Understanding Cryptocurrency Terminology

Cryptocurrency and the Blockchain is on the way to becoming mainstream, and there are noobs coming into the market everyday.  It is important to familiarise yourself with the terminology in this new digital market. 

 

 

 

After reading through the list below,  you will at least know what to do when someone tells you to buy a certain crypto and HODL!

So, what is happening on the screens we look at every day?  Starting off with the terminology. What do all these words mean?

Firstly, two tips…

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Cryptography

A method of writing or solving code and storing and transmitting data.

 

Blockchain

Blockchains are distributed ledgers, secured by cryptography. They are essentially public databases that everyone can access and read, but the data can only be updated by the data owners. Instead of the data residing on a single centralized server, the data is copied across thousands and thousands of computers worldwide.  Blockchains are immutable – once on the blockchain, always on the blockchain.

 

Block

Blocks are essentially pages in a ledger or record keeping book. Blocks are the files where unalterable data related to the network is permanently stored. Forever. Like eternity.

 

Block Height

Block height is the number of blocks preceding the genesis block (first block) on the chain. A genesis block will always have a height of zero because nothing precedes it. It’s a metric used to create a bearing on time in the programming world as well as a few other functions such as maintaining counterparty and betting in the crypto world. Considering that a new Bitcoin block is made every 10 minutes, you can work out certain time-related pieces of information if you have the total length of the chain.

 

Block Reward

Block reward is the reward allotted for hashing, or solving the mathematical equation related to a block. The reward for mining a Bitcoin block is 12,5 bitcoins per block mined, which will halve every 210,000 blocks!

 

Halving

Halving is the reduction of minable reward every so many blocks. For Bitcoin, the reward is halved after the first 210,000 blocks are mined and then every 210,000 thereafter – approximately every four years.

 

Node

A computer that possesses a copy of the blockchain and is working to maintain it.

 

 

Mining

The process of trying to ‘solve’ an algorithm, the next block. It requires massive amounts of computer processing power to do effectively but is rewarded with the coin or token you are mining.

 

Mining Rig

A computer specially designed for processing proof-of-work blockchains, like Bitcoin, Ethereum, Litecoin etc. They often consist of multiple high-end graphics processors (GPUs) to maximize their processing power.

 

ASIC/ASIC Miner

ASIC mining is a crafty method of mining various coins at a much faster rate than any normal desktop or laptop might allow. Essentially what an ASIC, or Application Specific Integrated Circuit is, is a chip specifically created to execute one task. Enter ASIC mining. An example of one such model is an ASIC miner created to ONLY process SHA-256, which is the problem offered by the Bitcoin blockchain to mine new coins. There are also ASIC’s for scrypt which specifically solves the mathematical code in relation to altcoins such as Litecoin. Though in recent years there has been a good amount of dialogue surrounding the longevity of mining this way and we’ve even seen coins making it so that it’s impossible to mine with an ASIC.

 

Hashrate

Hashrate is the speed at which a block is discovered and the rate at which the related math problem is solved. Certain tools have been created to allow for higher hashrates. See ASIC.

 

Fork

A situation where a blockchain splits into two separate chains. Forks generally happen in the crypto-world when new ‘governance rules’ are built into the blockchain’s code. A recent fork happened with Bitcoin, and Bitcoin Cash was born.

 

PoW

Proof of work was a concept originally designed to sieve spam emails and prevent DDOS attacks. A Proof of Work is essentially a datum that is very costly to produce in terms of time and resources but can be very simply verified by another party. The proof of work for Bitcoin is referred to as a “nonce,” or number used only once. This has been considered an energy-intensive alternative to proof of stake as the computers, unfortunately, have to be on and running, which also drives the market towards centralization of hashing power… which is what the blockchain aims to defeat!

 

Address

A bitcoin address is essentially the same thing as your home address. It’s the location from which you would receive, send or hold your currency. These addresses generally manifest in a long string of alphanumeric characters and will look something like:

1C9ajoJPWjkCNKVUqyvQD54k572LK7cwDE

A wallet address is the public portion of the two encrypted keys necessary for a holder to accept or verify a transaction.

 

Software wallet

Storage for crypto-currency that exists purely as software files on a computer. Software wallets can be generated for free from a variety of sources. Google is my friend.

 

Hardware wallet

A device that can securely store crypto-currency. Hardware wallets are often regarded as the most secure way to hold cryptocurrency. 

 

 

Altcoin

An altcoin is the community accepted name for any coin that isn’t Bitcoin.

 

Token

Refers to the ‘currency’ of projects built on the Ethereum network that have raised money via issuing their own tokens.

 

P2P

P2P is another way of saying Peer-to-Peer. Peer-to-peer has become a very large focus of blockchain as one of the biggest selling points is decentralization. Nearly every interaction on the blockchain can be fulfilled P2P, or without a centralized variable like a store, bank or notary.

 

Public/Private Key

In cryptography, a public key is a cryptographic key that can be utilized by any party to encrypt a message. Another party can then receive the message and using a key that is only known to that individual or group, decode the message.  It is best practice to hold and control your private keys vs a central authority like an exchange.

 

Smart Contract

A two-way smart contract is an unalterable agreement stored on the blockchain that has specific logic operations akin to a real-world contract. Once signed, it can never be altered. A smart contract can be used to define certain computational benchmarks or barriers that have to be met in turn for money or data to be deposited or even be used to verify things such as land rights.

 

Exchange

Websites where you can buy and sell cryptocurrency

 

OTC Trading Desk

A market where cryptocurrency is traded directly between the Buyer and the trader, generally large buys which do not affect the market price – trading is done online.

 

FIAT

Government-issued currency, such as the US dollar, GBP, Euro, Yen

 

 

Whale

Someone that owns absurd amounts of cryptocurrency – Whales can sometimes influence the market price so often they buy large amounts of cryptocurrency directly from a trader (OTC Trading Desk)

 

Limit order/limit buy/limit sell

Orders placed by traders to buy or sell a cryptocurrency when the price meets a certain amount. They can be thought of as ‘for-sale’ signs. These orders are what is bought and sold against when traders place market orders.

 

Sell wall/buy wall

Using a depth chart, traders can see the current limit buy and sell points.

 

Market order/market buy / market sell

A simple purchase or sale on an exchange at the current price. Market buys purchase the cheapest ETH available on the order book, and the market sells fill the most expensive buy order on the books.

 

Going long

A margin trade that profits if the price increases.

 

Going short

A margin trade that profits if the price decreases.

 

Bullish

An expectation that price is going to increase.

 

Bearish

An expectation that price is going to decrease.

 

ATH

All-Time-High. We’ve had a lot of these the past couple months.

 

 

Stable coin

A crypto-currency with an extremely low volatility that can be used to trade against the overall market.

 

Arbitrage

Taking advantage of a difference in price of the same commodity on two different exchanges. Often mentioned when it comes to comparing prices on Korean exchanges against US exchanges.

 

FOMO

Fear Of Missing Out. The overwhelming sensation that you need to get on the train when the price of something starts to skyrocket.

 

Pump And Dump

The recurring cycle of an altcoin getting a ton of attention, leading to a fast price increase, and then of course followed by a huge crash.

 

Bagholder

Someone still holding an altcoin after a pump and dump crash. Can also just refer to someone holding a coin that is sinking in value with few future prospects.

 

Market Cap

The total value held in a crypto-currency. It is calculated by multiplying the total supply of coins by the current price of an individual unit.

 

ROI

Return on Investment. The percentage of how much money has been made compared to an initial investment. So, 100% ROI is doubling your money.

 

HODL

Long ago, someone on a bitcoin forum got drunk and made a post with this typo in the place of ‘hold’. A meme was born. Often people refer to HODL as “Hold On for Dear Life”

 

Lambo

What we’re all going to buy when we’re rich.

 

Mooning

In the crypto-world, this does not mean exposing your buttocks. It is referring to a price going up to astronomical levels.

 

Get your copy of What is Bitcoin

This e-book on Amazon explains what Bitcoin is, it explains that Bitcoin (BTC) is a virtual currency, digital not physical, and independent of banks. Useful links and resources for the newbie and advanced Bitcoiner or cryptocurrency enthusiast.

 

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