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The complex cryptography, game theory and financial information associated with digital assets leave many feeling like cryptocurrency is too steep a learning curve. From technical terms, slang and acronyms, the vernacular of cryptocurrency can be extremely confusing. Here are 15 commonly used cryptocurrency terms you need to know.
Bitcoin
Bitcoin is one of the most important cryptocurrency terms you need to know It is a form of digital currency that is used by most as a store of value or speculative investment. It’s decentralized, meaning that no central bank controls it. Instead, Bitcoin is run by thousands of computers distributed around the world. Despite not being legal tender in most of the world, Bitcoin is popular because it can’t be censored, has a finite supply of 21 million and allows transactions to be made at any time from anywhere. You can buy Bitcoin on a regular exchange like eToro or WeBull but you can also buy it with tax benefits through an IRA platform like Bitcoin IRA.
Ethereum
Ethereum is a decentralized computing platform. You can think of it as a public shared global computer network. It doesn’t run on a single device but instead runs simultaneously on thousands of devices around the world. People around the globe contribute their computer’s computing power to the network and are paid for doing so.
The main idea behind Ethereum is that developers can create and launch code that runs across a decentralized network instead of a centralized server. This aspect means that these decentralized applications (dApps) cannot be censored or shut down. Just like Bitcoin, you can buy Ethereum on a regular exchange like eToro or WeBull but you can also buy it with tax benefits through an IRA platform like Bitcoin IRA.
Blockchain
Blockchain is at the heart of cryptocurrency and is undoubtedly one of the most popular topics in the world of finance. Blockchain refers to a digital ledger where encrypted blocks of digital asset data are chained and stored together, forming a chronological single source of truth for the data. Blockchains are decentralized systems that record the provenance of an asset.
The most popular cryptocurrency blockchains in the world are Bitcoin and Ethereum. These blockchains are referred to as Layer 1 blockchains, which means that they are blockchains that can finalize and validate transactions without the help of another network.
Altcoin
Bitcoin is widely considered to be a flagship for other innovations in the crypto space. For this reason, all other cryptocurrencies are collectively referred to as altcoins. Altcoins are any type of cryptocurrency other than Bitcoin.
Altcoins possess different utilities and value propositions. Ethereum is the most popular and largest altcoin by market capitalization at the time of writing. Ethereum can be imagined as a public shared global computer network. It doesn’t run on a single device but instead runs simultaneously on thousands of devices around the world.
Mining
Mining refers to the process through which cryptocurrency transactions are verified, gathered and recorded in a digital public ledger known as the blockchain, with Bitcoin being the most prominent example. Mining is a resource-intensive activity that results in the issuance of new coins and plays a critical role in maintaining the integrity of the blockchain network.
Stablecoin
Stablecoins are digital currencies whose value is tied to that of another asset — most often the U.S. dollar — that are designed to reduce the inherent volatility of cryptocurrencies. Stablecoins are primarily used to facilitate efficient and simple cryptocurrency trading although they are increasingly used for payments within dApps, remittances and settlements, among other use cases.
Three types of stablecoins currently exist — fiat-collateralized stablecoins, crypto-collateralized stablecoins and algorithmic stablecoins. While the definitions of each type of stablecoin are still blurred, each type has advantages and disadvantages. Currently, fiat-collateralized stablecoins have the strongest track record of price stability, and they have taken the lead in terms of corporate and institutional usage.
Capitulation
Capitulation describes the dramatic surge of selling pressure in the cryptocurrency market, signaling a mass surrender by investors. The capitulation phase tends to occur after the market witnesses significant declines in crypto asset prices.
Often, a capitulation phase can signal the end of a decline or a downward trend because the investors who had withheld their assets during the hysteria are unlikely to do so afterward.
Smart Contracts
Smart contracts refer to programs stored on the blockchain that run when predetermined conditions are met. Smart contracts control the execution of transactions without the need for intermediaries or central authorities, allowing for greater efficiency and reduced counterparty risk. Moreover, they render transactions transparent, traceable and irreversible.
Decentralized Finance (DeFi)
DeFi is short for decentralized finance, an umbrella term for a variety of financial applications in blockchain positioned to disrupt financial intermediaries.
The purpose of DeFi is to remove the control that banks and institutions have over society’s money, financial services and financial products and make financial services more accessible regardless of who or where people are. DeFi has the potential to create more free, open and fair financial markets that are accessible to anyone with an internet connection.
Diamond Hands and Paper Hands
The terms diamond hands and paper hands are used in the cryptocurrency sector, especially on social media platforms such as Twitter. A trader with diamond hands refers to a person with a high risk tolerance who doesn’t cave under pressure and sell their assets. Conversely, paper hands refer to someone who sells an investment too early, often because they are risk averse.
HODL
This acronym stands for “hold on for dear life.” It reinforces the financial idea that an investor should hold a cryptocurrency until the price comes back up. This notion stems from the fact that investors typically use HODL to reference cryptocurrencies that they believe have a bright future.
Airdrop
A cryptocurrency airdrop is a distribution method in which free tokens are sent to early adopters in the community in a bid to encourage adoption. Airdrops can be based on those holding existing tokens, those who have expressed interest or those who have won specific raffles. The biggest airdrop in the history of cryptocurrency was UniSwap’s (UNI) airdrop.
Cold Storage
Cold storage refers to removing your cryptocurrency keys from your wallet and storing them somewhere that is not connected to the internet. Cryptocurrency keys are strings of characters that allow holders to access their crypto assets. By disconnecting the cryptocurrency keys from the internet, users can add an extra layer of security from potential hacks.
WAGMI
WAGMI stands for “We are all going to make it.” It encourages the community to not lose hope and to build confidence.
Non-Fungible Tokens (NFTs)
NFTs are a type of cryptographic token that represents a unique asset. NFTs function as verifiable proofs of authenticity and ownership within a blockchain. They were first launched on the Ethereum blockchain, but other blockchains including the Binance Smart Chain and Solana now also support them.
These tokens can represent real-world items such as artwork, real estate, property rights and individual identities. Because they are based on the blockchain, NFTs can remove intermediaries, create new markets and simplify transactions.
How to Buy Cryptocurrencies
Now that you know all the cryptocurrency terms you need, you can better decide whether it's in your best interest to start trading cryptos. The cryptocurrency market is so popular that buying cryptos has become significantly easier in recent years. Some of the best cryptocurrency trading platforms are eToro, Webull, Gemini, Public.com and Uphold. It’s easy to set up an account and start trading. All you need to do is sign up and verify your identity. You will need to provide your address, Social Security number and a picture of your driver’s license. Once you are verified you can start trading cryptocurrencies.
Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
Terms Apply. Cryptoassets are highly volatile. Your capital is at risk.
How to Store Cryptocurrencies Safely
If you do decide to purchase any cryptocurrencies, you should also know how to store them safely. Many crypto investors just leave their cryptos on the exchange that they bought them from but this is generally not a good idea. You don't really own your crypto if it isn't in a personal wallet. In the past, crypto exchanges have lost their users' cryptos by being hacked or going bankrupt. This can be completely avoided by buying a hardware wallet, the safest kind of crypto wallet. They are physical devices that never connect to the internet so you don't have to worry about cyberattacks. It is still possible to lose your cryptos through phishing attacks, however, so you still need to stay vigilant and to never connect your wallet to suspicious sites.
The leading hardware wallet brand for the better part of a decade is Ledger. It offers 2 superb wallets: the Ledger Nano S Plus and the Ledger Nano X. The Nano S Plus is all you need to keep your cryptos safe but the Ledger Nano X adds Bluetooth functionality, extra memory and more for easy on-the-go use. Ledger supports more than 1,000 different cryptos on many different blockchains including Bitcoin, Ethereum, Dogecoin, XRP, Shiba Inu, Litecoin and many more.
Learn More About Crypto
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Should I Invest in Cryptocurrency?
Cryptocurrencies like Bitcoin have proven to be one of the best investments of the decade, but there are no guarantees of performance. Cryptocurrencies are volatile, but if you believe in the future of crypto and it fits in your risk tolerance, buying crypto may be a great idea.
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