It seems like every day there is a new story about cryptocurrencies in the news. Some of these stories are worrying, such as when hackers steal millions from poorly secured wallets. Others are amusing, such as the creation of a new meme coin, and some are even hopeful, such as the news that Ethereum will be moving from proof or work to proof of stake by the end of the year.

Even mentioning those top stories often requires using terms that the average person doesn’t know, which should make it obvious just how much specialized jargon there is in the world of cryptocurrency. It can all make you feel a bit like Dorothy after she’s fallen into Oz — “Wallets, and meme coins and proof of stake, oh my!”

This article is going to explain some of those basic crypto terms and ideas. This will help any cryptocurrency beginner who is considering dipping their toes into the market to feel a bit more comfortable.

Blockchain

The most important thing to understand about cryptocurrency is the blockchain because that is the technology that makes cryptocurrency possible. It is also how it is transferred. In short, without blockchain technology, none of this entire decentralized digital economy could exist.

The blockchain is composed of blocks of data. As each new block of data is verified by miners — we’ll get to that term in a moment — it is added to the chain. The validation process is what makes the system so secure, because you can’t just alter or remove a single block, the entire thing is connected.

By linking these blocks of data, a digital record book is created. It becomes a ledger of all the transactions that take place on the chain. However, since the names of who owns a coin can be kept private, the entire thing can be kept very private and therefore very secure.

Mining or buying

Mining is a process that requires a computer with a lot of processing power, typically in the form of multiple top of the line GPUs for even the smallest mining rigs. The way mining works is that a mathematical puzzle must be solved to add a block to the chain. This process serves to prove that the block exists and has been verified. This prevents a coin from being spent twice or altered. Miners are rewarded with new cryptocurrency for solving this puzzle.

This method is called a proof of work protocol and it is what most cryptocurrencies currently use to build their chains. The proof of stake protocol is being adopted by some coins because it uses less energy while still being very secure. However, mining is still a very time and energy intensive process that is inaccessible for most investors.

Today, the majority of people acquire cryptocurrencies by buying them on a crypto exchange. These exchanges present buyers with lists of cryptocurrencies and their current values. For example, a quick scan of the OKX cryptocurrency list shows that many different cryptocurrencies are available to buy or trade.

Using an exchange is a far simpler and more convenient option to acquire cryptocurrencies, even if it doesn’t sound quite as cool.

Types of coins

If you know anything at all about cryptocurrencies, you know about Bitcoin. Bitcoin and Ethereum are such major, important coins that all other cryptocurrencies are referred to as alternative cryptocurrencies or altcoins. Coins of all types and sizes can be legitimate and have use or value.

One subset of the altcoin is the meme coin. Meme coins began with Dogecoin, a cryptocurrency based on the shiba inu meme that captured the internet’s collective hearts in the early 2010s. What began as a joke has actually turned into one of the more successful cryptocurrencies. It has also inspired the creation of many other cryptocurrencies linked to various memes. These work the same way as regular cryptocurrencies, they just usually have a funny name and mascot.

Wallets

Just like traditional money, cryptocurrency is stored in a wallet. There are two kinds of wallets: hot wallets and cold wallets. A hot wallet is connected to the internet and is used to send and receive cryptocurrency transfers. Since it is always connected to the internet, however, it has a higher risk of being hacked.

A cold wallet is more like a personal bank vault. It is where cryptocurrency is stored. The safest kinds of cold wallets are kept offline, so they are totally inaccessible to anyone who doesn’t have the key. Since a key can be a password written on a piece of paper, cold wallets are much more difficult to break into.

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