Cryptocurrency seems to be heading upward, with many people beginning to accept it. There are currently many industries where Bitcoin and other cryptocurrencies are accepted as payment methods. For instance, you can now use crypto to bet on NASCAR odds or other sporting events.
Undoubtedly, cryptocurrency has become a massive part of our daily lives, and it continues to stay that way. So, learning about the industry is becoming unavoidable, especially if you want to keep on top of the financial ecosystem. In that case, we’ve put together some essential buzzwords that you should be familiar with before you invest in cryptocurrency.
Coin
Coins are native assets of any blockchain network. These are the usual assets you use for transactions instead of the standard fiat currency on the blockchain. Some notable examples of coins include Bitcoin, Ethereum, Litecoin, Dogecoin, etc. You should understand that you cannot do anything on the blockchain without owning a coin.
For instance, if you are on the Binance Chain network, all your transactions are done using the Binance Coin, BNB. This is also the same with the Ethereum mainnet, where you use the Ethereum coin to perform transactions.
Token
Tokens are similar to coins but cannot exist without a coin. You need a coin to create a token. Tokens are utility values, so, for instance, ChainLink, Uniswp, Tether, etc., are tokens as they are built on specific networks.
As it stands, most tokens are built on the Ethereum network. However, they are beginning to have robust networks like the Binance smart chain, Solana, Polygon, etc., entering the space and improving the ecosystem.
Proof of Work
To put it simply, Proof of Work is a solution seen in blockchain networks since the start. It is basically a technique that requires each miner to bundle current transactions and solve complex hashing puzzles. And the first miner to solve the problem will add the block, usually a collection of transactions, and gets cryptocurrency after other nodes verify the transaction.
As more miners join the chain, the math difficulty level increases, keeping the block time in place. In addition to that, it prevents hacks like the 51% attack. However, there is a downside to PoW. It consumes lots of energy and processing power, which is not scalable or energy efficient.
Proof of Stake
Proof of Stake is not like PoW as it does not require miners to solve any complex hashing problems. Instead, the mining power is based on the number of coins you possess. It is also known as staking, whereby every participant locks their coins for specific periods. For instance, if you want to indulge in Ethereum staking, you need to lock at least 32 ETH.
Additionally, you can join staking pools through wallet applications, and you will be rewarded coins as a percentage of your stake. PoS is basically leveraging your asset to earn more.
Liquidity Pool
Liquidity Pool helps to facilitate trading. Like stock market brokers in the fiat system, a liquidity pool is a decentralized exchange consisting of different tokens stored in a smart contract.
In this case, you have to lend two assets to the exchange, and you will get a Liquidity Provider (LP) token alongside trading fees for any borrowing, lending, or trading occurring on your pair of tokens.
Yield Farming
The tokens you get from liquidity pools act as governance tokens, meaning that you have a voting right on the changes that happen in the pool. In addition, you can leverage the LP tokens further by staking them in other pools to receive even more rewards.
Although yield farming involves staking, you’re not required to lock your funds. Yield farming is like swing trading, intending to chase maximum returns on LP tokens.
Bottom Line
Understanding buzzwords in the cryptocurrency industry is an excellent way to start. That way, you won’t have a problem learning the trade and entering positions on the ecosystem. We’ve covered six essential buzzwords, and you can always try to research more buzzwords to improve your knowledge of the industry so that you do not invest blindly.
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