It’s impossible to avoid the buzz around cryptocurrencies right now. From Bitcoin to Ethereum, and other transactions on the blockchain, this thoroughly modern currency type is set to be hugely influential in the world of property investment.
But with any new technology comes a slew of terminology. We’ve compiled a glossary of the key words you’ll be hearing a lot and, more importantly, what they mean.
Let’s start at the beginning. Although the word has ‘currency’ in it, buying cryptocurrency is more like buying stocks than exchanging your money for a different currency. When you buy cryptocoins, you are buying part of the blockchain and shares in the tech company issuing the coin. As yet, there are very few places that accept cryptocurrency as payment in the ‘real’ world, though some providers, such as Monaco, offer debit cards which allow you to spend your cryptocoins.
The words ‘cryptocurrency’ and ‘blockchain’ are frequently used in the same sentence, but they are different things. In short, blockchain is a completely secure method of trade, where blocks of data are ‘hashed’ into a sequence, making it impossible to hack without altering the data. It is this method that cryptocurrency is exchanged from owner to owner. You can read our full guide to blockchain here.
As Bitcoin was the original, established back in 2009, any alternative cryptocurrency which has come afterwards has been referred to an ‘altcoin’. Bitcoin is still very much considered to be the leading cryptocoin, but common altcoins include Ethereum, Ripple and Dash.
Initial coin offering
Initial coin offering is the cryptocoin version of crowdfunding, and is how new cryptocurrencies are established. Initial investors are offered coins in exchange for real world currency, or often Bitcoin, which provides the capital for the launch of the coin and the blockchain platform. The initial coin offering will run for a set amount of time, during which the company must earn the amount outlined in its white paper for the project to go ahead. If this doesn’t happen, all money is returned to investors.
This relates to the initial coin offering, and refers to the minimum amount of capital a new cryptourrency must achieve before proceeding.
A hard cap is the maximum sum a new crpytocurrency can raise in its initial coin offering. This ensures a finite number of coins is issued, though the bar is generally set very high and it is rare for a cryptocurrency to meet its hard cap during the initial coin offering. Crypterium is one of the rare exceptions, and met its hard cap within 13 weeks.
This is where you can trade cryptocoins. Popular exchanges include Coinbase and Coinsquare. Before choosing an exchange, there are several things to consider, including what payment methods they accept, the exchange rate (this varies from exchange to exchange, as it would were you buying foreign currency on the High Street), and any geographical restrictions.
Just like with paper money, cryptocoins are kept in wallets – it’s just that these ones are virtual. Exchanges offer in-platform wallets, however after high-profile exchange Coincheck Inc. lost $500 million of customer deposits to hackers in January, it’s become increasingly popular for traders to store their cryptocurrency externally. This could be online, or in a hardware wallet such as KeepKey.
Simply put, mining is the process of solving sections of a blockchain for a reward. Just as miners dig for gold, people will solve complex mathematical puzzles in exchange for currencies such as Bitcoin. There are currently over 800 cryptocurrencies that can be mined, though be warned – it’s a tricky and resource-intensive method of acquiring cryptocoin capital.