Every industry in the world has its own terminology. They have terms unique to the industry which might have other meanings outside the industry but have a meaning of their own within the industry’s context. For someone looking from the outside, looking at the industry specific terms might be confusing and it can become a challenge for them to properly enter the industry.
The world of cryptocurrencies is no exception when it comes to a lot of terms that have their unique definitions for the industry. We have put together this article so that you can familiarize yourself with some of the most commonly used terms in the cryptocurrency world.
It only makes sense to start with the term cryptocurrency itself. This is essentially a type of digital asset which has been designed as a medium of trade and exchange. The cryptocurrencies are called so because of the fact that there is a high level of cryptography that enables procurement and secures transactions with the digital asset.
This is one of the terms that can have a number of meanings outside the cryptocurrency industry. Within the cryptocurrency industry, an address is a code which is used to send, store and receive cryptocurrency units. The addresses are unique to every user and may consist of anywhere from 26 to 35 characters each. This address is a combination of different letters and numbers which form a unique address for every user on the network.
There are two addresses which are also referred to as keys — the personal key and the public key. The personal key is only for the user of a particular cryptocurrency wallet — sort of like a password. The public key is the address which other users on a cryptocurrency’s network can use to find and transact with you.
3. Blockchain Technology
Blockchain technology (or simply blockchain) is the underlying technology which powers cryptocurrency networks. Basically, it is a digital database system that records the transactions on a decentralized network. The cryptography used within the world of cryptocurrencies that allows for interaction with the database without the need to have a centralized authority overlooking the transactions.
To define it more simply, it means that the blockchain allows people from all over the network to create the network altogether rather than a network created by a single entity or authority. This network is protected through cryptography.
The blockchain consists of blocks of data that are encrypted and linked together through cryptography.
The blocks that make up the blockchain are comparable to pages in a ledger. They contain the digital files that are unalterable and are now a permanent part of the blockchain database. Whenever the whole network is processing the data of transactions, they are recorded on to the blocks and once a certain amount of data is recorded, the blocks are cryptographically sealed. This means that the records within the blocks cannot be changed retroactively and they are secure.
Altcoin is a term you will see being used quite frequently in the cryptocurrency world. This is essentially the term used to refer to any cryptocurrency other than Bitcoin. Since Bitcoin was the first cryptocurrency and provided developers the basis to create more cryptocurrencies, any other cryptocurrencies are referred to as Altcoins or alternative coins.
Every new record that is added to blockchains, the transactions that are happening and any new cryptocurrency units are being created through cryptography behind it all. The process of mining is essentially computational power being directed into solving complex mathematical problems that verify transactions and creations of new records on the blockchain network.
Any person that contributes computational power for the mining process of the cryptocurrency’s blockchain is called a miner.
This is a term which has been borrowed from a more traditional asset class — stocks. Whenever a trader or an investor of cryptocurrencies goes short on the cryptocurrency, the investor/trader is looking to capitalize on profits from the price decrease. Shorting in the world of cryptocurrencies is particularly risky since it can potentially lead to huge losses.
Another term borrowed from the stock market, longing refers to the actions that are the exact opposite of shorting. A trader goes long hoping to benefit from the increase in the price of the cryptocurrency.
The volatility is a measure of the price fluctuation in the world of cryptocurrencies. The price movement of cryptocurrencies is particularly prone to a lot of movement. That is why they are considered to be a very volatile digital asset class.
When it comes to the cryptocurrency world, the term wallet never refers to a leather wallet that you can keep in your pocket. The cryptocurrencies exist in a digital form. A wallet is basically physical hardware or digital address where the cryptocurrency units are stored. A wallet can also be used to facilitate transactions between users and to exchange cryptocurrencies for other forms of cryptocurrency or fiat currencies.
11. Fiat Currency
In the world of cryptocurrencies, you will hear the US dollar and other regular currencies being referred to as fiat currencies. The term is used to describe any form of currency that has an actual physical presence. Fiat currencies are the longstanding currencies that have been used in the world. They are centralized, controlled by governments and they are fully regulated.
FOMO basically stands for Fear Of Missing Out. It is one of the most common things in the world of cryptocurrencies. As the prices of cryptocurrencies like Bitcoin continue to rise, more and more people want to get in on the game before the prices rises too high for them to be able to invest in them.
ICO stands for Initial Coin Offering. It is sort of like a cross between Initial Public Offering like in the stock market and your average crowdfunding campaigns. It is the main way to raise funds in order to create a new cryptocurrency project. Through ICOs, the developers offer the initial investors a share of the coins when the cryptocurrency goes public. Beyond that point, the price fluctuates based on the supply and demand for the cryptocurrency.
Understanding all of the terminology used in cryptocurrencies is essential for yo to be able to function in it. Every industry has its own words and it helps to have an understanding of them before you get into the industry.