Crypto terminology simply explained

Aside from the Bitcoin cryptocurrency, there are thousands of other digital cryptocurrencies or Digital Assets, which are also based on blockchain technology.

Each coin brings its uniqueness and innovation. The vast majority of the altcoins are not recognized, and they have relatively low daily trading volume and market capitalization. However, there are several examples of alternative coins, like Ethereum and Ripple, with decent liquidity and trading against FIAT pairs. Over the years, of the thousands of altcoins, many bled-out their value and just disappeared. Be this a note of caution when investing on lesser-known crypto!

Banks and other similar institutions are mostly obliged (not all), to undertake enhanced customer due diligence and enhanced monitoring of business relations to comply with their “know-your-client” (KYC) and anti-money laundering (AML) obligations.  This varies greatly depending on local jurisdiction but generally, before accepting funds from a client (existing or perspective), banks generally require the source of funds to be established, which necessarily involves identifying:

•  the institution or investor from which the funds originate; and
•  the activity that generated the funds

A collection of tokens/assets that share the same minting policy.

ATH stands for All time high - the highest price reached by an asset, Bitcoin’s ATH breached $60k (on March 13 2021). The opposite of ATH is ATL, which is an all-time low.

A blockchain-based platform that offers users the ability to issue and trade digital assets. It is a public blockchain that is decentralised, meaning there are no central authorities governing it.  In fact, Binance Smart Chain (BSC), is completely autonomous: it does not require human intervention for any of its functions or processes. The network uses smart contracts for transactions between users in order to eliminate third parties from the equation, thereby reducing costs and increasing efficiency.

BSC is praised by experts as one of the most successful attempts at creating a fully autonomous blockchain in terms of security and ease-of-use.

Such a person believes only in Bitcoin and usually, the maximalist considers the other altcoins as unworthy and unnecessary, or as “shitcoins.”

Blockchain is a term used to described a huge information file which lists all transactions that were ever made. Blockchain is the heart of the Bitcoin network and serves as a kind of a ledger but rather than existing as a single file, it is distributed on thousands of computers all around the world. This feature and the cryptographic encription is the underpinning security guarantee of Blockchain. Once it is written, it can never be tampered with or over-written. 

Block reward is the compensation that miners receive for successfully validating new transactions and recording them on the blockchain.

A Centralized Crypto Exchange (CEX), is an online trading platform where cryptocurrencies and FIAT money can be traded. Centralized means that the exchange is operated by a specific entity that maintains full control over it.

Most of the crypto exchanges allow crypto-to-crypto trading only. However, the larger ones also allow crypto-to-FIAT trading. The most popular exchanges are Binance, Coinbase, Kraken, Bitstamp, and BitFinex.    

Crypto wallets keep your private keys – the passwords that give you access to your cryptocurrencies – safe and accessible, allowing you to send and receive cryptocurrencies like Bitcoin and Ethereum. They come in many forms, from hardware wallets like Ledger (which looks like a USB stick) to mobile apps like Coinbase Wallet, which makes using crypto as easy as shopping with a credit card online. 

A DAO, or Decentralized Autonomous Organization, is an organization working without a central government, usually operated by shareholders, which has a transparent set of rules encoded on a computer program.

The famous DAO Hack: In 2016, a hacker found a loophole in the coding and used it to drain Ethereum. In just a few hours, over 3.6 million ETH was stolen, or $70 million at the time. In response, the ETH plunged over 30% in only one day.

dApps, or Decentralized Applications, are applications built on top of blockchain technology, without a central operational authority.

DeFi, or Decentralized Finance, is a new monetary system built on public blockchains without the involvement of a centralized institution. Normally referred to as the movement of building decentralized financial applications that have no central authority.  DeFi applications cover many use cases and a few popular ones are stablecoins, lending/borrowing and trading (decentralized excanges). By removing the middleman (Banks, Agents), from systems, DeFi applications are able to achieve a better rate of returns for its users, while lowering barrier of entry as the application does not discriminate or censor any particular party from joining.

 A DEX, or decentralized exchange, is an exchange operating without a central authority – no company operates it. Some of the advantages in DEX over CEX are in its security level – they are harder to breach, as well as the regulations.

A sequence of 27 to 34 letters and numbers. Each address is unique. Here is an example of a digital address: 135sti2R9ZooiGrFFRJxYGeDvF5Uvjj7JK.

Digital addresses are representing cryptocurrencies wallets. In order to send cryptocurrencies or funds, we will need to use the recipient’s digital address.

A digital wallet is an application installed on a local computer (PC), a mobile app or a remote server, facilitating the storage of digital currencies. Most digital wallets are made to store Bitcoin. A digital wallet uses public addresses as well as private keys to hold one’s funds.

The most secured digital wallets are the cold storage paper wallets or hardware wallets, such as Trezor and Ledger. 

Equity tokens provide a digital representation on the Blockchain in the form of legally-binding security tokens.  See Tokenisation below.

An Exchange Traded Fund (ETF), is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold throughout the day on stock exchanges while mutual funds are bought and sold based on their price at day's end. >more

Any currency that is backed by the state or country. Basically, it is all kinds of coins we know and use on a daily basis (USD, Euro, CAD, etc.).

Fear of missing out - term that describes one’s fear of not entering a winning trading position.

FUD stands for fear, uncertainty, and doubt. It conveys bad news about crypto, which is constantly being spread by the traditional press and aimed at creating mass panic. FUD can relate to Bitcoin regulatory issues, rumours about banning crypto, and more.

HODL is a disruption of the English word “hold”. Hodlers believe in Bitcoin and hold it all times regardless of its price, for the long term, even forever. HODL was first used during the crypto bubble pop of December 2013.

A predetermined process that cuts in half the rewards that miners receive for recording and verifying transactions to the new blocks that will be added to the blockchain. Bitcoin halving happens once every four years; the next halving will take place inApril 2024.

An Initial Coin Offering (ICO), is a fundraising method by which crypto projects raise capital from the public. Unlike traditional fundraisings, the ICO investors are only eligible for the tokens and they are not equity holders with any voting rights.

The ICO Bubble lasted from October 2017 to March 2018; each of those months saw hundreds of successful ICO fundraisings. The vast majority of those ICOs were ERC-20 type, based on the Ethereum blockchain.

Investing in ICOs is considered very risky. Many ICOs turned into crypto scams, completely erasing investors’ funds. The number of ICOs had sharply decreased during the year of 2018, and in January 2019, Binance was the first exchange to conduct an Initial Exchange Offering (IEO).

An IEO (Initial Exchange Offering), is a form of fundraising for the creation of a new token that is conducted by a crypto exchange.

The first IEO was GIFTO that raised $30 million on Binance Exchange during 2018. IEOs became popular in the first half of 2019, shortly after the number of ICOs drastically decreased.

Just as ICOs, IEOs are considered a high-risk type of investment.

Know your Customer (KYC),  is a crucial process for legitimate crypto businesses whereby users are requested to provide personal identity information in order to meet local regulations and anti money-laundering laws. This includes, but is not limited to a passport scan, proof of address, and online webcam verification. 

A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens locked in a smart contract that is used to facilitate trades between the assets on a decentralized exchange (DEX). Instead of traditional markets of buyers and sellers, many decentralized finance (DeFi) platforms use automated market makers (AMMs), which allow digital assets to be traded in an automatic and permissionless manner through the use of liquidity pools.

Multi-asset (MA) support is the name of a feature set (functionality) that a ledger (blockchain/wallet/cryptocurrency/banking platform) can provide, which allows it to do accounting on or transact with more than one type of asset.

Market cap, or capitalization, represents the current price of a single cryptocurrency multiplied by the total number of coins in the market (the circulation supply). Bitcoin is the cryptocurrency with the highest market cap.

Mining is the process of creating new Bitcoins. Mining is done by ‘miners,’ who are solving complicated equations. The miner that solves the fastest will receive the reward (fee) for the transaction and add it to the block.

On average, every 10 minutes, a new block is added to the gigantic distributed public ledger of already existing transactions, which is the blockchain.

Bitcoin mining could be done using a personal computer (PC) in the early years of the cryptocurrency. These days, the mining efforts are divided between giant companies such as the Chinese-based Bitmain.

Mining is not limited to Bitcoin only, but to PoW (Proof-Of-Work) type of cryptocurrencies.

‘Minting’ refers to the process whereby new tokens are created or destroyed. That is, the total amount in circulation (ie. added up over all addresses on the ledger) of the token type being minted increases or decreases. Minting a positive quantity of tokens is token creation, and minting a negative quantity is token destruction.

NFTs (Non-Fungible Token), are a non-duplicable digital certificate of ownership for any assigned digital asset.  >more

Proof-of-Stake (POS), is a consensus algorithm that allows users to decide on who will validate the next block, depending on the number of coins they have. The token holders lock those tokens to secure the network and receive rewards in return.

Proof of Work (POW), is the original consensus algorithm of the blockchain network. The algorithm is being used to confirm transactions and add new blocks to the chain. Miners compete with each other to receive rewards when confirming transactions.

Each public or digital address has a unique private key that is required to access the funds. Here is an example for a private key: 6AkL0TJAuKcucHGqWVfUIa4g1haE0ilcm7eWUDo..fd + PpzdCJf1s4WdsK.

A private key is usually represented in a neater way, by a seed phrase. The seed is a combination of 12 or 24 words.

P&D is artificially inflating the price of an asset (“pump”) over a short period before mass-selling it (“dump”) even quicker, while the value drops to the price level before the pump.

The lower the trading volume and liquidity, the easier it is to pump and dump a coin. Hence, lower-cap cryptocurrencies are usually selected for P&D.

Satoshi is the cent unit of Bitcoin. One Satoshi is 0.00000001 of a Bitcoin. It’s named after Satoshi Nakamoto, the anonymous creator of Bitcoin.

The reason for 8 decimal spaces is because Satoshi Nakamoto had planned Bitcoin to be used as everyday-currency even when Bitcoin reaches the price of over one million USD.

Shitcoin is a nickname for an altcoin with no working product and no actual value. Shitcoins are mostly used by Bitcoin Maximalists to describe most, if not all, of the altcoins besides Bitcoin.

An STO (Security Token Offering), is essentially a regulated offering of securities using blockchain technology. It involves the creation of digital blockchain tokens which can be created, transferred, bought, sold and destroyed (“burned”) based on the computer code rules of their blockchain. 

Tokenization is the process of representing real assets (eg, fiat currencies, stocks, precious metals, and property) in a digital form, which can be used to create financial instruments for commercial activities.

Total market cap, or capitalization, is the combined market capitalization of all cryptocurrencies.

A person or entity that owns such a large amount of Bitcoin that they can single-handedly affect the price of Bitcoin by mass-buying or selling.

Whitepaper (or WP) is an authoritative report or guide designed to inform readers about the specifications of a newly created crypto project. It is equivalent to a business plan in the traditional financial sphere. The WP is written by the project’s team and usually has chapters discussing the problem to be addressed, solutions, the token, the team, and technical aspects of the project.