It is useful to explain some terms for those who are new to the cryptocurrency markets. In this article, we will focus on the basic cryptocurrency terms we hear often, what they do and what they mean.
Fiat Money (Fiat Currency)
Fiat money is a type currency that is not based on any commodity, but is issued based on a government decision. In other words, it is traditional money that you can reach into your pocket and touch or look in your wallet and see. In addition to these currencies that we all know such as TL, Euro, American Dollar, there are also cryptocurrencies.
If you are reading this article, you are probably interested in cryptocurrencies instead of fiat currencies. However, in order to buy cryptocurrencies, you still need to send fiat currencies to exchanges or exchange them with a credit card or similar intermediary payment method.
We need to divide cryptocurrencies into ‘coins’ and ‘tokens’ in order to explain better. It is necessary to clearly state these two concepts, which are often confused by those who are new to the world of cryptocurrencies.
We call the original or local currency of a blockchain a ‘coin’. In other words, coins are cryptocurrencies with their own blockchain technology. On the other hand, various projects are produced on these blockchains. Tokens are the local currencies used in these projects and they are also on the blockchain.
Many of our daily transactions from land registry cadastre to notary can be handled on
Many of our daily transactions from land registry cadastre to notary can be handled on blockchain technology, but we need projects that will fulfill these transactions. Currently, these projects are mostly produced on the Ethereum blockchain.
These projects also have tokens that can be stored in Ethereum wallets, also known simply as ERC-20 Tokens. Smart contracts are used to realize these projects. Decentralized finance (DeFi) is the application area where the projects are intense and perhaps the most frequently heard.
So what comes to mind when we think of finance in the physical world? First, there are banks that take deposits and distribute loans. Secondly, insurance companies collect premiums from the customer pool and pay in case of possible insurance. Third, there are the exchange markets.
Exchanges bring buyers and sellers together. There are also fund management companies that manage the money they collect as funds from investors. There can be many physical institutions like these.
Decentralized finance brings all these physical structures to the digital crypto world. When you think of the digital world, don’t just think of digital payment tools such as credit cards.
In fact, we are talking about systems that have no employees and run things with computer codes. Every single project we see in this decentralized finance field is actually a cryptocurrency. Each of these projects can have a token.
Apart from cryptocurrencies that fluctuate in price, such as coins and tokens, there are also coins that are stable in price. These are called stablecoins. Generally, they are coins that are locked to a certain value and traded at that value. They are mainly pegged to fiat currencies such as Turkish Lira, Dollar or Euro.
The most popular stablecoin you often hear about is USDT. USDT, or Tether, is pegged to the US dollar, and 1 USDT is always equal to 1 US dollar. But why do we need stablecoins?
When trading on digital exchanges, selling profits or selling your holdings, you may not always want to switch to fiat money. In such cases, you can stay in the market by converting your money to Tether or another stablecoin.