Glossary of Common Crypto Terms You Must Know
Since the inception of blockchain technology and hence, cryptocurrencies, several crypto terms like gas fee, FOMO, airdrop, APY, and so on have come into existence. However, a lot of new investors aren’t aware of these terms and enter the market without knowledge. This may create doubt and confusion among investors.
Common Crypto Terms You Must Know
The adoption curve refers to the speed at which people are adopting new technology. This helps the team behind the technology to understand and identify their target audience and the future scope of the product in the market.
Airdrop as a coin term, refers to the process of distributing crypto tokens to an audience as a part of a marketing campaign. In return for the tokens, the token holders fulfill some social activities to promote the token.
Algo-trading involves trading according to an algorithm that consists of a set of conditions. This helps the investors to buy and sell the tokens automatically. In addition, the investors can earn profits without having to watch the price trends of their assets continuously.
Cryptocurrencies other than Bitcoin, are known as altcoins. Each altcoin has its own set of rules, regulations, and use cases. Altcoins may be born out of new technologies or may even stem from existing crypto projects.
Annual Percentage Rate
The Annual Percentage Rate is the amount of rate that the borrower pays each year. You can calculate this by taking a product of the periodic interest rate and the number of periods in one year for which that interest rate is set.
Annual Percentage Yield
Annual Percentage Yield is the rate of returns on investment that the lenders earn in a period of one year. It is commonly called APY.
Automated Market Maker
Automated Market Maker is a system for decentralized exchanges that enables them to set prices through automatic trading. The best aspect of this system is that it eliminates the need for third parties or intermediaries. This prevents third parties from manipulating the prices due to selfish intentions.
Bear Market: Crypto Terms You Should Know About
A bear market is a market sentiment that occurs when the prices of assets keep falling down the curve. Investors during a bear market feel negative about their investments.
Blockchain 1.0 refers to the very first generation of blockchain technology. It majorly focuses on cryptocurrencies and decentralization.
Blockchain 2.0 is the second generation of blockchain technology that introduced smart contracts to improve the security and transparency of blockchain technology. It also promotes the decentralization of businesses.
Blockchain 3.0 is the later version of blockchain technology that looks forward to large-scale adoption of the technology across a range of industries and financial institutions.
A bull market refers to the market sentiment when the prices of assets keep increasing over a period of a few weeks to months. The general outlook of the investors in such a market seems positive.
Burning refers to the process of removing tokens from circulation intentionally. It helps in increasing the token value and promoting the mining process.
Candlesticks: Crypto Terms You Should Know About
Candlesticks are pictorial representations of different prices of assets with the help of candles. A typical candlestick consists of wicks at the end and a candle in between. It represents the opening and closing prices of the assets. In addition, it helps the investors to predict the market sentiments.
Central Bank Digital Currency
Central Bank Digital Currency is just like other digital currency. However, the difference lies in the fact that government laws govern the circulation and working of central bank digital currencies. hence, they are subject to changes with the changes in government regulations.
A cold wallet is a type of wallet that stores the crypto assets in offline storage. So, they are never exposed to the internet. They are of two types, paper wallets, and hardware wallets. Among these, hardware wallets, which consist of a hard-drive stick, are considered the safest method of storing crypto assets.
Distributed Ledger Technology
Distributed Ledger Technology is the foundation of blockchain technology. This involves the storage of data across multiple computers or participants. This helps in increasing the security as well as transparency of the data.
Fiat currency is the currency or money that is governed by a national authority and doesn’t have any tangible assets backing them. INR, USD, GBP, and EUR are all fiat currencies.
FUD is an abbreviation for fear, uncertainty, and doubt. It is usually used to refer to information that may push people to perceive a negative image of the crypto market.
Hash: Crypto Terms You Should Know About
It is a combination of 64 digits and letters that represent a single transaction over the blockchain. Also, hash rate refers to the number of transactions verified by the validators in one second.
HODL is the process of holding on to your crypto assets for a long time, especially when the prices are going down due to market crashes and volatility. It is the most preferred way of generating long-term gains, especially for long-term investors.
Hot wallets are application-based wallets that need an internet connection to function. This means that if you want to send or receive cryptocurrencies in a hot wallet, you will need to connect your device to the internet connection. They are not considered a safe way to store cryptocurrencies. This is because they expose your assets online, making them prone to theft by hackers.
Initial Coin Offering
An initial Coin Offering is similar to Initial Public Offering where the projects gather funding from investors. In this, the investors, as well as startup projects, come together in a blockchain environment to search for new investment options and raise capital respectively.
Initial DEX Offering: Crypto Terms You Should Know About
An Initial DEX Offering refers to the introduction of crypto assets on decentralized liquidity exchanges. An IDO can be introduced for anything that requires the engagement of the community as well as investors for the giving mutual benefits to them; investment opportunities to the investors and shareholders for the project.
Memecoins are cryptocurrencies having no practical use cases. They are mined just for the sake of humor and joke. The most popular example of a meme coin is Dogecoin which was created to make fun of another coin, Shiba Inu.
Mining is the process of verifying and validating transactions on the blockchain. When a miner offers computational power to the blockchain network to verify the transactions, the protocol awards them with a reward in the form of a coin belonging to the native blockchain.
Non-fungible tokens, commonly known as NFTs are unique digital assets that can not be swapped against one another. Each NFT is unique, unlike cryptocurrencies where one Bitcoin can be exchanged for another Bitcoin. In addition to this, NFTs have some physical assets backing them.
A private key refers to the string of letters and digits that is private to the user and helps the user to unlock their crypto wallet. You can think of the private key as a password or PIN that is used in other digital wallets to access the funds deposited in them or to execute transactions.
Proof of Work
Proof of Work is a type of consensus algorithm in which a large number of computers on a network race amongst themselves in order to be the first one to guess the 64-digit hash code. It is an energy-intensive process and hence, non environmentally friendly.
Proof of Stake
Proof of Stake is a consensus algorithm wherein the miners mine the cryptocurrencies based on the number of coins that they possess of that protocol. This makes it less susceptible for the protocol to be attacked by the miners now that they have their own stake in it.
Proof of Authority
Proof of Authority is a consensus mechanism that allows only reputable and trusted individuals or organizations to produce new blocks on the blockchain. As the validators are already designated, it saves a lot of power and time.
Proof of Elapsed Time
Proof of Elapsed time is another consensus algorithm that chooses the miners based on the waiting time. In this, each participating node on the network chooses a random waiting time, and the one that completes the waiting time before everybody else, wins and mines the next block on the chain. This is an energy-efficient mechanism to mine cryptocurrencies.
Proof of History
Proof of History is a type of consensus algorithm where a series of computations are cryptographically mapped to represent time and passage between events of a transaction. However, the representations can not be used to predict the output in the upcoming transactions just by looking at the input.
A public key is defined as a string of digits and letters that signifies a wallet and can be shared with other people. It is analogous to UPI ID that the people can share among each other to send or receive payments in their wallets.
Seed: Crypto Terms You Should Know About
The seed represents the foundational existence of the wallet. You can think of the seed as a recovery email that you may use to recover your account in case you lose the password to unlock your wallet. Similarly, a seed can be used to recover the wallet in case you lose the wallet or your private keys. It mostly has 12 or 16 digits and letters.
Smart contracts are digital contracts, analogous to traditional contracts, that outline the conditions of execution of a contract. They govern the project the execute it themselves once the pre-defined conditions are fulfilled by the participating parties.
Stablecoins are special types of cryptocurrency where the coin has some tangible asset backing it up. The tangible assets usually include gold, silver, and fiat currencies such as US Dollars, Sterling Pounds, Euros, etc. Due to such assets backing the stablecoins, the value of such coins remains a bit more steady as compared to other cryptocurrencies which are extremely volatile.
Wallets are applications or tools which enable investors to store their crypto assets and make transactions. You can think of crypto wallets just like traditional wallets which are used to store paper-based money. Wallets can be of two types, hot wallets, and cold wallets. Also, the wallets can be custodial or non-custodial, depending on the level of control of the private key that they provide to the user.
The whale is a crypto basic slang used to describe the crypto investors who own a major part of the market. This may include big financial institutions holding a significant amount of coins in order to hedge their funds or other rich individuals.
Whitepaper: Crypto Terms You Should Know About
A whitepaper is a document that is usually published before the launch of the project. This document outlines each and every aspect of the blockchain project such as how it works, the use cases of the project, the future potential of the project, its team, and the roadmap. A whitepaper is the most important term in the crypto vocab and a part of an investor’s research.
51% Attack indicates that one computer or a group of several computers are willing to validate more than 50% of the total transactions going on over a network blockchain. This allows the computer or the group of computers to spend the coins more than once, manipulate the new blocks on the blockchain, and reverse the transactions.
Now that you are familiar with these crypto terms, you can head start your investment journey in cryptocurrencies and make short and long-term gains.