This edition, let's look at another 3 comparisons between common blockchain terms and learn what makes them similar, yet very different.

4. APR (Annual Percentage Rate) vs APY (Annual Percentage Yield

You would come across these terms when you're trying to stake crypto to earn interest. Here's the difference.

APR: If you stake $1000 of your tokens with 3% APR, each year, you get 3% ($30) on top of the original $1000, which remains your base amount forever.

APY: Your $1000 at 3% APY becomes $1030, and then the next year, you get 3% on $1030, and then 3% of $1060 and so on. This is also known as 'compound interest', where your base amount changes according to the APY, like pushing a rock up a hill as it collects more material until the rock becomes much bigger. (Don't mind the Sisyphus reference)

5. Hot vs Cold Wallet

If you're holding your crypto in a wallet, you would need your keys to access it. The main difference?

Hot Wallet: This is a software application/browser extension that's connected to the internet, where you can access Web3 or DeFi platforms by signing in and doing your thing. The problem is, if you're not careful with your keys, you'll be vulnerable to getting your funds stolen. E.g., Trust Wallet, MetaMask, etc.

Cold Wallet: This is a physical device for offline storage, like a safe or an external hard drive. The only way to lose your funds is by losing the whole device.

6. PoW (Proof-of-Work) vs PoS (Proof-of-Stake)

These are the 2 most common mechanisms that secure the network and verify transactions.

PoW: The original mechanism that powers Bitcoin and pre-2022 Ethereum. It requires plenty of electricity and computing power, like GPUs, to make a transaction. In return, the miners running these machines earn rewards.

PoS: A less power- and labour-intensive method where, instead of mining, the network uses validators who lock their tokens into the network to process transactions. The more tokens they lock, the more power they provide. This is the reason why post-2022 Ethereum fees don't cost as much as they used to and you hear fewer complaints about how crypto burns too much electricity.

There'll be more of these explainers coming up. Let me know if there are any blockchain terms that you may have come across but struggle to understand, and I'll help simplify them for you.

Stay tuned for more coming up!

This edition, let's look at another 3 comparisons between common blockchain terms and learn what makes them similar, yet very different.

4. APR (Annual Percentage Rate) vs APY (Annual Percentage Yield

You would come across these terms when you're trying to stake crypto to earn interest. Here's the difference.

APR: If you stake $1000 of your tokens with 3% APR, each year, you get 3% ($30) on top of the original $1000, which remains your base amount forever.

APY: Your $1000 at 3% APY becomes $1030, and then the next year, you get 3% on $1030, and then 3% of $1060 and so on. This is also known as 'compound interest', where your base amount changes according to the APY, like pushing a rock up a hill as it collects more material until the rock becomes much bigger. (Don't mind the Sisyphus reference)

5. Hot vs Cold Wallet

If you're holding your crypto in a wallet, you would need your keys to access it. The main difference?

Hot Wallet: This is a software application/browser extension that's connected to the internet, where you can access Web3 or DeFi platforms by signing in and doing your thing. The problem is, if you're not careful with your keys, you'll be vulnerable to getting your funds stolen. E.g., Trust Wallet, MetaMask, etc.

Cold Wallet: This is a physical device for offline storage, like a safe or an external hard drive. The only way to lose your funds is by losing the whole device.

6. PoW (Proof-of-Work) vs PoS (Proof-of-Stake)

These are the 2 most common mechanisms that secure the network and verify transactions.

PoW: The original mechanism that powers Bitcoin and pre-2022 Ethereum. It requires plenty of electricity and computing power, like GPUs, to make a transaction. In return, the miners running these machines earn rewards.

PoS: A less power- and labour-intensive method where, instead of mining, the network uses validators who lock their tokens into the network to process transactions. The more tokens they lock, the more power they provide. This is the reason why post-2022 Ethereum fees don't cost as much as they used to and you hear fewer complaints about how crypto burns too much electricity.

There'll be more of these explainers coming up. Let me know if there are any blockchain terms that you may have come across but struggle to understand, and I'll help simplify them for you.

Stay tuned for more coming up!