Want to learn about cryptocurrencies, but some of the terminologies are too difficult to understand? This comprehensive A-Z list will provide some of the commonly used terms used for this market.
When people talk about mining, are they referring to precious metals? Or what about wallets? Are they referring to the one in your pocket? There is plenty of peculiar jargon used in cryptocurrencies that seems mysterious for some.
Rightfully so, cryptocurrencies are quite technical, though some concepts are simple to understand. The terms below are some of the common terminology used by all forms of cryptocurrency enthusiasts that should help one become more informed about this subject.
51% attack: A 51% attack refers to the malicious control by a group of miners that exceeds 50% of a particular blockchain’s mining hash power.
Altcoin: All other cryptocurrencies other than Bitcoin, or ‘alternative’ to Bitcoin.
Blockchain: The blockchain is the driving technology primarily responsible for most cryptocurrencies. Naturally, the best method for explaining the blockchain is splitting the term into its two inherent syllables, block, and chain.
The blockchain is a growing ‘chain’ of ‘blocks’ linked using cryptography, where each block stores specific data that is publically available and distributed in a decentralized manner.
Consensus mechanism: A consensus mechanism refers to the method of verification used in blockchains to achieve agreement or consensus for adding blocks. The most commonly used consensus mechanisms are proof-of-work (ordinary computer mining) and proof-of-stake (staking coins).
DAO: An acronym for Decentralized Autonomous Organisation, a DAO represents a group of developers who adhere to a blockchain’s guidelines and administer its processes without any central authority.
DDoS attack: An acronym for Distributed Denial-of-Service, a DDoS attack has recently become common with cryptocurrency exchanges. It involves a cyber attack by hackers who overload the servers of a website with overwhelming requests.
Decentralization: A defining factor of most digital currencies, decentralization means no central authority makes any decisions. Instead, the power is distributed globally amongst millions of users.
Decentralized applications: Also known as dApps, decentralized applications are a revolutionary form of computer applications running on a publicly distributed network without relying on a central server and authority.
Double spending: Double spending is a unique flaw within cryptocurrencies where the same token can be spent more than once due to falsification.
Exchange: An exchange is a business that allows for the trade of multiple cryptocurrencies and fiat currencies against each other.
Fork: A fork refers to a software change in the protocol of a cryptocurrency’s blockchain. There are mainly two kinds of forks, a soft and hard fork.
A soft fork is more like an update to the existing protocol with minor changes differing from the original. In contrast, a hard fork is a radical change from the original, causing a split where a brand-new cryptocurrency forms.
Halving: Also known as halving, this is an event where rewards for miners are reduced by a half after pre-defined yearly intervals to control supply.
Hash: A hash is a computer function that decrypts bits of cryptographic information. The hash rate is the speed at which a computer can perform such functions. In mining, the more hashing power is available, the quicker you can solve blocks, which increases the rewards.
HODL/HODLing: A somewhat anomalous expression originating from a typo by a user on an online forum message board, HODLing means ‘buying and holding’ a cryptocurrency or holding it for the long term. People who practice this approach are known as HODLers.
ICO (initial coin offering): An initial coin offering is a funding process using cryptocurrencies. ICOs usually occur for a brand-new cryptocurrency or related project involving a massive sale of prescribed tokens or coins to interested investors.
A spin-off of this concept is known as the IE (initial exchange offering), a fundraising event for a new cryptocurrency exchange.
Mining: Mining in cryptocurrencies refers to using advanced computers to solve extremely complex mathematical hash functions or equations to validate blocks in a blockchain.
The majority of digital currencies require such a process. Each one will come with different algorithms that continuously make mining easier or tougher, depending on the network functioning.
Identical to precious metal mining, people involved in this operation are also known as miners. An alternative to this practice is cloud mining, where users rent computing power from external providers rather than using their own.
Mining pool: Due to the demand for electrical power and equipment for mining, a mining pool attempts to ‘pool’ the computational power of several miners and share the rewards of solving blocks according to each person’s contributions.
Mining rig: A mining rig means the set-up which houses mining equipment.
Mooning: Mooning is a term used to denote a cryptocurrency is rising sharply in value, i.e., ‘going to the moon.’
Node: A node is merely a computer connected to a cryptocurrency network. A master node hosts the full cryptocurrency network and has specific duties and incentives that ordinary nodes don’t.
Pump and dump: Pump and dump are a type of fraud most common in small-cap stocks but have recently made their way towards cryptocurrencies.
This scheme usually involves a group of perpetrators who build hype on an asset (‘pump’) through misleading statements, artificially inflating the price. Once the instrument is at a high price, the fraudsters sell (‘dump’) their positions, causing investors to lose money due to the declining value.
Private and public keys: A private key is a long set of alphanumeric characters that a cryptocurrency owner uses to access their coins. On the other hand, a public key is a long set of alphanumeric characters users provide to senders to receive the coins.
Stablecoin: A stablecoin is a coin pegged against a fiat currency, commodity, or digital currency to provide stability against the volatility of cryptocurrencies.
Wallet: A wallet is a software application allowing users to send, receive, and secure cryptocurrencies. Wallets come in two primary forms; hot and cold. A hot wallet needs the internet to be connected, while a cold wallet doesn’t.
One can install the software for a cold wallet on a USB drive. Cold wallets are known to be more secure since hackers would need physical access to the wallet, a trait that is absent for hot wallets.
Whale: Often related to Bitcoin (but can also apply to other digital currencies), a whale is an individual or entity that owns large amounts of cryptocurrencies.
Cryptocurrencies are a peculiar financial instrument due to the technical nature of how they operate, a trait that can be confusing for the layman. However, with greater study, the concepts slowly begin to make sense. The terminologies noted here are a good stepping stone for traders and investors seeking to learn more about this market.