There has been a lot of buzz around cryptocurrencies, especially after prices of cryptocurrencies hit an all-time high in 2021. Many value investors may despise them as they struggle to find the intrinsic worth to support the prices for cryptocurrencies. To get started, it is important to at least learn about some of the common crypto terms first.
Web3.0. Crypto. Blockchain. Even while these keywords become common in regular speech, most individuals still do not understand why they are important. And I believe that most individuals are unsure on how to find out more about cryptocurrencies. Therefore, these are some of the terms that one should be familiar with as they begin learning more about cryptocurrencies.
Crypto Terms #1: What is Cryptocurrency?
The term “crypto” refers to the cryptographic methods used to secure the financial system. Cryptocurrency is a digital form of money that functions as a means of exchange within a network of users. These transactions can happen directly between participants (peer-to-peer) and are tracked through a public digital ledger. Examples of cryptocurrencies include the likes of Bitcoin, Ethereum and more.
Crypto Terms #2: What is Blockchain technology?
Blockchain is a digital ledger that serves as a database for transactions and it can be viewed by everyone. This indicates that there are several copies of the ledger (distributed) and multiple controlling authorities (decentralized). Simply said, any user that is part of a blockchain network maintains an electronic copy of the blockchain data. This database is constantly updated with all the most recent transactions and in sync with the copies of everyone. It is a technology that can be used for other industries that go beyond financial transactions.
However, this is quite different from the centralized ledgers that most are familiar with. Some common forms of centralized ledgers include a bank’s record of ATM withdrawals. Traditional ledgers are “centralized” since they are typically dependent on a single database and are managed by a single entity.
Crypto Terms #3: What is a Blockchain Consensus Algorithm?
A consensus algorithm is a tool that enables people or machines to work together in a distributed environment. Even if some agents fail, this algorithm ensures that everyone in the system agrees on a single source of truth. Some popular consensus algorithms includes:
Above are the more popular consensus algorithms. However, keep an eye out for subsequent articles where we might discuss other consensus algorithms.
Crypto Terms #4: What is Stablecoin?
A Stablecoin is a cryptocurrency asset that is pegged to another asset, like fiat money or precious metals. In order to help users avoid the volatility observed in the cryptocurrency markets, Stablecoins are created to maintain a price that is comparatively stable. Stablecoins come in three types: algorithmic, crypto-backed, and fiat-backed.
What is Web1.0, Web2.0 and finally now, Web3.0?
Since the early 1990s, the Internet has advanced significantly and has continued to do so throughout time. The original Internet also known as Web1.0 utilizes static HTML pages that could only display information. Users couldn’t upload new data or update the existing data in any way. Simple chat messengers and forums were the only social media outlets available.
Gradually, there was a change towards a more interactive Internet which began to take place in the late 1990s. With Web2.0, users may communicate with websites via social media, databases, and server-side processing. These tools have transformed the static web experience into a dynamic one.
While Web 2.0 allowed for user-generated content and social interaction, there were concerns over the usage of the data. Third-party cookies and the overabundance of data concentration in the hands of a small number of companies. Data leaks have multiplied, and it now appears routine to find biased, upsetting, or overtly sponsored content online. Hence, now the “read, write, and trust” version of the internet also known as Web 3.0.
Web 3.0 is here to establish trust in the current system with DeFi, or decentralized finance. This eliminates the need for a central authority by leveraging smart contracts on the blockchain. Each user will therefore be the owner of their data. However, they will have the option of selling it and receiving payment in the form of tokens (designated cryptocurrencies). Web 3.0 may go even farther by allowing consumers to get compensated for the time they spend watching movies and other corporate content.
If the above sharing does make you more interested in finding out more about cryptocurrencies. Keep an eye out for our next posts. We might discuss cryptocurrency evaluation in more detail or offer our thoughts on important developments in the market.
If you are keen, check out our articles on other analysis: 5 Investing mistakes, Singapore Bank Comparison and Visa Stock Analysis.
Disclaimer: The information provided by LearnToInvest serves as an educational piece and is not intended to be personalized investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock or cryptocurrencies.