Wallets
A cryptocurrency wallet is a tool for interacting with a blockchain network. It stores public and private keys, enabling transactions.
- Public Key (Address): The address for receiving transactions, shareable with others. It can be shared publicly to receive funds.
- Private Key: A confidential key for accessing and managing funds. It must be kept secure and never shared.
- Wallet Types: Wallets can be software-based (desktop, mobile, web), hardware devices, or paper-based for enhanced security.
- Backup and Recovery: It's crucial to backup wallet private keys or seed phrases, which are used to recover access to funds in case of device loss or failure.
- Address Formats: Addresses can have different formats depending on the blockchain, such as Legacy, SegWit, and Bech32 for Bitcoin.
- Cold Storage / Wallet: Storing cryptocurrency offline, typically on a hardware wallet or paper wallet, to minimize the risk of hacking or theft.
Blockchain
Blockchain is a distributed ledger that records transactions across many computers, ensuring security and integrity.
- Blocks: Records are grouped in blocks, linked together in an immutable chain.
- Decentralization: Managed by a network of nodes, not a central authority.
- Immutability: Once recorded, data in blocks cannot be altered retroactively.
- Consensus Mechanisms: Different consensus algorithms are used to validate transactions and add new blocks, such as Proof of Work (PoW) and Proof of Stake (PoS).
- Transparency: All transactions on a public blockchain are visible to all participants, providing transparency and auditability.
- Nodes: Independent clients that verify every block and transaction on the network. Full nodes keep the full state and have verified every transaction that has happened on the chain to verify validity.
- Fork: A divergence in the blockchain. Forks can be non-backwards compatible (hard forks) or backwards compatible (soft forks) due to disagreements or upgrades in the network protocol.
Cryptocurrency
Cryptocurrency is a digital or virtual currency that uses cryptography for security and operates independently of central banks. It enables peer-to-peer transactions without intermediaries.
- Decentralized: Not controlled by governments or financial institutions, but by a distributed network of users.
- Pseudonymous: Transactions are transparent but identities are represented by pseudonyms, providing privacy.
- Volatile: Prices can experience significant fluctuations due to market sentiment, adoption, and regulations.
- Fungibility: Most cryptocurrencies are fungible, meaning each unit is interchangeable and indistinguishable from another.
- Borderless: Cryptocurrencies can be transferred across borders without the need for intermediaries or currency exchange.
- Altcoin: Any cryptocurrency other than Bitcoin. Altcoins often aim to improve upon Bitcoin's limitations or offer additional features and use cases.
Exchanges
Cryptocurrency exchanges are platforms where users can buy, sell, and trade cryptocurrencies.
- Centralized Exchanges (CEX): Traditional exchanges that act as intermediaries, facilitating trades between users. Examples include Coinbase, Binance, and Kraken.
- Decentralized Exchanges (DEX): Peer-to-peer trading platforms that operate without a central authority, using smart contracts to facilitate trades. Examples include Uniswap, SushiSwap, and PancakeSwap.
- Order Types: Exchanges offer various order types, such as market orders (instant execution at current market price) and limit orders (execution at a specified price or better).
- Trading Pairs: Cryptocurrencies are traded in pairs, such as BTC/USD (Bitcoin against US dollar) or ETH/BTC (Ethereum against Bitcoin).
- Liquidity: The ease with which an asset can be bought or sold without affecting its price. Higher liquidity allows for larger trades with minimal price impact.