A Guide to Cryptocurrency Terms
The financial industry uses a lot of jargon that is quite difficult for people new to the topic to comprehend. The cryptocurrency industry is no different, as it mixes tech talk with investing terms, which can make studying its markets even more challenging.
I have addressed topics like this before in my ‘Cryptocurrency Trading’ article, and touched on a few key terms you should know. In order to expand your understanding of terminology a little further, here are some more common cryptocurrency terms that I’ve come across and thought needed defining:
A cryptocurrency address is the same as a person’s home address; it’s the “location” where a person can receive or send cryptocurrency from. The only difference with a digital address is that its string of letters and numbers are unique to each cryptocurrency holder, functioning like an ID.
Altcoin refers to cryptocurrencies other than Bitcoin. Alternative cryptocurrencies like Ethereum or Dash are altcoins that people can mine and invest in.
This refers to investors taking advantage of a price difference of the same cryptocurrency on two different exchanges. This is possible because there are a lot of online cryptocurrency exchanges in the world that offer digital funds at different prices.
Bearish / Bullish
A bearish cryptocurrency market refers to one with a sluggish demand for digital assets, which tends to drive prices down. A bullish market, on the other hand, is the opposite of a slump. When investors are bullish on a cryptocurrency, its prices usually go up.
A bot is a program that lets people use pre-programmed commands for trading cryptocurrencies. This is similar to the trading software used by Forex traders. Bots can be programmed to protect investors from accumulating high losses by stopping trading when the capital drops by a significant amount.
A block is similar to a notebook page, and it is used for the purpose of writing and storing data.
Blockchain is the technology that powers cryptocurrencies. It is the framework used for creating digital ledgers involving transactions. A blockchain is basically a network of people and computers all working together in order to produce cryptocurrencies.
This refers to the reward given to people for solving difficult mathematical equations related to mining cryptocurrency. The block reward is different for every cryptocurrency. For instance, the block reward is currently at 12.5 coins per block mined on the Bitcoin network, and the next halving event takes place in May 2020. This will bring down the block reward to 6.25 coins.
A price correction happens whenever a cryptocurrency experiences an all-time high. Assets get “corrected” whenever a price spike happens because investors sell their holdings when the value of the coins gets high enough for trading.
A hard fork is a change of the rules to a digital currency’s blockchain. FXCM explains that it is a “permanent change in the rules of a digital currencies blockchain”, particularly in mining, which requires the support of the majority of people using the network. A hard fork usually happens when developers find a solution to recurring bugs or weaknesses from the old blockchain.
A hash rate refers to the length that it takes for a computer to discover a block, as well as the time required for solving mathematical equations for mining.
An initial coin offering (ICO) is a new cryptocurrency being offered by fledgling entrepreneurs who are hoping to get funding from venture capitalists. The entrepreneurs will pre-sell their new cryptocurrency to venture capitalists before they go public.
Mining is the process of solving mathematical equations on a certain block. Once the equation gets solved, cryptocurrencies come out as the reward.
This is a computer, or a set of computers, designed for processing blockchains. They are made up of several expensive graphic cards that speed up the mining process of cryptocurrencies.
P2P means “Person to Person,” which is a method of sending and receiving cryptocurrencies without the need of an intermediary. P2P transfers are what make cryptocurrency transactions cheaper and more direct than sending money abroad through a bank.
A smart contract is an agreement between two parties stored on the blockchain, and is much more secure than paper contracts. Smart contracts can also be used to define benchmarks that must be met before payment can be made.
Soft forks are updates to an existing network. The updates are implemented on the same network, unlike hard forks that affect a completely different block.
People usually send unencrypted files over the internet. Attaching a word document on an e-mail or sending pictures via Messenger are usually unencrypted methods of sending files. Tokenization is the act of encrypting data by turning them into a string of random letters and numbers. All data sent between wallets are tokenized on the blockchain, making cryptocurrencies virtually tamper-proof.
Bitcoins need to be stored in a wallet for easier access and to keep them secure. There are two types of wallets: software-based and physical wallets. Software-based wallets are online wallets that collect data on a person’s cryptocurrency holdings. An offline wallet, on the other hand, can store data on cryptocurrencies in the same way that a DVD can store computer files.
Hopefully these terms help make more sense of the cryptocurrency world!