Cryptocurrency has become quite a common topic nowadays, but for those who are new to the crypto space, the jargon and technical terminology can be overwhelming.
To help demystify the world of cryptocurrency, this article presents a glossary of key terms that any crypto enthusiast should know.
A-F
51% Attack: a scenario in which a single entity or group of entities controls more than half of the computing power on a cryptocurrency network. This would allow them to manipulate the ledger and potentially double-spend coins.
Blockchain address: A string of alphanumeric characters that represents a destination for a cryptocurrency transaction. It is similar to a bank account number.
Airdrop: A distribution of free cryptocurrency to a group of users. Airdrops are often used as a marketing strategy to increase awareness of a new project.
Altcoin: Any cryptocurrency that is not Bitcoin (e.g. Ethereum, Solana, etc). The term “altcoin” is short for “alternative coin.”
ASIC: application-specific integrated circuit. A specialized piece of hardware is designed to perform a specific task, such as mining cryptocurrency.
Bear market: Bear market refers to a period of time when the prices of cryptocurrencies are consistently falling (20% and more), typically accompanied by a general feeling of pessimism among investors.
Blockchain: Blockchain refers to a distributed database or ledger that is shared among the nodes of a computer network. Each block in the chain contains a record of several transactions.
Block reward: The amount of cryptocurrency awarded to miners for adding a new block to the blockchain. Block rewards serve as an incentive for miners to continue verifying transactions.
Bull market: A market condition in which cryptocurrency prices are rising (at least 20% and more). Bull markets are often associated with increased optimism and investor confidence.
Cold Wallet: A cryptocurrency wallet that is not connected to the internet. Cold wallets are considered more secure than hot wallets.
Consensus algorithm: A method by which a cryptocurrency network reaches agreement on the state of the ledger. Some popular consensus algorithms include Proof-of-Work and Proof-of-Stake.
DApp: Decentralized application or DApp is a type of application that runs on a blockchain. It is designed to be open source, transparent, and autonomous, meaning it operates without the need for a central authority to manage it. Dapps can be used for a variety of purposes, including financial transactions, gaming, social media, and more.
Decentralized Finance (DeFi): A financial system built on top of a blockchain. Instead of relying on centralized intermediaries such as banks or exchanges, DeFi utilizes smart contracts that are used to automate financial processes and create open, transparent, and programmable systems that anyone can use. It aims to create a more open, transparent, and accessible financial system for everyone.
DeFi offers a range of financial services, including lending, borrowing, trading, and investing, without the need for intermediaries such as banks or brokers. This is made possible through the use of “smart contracts,” which are self-executing computer programs that automate the terms of an agreement between parties.
ERC-20: A technical standard used for smart contracts on the Ethereum blockchain. Most of the tokens issued on the Ethereum blockchain are ERC-20 tokens.
FOMO (Fear of missing out). FOMO is a psychological phenomenon that can drive people to make impulsive decisions, such as buying or selling cryptocurrency. In the context of investing or trading, FOMO often refers to the fear of missing out on a potentially profitable opportunity.
Fork: Fork refers to a software upgrade that results in a split of the blockchain into two separate versions. There are two types of forks: soft forks and hard forks.
A soft fork refers to a backwards-compatible, upgraded version of the existing blockchain. Soft forks are used when the community wants to add some new functions and features and to fix the issues and bugs or upgrade security.
A hard fork is a more drastic upgrade that is not compatible with the old rules of the network. During the hard forks, sometimes a completely new cryptocurrency is created, with its own set of rules, functions, and features.
FUD (Fear, Uncertainty, and Doubt): FUD is a tactic used to create negative sentiment about a particular cryptocurrency or project by spreading false information and rumors that can harm a project’s reputation and reliability.
G-K
Gas: The cost of performing a transaction on the Ethereum blockchain. Gas is paid in ether, which helps to incentivize miners to process transactions.
Genesis block: The first block in a blockchain network, from which all subsequent blocks are linked.
Governance token: A token that grants holders the right to participate in the decision-making processes of a decentralized autonomous organization (DAO) or other blockchain-based project.
Halving: A scheduled event that occurs when the block reward for a cryptocurrency is cut in half. The goal of halving is to control the supply of the cryptocurrency by limiting the amount that can be created. By reducing the reward for mining, it becomes more difficult and expensive to obtain new coins. This scarcity can increase the value of the currency over time.
Hash Rate: The computing power required to verify transactions on a cryptocurrency network. A higher hash rate indicates a more secure network.
Hot Wallet: A cryptocurrency wallet that is connected to the internet. Hot wallets are considered less secure than cold wallets.
HODL: HODL is a slang term used in the cryptocurrency community that means “hold” or “hold on for dear life”. HODLing refers to the practice of holding onto cryptocurrency instead of selling it.
ICO: An Initial Coin Offering (ICO) is a type of fundraising mechanism used by cryptocurrency startups to raise capital. During asn ICO, a new cryptocurrency is offered for sale to investors in exchange for funds.
ICO Bubble: The ICO bubble refers to a period between 2017-2018, when the popularity of ICOs surged and a large number of projects raised significant amounts of money through token sales. Many of these projects were untested and lacked a clear business plan or viable product, leading to a speculative bubble and a crash in cryptocurrency prices, which led to a prolonged bear market.
The ICO bubble was characterized by a wave of excessive hype and speculation, with many investors pouring money into ICOs without conducting proper due diligence. As a result, many ICOs turned out to be scams or fraudulent projects, causing significant losses for investors and contributing to the decline in cryptocurrency prices.
KYC: Know Your Customer. A regulatory requirement that requires financial institutions to verify the identity of their clients.
L-P
Ledger: A database that records transactions in a tamper-proof and transparent manner. Ledgers are maintained by a network of computers (nodes) rather than a single central authority.
Liquidity: The degree to which an asset can be quickly bought or sold in the market without affecting its price. In the context of cryptocurrencies, liquidity is important for ensuring efficient trading and price discovery.
Market Cap: The total value of a cryptocurrency. Market cap is calculated by multiplying the price per unit by the total number of units in circulation.
Mining: The process of creating new units of cryptocurrency by solving complex mathematical problems using specialized hardware. Miners compete to validate new transactions and add them to the blockchain ledger, and are rewarded with new units of the cryptocurrency they are mining.
NFT: Non-fungible tokens are unique digital assets that use blockchain technology to verify their ownership and authenticity. NFTs can be used to represent a wide range of digital assets, including artwork, music, videos, and even tweets.
Node: A node is a computer or device that participates in the network by verifying transactions and maintaining a copy of the blockchain. Nodes can be full nodes, which store a complete copy of the blockchain, or light nodes, which rely on other nodes to provide transaction data. By running a node, users can contribute to the security and decentralization of the network and help ensure that transactions are valid and accurate. Nodes help to verify transactions and maintain the integrity of the blockchain.
Oracle: Oracle is a third-party service that provides external data to smart contracts on a blockchain network. This data can include real-world events, prices of assets, or other information that is necessary for a smart contract to function. Oracles play a critical role in ensuring the functionality and reliability of smart contracts on blockchain networks, and they are an essential component of the DeFi ecosystem.
Proof-of-Work (PoW): PoW is a consensus mechanism used to verify transactions and add new blocks to the chain. In PoW, participants called “miners” compete to solve complex mathematical problems, and the first one to solve the problem gets to add a new block to the chain and receive a reward in the form of cryptocurrency. This process is energy-intensive and requires specialized hardware. Proof of work is used by the Bitcoin network.
Proof-of-Stake (PoS): PoS is a consensus mechanism that, unlike PoW, doesn’t require mining. Instead, participants called validators are chosen to create new blocks and validate transactions based on the amount of cryptocurrency they hold and “stake” in the network. Validators are incentivized to act honestly because their stake is at risk of being slashed if they are found to be dishonest.
Pump-and-Dump: A market manipulation strategy in which a group of investors artificially inflate the price of a cryptocurrency before selling off their holdings at a profit.
Private Key: A secret code that allows a user to access their cryptocurrency wallet. Private keys should be kept secure to prevent unauthorized access.
Q-U
Rug pull: Rug pulls refer to a type of scam in which the creators of a cryptocurrency project or token exit the project by suddenly and unexpectedly removing all liquidity from the project, causing the value of the tokens to plummet. This type of scam is prevalent mostly in the DeFi space, since anyone can launch a new token or project there with little to no regulation or oversight.
Once the token gains traction and the price starts to rise, the creators sell off a huge amount of their tokens, causing a sudden drop in price, and making a profit while leaving investors with worthless tokens. This process is called a “rug pull” because it pulls the rug out from under the investors.
Satoshi: The smallest unit of Bitcoin, equal to 0.00000001 BTC.
Sharding: Sharding is a scaling technique used in blockchain technology that involves partitioning the blockchain network into smaller groups of nodes, called shards, that can process transactions independently. This allows the blockchain network to process a larger number of transactions in parallel, increasing its overall capacity and throughput.
Slippage: Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. This can occur in situations where there is insufficient liquidity in the market for a particular cryptocurrency, causing the price to move rapidly in response to a large order.
Smart contract: Self-executing contracts that are programmed to automatically execute when certain conditions are met. Smart contracts are often used in decentralized finance (DeFi) applications.
Stablecoin: A type of cryptocurrency that is designed to maintain a stable value. Stablecoins are often pegged to the value of a fiat currency, such as the US dollar.
Transaction fee: A small fee paid by users to have their cryptocurrency transactions processed.
V-Z
Validator: Validator is a node on a blockchain network that validates transactions and helps secure the network by participating in the consensus process. Validators typically have a stake in the network’s cryptocurrency, which gives them an incentive to act honestly and prevent fraudulent activity.
Vesting: Vesting refers to the process in which a certain amount of cryptocurrency is locked for a period of time before being released to the holder. Vesting is often used as a mechanism to incentivize long-term commitment to a project or as a way to prevent insiders from dumping their tokens on the market all at once.
Wallet: A software application or hardware device used to store cryptocurrency. Wallets can be either hot (connected to the internet) or cold (offline).
Whale: A term used to describe an individual or entity with a large amount of cryptocurrency holdings. Whales are capable of exerting significant influence on the market.
Whitepaper: A detailed document that outlines the goals, technology, and implementation plan for a new cryptocurrency project. Whitepapers are often used to attract investors and gain support for new projects.
Yield farming: The practice of earning rewards by providing liquidity to a decentralized finance (DeFi) protocol. Yield farming is typically done by depositing cryptocurrency into a liquidity pool and earning a percentage of transaction fees in return.
Conclusion
The world of cryptocurrency can be complex and confusing, especially for those who are new to it. Understanding the terminology and jargon used in the industry is essential for anyone looking to invest in or participate in the crypto ecosystem. By staying informed and keeping up-to-date with the latest developments and trends in the industry, investors can maximize their potential for growth and profit in this exciting and rapidly evolving field.
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FAQ
What is FOMO?
FOMO (Fear of missing out). FOMO is a psychological phenomenon that can drive people to make impulsive decisions, such as buying or selling cryptocurrency. In the context of investing or trading, FOMO often refers to the fear of missing out on a potentially profitable opportunity.
What is 51% Attack?
51% Attack: a scenario in which a single entity or group of entities controls more than half of the computing power on a cryptocurrency network. This would allow them to manipulate the ledger and potentially double-spend coins.