrowed money.
Fees and networks
Gas is the network fee paid to record a transaction on a blockchain, and it rises when the network is busy. Sending coins out of an exchange adds a separate withdrawal fee. Confirmations are the number of blocks added after the one containing your transaction, and exchanges credit deposits only after a set number. Some coins need a memo or tag alongside the address for a deposit to be credited properly. The same coin on a different network uses a different address format, and a transfer sent the wrong way is hard to recover.
Project and event terms
A white paper is a document in which a project explains its goals and design. An airdrop hands out free tokens to wallets that meet certain conditions, and staking means locking up coins to take part in network validation in return for rewards. A hard fork changes the rules in a way that is incompatible with the old ones and can split a chain in two. A lock-up keeps tokens from being sold for a set period, and the release of those tokens onto the market when it ends is an unlock. An exchange ending trading in a coin is a delisting.
Points that are easy to confuse
Market cap does not mean that much money was invested; it is the whole supply valued at the last price. Market cap while little supply circulates can differ greatly from fully diluted value, which assumes the maximum supply is already out. A staking reward with a high advertised annual rate is diluted in value if it is paid in newly issued coins. Knowing the terms is only a starting point for judgement, and this article is not investment advice.
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