What is Bitcoin? Key phrases in cryptocurrencies. Investors’ aspirations for Bitcoin to hit a record high in 2024 have brought the contentious topic of cryptocurrencies back into the public eye. However, many people are still somewhat confused about important words related to cryptocurrency, including blockchains, wallets, and more lately, spot ETFs. Don’t worry, though. Here are some terms and their definitions in case you’re new to them or just want a reminder.
Bitcoin
Although many may find it difficult to understand the nuances of cryptocurrency, almost everyone is aware of its most well-known product: Bitcoin. However, what is it? One kind of digital currency is a cryptocurrency, such as Bitcoin. In contrast to conventional currencies such as the dollar or pound, Bitcoin is not subject to central bank control or backing. This makes it attractive among those who believe that financial freedom can be achieved through decentralization, but it also makes it quite volatile, with its value fluctuating based on the whims of buyers and sellers of Bitcoin.
Its price has been climbing quickly since February 2024, which is fantastic news for Bitcoin owners. However, it hasn’t been that long since it fell—a pattern that has happened several times.
Blockchain
All cryptocurrencies and several associated items, such as non-fungible tokens (NFTs), are based on blockchain technology. It is essentially a virtual spreadsheet that keeps track of every cryptocurrency purchase and sale. The name comes from the way they are arranged—in blocks that are connected in a massive chain.
A vast network of volunteers records each Bitcoin transaction individually onto the blockchain, using computer programs to confirm the transaction’s legitimacy. The network of Bitcoin is encouraged to do this since the first individual to validate a transaction will receive a Bitcoin reward. Its price has been climbing quickly since February 2024, which is fantastic news for Bitcoin owners. However, it hasn’t been that long since it fell—a pattern that has happened several times. Since miners compete to be the first to properly update the blockchain, they burn a huge amount of energy, which makes this potentially profitable process problematic.
We now arrive at “halving” as well. There is a limit of 21 million Bitcoins that can be mined. Additionally, the majority of them are already in use. However, the quantity of Bitcoins awarded to individuals who successfully build fresh blocks of the cryptocurrency is divided in half about every four years. It is anticipated that the next Bitcoin “halving” will occur in the spring of 2024.
Exchange-traded funds (ETFs)
With ETFs, investors may wager on a variety of assets without having to own any of them directly. Similar to shares, they are traded on stock exchanges and their value is determined by the real-time performance of the entire portfolio. They may consist of bullion in both gold and silver or a blend of shares in insurance and technological firms.
Throughout the day, a spot Bitcoin ETF makes direct purchases of the cryptocurrency “on the spot” at the going rate. Although Bitcoin was already indirectly present in certain ETFs, the US approved multiple spot Bitcoin ETFs in January 2024. This made it possible for new investors—including investment management companies like Fidelity and Blackrock—to access the speculative Bitcoin market without having to worry about using cryptocurrency exchanges or digital wallets.
Crypto Exchange
The online marketplace where investors can purchase, sell and trade cryptocurrency is known as a crypto exchange. A cryptocurrency exchange functions as a brokerage, much like a traditional investment bank, where users may move fiat currency. Such as dollars or pounds, from their bank into cryptocurrencies, such as Bitcoin or Ethereum. The majority of transactions come with costs.
Crypto Wallet
An investor’s cryptocurrency is kept in a crypto wallet. It similarly keeps the digital assets to how a conventional wallet keeps cash. A heated wallet and a cold wallet are the two varieties. Since hot wallets are online, they may be accessed more easily and quickly for transfers. Cold wallets are actual physical objects, similar to USBs with specific designs, that are used to store cryptocurrency offline for longer-term and safer storage.
Ethereum
The term Ethereum refers to both the blockchain that powers it and the second-largest cryptocurrency after Bitcoin. Which is symbolized by the Ether token. This facilitates a wide range of digital assets and applications, including non-fungible tokens. It operates similarly to Bitcoin and other cryptocurrencies. But in 2022 it made the switch to a more environmentally friendly operating system that uses less computers and energy.
