The covid pandemic, the La Palma volcano, feminism, the price of electricity … surely these topics will be present in the after-dinner of family lunches or dinners for Christmas. However, the star topic of this year will be the phenomenon of cryptocurrencies. Surely everyone at the table has heard the words Ethereum or Bitcoin. The problem will be to explain to your brother-in-law or your mother what this new way of investing consists of.
That is why we have prepared a glossary of words from the universe of cryptocurrency by the hand of Víctor Ronco, co-author of the book Cryptocurrencies for dummies (CEAC | Planeta) and creator of the training program Criptomonedas para todos PLUS, together with Carlos Callejo, so that you can easily explain what an NFT or a Bitcoin is, among many other concepts.
What is a cryptocurrency? What is your future?
Bitcoin, Ethereum, Ripple or Dogecoin are some of the best known cryptocurrencies. But what are they really? Cryptocurrencies are nothing more than digital currencies, a type of currency that is used to buy products and services, like any other currency, but that only exists in the virtual world. Unlike the physical ones, the cryptocurrency does not depend on the intervention of a centralized body to regulate its operation.
Bitcoin was the first cryptocurrency to be traded. It was in 2009 and its value was approximately one dollar. In October 2020, it was trading around $ 13,600 and a year later, it has surpassed $ 60,000. Despite falling 7% in November so far this year, bitcoin has doubled in price. Victor says that it is used as “a store of value and is based on a deflationary economic model, which means that there are fewer and fewer coins as their production and popularity increases.”
Bitcoin is used as “a store of value and is based on a deflationary economic model”
As Victor explains, cryptocurrencies are a new form of money. They only have one drawback: they are highly volatile assets and their price is impossible to predict. In fact, instability is one of the main problems of this currency. Without going any further, the ‘SQUID’ token -inspired by the popular Squid Game series- shot up to a value of $ 2,856.64, however, in a matter of minutes, it dropped to 0, and thousands of users they lost a lot of money.
Victor points out that the cryptocurrency boom comes at an economic time in which there is increasing inflation, so our money is losing value. “That makes any type of person, from young people to large investors, increasingly interested in preserving their purchasing power through cryptocurrencies,” he says. However, this has a drawback: lack of training.
Victor emphasizes that it is often invested without knowledge. “The market and the tools to invest in both cryptocurrencies and conventional stock are increasingly accessible, which can give the false impression that the investor knows what he is doing. That is why it is essential to train to know what and how to invest, as well as financial and emotional management “, details the specialist.
The future of cryptocurrency for the adoption of mechanisms to guarantee greater stability. Despite its current volatility, the acceptance of cryptocurrencies at the country and organizational level is expected to increase in the coming years thanks to green blockchain technologies and the emergence of stablecoin or similar, which offer less variability and greater stability.
The cryptocurrency universe glossary
Here are some definitions of the cryptocurrency universe elaborated by Víctor Ruano and Carlos Callejo in the training program Cryptocurrencies for all PLUS.
- Ethereum: It is the best-known cryptocurrency after Bitcoin and consists of a distributed, open source, public network, based on blockchain. It offers the development of decentralized applications to as well as the network itself that works as an operating system for the execution of smart contracts.
- Blockchain: sometimes translated as “chain of blocks”, it corresponds to the technology consisting of an encrypted, decentralized database, distributed in user networks that store transactions and record them in data packages.
- Mining: In the context of crypto-technology, this computing process consists of carrying out a series of calculations in order to validate transactions and thereby permanently record the information in the blocks on the blockchain network. By this process, miners receive an incentive in the form of new cryptocurrencies.
- Hold: from the English “to maintain”, it refers to the most fundamental investment strategy of all, to buy a cryptocurrency and keep it in the long term, expecting a capital gain. Back in 2013 a user of the Bitcoin talk forum made a typo and entered “HODL”, and since then, in crypto-economic jargon, this investment strategy is known.
- Token: is the digital representation of an asset or service, and is used as a recognized monetary unit in a specific ecosystem. There are several types of tokens, but more than 80% of them use the Ethereum network for their operation, and offer from the counter value of a real asset (security token) to allow access to a series of services offered by a project (utility token).
- Airdrop: consists of the free distribution of cryptocurrencies to users or investors who meet a series of requirements, generally with the aim of publicizing and disseminating a project.
- FiatAlso known as fiat money, it is any conventional form of money issued by a government, such as the Euro, Dollar or Yen, and is based on the collective belief that this form of money has a value determined by a society.
- CBDC: it responds to Central Bank Digital Currency, or what is the same, digital currency issued by the central bank of a territory or country.
- Briefcase: also known as a wallet, purse or wallet, it is the place to store cryptocurrencies. There are mainly cold wallets (see cold wallet), which remain not connected to the internet, and hot wallets that are always connected to the network.
- DAO: It is the “Decentralized Autonomous Organization”, and it refers to a form of government of organisms which, thanks to a series of smart contracts, allows executing various processes based on certain conditions without the need for human intervention.
- Pool: referred to a “mining pool”, it is a combination of several computer equipment that constitutes a network of miners to add computing power or “hashrate”, and thus generate greater rewards that are then distributed among the pool members. It is a collective way of mining cryptocurrencies, and there are public and private ones.
- NFT: from English Non-Fungible Tokens. This type of cryptocurrency corresponds to a token that is backed by the value of anything, from an image to a real asset such as a car or a house. NFTs differ from fungible tokens like bitcoin in that each token is unique.
- Stake: the concept refers to a form of passive investment by which a quantity of currency is blocked during a specific period to obtain additional units of that same currency. For example, the Ethereum coin offers an annual reward for “staking” of around 7% per year.
- Farm: corresponds to the platforms that allow us to obtain units of a new currency from the blocking of another cryptocurrency. For example, if you lock 100 units of currency A, each week you receive 5 units of currency B.
- DeFi: Decentralized Finance from English, corresponds to decentralized finance. That is, financial services platforms that allow currencies and banking products to be exchanged directly between users and anonymously, without the control or support of a centralized entity. This allows from lending money to buying and selling assets in a disintermediated way, without financial institutions.
- Parachain: They are blockchain networks that work in a satellite way and complementary to a main blockchain network. For example, the Polkadot project offers parachain spaces for other networks to connect and communicate with each other.
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Cryptocurrencies | How to explain to your mother (and your brother-in-law) this Christmas what an NFT and a Bitcoin are