Education on Cryptocurrencies: Fundamental Concepts (Part 2)

On January 17th, we published one of our most detailed articles aimed at introducing users to the world of cryptocurrencies. In this post, we explained the fundamentals of purchasing and storing cryptocurrencies. We always saw it as the first part of what could easily become a comprehensive dictionary, with additional entries over time. Understanding basic Blockchain concepts is essential for harnessing the benefits of this disruptive technology. It not only provides us with tools to communicate effectively within this community but also enables us to share knowledge with those seeking to get involved. Moreover, expertise in this area is increasingly valued in the job market, opening doors in software development and consulting.

For any questions or to propose the definition of other concepts, feel free to contact us through this form.

DAO (Decentralized Autonomous Organization): It’s an organization that operates based on parameters defined in smart contracts. These parameters are established through the voting and decision-making process among the entity’s members. In simple terms, participants agree, and the DAO operates without direct human intervention. Many believe this concept came to life with the launch of ‘The DAO’ in 2016… Despite that setback, these types of companies have gained traction over the years, so much so that their treasuries now accumulate over 40 billion dollars.

ICO (Initial Coin Offering): It’s a method used by crypto-related projects to raise capital. The team behind the initiative issues a specific amount of tokens on an existing Blockchain and sells them for a certain period following their issuance. This way they can raise assets like Bitcoin, Ethereum, and even fiat money. Naturally, investors participate hoping the project will succeed in the future, which would increase the value of the acquired tokens. Nowadays, ICOs are conducted in two or more phases, and the token distribution process is carried out using smart contracts.

Lending: Involves lending out cryptocurrencies in exchange for generating interest. In other words, it’s a way to earn passive income using crypto assets that are already in our possession. While it’s common to find people engaging in lending through specialized platforms, we strongly recommend exercising caution and conducting thorough research. Take plenty of time to consider before making a decision.

Mainnet: It’s the fully operational version of a blockchain. This is where all cryptocurrency transactions take place and smart contracts are executed. A mainnet represents the stage at which a blockchain project becomes fully functional and is ready to be used by the public.

Mining: It’s the process of solving mathematical problems to verify and secure the validity of transactions on a blockchain, which demands considerable computing power from miners. When a miner successfully validates a block and adds it to the blockchain, they are rewarded with a certain amount of cryptocurrency.

Mempool: It’s a “memory” where pending transactions are temporarily stored before being included in a block. It’s easy to understand: when a user sends a transaction, it’s broadcast across the network and added to the mempool of each node. Miners select transactions from the mempool—usually prioritizing those with higher fees—to include them in the next block they are mining.

Node: It’s a computer within the Blockchain network that helps maintain it. Nodes adhere to a network protocol and assist in verifying and propagating transactions. There are several types of nodes: Full Nodes, dedicated to storing an exact copy of the Blockchain and validating all transactions; Light Nodes, which don’t store the entire network but rely on Full Nodes for validation; and Mining Nodes, computers that use processing power to solve complex mathematical problems and validate transactions.

Phishing: It’s a type of cyberattack where attackers aim to steal personal information by tricking individuals into revealing sensitive details like credit card numbers, passwords, and bank account information. Usually, these attacks involve sending deceptive emails that appear legitimate, using persuasive language, logos, and other elements to deceive victims into trusting them without verifying the source’s authenticity.

Staking: Involves locking funds in a specific wallet to validate operations on a blockchain, thereby supporting network security and ensuring the creation of new blocks. In this process, participants receive new cryptocurrencies as rewards or transaction fees. Staking is particularly used in networks that operate on the Proof-of-Stake (PoS) consensus algorithm.

Startup: It’s a widely used term in the technology industry. These are companies in their early stages known for introducing new products, services, or business models. While they are established with the aim of rapid growth, the most turbulent and challenging phase occurs at the outset: raising capital to finance the takeoff.

Trading: Involves the buying and selling of cryptocurrencies like Ethereum, Cardano, Dogecoin, or any other project, to make profits through speculation. This practice is already a classic in traditional financial markets, such as the stock market or forex, as it entails buying at a certain value with the expectation of selling at a higher price. Traders employ various strategies, including day trading—opening and closing orders on the same day—, hodling—buying crypto and holding it long-term—, and swing trading—orders that can remain open for days or weeks.

Testnet: It represents a safe and controlled environment where developers can conduct tests without compromising the integrity of the main network (Mainnet). This allows for the identification of errors and the implementation of updates, reducing associated risks and stress loads.

Soft Fork: Unlike a hard fork, a soft fork doesn’t split a blockchain or create a new cryptocurrency. Instead, it adjusts the network protocol so that transactions valid under the old rules remain valid under the new ones. For example, if a soft fork increases block capacity, transactions meeting the old limit, say 1 MB, stay valid, while new ones can be up to 2 MB.

White paper: It’s a document that offers a thorough description of a project’s aspects and fundamentals. Usually written by subject matter experts, it provides technical details and in-depth analysis. While utilized across different fields such as finance, medicine, and engineering, in the crypto realm, they’re utilized by development teams to introduce new cryptocurrencies, decentralized applications (dApps), consensus protocols, and other innovations.

(Special bonus) Hamza.biz: It’s the pioneering Web3 e-commerce platform powered by the Loadpipe protocol and the LOAD token. Our site is already live, and we’re diligently working to achieve the milestones outlined in our roadmap. The key to revolutionizing the e-commerce industry is enhancing decentralization, enabling buyers and sellers to trade freely while accessing a wide variety of cryptocurrencies and stablecoins. Users will be empowered to transact using L2 Optimism—a layer 2 Blockchain of Ethereum—thus gaining greater financial autonomy and fostering the emergence of new local and global markets.