Cryptocurrency has many niche-specific terms. But you won’t need to bother google that much after going through this easy-to-digest guide.
Crypto is confusing to the new. While the pros may not agree, ask them about their first day at the office, and most will have second thoughts.
So consider these some quick bytes to jump-start your crypto journey.
Without any further ado, let’s get started.
Blockchains are digitally distributed ledgers that keep records of every entry (transaction) specific to them. Blockchain technology is the foundation of cryptocurrencies, and there are many blockchains linked with particular projects.
Notably, crypto is just one application, and there can be countless more, leveraging its immutability and transparency.
Cryptocurrencies (aka crypto) are computer currencies. The oldest of them is Bitcoin. But there are thousands of them, each having different value and supply limits.
Notably, it’s this scarcity that helps their price move upwards, along with other major factors like their market acceptance.
They are often touted as alternatives to fiat currencies. However, their limited practical usage makes them investment opportunities at best. Their value isn’t based upon anything concrete but public speculation alone.
Mining (and Staking)
Centralized bodies like Governments regulate fiat currencies. For crypto, it’s the miners and stakers that do this job. They shoulder the task of validating the transactions on the respective blockchains.
However, they reap excellent rewards, mostly in the same crypto-asset they mine or stake.
Altcoin is short for Alternative Coin. This term, Altcoin, is used for all other coins other than the mighty Bitcoin. The indication is clear that no coin is as important as the first cryptocurrency.
As of this writing, this isn’t completely untrue. When judged by market cap, Bitcoin is bigger than the other top nine coins combined.
However, some go at length and call all others Shitcoins, a derogatory version of Altcoins.
Bitcoin Maximalists share a common belief about the superiority of Bitcoin over Altcoins. They, in fact, don’t support creating other coins and go on to argue that only Bitcoin holds the key to decentralized finance.
In addition, they indicate that the length of any blockchain network is its core strength, where Bitcoin easily wins over others.
However, other crypto came into existence to address the shortcomings of the Bitcoin network, such as the huge carbon footprint of Bitcoin mining. As per 2021 data, the Bitcoin network emits the same amount of carbon dioxide–37 megatons per year–into the atmosphere as entire New Zealand.
So, only the future holds the fate of Bitcoin Maximalism. And it will be interesting to see if Bitcoin actually renders other cryptocurrencies useless and becomes the future of all decentralized transactions.
The biggest drawback of crypto is its volatility. Their value frequently fluctuates, making them routinely dance through highs and lows.
BTFD, Buy The F##king Dip, is the dangerous modus operandi for the uncaring crypto investor. It’s about buying every time the crypto slides. The sole purpose is to maximize the crypto amount for a given sum in the hope of having lucrative gains in the future.
Decentralized Applications (DApps)
DApps are like normal apps but decentralized, free from any central regulating authority. They use blockchain technology to function and store data.
A normal user might not notice any difference in the interface; it’s the underlying code that stays open to users. In addition, they are governed by smart contracts, and any change in the application protocols mandates user consensus.
Decentralized Finance (DeFi)
DeFi is an attempt to replace the current, centralized financial system.
With no middlemen, users will control their assets, using them at their will without hefty transaction fees and cutting processing times.
This also removes the need for approvals from banks or governments. Powered by the blockchain, every transaction will be permanent with the DeFi services accessible with just an internet connection.
In addition, DeFi works without any personal identification. The easiest and the oldest application of DeFi is Bitcoin. It lets you control your funds, making you the sole authority without any intermediary.
Digital Fiat (aka CBDC)
Central Bank Digital Currencies (CBDC) or Digital Fiat are virtual versions of government-backed money.
The concept is to have an alternative financial system without the demerits cryptocurrencies ship with. They can be held on public or private blockchains. Alternatively, CBDC can leverage the security of public blockchains and the control of private blockchains by deploying hybrid chains.
The key difference between crypto and digital fiat will remain the volatility and convenience of use. While Bitcoin (and other cryptos) sounds so futuristic, its use as a regular currency isn’t there yet.
However, the actual application of CBDC on a country-wide scale is yet to materialize anywhere. And it is suspected to have its fair share of problems, such as cybercrimes.
Forks are upgrades to blockchain protocols. They can be milder (soft forks) and still be backward compatible. Or the new rules can be severe, resulting in a hard fork dividing the network from that point onwards.
For instance, the bitcoin community was divided on block size limit, which roughly relates to transaction verification speed. This resulted in a hard fork, leading to the creation of Bitcoin Cash in August 2017, which increased the block size to 8MB from the original 1MB.
In contrast, SegWit was a soft bitcoin fork that allowed faster transaction verification while keeping the original block size. And it obviously didn’t create yet another chain.
However, after some time, the Bitcoin community was again at loggerheads. Some developers wanted to reduce the mining difficulty to discourage the use of tailored hardware like the ASIC miners. This resulted in Bitcoin Gold, which changed the hashing algorithm to favor ordinary miners with everyday graphic cards.
Genesis Block is the first-ever block in any blockchain network. Also called Block 0, this is the only block in the whole network not referring to any previous block.
In addition, this gets solely created by the developer without any decentralized network.
Halving is a periodic reduction in the mining rewards.
For example, Bitcoin mining rewards are halved every 210,000 blocks. In 2009, the reward for mining a single block was 50 BTC. At present, after three halving events, it currently stands at 6.25 BTC. The next such event is scheduled somewhere in 2024, which will bring down this value to 3.125 BTC.
The sole purpose of halving is to push the value of a coin upwards by inducing artificial deflation.
Hash rates directly correspond to the miner’s ability to create new blocks.
The Hash rate requirements adjust according to computational power availability. Fewer miners with low computation in a network bring the difficulty level down to keep adding blocks at the same pace. Similarly, a higher mining difficulty needs a greater hash rate for adding the block in the same amount of time.
This time varies between networks. For instance, Bitcoin adds a block every 10 minutes, while Litecoin does this in 2.5 minutes.
A greater network difficulty also means a robust network, making it hard for the bad actors to play foul. Hash rate is denoted in calculations done per second like 5 Th/s signifies five trillion calculations per second.
HODL is the misspelled version of HOLD, which isn’t another acronym but simply means to hold and avoid selling when prices start falling.
Some also say HODL when they actually mean Hold On for Dear Life, technically making it an acronym.
This started on December 18, 2013, on bitcointalk forum. One frenzied investor by the name ‘GameKyuubi’ titled his comment I AM HODLING.
By HODL, the user tried to distinguish between the weak hands, who sell with the starting signs of a slide, and the smart ones, capable of pricing the market accurately. In between lies a normal trader who just HODLs.
Afterward, it became the most famous meme in the crypto universe and a mantra for crypto investors to just HODL during lows hoping that their crypto will see unprecedented highs.
Initial Coin Offering (ICO)
ICO is a way to raise funds for new cryptocurrencies, which is much similar to Initial Public Offering (IPO) but isn’t regulated.
During an ICO, a crypto firm offers its native tokens at an introductory price and mentions the procedure for purchase. This normally involves sending fiat or another notable crypto to the company’s wallet and receiving the new token in your crypto wallet.
The absence of regulation makes ICO a risky proposition, with the biggest fraud (Bitconnect) to date amounting to $3.45 billion.
Non-fungible Tokens (NFTs)
NFTs are distinctive digital tokens indicating ownership of assets, real or virtual, on the blockchain.
For instance, one can mint an NFT from the first-ever speech of Barack Obama. Others can make copies and distribute them. However, the NFT representing the ownership of the original public address will be valued above every copy.
Similarly, there can be an NFT for a vintage item that’s on sale. This will make sure of the distinction and keep the transfer history of that asset when it changes hands.
Likewise, real estate can be turned into non-fungible tokens to trace the ownership history and avoid fraud.
Pump and Dump
Pump-and-Dump (aka Rug Pull) is a thoughtful way of involving social media influencers to trick ordinary people into PUMP crypto (or stocks) while the scamsters right away DUMP to cash in on the highs.
This sees the bad actors and the influencers make a good deal of money while the general public loses it. Pump-and-Dump typically benefits from the people’s fear of missing out on the next big thing.
A classic example is the EthereumMax crypto scam, which was promoted by the well-known personalities Kim Kardashian and Floyd Mayweather. The social media and real-life promotions lead to a momentary jump in the price, only to fall flat and lose 97% of investors’ money.
Rekt is slang derived from the word Wrecked. It denotes an investment going totally bad, making the person behind wrecked, or Rekt.
A seed Phrase (aka recovery phrase, mnemonic phrase, or backup phrase) is a computer-generated string of 12 or 24 words in a particular order used to restore a crypto wallet.
An example of a 12-word seed phrase:
pelican cattle write garage cart flame hobby guess address camp wheat weather
While anyone can create these phrases, it’s not recommended to do it manually. Only machine-created phrases have the required randomness and difficulty that makes them suitable as a security measure.
You should keep them secret, as anyone having your seed phrase essentially owns your wallet and the funds within.
Stablecoins are non-volatile cryptos that are mostly based on real-world physical assets like fiat currencies, precious metals, etc. Besides, some are backed by other cryptos (ex. Dai) or computer algorithms (ex. LUNA) to maintain a sensible price curve over time.
In the case of crypto pegged stablecoins, a huge amount of crypto reserve is kept as collateral to issue a small sum of stablecoins to avoid volatility.
Algorithmic stablecoins (aka non-collateral stablecoins) are managed by smart contracts to smartly manage the supply to maintain the stability of the underlying asset.
Crypto Whale (or Whale) are the entities big enough to swing markets by their unilateral purchase or sell-off.
They are typically the largest crypto holders, which can create problems like inadequate liquidity and price swings for small investors.
This was our humble attempt to cover some of the most commonly used crypto terms for beginners.
Still, there is much more than we could include in a single article. But we hope these first few terms will be just enough to kickstart your crypto journey.
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