The A to Z of Cryptocurrency: Cryptocurrency Terms For Beginners Simply Explained
I’ll be the first to admit, understanding cryptocurrency is not the easiest thing in the world.
This is because cryptocurrency requires you to have a deep understanding of the subtleties of stock investing combined with the complexity of new computing technologies like the blockchain.
To equip you with the knowledge that you need to understand this brave new world of cryptocurrency, we have put together this guide to important cryptocurrency terms from A to Z.
We will explain each term and its relevance to the world of cryptocurrency.
A Is For Altcoins
Altcoins or alts for short are simply cryptocurrencies that are not Bitcoin.
The word altcoins is a portmanteau for the words alternative coins.
So basically, any other cryptocurrency that is not Bitcoin falls under the category of altcoins.
According to leading data cryptocurrency data aggregator CoinMarketCap, there are over 5,213 altcoins that are currently listed.
B Is For Bagholder
Bag holder is slang to describe someone who is left holding onto an asset like stocks, or cryptocurrency that plummets in value till it becomes nearly worthless.
They are left holding the bag as although they wanted to sell at a higher price, they were unable to do so or were victims of a pump and dump scheme.
C Is For Cold Wallet
Put simply, the cold wallet or offline wallet or hardware wallet as it is known is a cryptocurrency wallet that stores your cryptocurrency offline.
This hardware wallet can store your private keys and cryptocurrencies safely offline. Some also come with security features that protect the device from malware and viruses.
A cold wallet is the opposite of a hot wallet: cryptocurrency wallets operated from devices that connect to the internet.
Hot wallets are generally less safe as hackers can still steal the private key to your hot wallet and steal the coins stored on your crypto wallet that is connected to the internet.
Thus, a good rule of thumb is to have an exchange wallet to trade cryptocurrencies, a hot wallet to store the small and medium holdings that you wish to trade less often.
Finally, we would recommend that you store your long term or sizable cryptocurrency holdings in a cold wallet for safety.
As without the private keys, you technically do not own the cryptocurrency.
There here been instances like when Thodex a Turkish cryptocurrency that went offline with its CEO reportedly leaving the country with its customers’ cryptocurrency.
Speaking of C words.
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D Is for Decentralised Finance
Decentralized finance (DeFi) is the term given to decentralised financial services on the blockchain that have no central authority behind them.
DeFi can provide a transparent and open alternative to virtually any financial service you use today.
Potentially, DeFi can replace your traditional lending, banking, insurance and stock trading services that can be used by anyone with a device and an internet connection.
DeFi is mainly built on smart contracts: programs with a very specific set of procedures that once deployed no one can change. The terms of the smart contract are written in the code and will automatically execute without the need of a third party to enforce some/all of the clauses if one of the parties changes their mind.
These programs fall under the category of decentralized applications (dApps) that operate on a smart contract network like Ethereum.
Simply put, decentralised apps are built and on a decentralised platform and are not controlled by any one entity.
E Is for Ethereum
Founded in 2015, Ethereum is one of the longest-lasting decentralised open-source blockchain platform that allows users to execute smart contracts and build applications.
In addition, you can actually create other cryptocurrencies of the Ethereum platform.
F Is for FUD
FUD stands for fear, uncertainty, and doubt.
In the crypto world, FUD refers to efforts designed to influence perception by spreading overtly negative or false information about a cryptocurrency on social media, mainstream news sites, and other communication channels.
This may the value of a cryptocurrency to drop based on the bad news instead of the cryptocurrency’s fundamentals.
G Is For Gas
Gas refers to the fee charged for processing a transaction or contract on the Ethereum blockchain network.
This fee is denominated in gwei: a small fraction of ETH where 1 gwei = 0.000000001 ether.
According to Etherscan, the average ETH Gas price charged for each transaction at the time of writing is 94 gwei (~US$5.05).
H Is for HODL
HODL is a famous misspelling of the word ‘hold’ that originated on the early crypto forums.
Many people on the forum misinterpreted the typo, thinking that it was an acronym for ‘hold on for dear life.’
The word HODL has then achieved meme status and is used to describe the action of holding on to your crypto and not selling when its price crashes.
If you are curious, HODL is pronounced Ho-ddle.
I Is for Initial Coin Offering (ICO)
Initial coin offerings ICOs are the crypto world’s equivalent of the initial public offering (IPO) with a few key differences.
ICOs are done by companies looking to raise capital for things like building a blockchain platform, launch a new cryptocurrency, app or service.
The main difference between IPOs and ICOs is this.
For IPOs, investors receive stocks in a company that represents a stake in the company in exchange for their invested capital.
Whereas for ICOs, the company gives investors cryptocurrency tokens on their blockchain network.
This token can be used to exchange for the company’s product or services or can just represent a stake in the blockchain project or company.
J Is for Joy of Missing Out (JOMO)
JOMO stands for the Joy of missing out and is basically the opposite of having a fear of missing out (FOMO).
This is the term that people who do not buy cryptocurrencies use to express their joy that they stayed out when there is a huge crash in the crypto market or when there is negative news about crypto.
K Is for Know Your Customer (KYC)
Know your customer (KYC) refers to the process where a customer’s identity is being verified using personal data like Singpass’s MyInfo for example.
This is often a mandatory requirement for nearly all regulated institutions around the world dealing in any assets to protect against fraud, tax evasion, terrorism financing, money laundering, and other financial crimes.
In the crypto world, most companies in the crypto space that are regulated will have this requirement for customers.
L Is for Lending
Some companies also offer lending programs where you may choose to loan your crypto to certain institutional borrowers, traders to earn interest on your crypto.
M is for Mooning
Mooning is slang that is used when a cryptocurrency’s price is spiking up in price.
When someone on social media is posting that the coin is ‘mooning’, they are expecting that the coin’s price will figuratively go to the moon.
People who do this might be trying to influence market sentiment for their own personal gain.
N Is for Non-Fungible Tokens (NFTs)
As the name suggests NFTs are non-fungible. This means that an NFT is a unique digital asset that cannot be replicated and cannot be traded for something of equal value.
As such, each token represents a unique value.
NFTs are actually cryptographic tokens with unique identification codes and metadata that make them unique.
These tokens are created on a smart contract platform like the Ethereum network and cannot be replicated. To put it simply, you are buying lines of code.
But in terms of utility, NFTs are used to represent proof of ownership and authenticity of digital art, digital collectables and online gaming items. They are proof that this version of something is uniquely and authentically yours.
They can also be used to represent ownership of real-life physical items like physical art pieces, rights to property, and more.
O Is for Orphaned Blocks
As the name suggests orphaned blocks or stale blocks as they are also called, are blocks rejected by the blockchain network due to the delay when two blocks are mined at the exact same time.
Although the blocks are verified and legit, they exist apart from the blockchain and serve no function after they have been rejected.
P Is for Pump And Dump
Pump and dump schemes are where people organise together on apps like Discord, Slack or Telegram to illegally promote and ‘pump certain coins’ to drive up demand.
This will often result in the coin going up in value temporarily as a result of this promotion.
Next, the people who are pumping the coin will ‘dump’ the coin and sell without warning.
Be very wary of such schemes as more often than not, you are being manipulated by the pumpers of the coin who will sell when the coin reaches their pre-determined price.
Generally, the smaller altcoins are more susceptible to pump and dump schemes due to their smaller market caps and low liquidity which makes it easier to move the price of the coin.
It has been identified as a problem that plagues crypto that needs to be resolved.
Q Is for Quorum
According to the Cambridge dictionary, a quorum is:
the smallest number of people needed to be present at a meeting before it can officially begin and before official decisions can be taken.
In the crypto world, a quorum applies to the governance of the blockchain network.
As blockchain networks are decentralised, proposed blockchain-based governance parameters are determined by voting.
Generally, when a vote does not get enough votes to fulfil the quorum, it is automatically cancelled.
R is for REKT
REKT is short for the word ‘wrecked’ which means utterly destroyed or ruined.
This word is internet slang borrowed from the gaming community.
In the world of crypto, REKT refers to someone who suffered a huge financial loss from making a bad trade or investment into cryptocurrency.
S Is For Proof of Stake
Proof of Stake (PoS)
Proof of Stake (PoS) is a consensus mechanism that requires that participants ‘stake’ their cryptocurrency by risking or locking it in to guarantee the integrity/security of the blockchain.
The cryptocurrency that is staked and locked in is randomly assigned the right to validate the next block of transactions by the cryptocurrency network.
This chance of your cryptocurrency being selected is generally proportional to the number of coins you stake.
The more coins you have, the higher your chance of your cryptocurrency getting chosen.
In return, you will be rewarded with more coins for your contribution to the network.
Supporters of PoS argue that this process is better as it is more eco-friendly and bodes well for the scalability and sociability of the blockchain.
This is also one of the main reasons why the creators of the Ethereum network have made the decision to transition from PoW to PoS to scale Ethereum via the Eth2 upgrades.
Proof of Work (PoW)
Proof of Work (PoW) is the original consensus algorithm in a blockchain network.
In terms of functionality, it is a mechanism that decides who gets to update the ledger amongst a group of strangers who have no reason to cooperate with each other.
The most well-known example of this is Bitcoin mining.
Put simply, mining will help improve the Bitcoin network’s security by combating fraud and securing cryptocurrency transactions.
I may be simplifying it a bit but, mining is like a contest where computers compete to provide a solution for a complex mathematical problem (i.e. hash challenges). The computer that discovers the solution first will win the chance to write the next block into the ledger.
In exchange for giving up your computing power to Bitcoin’s network for mining, you will be rewarded with newly created Bitcoins.
T Is for Technical Analysis
A trading discipline employed to evaluate investments like crypto and identify trading opportunities by analysing historical data in hopes of forecasting its future price.
U Is for Uniswap (UNI)
Uniswap is an Ethereum based decentralized crypto exchange (DEX) protocol that allows anyone to swap tokens on its exchange without the need for centralised facilitators and their fees.
There are two aspects to Uniswap:
- Uniswap operates using smart contracts (a set of computer programs) on the Ethereum blockchain that automatically processes the token swaps.
- The public can lend their crypto to provide liquidity via cryptocurrency reserves called liquidity pools in return for interest.
In a sense, Uniswap is an automated market maker which allows the trading of digital assets automatically without a middleman.
V Is for Volatility
As an asset class, cryptocurrencies (crypto) are known for being infamously volatile, save for exceptions like stablecoins.
Even the largest cryptocurrency Bitcoin (BTC) is still not immune to this volatility.
It is clear that volatility is much more pronounced in the crypto markets compared to the mainstream stock markets; especially for coins with low liquidity and smaller market capitalisations.
And like mainstream stock markets, crypto prices are moved by news developments (cough cough *Elon Musk*) and speculation but in a more exaggerated manner.
W Is for Whale
In the crypto world, a whale refers to individuals, groups or companies that possess large amounts of a specific crypto token.
Depending on what percentage of the circulating supply of the crypto token they hold, these whales potentially have the power to shift the price of a crypto token.
For example, Satoshi Nakamoto the pseudonymous person or group that created Bitcoin is estimated to own 1 million bitcoins out of the 18.7 million circulating bitcoins.
If Satoshi does sell his/her/their bitcoins, it will flood the market with an oversupply of bitcoins and cause the price to crash.
X Is for XBT
‘XBT’ is the abbreviation for Bitcoin (BTC) given by the International Standards Organization (ISO) as part of the official ISO 4217 standard for internationally recogniesed currencies globally.
The ‘X’ in XBT is given to currencies that are not tagged to any country.
This is also why gold is given the abbreviation XAU.
Y Is for Yellowpaper
In the crypto world, a yellow paper is a formal academic research paper that provides in-depth details and analysis about the blockchain project and its crypto coin.
This is similar to a crypto white paper: a document created by the creators of a blockchain platform and associated cryptocurrency coin that provides details of the project.
In practice, white papers are part advertisement, part article which describes the technology, methodology, product or service of a new blockchain project or cryptocurrency.
Z Is for Zero Knowledge Proof
Zero knowledge proof refers to an encryption method where one party can prove that they know the answer to a question without disclosing any unnecessary information.
In practice, zero-knowledge proof will protect users’ sensitive information during a transaction.
In the crypto world, zero knowledge proof can be utilised to hide and compress information to be transmitted on the blockchain network.
This will lead to increased privacy and better scalability.
In blockchain networks, zero-knowledge proofs can be used to both compress information as well as to hide it. As a result, they enable both scalability and privacy.