Crypto can sometimes feel like its own language so we have compiled a list of some of the most common jargon and a brief explanation of what it means.
A network takeover, when a malicious actor manages to hold more than 51% of the mining power. With that influence, an attacker can challenge the blocks discovered by other miners, and replace them with their own blocks. A 51% attack aims to erase transactions, usually with the goal to double-spend the coins.
The gifting of tokens to a wide audience, after registration or just as an act of goodwill. Airdrops became immensely popular in 2018, boosting the visibility of startups. Airdrops replaced token sales during the two-year bear market, to build a crypto community without the need for a significant investment.
Any other coin but bitcoin. Altcoins started to appear a few years after BTC became popular. Altcoins use various types of generation techniques, either through mining or through a lottery principle.
Short for Anti-money-laundering, a set of guidelines to banks and the financial sector, which were also extended to cryptocurrency brokerages and exchanges. AML includes customer screening, as well as monitoring for suspicious activity. The chief aim of AML laws is to monitor and block suspicious activity, especially related to terrorism financing. AML laws have existed for decades, and cryptocurrency trading and other operations only tried to circumvent the rules in the first few years. AML rules are the reason some jurisdictions cannot legally trade some types of tokens, or access specific exchanges internationally.
A set of transactions bundled together and signified by a unique block header. A block contains the transactions of users, along with a cryptographic transformation of the data plus the previous block header number. Think of a block as a set of accounting entries, signed and secured into a ledger.
A tool to view past blocks on a blockchain, as well as addresses and transactions. Block explorers can reveal the history of the blockchain, as well as establish connections between wallets and users.
A certain reward of coins received by miners, in exchange for the resource-intensive task of finding the block header. The Bitcoin network started with a block reward of 50 BTC, and that reward is cut in half every four years.
A data structure where new information is added through complex encryption. Usually, a set of data will wait its turn to be wrapped in a block with a unique header, a number of high complexity. The header of each block encrypts the header of the previous one, making sure the record cannot be changed.
Representing the accrued buy orders at a certain price. A buy wall happens during bullish expectations. Sometimes, a buy wall can match a sell wall.
The act of storing crypto assets offline, with the intention of keeping them long-term. Cold storage is a way to protect the assets from technical mistakes or theft. Unlike hot wallets, which communicate with the Internet, cold wallets may simply be a piece of paper with the private key or seed phrase written down. A cold storage wallet may be used to keep larger balances of coins, not using the address for high-frequency transactions.
When a transaction is included into a block, it receives one confirmation. Each new block created is counted as another confirmation. The more confirmations a transaction receives, the less likely it is to be re-written. For most networks, even 3-6 confirmations are enough to be confident that the transaction is irreversible and not risking a double-spend. For extremely vulnerable networks, as much as 30 blocks must pass before a transaction is considered irreversible.
The coordination between the nodes on a blockchain, agreeing on a single version of the distributed ledger. Consensus is achieved through coordination between the nodes. Each network has different rules for arbitrage if a conflict arises.
Also known as digital asset, coin, electronic cash. A cryptocurrency is a record on a distributed ledger, signifying a balance. Intuitively, it works as an electronic payment method. Also used as electronic cash in peer-to-peer payments. Cryptocurrency aims to be sound money in some cases, with a fixed and limited supply.
Distributed acyclic graph, a data structure employed to create a novel type of distributed network. Unlike a blockchain with dedicated nodes, a DAG-based project turns every user into a node. The IOTA project uses a DAG technology. When making a transaction, each user must verify two older transactions. The IOTA architecture is such that there can be no repeat transactions, and it has only one direction, from older to newer transactions. This makes the IOTA “tangle” both directed and acyclic, fulfilling the requirements for this topological structure.
Short for distributed app, a piece of software that communicates with a blockchain and leaves unalterable records. Distributed apps usually run on the Ethereum blockchain, though TRON and EOS managed to draw in a significant number of projects. Dapps cover various areas of interest, including gambling, gaming, finance, exchanges, and crypto collectibles.
Not tied to a central authority. A network is decentralized if it is geographically distributed, and consensus does not depend on a single point of failure. Also applicable to distributed computing, where computing resources are shared and communicate through the Internet infrastructure.
Short for Decentralized Finance. Financial operations such as lending, trading, bank-like deposits, emulated through the Ethereum blockchain. DeFi is viewed mostly as a source of passive income, though highly risky as financial projects can rise and fall within days, based on hype.
Reversing a transaction on the blockchain, thus regaining control of the same coins. A double-spend can send coins to an exchange, sell them, then reverse the transaction. The exchange will notice a missing balance and absorb the loss. Double-spending requires a 51% attack in most cases, or sending out misleading transaction information.
Short for Delegated Proof-of-Stake. A network where instead of miners, a chosen set of supporting servers or another type of computation nodes are established to produce new blocks and confirm transactions. Delegates range from 7 to 100, and their task is to coordinate and avoid conflicts in the distributed ledger. DPOS networks include Lisk, EOS, TRON, NEO, BinanceChain, Tezos.
An establishment for buying and selling cryptocurrency. Some exchanges also allow the selling of cryptocurrencies for fiat. Exchanges can be centrally controlled, with orders matched through order books. Crypto assets can also be traded on decentralized or algorithmic exchanges, which use a smart contract to shift between assets.
A tool that awards micro-amounts of cryptocurrency, to give a taste of ownership. The Moon Faucets remain the most popular, combined with a micro-wallet. Usually, a fraction of a coin will be awarded at a fixed interval, as a reward for viewing ads or solving a captcha. Early BTC faucets would award up to 5 BTC as incentive to popularize the asset. The RAI Blocks, or Nano coin was also distributed through a faucet.
Government-issued money, based on faith (“fiat”). A government can print any amount of fiat it decides. The opposite of sound money. The value of fiat is not fixed, but inflationary. Fiat is printed by a central bank, and injected into the economy, in theory boosting economic activity while trying to keep inflation within reasonable bounds.
Fear of Missing Out, an overwhelming urge to invest in an asset in case its price goes “to the moon”. FOMO is greed-driven, expecting to find the next new hot asset. The risk of FOMO lies in buying an asset near its blow-off top, believing it would rise much higher. Unfortunately, using FOMO as justification to trade has the potential to lead to deep losses.
A blockchain that started off from another blockchain. A fork will happen at a specified block number, and from then onward, the new records will differ from the ones on the initial chain. Forks can happen due to technical error, or can be intentional. A fork inherits the balance of coins up until the moment the chains split. This means owners of coins on one chain will receive the same balance on the other chain. Holders of BTC in theory can gain access to multiple forks.
Shorthand for Fear, Uncertainty, Doubt. Usually, a message that may spark market panic, with the suspicion that the FUD was deliberate. Examples include “government crackdown”, exchange hacks, lawsuits, and other disasters of various scale within the crypto space. FUD can quickly turn the sentiment of the market and change the ratio of fear and greed.
The halving is a preset event on the blockchain, where the block reward is slashed in half. This increases the scarcity of the coin, as less coins are created each day. BTC has gone through three halvings, which shrank the reward from 50 BTC per block, down to 6.25 BTC per block. Most coins halve their reward every four years, copying the halving period of BTC.
A device resembling a USB stick, with a special hardware for secure, offline storage of seed phrases and private keys. Hardware wallets include Trezor, KeepKey, Ledger Nano. A hardware wallet uses electronics to secure the private key, and does not reveal the data when communicating with other devices.
A misspelling of the word “hold”, attributed to the user GameKyuubi at the Bitcointalk forum. Back in 2013, a period of price volatility in BTC helped differentiate between active trading, and a buy-and-hold strategy. Since then, “hodling” became a meme in the crypto space, especially pertaining to BTC and its long-term prospects as an alternative to fiat.
Initial Coin Offering, the sale of a new digital asset to finance the activity of a startup. The ICO usually requests funds in BTC and ETH, in exchange for the newly issued token. ICOs had their peak in 2017 and 2018, later being abandoned as a tool for fundraising as the US Securities and Exchange Commission started investigating and fining startups for essentially selling unregistered securities.
Short for Know Your Customer, a procedure based on international and national anti-money-laundering laws (see AML). KYC requires businesses to reveal the identity of their users. Most exchanges and crypto brokerages now require a picture ID to verify the account and allow a higher trading volume. KYC means exchanging between crypto and fiat can be traceable to a physical or legal person, and is not fully anonymous.
A limit order stipulates a price at which an asset will be acquired. A limit order will only be filled if the asset reaches that price. It is possible for a limit order to wait and never be filled. A limit order can be used in crypto for protection in case of falling prices, to sell before the price drops even lower.
The available funds for trading. The readiness of being able to convert one type of asset into another. In cryptocurrency trading, liquidity can determine the size of an asset market, and the ease of exchanging the asset. Liquidity in DeFi trading means a certain balance of funds locked in a smart contract, ensuring that the DeFi tokens will trade without crashing.
A margin call occurs during margin trading, requiring the input of additional funds. Trading on margin calls for a minimum balance, and a margin call usually occurs when an asset makes a significant shift in value. Margin calls occur for BTC in both short and long positions. In crypto trading, margin calls often lead to the forced closing of the position, as traders may struggle to add more collateral.
Trading with borrowed funds, with the potential to gain with a small initial sum. Because BTC and crypto assets are very volatile, margin trading is extremely risky. Margin trading is offered on the BitMex exchange, with smaller markets on Binance, Deribit, Kraken, and even Coinbase.
A market order is the choice of traders who want to be certain of making a trade. A market order will happen at the best available current price. In crypto trading, a market order is not seen as ideal, as conditions can switch within minutes.
The collection of transactions waiting to be included in a block. For BTC, during times of peak transactions, the mempool reaches record levels, with as much as 300,000 transactions awaiting. The mempool is emptied based on the priority of transactions and the fees paid. Making transactions during peak mempool size can lead to long waiting times for those transactions to join a block and be confirmed.
Mining is an activity of generating a series of complex alphanumeric strings, and looking for a string that fulfils a certain condition. The activity is also known as “hashing”, as the number is a cryptographic transformation of a certain set of data. Mining is energy-intensive, as the calculations to generate those numbers and compare them against the target are resource-intensive. Mining can in theory be done with consumer equipment, but for the Bitcoin network, it is a task for specialized rigs, requiring a steady power source and intensive cooling. Only one miner that manages to find the required string first will receive the block reward.
A group of users joining their computer power, to raise the probability of finding a block. Mining pools allow the owners of a few mining rigs to multiply the chance of receiving a block reward. A mining pool can gain quite a large influence, with the four largest pools mining as much as 50% of BTC blocks. Pools distribute block rewards proportionately to the computing power of their members.
A device communicating with other computers, and responsible for holding a partial or entire record of all transactions to date. Different networks have varying node requirements, ranging from as low as seven, to as high as 10,000 nodes for the Bitcoin network. A node works like a bank clerk, approving the final version of transactions. Nodes communicate between each other mostly over the existing Internet infrastructure. Nodes can also fulfill other functions such as voting. Nodes have to achieve consensus and agree on the same version of the distributed ledger.
Technological solutions which bring verified real-world information to smart contracts. A smart contract can only fulfil certain conditions, but the information to run it is supplied by oracles. Usually, oracles will provide market pricing information for trading smart contracts. But some crypto projects included oracles on the real-world weather conditions. ChainLink is among the leading oracle providers in crypto space.
Over-the-counter, a trading technique to connect buyers and sellers directly, without the need to place orders on the open market. Liquidity in crypto assets is relatively low, and a large-scale order may lead to price slippage or outright panic. For that reason, large buyers and sellers seek OTC platforms to match their demands. For small-scale trading, LocalBitcoins fulfills the need for retail OTC deals.
The exchange mechanism between two crypto assets, or more rarely, between a crypto asset and a fiat currency. More trading pairs mean higher liquidity and options to trade. The most common pairs are against BTC, ETH, as well as against stablecoin Tether (USDT).
A printout of the private/public key pair, usually with a 2D code. A paper wallet should remain hidden, taking care not to display the part containing the private key. Paper wallets are often used for cold storage.
The creation of a balance of coins through non-competitive mining. A pre-mine is a period where the developers of a new coin mine with less powerful equipment, before allowing other miners to join. A pre-mine is considered dishonest, though often presented as a compensation for the developers.
A long alpha-numeric string, which gives control over a crypto wallet. The private key is cryptographically generated. It must never be shared or exposed in any way to third parties, else there is a risk that a malicious actor will steal all assets within that wallet. Losing a private key means irretrievable loss of the wallet.
Proof Of Stake
The evidence of holding onto coins, usually in an open wallet. The process of staking allows any coin owner to produce a new block and receive a reward. Staking is not energy-intensive, and the only investment lies in acquiring the coins, then holding onto them without trading.
Proof Of Work
The process of performing resource-intensive computations to secure a blockchain. Proof-of-work, also known as mining, produces each block header through the generation and testing of astronomical numbers of alpha-numeric strings. The work done is measured in electricity consumption. For the Bitcoin network, the annual electricity consumed exceeds the needs for a state like Austria. The discovery of the right string, known as block header, is evidence, or proof, of the computational work done.
A string which the wallet uses to communicate with nodes and other wallets. The public key can be shared. It is derived from the private key, in a way that does not disclose the original string.
Pump And Dump
The usually coordinated trading event of posting orders to boost a coin, then selling as more traders join in. Pumps can lift a digital asset and lead to gains of as much as 1,000%. Usually, liquidity will disappear soon after the pump, leaving late buyers holding a quickly depreciating asset.
A two-dimensional, machine readable image which encodes a public key. In cryptocurrency transactions, a QR code is an easy way to select an address, usually when using a mobile wallet. A QR code is also imprinted on some versions of paper wallets, for ease of use. A QR code is used instead of manually inputting the public key, where copy-pasting is impossible. Often used for crypto donations, or other forms of payments.
Satoshi / Sats
One hundred millionth part of one whole Bitcoin. Named after the creator of the Bitcoin protocol, Satoshi Nakamoto, often abbreviated to “sats”. The importance of “sats” is high to BTC supporters, expecting one day that a whole BTC will be so valuable that a single satoshi will be used as a more suitable unit of account.
A phrase of 12 words, used to derive a private key. The phrase is hashed through a cryptographic function, to generate the complex alpha-numeric key.
When the order book is represented in graphic form, the sell wall is an accumulation of sell orders. A sell wall is visualized in red, suggesting traders ar trying to flee their positions, or liquidate the asset.
Code that runs and communicates with the blockchain, while performing predetermined actions. A smart contract is like a fully digital vending machine, relying on input to produce predictable behaviours. Examples of smart contracts include escrow accounts, trading, automatic token transactions. Smart contracts face the need for auditing, as some do not work as expected and may lead to losses or exploits.
A crypto coin with its value pegged to a fiat currency, most often the US dollar. Stablecoins are either backed by assets such as fiat, or by cryptocurrencies as collateral. The most influential stablecoin is Tether (USDT). Stablecoins offer the advantage of moving funds worldwide for trading arbitrage, or to circumvent slow and expensive bank transfers. The DAI stablecoin is a specific case used as the basis for DeFi operations within the Maker DAO ecosystem.
The symbol representing an asset for trading. Cryptocurrency coin and token tickers follow the three or four-letter format similar to some stocks. BTC is perhaps the most famous ticker, with an alternative as XBT.
A digital asset generated on a second-generation blockchain, such as Ethereum. A token differs from a coin, as it is not mined, but created through code. Tokens have various ownership structures and incentives. Examples include locking tokens for rewards, destroying or burning tokens to make the supply more scarce. Tokens usually require a fee to be sent through the network.
Issuing a token to represent value. Tokenizing assets is possible in theory, such as representing shares, real estate, or bonds. The legal framework surrounding tokenized assets is still evolving, especially when a token mimics a security. Tokenization attempted to bring assets not usually available to a potential international pool of buyers.
Pertaining to algorithms that achieve transactions traditionally verified by humans. Usually, to transact in fiat, one needs to trust the goodwill of a bank or another money manager. In cryptocurrency networks, the transactions are verified in ways that are very difficult to reverse, and there is no need for a human actor to assure fairness. In fact, most networks are engineered in ways that even bad actors will not have an impact. A trustless network relies on mathematical proof to assure fair and irreversible transactions.
The amount of crypto assets, usually expressed in dollar terms, traded within a specific time frame. Volume represents the interest of investors in any given pair. In crypto asset trading, the exact volume is harder to measure. Suspicions arise on possible inflated volumes, or trades generated by bots.
Software which keeps a balance of coins and also communicates with the blockchain to record new transactions. A wallet also issues a pair of public and private keys. Types of wallets include paper wallets, hardware wallets, mobile and online wallets, mnemonic wallets (simply remembering the private key derivation phrase or the list of 12 security words).
A large-scale owner of a coin or a token. It takes a different amount of coins to make a whale. For BTC, the high price per coin means a 1,000 BTC wallet is already considered a “whale”. In trading, a whale is a person making a significant market move through large-scale orders, or a buy or sell wall. In some cases, a whale will hold up to 90% of the supply for a single coin. For BTC, the biggest whale accounts include exchanges. The creator of BTC, Satoshi Nakamoto, reportedly holds around 900,000 coins from early mining.
An overview of a project, outlining its chief features. The Bitcoin white paper is viewed as a seminal document for the crypto space, hence opening the doors for every project to write their own whitepaper and gain a modicum of legitimacy. A whitepaper’s quality will often raise red flags about a project. Poor grammar, overhyped promises and even plagiarized papers have been noted within the crypto space.