Crypto Glossary: Essential Terms To Get Started With Bitcoin And Cryptocurrencies

Crypto Glossary: Essential Terms To Get Started With Bitcoin And Cryptocurrencies

Cryptocurrencies have gone mainstream in the last couple of years. Investors and traders around the world have seen the potential of trading Bitcoin as an easy way of earning money while placing their trust into a proofed security product. But there is life in crypto besides Bitcoin. Ethereum’s Smart Contracts can digitize all sorts of contracts to make them fail-safe and to be automatically executed – saving time and intermediary costs -; entrepreneurs and startups have found a new way of raising money thanks to the issuance of crypto-tokens from their own company in the shape of ICOs; and blockchain, the technology behind all of it, has been called as the new internet for its ability to being applied to almost every sector.

These are only a few examples of what cryptocurrencies and blockchain can really do. As it is based on highly complex technology and schemes, crypto is unfortunately not for everyone. Here at tradersdna we have gathered some of the essential terms to help our readers understand a bit more about this overwhelming world that is changing the face of it.

Essential terms to get started with crypto and cryptocurrencies

Economy

  • Market: An area or arena, online or offline, in which commercial dealings are conducted. Usually referred to as the “crypto market”, which refers to the cumulative cryptocurrencies and projects operating within the industry.
  • Market Capitalization / Market Cap / MCAP: Total capitalization of a cryptocurrency’s price. It is one of the ways to rank the relative size of a cryptocurrency.
  • Volume: The amount of assets that has been traded during a certain period of time, such as the last 24 hours or more. Volume can show the direction and movement of the asset as well as a prediction of future price and its demand.
  • Trade Volume: Is the amount of the cryptocurrency that has been traded in the last 24 hours.Transaction (TX): The act of exchanging cryptocurrencies on a blockchain.
  • Derivatives Market: A public market for derivatives, instruments such as futures contracts or options, which are derived from other forms of cryptocurrency assets.
  • Futures: A futures contract is a standardized legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future. They are different from forward contracts, which can be customized for each trade and can be conducted over-the-counter, instead of being traded on an exchange.
  • Liquidity: Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.
  • Circulating Supply: The best approximation of the number of coins that are circulating in the market and in the general public’s hands.
  • Max Supply: The best approximation of the maximum amount of coins that will ever exist in the lifetime of the cryptocurrency.
  • Bubble: A bubble describes a situation where market participants drive prices up above their value, which is usually followed by a steep, rapid drop in prices as the market corrects.
  • Currency: Currency refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins.
  • Fiat: Fiat currency is “legal tender” backed by a central government, such as the Federal Reserve, and with its own banking system, such as fractional reserve banking. It can take the form of physical cash, or it can be represented electronically, such as with bank credit.
  • Inflation: A general increase in prices and fall in the purchasing value of money.
  • Deflation: Reduction of the general level of prices in an economy. May also refer to deflationary monetary policy, such as Bitcoin, where there is a fixed supply of coins.
  • Tokenization: The process by which real-world assets are turned into something of digital value called a token, often subsequently able to offer ownership of parts of this asset to different owners.
  • Crowdfunding: Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. Crowdfunding is a form of crowdsourcing and of alternative finance.
  • Peer to Peer (P2P): The decentralized interactions between parties in a distributed network, partitioning tasks or workloads between peers.

Trading Techniques

  • Bear Trap: A technique played by a group of traders, aimed at manipulating the price of a cryptocurrency. The bear trap is set by selling a large amount of the same cryptocurrency at the same time, fooling the market into thinking there is an upcoming price decline. In response, other traders sell their assets, further driving the price down. Those who set the trap then release it, buying back their assets at a lower price. The price then rebounds, allowing them to make a profit.
  • Bull Trap: A false market signal where the declining trend of an asset appears to be on the upturn, but does not actually materialize, leading bulls to lose money after going long.
  • Market Order / Market Buy / Market Sell: A purchase or sale of a cryptocurrency on an exchange at the current best available price. Market orders are filled as buyers and sellers are willing to trade. This is in contrast with limit orders at which a cryptocurrency is sold only at a specified price.Margin Call: When an investor’s account value falls below the margin maintenance amount. The broker will then demand that the investor deposit additional money or securities to meet the minimum required maintenance amount to continue trading.
  • Margin Trading: A practice where a trader uses borrowed funds from a broker to trade a cryptocurrency, which forms the collateral for the loan from the broker. It can be relatively risky for inexperienced traders who may receive a margin call if the market moves in the opposite direction of their trades.
  • Margin Bear Position: The position you are taking if you are going “short” on margin.
  • Margin Bull Position: The position you are taking if you are going “long” on margin.
  • Microtransaction: A business model where very small payments can be made in exchange for common digital goods and services, such as pages of an ebook or items in a game.
  • Portfolio: A collection of cryptocurrencies or crypto assets held by an investment company, hedge fund, financial institution or individual.
  • ROI: Short for “Return on Investment”, the ratio between the net profit and cost of investing.Relative Strength Index (RSI): A form of technical analysis that serves as a momentum oscillator, measuring the speed and change of price movements, developed by J. Welles Wilder. It oscillates between zero and 100, where a cryptocurrency is considered overbought when the indicator is above 70 and oversold when below 30.
  • Short: A trading technique in which a trader borrows an asset in order to sell it, with the expectation that the price will continue to decline. In the event that the price does decline, the short seller will then buy the asset at this lower price in order to return it to the lender of the asset, making the difference in profit.
  • Transaction Fee: A payment for using the blockchain to transact.
  • Whale: A term used to describe investors who have uncommonly large amounts of crypto, especially those with enough funds to manipulate the market.
  • Ponzi Scheme: A fraudulent investment involving the payment of purported returns to existing investors from funds contributed by new investors.

Crypto terms

  • Digital Currency: Digital currency, also known as digital money or electronic money or electronic currency, is a type of currency available only in digital form, allowing for instantaneous transactions and borderless transfer-of-ownership.
  • Cryptoasset: Cryptoassets leverage cryptography, consensus algorithms, distributed ledgers, peer-to-peer technology and/or smart contracts to function as a store of value, medium of exchange, unit of account, or decentralized application.
  • Cryptocurrency: A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
  • Token: A token makes reference to a unit of value issued by a private entity. These are digital currencies like Bitcoin in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. They are operating independently of a central bank. Soon every fiat currency may become a cryptocurrency, in that case operating with central banks.
  • Coin: A coin is a cryptocurrency that can operate independently.
  • Altcoin: As Bitcoin is the first cryptocurrency that captured the world’s imagination, all other coins were subsequently termed “altcoins”, as in “alternative coins”.
  • Bitcoin: A type of digital currency in which a record of transactions is maintained and new units of currency are generated by the computational solution of mathematical problems, and which operates independently of a central bank.
  • Satoshi Nakamoto: The individual or group of individuals that created Bitcoin. The identity of Satoshi Nakamoto has never been confirmed.
  • Ether: The form of payment used in the operation of the distribution application platform, Ethereum, in order to incentivize machines into executing the requested operations.
  • Fiat-Pegged Cryptocurrency: Also known as “pegged cryptocurrency”, it is a coin, token, or asset issued on a blockchain that is linked to a government- or bank-issued currency. Each pegged cryptocurrency is guaranteed to have a specific cash value in reserves at all times.
  • Gold-Backed Cryptocurrency: A coin or token issued that represents a value of gold; for example, one physical gram of gold equals to one coin. The gram of gold is stored in a safe and can be traded with other coin holders.
  • Stablecoin: A cryptocurrency with extremely low volatility, sometimes used as a means of portfolio diversification.
  • Exchanges: Digital currency exchanges (DCEs) or bitcoin exchanges are businesses that allow customers to trade digital currencies for other assets, such as conventional fiat money, or different digital currencies. They can be market makers that typically take the bid/ask spreads as transaction commissions for their services or simply charge fees as a matching platform.
  • Decentralized Exchange (DEX): A peer-to-peer exchange that allows users to buy and sell cryptocurrency and other assets without a central intermediary involved.
  • Wallet: A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency.
  • Cold Storage: Offline storage of cryptocurrencies, typically involving hardware non-custodial wallets, USBs, offline computers, or paper wallets.
  • Cold Wallet: A cryptocurrency wallet that is in cold storage, i.e. not connected to the internet.
  • Hot Storage: The online storage of private keys allowing for quicker access to cryptocurrencies.
  • Mining: Mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions. This ledger of past transactions is called the blockchain as it is a chain of blocks.
  • ICO: An ICO is an unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital- raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies.
  • Pre-sale: A sale that takes place before an ICO is made available to the general public for funding.
  • Whitepaper: A document prepared by an ICO project team to interest investors with its vision, cryptocurrency use and cryptoeconomic design, technical information, and a roadmap for how it plans to grow and succeed.

Technology

  • Open Source: Open-source software is a type of software released under a license in which the copyright holder grants users the rights to study, change, and distribute the software to anyone and for any purpose. It is also a philosophy, with participants believing in the free and open sharing of information in pursuit of the greater common good.
  • API: An application programming interface (API) is a set of subroutine definitions, protocols, and tools for building application software. In general terms, it is a set of clearly defined methods of communication between various software components.
  • Cryptography: Cryptography is the practice and study of techniques for secure communication in the presence of third parties called adversaries. More generally, cryptography is about constructing and analyzing protocols that prevent third parties or the public from reading private messages; various aspects in information security such as data confidentiality, data integrity, authentication, and non-repudiation are central to modern cryptography.
  • Ledger: A record of financial transactions that cannot be changed, only appended with new transactions.
  • Central Ledger: A ledger maintained by a centralized agency (such as a bank) that records all financial transactions.
  • Distributed ledgers: A distributed ledger is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions. There is no central administrator or centralised data storage.
  • Blockchain: Blockchain is a transaction database shared by all nodes participating in a system based on the Bitcoin protocol. A full copy of a currency’s block chain contains every transaction ever executed in the currency. With this information, one can find out how much value belonged to each address at any point in history. The blockchain principle takes up the growing trend to decentralized data administration and processing. As solar modules on house roofs provide centralized provision of power, the blockchain also operates with a central administrative unit. Literally it is a chain of data blocks in which transactions are linked and examined. On the basis of smart contracts, more complex transactions can also be mapped on the blockchain. For example, smart contracts can facilitate loan agreements without the previously necessary administrative work. Click here for more information on the blockchain.
  • Trustless: A property of the blockchain, where no participant needs to trust any other participant for transactions to be enforced as intended.
  • Block: A container or collection of transactions occurring every time period on a blockchain.
  • Protocol: The set of rules that define interactions on a network, usually involving consensus, transaction validation, and network participation on a blockchain.
  • Node: A copy of the ledger operated by a participant of the blockchain network.
  • Genesis Block: The first block of data that is processed and validated to form a new blockchain, often referred to as block 0 or block 1.
  • Hash: The act of performing a hash function on input data of arbitrary size, with an output of fixed length that looks random and from which no data can be recovered without a cipher. An important property of a hash is that the output of hashing a particular document will always be the same when using the same algorithm.
  • Consensus: Consensus is achieved when all participants of the network agree on the order and content of blocks and transactions contained in those blocks.
  • Proof-of-Stake (PoS): A blockchain consensus mechanism involving choosing the creator of the next block via various combinations of random selection and wealth or age of staked coins or tokens.
  • Proof-of-Work (PoW): A blockchain consensus mechanism involving solving of computationally intensive puzzles to validate transactions and create new blocks.
  • On-Chain Data: On-Chain Data refers to transactions made on the blockchain. A transaction is a transfer of value that is broadcast to the network and collected into blocks.
  • Off-Chain Data: An off-chain transaction is the movement of value outside of the blockchain.
  • Decentralized Applications (dApps): A type of application that runs on a decentralized network, avoiding a single point of failure.
  • Distributed Ledger Technology (DLT): The technology underlying distributed ledgers. This term is most often discussed in the context of enterprise use cases around adoption of distributed ledger technology.
  • Smart contract: Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralised blockchain network. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. They render transactions traceable, transparent, and irreversible.