Synopsis: Confused about the cryptocurrency terminology? Use this article to look up what all those words about Bitcoin mean, explained in plain & simple English!
Altcoins: “Alternative Coins” – a crypto token which is not one of the largest and best-known ones like Bitcoin, Ethereum or Litecoin.
ASIC: “Application Specific Integrated Circuit”. This piece of cryptocurrency terminology refers to a specialized piece of mining hardware, specifically designed to do the mining task for a certain hash algorithm. Tend to be faster, but less flexible than GPUs.
Asymmetric Key Cryptography: A way of securely encrypting and decrypting data, using paired cryptographic keys. The public key is used to encrypt data, and the private key is used to decrypt data.
Bid-Ask Spread: The difference between the best price on offer by buyers and the best price on offer by sellers.
Block: A set of transactions which are grouped together by a miner and permanently recorded on the blockchain.
Block Reward: Cryptocurrency terminology for the newly-issued crypto awarded to the successful crypto miner, every time they are able to add a new block to the blockchain. This provides an incentive to crypto miners to dedicate computer power to the maintenance of the network.
Block Size Limit: The maximum amount of data which can be contained in a single block.
Blockchain: A form of digital ledger which chronologically records blocks of transactions, stretching all the way back to the start of the network.
Bubble: A situation where speculative buying causes an asset price to increase dramatically, for reasons other than that asset’s utility value.
Censorship Resistance: The ability for a transaction to be executed without any third-party being able to prevent it. It is one of the main characteristics that makes crypto valuable.
Cold Wallet: A crypto wallet without access to the Internet. Less accessible, but more secure than hot wallets.
Crypto: Digital assets which are secured by cryptography.
Cryptocurrency: Within strictly correct cryptocurrency terminology, “cryptocurrency” is a subset of crypto – tokens which are specifically designed to act as currency (e.g. Bitcoin).
Cryptography: A branch of computer science which deals with privacy and encoding.
Deflationary: Describes an asset which should increase in value over time, due to limited issuance characteristics.
Digital Currency: Any currency represented by data, rather than physically. Cryptocurrency is a digital currency, and government-issued money can also be a digital currency (e.g. credit card payments and international bank wires).
Distributed Ledger: A decentralized record of value ownership. In crypto, instead of a single party being the designated record-keeper (as with a bank), many different parties share this responsibility.
Fiat Money: Government-issued currency, decreed to be the currency of legal tender within the borders of the country that issued it.
Fork: Cryptocurrency terminology for the situation where a crypto token splits into separate branches. Both tokens have a shared history, but will evolve separately after the fork is over.
Fundamental Analysis: Evaluating the value of a project with regard to its underlying utility value, rather than speculative value.
Gatekeeper: A person or group that can control and potentially deny access.
GPU: “Graphics Processing Unit”. Can be used for crypto mining. They tend to be slower than ASICs, but can be flexible across multiple hashing algorithms.
HODL: A slang term within the crypto community, meaning to ‘keep hold of crypto instead of selling it’.
Hardware Wallet: A cold wallet storage option which stores the user’s private keys in a secure hardware device.
Hashing: The process of turning data into an encoded output. Used in proof-of-work crypto mining. It is a one-way process – it is possible to take data and turn it into a hash, but not possible to take the hash and find out the original data.
Hexadecimal: The base 16 numbering system, used in Bitcoin hashing.
Hot Wallet: A crypto wallet with access to the Internet. More accessible, less secure than cold wallets.
Immutable: A record which cannot be changed after it has been created.
Initial Coin Offering (ICO): Cryptocurrency terminology for an offering of new crypto tokens for the first time. Involves a white paper to outline the purpose for the project.
Key: Cryptographic keys effectively ‘store’ crypto on the blockchain, and enable the owner to access and spend it. Keys come in pairs – a public key, and a private key.
Limit Order: An order to trade if a certain criteria are met – for example to sell crypto if a minimum price is reached.
Liquidity: Volume of trading activity in a marketplace.
Lock-Up Period: In ICOs – prevents founders, key people and/or investors from selling their tokens for a certain period post-ICO.
Market Capitalization: In the domain of cryptocurrency terminology, means the current price per crypto token, multiplied by the total number of circulating tokens outstanding. Gives a measure of the market value of the network.
Market Order: An order to execute a trade immediately, using the best price on offer by other existing market participants.
Maximum Threshold Number: As crypto miners find hashed outputs, they test their outputs against this network generated ‘threshold’ number. If their output is smaller than the threshold, the miner gets to create a block and collect the block reward.
Middleman: A party which stands in between a buyer and a seller, often collecting a fee along the way.
Mining: Dedicating computing power to helping maintain the network. Involves playing a competitive game of chance against other miners to be the one to update the blockchain.
Network Effect: The positive effect that each additional user brings to existing users, by making the network more useful through them joining.
Noise: Short-term price movements, often driven by speculators. (Opposite to “signal”).
Nonce: An arbitrary number added to the transactions by miners, to try and create a different hash output.
Online Crypto Exchange: Websites that allow users to buy and sell crypto with other traders.
Private Key: The half of the cryptographic key pair required to send payments. It must be carefully protected, as anyone who has access to the private key also has access to all the crypto associated with it.
Public Key: The half of the cryptographic key pair required to receive payments. It can be disseminated widely, with no risk.
QR Code: A representation of data (in crypto, typically a wallet address) through a sort of square barcode. Scanning a QR code replaces the need to enter the data manually.
Round-Trip Cost: The total cost of trading in and out of an asset, inclusive of exchange fees and crossing the bid-ask spread.
Scarcity: Rareness. This is one of the essential characteristics for an asset to have monetary value.
SHA256: The hashing algorithm used in Bitcoin’s proof-of-work system.
Signal: Long-term value movements, driven by a change in the state of the world, such as greater adoption / traction. (Opposite to “noise”).
Speculation: Trading in an asset in the hope of a quick gain.
Speculative Value: The part of the crypto price which is driven by speculators and expectation of what the token’s price may become in the future.
Token: An individual crypto asset. Bitcoin is one, Ethereum is another, Litecoin is yet another.
Trusted Third-Party: An entity which facilitates interactions between two parties, who they both trust.
Two Factor Authentication (2FA): An extra layer of security, which requires that a smartphone app generate a one-time code to be entered by users before performing certain functions with exchanges and wallets.
Utility Value: The part of the crypto price which is driven by the token’s intrinsic usefulness, community size, etc…
Wallet: A place which stores cryptographic keys, to make them more legible to humans. Software wallets, paper wallets, and hardware wallets are some of the varieties.
White Paper: The business plan and technical manual behind a new crypto token. It lays out what the project plans to do, and how.
Zero-Sum Game: A competitive situation where one party’s gain is another party’s loss. Proof-of-work crypto mining is a zero-sum game because all miners are competing over a fixed quantity of new crypto issued.