Guides

Dictionary of Cryptocurrency Terms

Cryptocurrency Terms

Crypto. HODL. DApp. Huh?

Yes, these are words invented very recently and yes, they are most certainly here to stay. These are just some of the many new terms in the language around blockchain and cryptocurrencies.

Crypto has been a hot topic since 2017 and it’s definitely getting hotter as the price of the total market capitalization of cryptocurrencies continues to hover around the $2 trillion level. Cryptocurrencies are in essence a novel investment option with a kick to it. Crypto can be compared to the traditional stocks and bonds market, however operating in the blockchain ecosystem allows things no one would have believed five years ago to be possible. To be a successful crypto investor, one needs to become familiar with the basic terminology, the details around emerging scalability solutions, memes and tweets and types of DeFi tokens that would leave even a seasoned traditional investor scratching his head.

Crypto has made millions for people who are eager to learn. For new crypto investors there is a simple rule to follow, which we highly recommend before making your first crypto purchase – pay down any high-interest debts you may have, secure your minimum traditional retirement plan and set some of your emergency funds aside for bad days.

Now that we have that covered, make sure you have at least a beginner’s understanding of what this space is all about, plus some traditional investment strategies and some knowledge about the factors which influence the cryptocurrency market. 

Let’s get right into it with the most important terms and phrases that will help you, the crypto beginner, to understand the world of crypto investing better.

Crypto terms you should know

Altcoin

As you probably know, Bitcoin is the giant in the crypto space. Everything else that isn’t Bitcoin is called an altcoin. Even Ethereum, the second-most popular coin. New investors usually go for the top 5 coins, as they are more mainstream and follow Bitcoin’s market movements rather closely.

Bitcoin (BTC)

Back in 2009, right after the financial crisis, the very first cryptocurrency, Bitcoin, was created by a person or organization acting under the pseudonym Satoshi Nakamoto. Its popularity has grown steadily since then and last year Bitcoin climbed up to a whopping $69,000 per Bitcoin and dropped down to around $30,000 over the course of a couple of months. Usually the altcoin market follows Bitcoin’s trend – if it goes up, the altcoins follow. 

Bitcoin Cash (BCH)

After arguments amongst the Bitcoin community, a peer-to-peer electronic cash system was formed from a fork (separation) of the original Bitcoin. The idea was to establish a coin to be optimized for transactions, as Bitcoin has arguably become too volatile to be used as a currency.

Block

A block is groups of datasets within a blockchain that make up the transaction records as users buy or sell coins, something like a receipt. Each block holds a certain amount of information and after it has reached its limit, a new block is formed, continuing the chain. Once created, these blocks cannot be altered or changed in any way, acting as validators.

Blockchain

Blockchain is a technology invented back in the 20th century. It has been further developed and popularized by the creation of Bitcoin. Blockchain technology is the groundwork for all the other crypto space innovations which have developed and keep developing projects and dApps. In simple terms, a blockchain algorithm is the combination of sequential blocks that build upon one another, creating a consensus mechanism, decentralized ledger of all transactions occurring on the network solely using computing power.

Coin

It is a representation of a digital store of value running on a blockchain network. There is a very large variety of categories of coins, so it’s important to educate oneself before investing. Furthermore blockchain and cryptocurrencies can have the same name, like Bitcoin, however others such as the Terra or Cosmos blockchains have different native coin names – LUNA and ATOM respectively.

Cryptocurrency

A cryptocurrency is a type of a digital asset that uses cryptography in its security protocol to verify transactions on its decentralized network. Furthermore, cryptocurrencies can be used to buy or sell things, or as a long-term store of value. There are many different types of crypto.

Halving

A feature written in the Bitcoin code by which its block rewards from mining are reduced by 50% every 4 years. The halving has an impact on Bitcoin’s price because this process creates scarcity of the total supply which is capped at 21 million.

Hot Wallet

A convenient way to store and quickly access cryptocurrencies is via a software wallet app connected to the internet. This approach is more susceptible to hacking and cyberattacks than when using a cold (hardware-based) wallet

Initial Coin Offering (ICO)

ICO is the first offering for public purchases and sale of tokens or digital assets. This is the initial way to raise funds for a new cryptocurrency project. ICOs are similar to Initial Public Offerings (IPOs) in stocks.

Hard Fork

A blockchain update that is not compatible with the previous version of the same cryptocurrency protocol. The new protocol splits into an entire new branch starting from block 0. The most famous example is the forking of Bitcoin which resulted in Bitcoin Cash.

Gas

Gas is associated with the transaction fees of running a smart contract on the Ethereum network. It is paid in Ether, the native token of Ethereum.

Genesis Block

The first block in the blockchain of any cryptocurrency ever mined is called the Genesis Block.

HODL

The term HODL stands for “ Hold On For Dear Life”. However, the term was first derived from a typo of HOLD by a user on a Bitcoin forum back in 2013. It is referred to as an investment strategy of buying a cryptocurrency and holding it.

Market Capitalization

Cryptocurrency market capitalization (market cap) is the total value of circulating supply of all cryptocurrencies. To calculate the value of a cryptocurrency, multiply its current price with its current supply.

Mining

The process where new cryptocurrencies are created by solving difficult mathematical problems is called mining. After being verified and added to the blockchain network, miners usually receive a reward for their time and work.

Node

A computer connected to the blockchain network is called a node.

Non-fungible tokens (NFTs)

NFTs are unique digital assets, like art or collectibles, which can’t be replaced by a generic item and represent the value of true ownership. Most NFTs are held on the Ethereum blockchain.

Peer-to-Peer

A system where two users interact directly to conduct financial transactions with each other without a third party or intermediary, such as a bank.

Public Key

A cryptographic key, which acts as the user’s wallet address (similar to your bank account number). When shared with people or institutions, they can send or withdraw funds from your account if you authorize it. Public keys usually consist of 64 characters to encrypt your wallet.

Private Key

A cryptographic key that grants direct access to your cryptocurrency wallet. Similar in function to your bank account PIN and, as such, should never be shared with anyone.

Satoshi Nakamoto

Satoshi Nakamoto is the pseudonym of the creator(s) behind Bitcoin. His true identity remains a mystery to this day.

Smart Contract

A piece of code executed on a blockchain after certain conditions have been met allowing decentralized applications to function. The ability to execute smart contracts is one of the main value propositions of the Ethereum network.

Ethereum (ETH)

Ethereum is the second largest crypto asset by trading volume. Its popularity comes from its smart contract capability. Ethereum is a crypto network and a software platform that developers use to create new decentralized applications on.

Exchange

A cryptocurrency exchange is a platform where users can buy, sell or trade cryptocurrencies for other digital assets or traditional currencies like US dollar or Euro. They vary between being centralized exchanges (CEX) or decentralized exchanges (DEX) in nature. DEX exchanges like Uniswap allow users to store their crypto in cold storage and allow peer-to-peer trading without informing intermediaries or taking fees along the way. CEX exchanges like Binance or Coinbase are considered the mainstream crypto financial institutions, which require user verification, trading fees and are required to share user trading information with the governmental authorities.

Cold Wallet/ Cold Storage

There are many ways to store your cryptocurrencies. One is by storing your crypto offline. In most cases using cold wallets, also known as hardware wallets, look similar to a USB drive and are considered to be a very secure storage method against hackers and crypto thieves. However as this is a physical device it can be lost. Fortunately, if you still have your cold wallet’s seed phrase, the crypto that was stored in it can still be recovered.

Decentralization

Before the emergence of blockchain and cryptocurrencies, we all lived in a centralized world where the central authorities wield power over the execution of operations. Decentralization is the exact opposite – power is distributed and requires majority approval  from all users to operate and make changes of any kind.

Decentralized Finance (DeFi)

Decentralized Finance encompasses all financial activities performed without the need of intermediaries. DeFi uses decentralized applications (DApps) to enable lending platforms, exchanges, prediction markets and many more solutions to function. 

Decentralized Applications (DApps)

DApps are applications built and hosted on a blockchain network and designed to carry out peer-to-peer transactions without intermediaries. Many DApps operate within the DeFi sector and are used to perform financial activities.

Digital Gold

For centuries, gold has been considered a strong investment asset. As many cryptocurrencies have appreciated in value and popularity, some experts compare specific cryptos to real gold. Bitcoin, the most popular crypto, is often referred to as digital gold.

Stablecoin or Digital Fiat

A cryptocurrency pegged to a non-digital currency or commodity is referred to as a stablecoin. The most famous digital fiat is Tether (USDT), which is pegged to the US dollar (fiat currency). Stablecoins’ main purpose is to help crypto traders and investors survive the market volatility.

Token

A token is a unit of value on a blockchain. It is used for various purposes within a crypto ecosystem. Tokens can represent any tradable asset such as gold, silver, oil, loyalty points, real estate, or even other cryptos.

Vitalik Buterin

The inventor of Ethereum way back in 2015.

Wallet

A crypto wallet is a digital location used to store cryptocurrency holdings by using private and public keys to provide access. Most exchanges offer digital wallets which can be hot (online) or cold (offline).

Whale

There is a famous saying you will hear within the crypto space – “Whales move the market.” Whale investors have a substantial amount of capital and can influence the price direction of a coin or token.

Staking

The term staking coins or tokens refers to locked digital assets, which act as a long-term investment, similar to buying a bond. In essence you are effectively locking the coins and earning rewards over time.

Distributed ledger

As the name suggests, this is a type of digital ledger that has its data distributed across different locations and countries across several nodes. This approach keeps data decentralized, secure and transparent to those involved in it, as well as allowing faster processing speeds.

Decentralized Autonomous Organization (DAO)

An institution or entity which runs solely by voting consensus enabled by smart contracts and governed by its token-holding community.

Memecoin

Memecoins, as the name suggests, are crypto assets primarily driven by hype.

Lightning Network

The lightning network is used to solve the scalability issues Bitcoin is facing. By taking the transactions off the main blockchain (off-chain) they can be executed faster, less costly and be more readily confirmed.

FOMO

FOMO is an acronym for “Fear Of Missing Out”

ATH

The highest price a digital asset has ever reached since being listed on the market is referred to as an “All-Time High”

KYC

KYC is an acronym for “Know Your Customer”. It is used in relation to various Fintech apps and crypto exchanges.

PoW

Proof of work (PoW) is a decentralized consensus mechanism that is utilized to validate the transactions and mining of new tokens. It requires members of a blockchain network to race each other in solving a complex puzzle equation. The winner is rewarded by the network with a predetermined amount of crypto.

PoS

Proof-of-stake uses randomly selected miners who have staked their crypto in the network to validate transactions. They earn crypto rewards in relation to the amount of crypto they have staked.

Was this post helpful?

Related posts

uk piggy bank with medal
ACCOINTING.com– The Best Tool to File Your Cryptocurrency Taxes in the UK
Are you stressed out because of your crypto taxes? Indeed, the entire process of complying...
5 Steps to File Your Cryptocurrency Taxes in the U.K
If you have made crypto gains and have no idea where to start when declaring...
connections with nodes
Cryptocurrency Staking and Mining
Staking and mining are two terms often seen in the cryptocurrency world. But have you...