Wallet, blockchain, mining, crypto exchange, marketplace – in this guide we explain the most important terms related to cryptocurrencies. With this, you are well prepared to trade Bitcoin, Ethereum & Co. and to participate in the development of cryptocurrencies.
Cryptocurrencies – not only speculative
Bitcoin, Monero, Ripple and all the other cryptocurrencies are for many investors a speculative investment – with some risks and enormous opportunities. The technical development behind the crypto boom is unfortunately too often pushed into the background. Yet the development of bitcoin trading and the blockchain is a technical revolution. So that you also understand what else distinguishes cryptocurrencies in addition to a strong ups and downs in the price, we explain the most important terms around the topic of cryptocurrencies below in a simple and understandable way.
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What is a wallet?
A wallet is comparable to an electronic wallet or a “private” checking account. A wallet allows you to make transfers with cryptocurrencies and receive digital money. A transfer with Bitcoin, Monero or Ripple is basically no different from a transfer using a conventional bank account. Instead of an account number, only a receiving address is required. Because digital currencies are “transferred” directly from person to person without an intermediate instance, there are hardly any fees involved – no infastructure or banker has to be paid with it.
In addition, you can combine alls cryptos in one wallet, regardless of which provider you bought them from. So, you can keep Moneros that you bought through a crypto exchange along with Moneros that you bought from a marketplace in a single Monero wallet. However, you usually need a separate wallet for each cryptocurrency, so you need a Bitcoin wallet for Bitcoins, a Monero wallet for Moneros, and a Stellar wallet for Stellar.
You can set up a wallet on your smartphone, which is perfect for daily use. But you can also store your electronic wallet on your tablet or PC.
- Important: If you have installed a wallet on your device, you should protect it with a strong password as soon as possible, otherwise hackers could steal your cryptocurrency. Write down your password and deposit it in a safe place. In order to perform a transaction, you will then need the access code again. You can also get yourself a hardware wallet, this is comparable to a USB stick. You can then transfer your digital money to this “stick” from time to time – and secure it independently of your devices.
- Tip: If you lose your hardware wallet, the cryptos you have backed up there will also be lost forever. For somewhat messy natures, a smartphone wallet with a strong password might therefore be a better choice.
What is a blockchain?
A blockchain is a database that is behind every cryptocurrency. All transactions are written to the blockchain one after the other, i.e. chronologically linear, and in a decentralized manner, so that all transactions can be traced by any user at any time. This procedure is comparable to a chain, to which new elements are constantly added at the bottom end – “blockchain” comes from the English and means “block chain”.
Once a block is completely described, the next block is generated. Since each block contains a checksum of the previous block, manipulations can be prevented in this way, although every user has insight into the blockchain. The Blcokchain is thus comparable to a web-based, decentralized and public accounting system that notes all transactions that have ever been made.
The blockchain is the heart of crypto technology and makes money flows independent of institutional entities possible in the first place. The most famous cryptocurrency, Bitcoin, made it possible for the first time through this technology to conduct financial transactions without the supervision of a central government bank such as European Central Bank ECB or US Federal Reserve.
What is mining?
Some cryptocurrencies, including Bitcoin and Ethereum, can theoretically be produced by anyone. This process is called “mining” (from English “to mine” for “to dig”). However, the prerequisite for mining is a so-called mining rig, a high-performance computer. This is particularly suitable for “producing” cryptocurrencies.
In addition to the corresponding computing power, “prospectors” also need suitable mining software. Instructions on how to build a mining rig can be found in various Internet forums. The basic requirements for a mining rig are the most modern hardware components such as fast graphics cards, high-performance processors and a large working memory. Often, several processors have to be interconnected to form a mainframe computer in order to even generate the appropriate computing power for mining cryptos.
Investors who see their competencies more in the area of stock markets are not recommended to mine cryptocurrencies. It is hardly possible to mine cryptocurrencies without special IT skills.
Those who want to buy the cryptocurrency Bitcoin can do so on a so-called Bitcoin marketplace. There, crypto traders trade directly with each other, and the price is formed by supply and demand. A transaction is concluded when an offer from one user is accepted by another.
Depending on the marketplace, the operators charge a small fee for the exchange, for the deposit as well as for the withdrawal of the money. If you want to trade via bitcoin.de, you should have an account with Fidor Bank, for example. This one specializes in cryptocurrency trading, you can also trade online currencies via crypto marketplaces with any other bank account.