Crypto 101: Crypto Basics – Key Terms Explained

Introduction

Cryptocurrencies and blockchain technology come with a wealth of new terms. This page gives beginners a quick overview and explains the most important concepts step by step.

Cryptocurrency

A cryptocurrency is digital money based on cryptographic methods. Unlike traditional currencies, there is no central authority such as a bank. Transactions are carried out directly between participants via a decentralized network. The most well-known example is Bitcoin.

Blockchain

The blockchain is the foundation of most cryptocurrencies. It works like an immutable ledger, in which all transactions are stored chronologically in blocks and linked together. Due to cryptographic signatures and decentralized distribution across many computers, it is considered particularly tamper-resistant.

Wallet

A wallet is the digital wallet for cryptocurrencies. It does not store the coins themselves, but rather the associated key pairs. With a wallet, you manage your addresses, sign transactions, and can receive or send funds. There are different types, such as software, hardware, or paper wallets.

Private Key and Seed Phrase

The private key is your secret key. Whoever possesses it can control the corresponding coins. To securely back up multiple addresses, there is the so-called seed phrase—a list of words from which all private keys can be derived. These words should never be stored online, as they provide access to your entire balance.

Exchange

An exchange is a trading platform where cryptocurrencies can be exchanged for other coins or for fiat money. Well-known examples include Coinbase and Binance. When choosing an exchange, users should pay attention to security, regulation, and fees.

Mining

Mining is the process of creating new blocks for a blockchain. Miners provide computing power, solve complex mathematical tasks, and thus secure the network. As a reward, they receive newly created coins as well as transaction fees. Mining is especially relevant for proof-of-work systems like Bitcoin.

Proof of Work

Proof of Work (PoW) is a consensus mechanism made famous by Bitcoin. To add a block, miners must solve a computationally intensive puzzle. This proof of work prevents manipulation, since an attacker would need an enormous amount of computing power to create competing blocks.

Proof of Stake

Proof of Stake (PoS) is a more energy-efficient alternative to PoW. Here, block creation is secured not by computing power, but by staking coins. Participants who “stake” their coins can be selected as validators and receive block rewards for their contribution.

Smart Contract

A smart contract is a program that runs on a blockchain and executes itself according to predefined rules. Typical use is on Ethereum. Contracts can automate transactions without intermediaries as soon as certain conditions are met.

Decentralization

Decentralization means that no single authority controls the network. Many independent participants operate the infrastructure together. This increases resilience and makes censorship or manipulation more difficult—especially important for public blockchains.

Token

Tokens are digital units issued on an existing blockchain. They can have various functions: from payment methods to access rights or voting shares in a project. Tokens are often created via smart contracts on Ethereum.

NFT

NFT stands for Non-Fungible Token. Unlike cryptocurrencies like Bitcoin, every NFT is unique and not interchangeable. NFTs are often used as digital proof of ownership for artwork, collectibles, or in-game items and are traded on the blockchain.

Conclusion

With these terms, you’ve learned the key building blocks of the crypto world. If you want to dive deeper, our additional guides will help you expand your knowledge and navigate the crypto space safely.