The cryptocurrency is a digital currency using cryptography for security. This is designed to be secure and in many cases it is anonymous. It converts the legible information into an almost uncrackable code, to track purchase and transfers. The origin of cryptography is at the time of second world war. Its purpose was to secure communication. In the digital era it emerged with elements of mathematical theory and computer science. This is an ideal way to secure communications, information and money online. The first cryptocurrency bitcoin was created in the year 2009. There has been a high growth of cryptocurrencies in the past decade. At present more than 1000 are available.
It is a decentralised technology that help the users secure payments. It stores the money and does not require the name of the user or go through a bank. The cryptocurrencies run on a distributed public ledger called block chain. The block chain is a record of all transactions that is updated and held by currency holders. Its units are created by a process called minning. The minning process involves using computer powers solving complicated mathematical problem and generating coins. Popular cryptocurrencies:
Bitcoin: Developed by a pseudonymous group Santoshi Nakamoto in 2009 this is the first and foremost cryptocurrency till date.
Ethereum: Developed in 2015, this is the second most popular and valuable cryptocurrency. This is used in Ethereum blockchain. It is popular as a launch pad for the other cryptocurrencies in 2017.
Ripple: Ripple is another distributed ledger system founded in 2012. It is used to track more kinds of transactions apart from cryptocurrencies.
Litecoin: This currency is most similar to bitcoin, but has moved more quickly to develop innovations. It helps in faster payment and processes and allows more transaction.
Why use a cryptocurrency ?
This is a secure payment which helps in providing anonymity. Transactions in them cannot be faked. Their decentralised nature means they are available to anyone. It is more reliable than conventional currency. Being decentralised they are available to anyone.There is a sudden boom in this new form of cash. A small investment became a large sum overnight. This has led to a spur in professional and amateur speculators investing in bitcoin and other cryptocurrencies, seeing them either as a quick way to make returns or as part of an investment portfolio. If you are thinking to make investment in cryptocurrecies then you should be aware of the volatility of the market and the risks they take when buying. Being anonymous, the cryptocurrencies are also associated with illegal activity, particularly on the dark web.
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Consensus Process - Refers to those nodes that are responsible for maintaining the blockchain ledger so that a consensus can be reached when a transaction is made.
Consortium blockchain- A privately owned and operated, yet publicly transparent, blockchain.
Cryptographic Hash Function- This process happens on a node and involves converting an input – such as a transaction – into a fixed, encrypted alphanumeric string that registers its place in the blockchain. This conversion is controlled by a hashing algorithm, which is different for each cryptocurrency.
Cryptography- The process of encrypting and decrypting information.
DAO- Acronym for “decentralized autonomous organization”
dApp- Shorthand for “decentralized application”
Decentralized Application- A computer program that utilizes a blockchain for data storage, runs autonomously, is not controlled or operated from a single entity, is open source and has its use incentivized by the reward of fees or tokens.
Decentralized Autonomous Organization- Refers to organizations that are run by an application (computer program) rather than direct human input. Control of this application is granted to everyone rather than a single central entity.
Decryption- Turning encrypted cipher text back into plain text.
Deflation- When the demand for a particular cryptocurrency decreases, bringing down the price of its economy.
Depth Chart- This graph plots the requests to buy (known as bids) and the requests to sell (known as asks) on a chart. Because you can put a limit order on your buy or sell transaction, the depth chart shows the crossover point at which the market is most likely to accept a transaction in a timely fashion. It also shows if there are any significant buy walls or sell walls in play.
Deterministic Wallet- This type of wallet is created by producing multiple keys from a seed. If you lose this wallet, your wallet key can be recovered from the seed. Plus, when you make transactions, instead of producing new keys each time, you use variations from the seed, which makes it more transferable and easier to store.
Difficulty- When someone refers to difficulty in the cryptocurrency space, they are referring to the cost of mining in that moment in time. The more transactions that are trying to be confirmed at any single moment in time, divided by the total power of the nodes on the network at that time, defines the difficulty. The higher the difficulty, the greater the transaction fee – this is a fluid measurement that moves over time.
Digital Commodity- An intangible, hard-to-get asset that is transferred electronically and has a certain value.
Digital Currency- Another term for digital commodity
Digital Signature- Used to confirm that a document being transmitted electronically is authentic. They generally appear as a code generated by a public key encryption.
Distributed Ledger- A ledger that is stored in multiple locations so that any entries can be accessed and checked by multiple parties. In cryptocurrency, this refers to the blockchain being held on multiple nodes on the network, all of which are checked simultaneously.
Double Spend- This occurs when someone tries to send a cryptocurrency to two different wallets or locations at the same time.
Dump- The term used to describe selling all (or a lot) of your cryptocurrency. Dumping- When a lot of people dump at once, causing a sharp downward movement in a cryptocurrency’s price.
Dust Transaction- Sometimes people will look to slow the network by deliberately flooding it with minor transactions that are incredibly small. These minuscule amounts are referred to as a dust transaction. DYOR- Acronym for “do your own research”. Encryption Converting plain text into unintelligible text with the use of a cipher. ERC- Stands for “Ethereum request for comments” and is a summation of proposed improvements to the Ethereum system. ERC-20- The standard to which each Ethereum token complies. It defines the way that each token behaves so that transactions are predictable. Other cryptocurrencies also use the ERC-20 standard, piggybacking on the Ethereum network in the process. Escrow- When an intermediary is used to hold funds during a transaction, those funds are being held in escrow. This is usually a third party between the entity sending and the one receiving. Ethereum- One of the top three cryptocurrencies in the world based on its market capitalization. Despite being open source and based on blockchain technology, it differs from bitcoin in two key ways: it allows developers to create dApps and also write smart contracts. Ethereum Virtual Machine- A virtual machine, effectively sitting in the cloud, that is Turing complete and is used by all nodes on the network during blockchain confirmations. It allows those on the node to execute random EVM Byte Code, which is part of the Ethereum Protocol. EVM- Stands for Ethereum Virtual Machine. Exchange- The platform through which cryptocurrencies are exchanged with each other, with fiat currencies and between entities. Exchanges can vary widely in the currency conversions they enable and their fee structures. FA- Acronym for “fundamental analysis”. Faucet If you find a website that offers to give you free cryptocurrency for connecting with them, it is termed a faucet. The majority of these are scams.
Fiat- Refers to money recognized as legal tender by governments, such as the US dollar, British pound, Euro and Australian dollar.
FOMO- An acronym for “fear of missing out”.
Fork- When a new version of a blockchain is created, resulting in two versions of the blockchain running side-by-side, it is termed a fork. As a single blockchain forks into two, they will both run on the same network. Forks are categorized into two categories: soft or hard.
Frictionless- If there is no transaction cost and no restraints on trading, then the system is considered frictionless.
FUD- Acronym for “fear, uncertainty and doubt”.
Full Node- Some nodes download a blockchain’s entire history in order to enforce its rules completely. As they fully enforce the rules, they are considered a full node.
Fundamental Analysis- A method through which you can attach value to a coin by looking at similar economic and financial factors and researching the underlying motives of the creators and market opinion.
Futures Contract- This is a pre-approved contract between two entities to fulfill a transaction when the value of cryptocurrency hits a certain price. It’s different than a limit order in that the buyer and seller are already nominated and bound. A future contract becomes relevant when a buyer wants to go short and a seller wants to go long on the asset.
Gas- Gas a is measurement given to an operation in the Ethereum network that relates to the computational power required to complete it. That measurement relates to the fee offered to miners who process that transaction. Other operations have a small cost of 3 to 10 gas, but a full transaction costs 21,000 gas.
Gas Limit- When users make a transaction on the Ethereum network, they set their gas limit, which is the most they are willing to pay as a fee for that transaction. If the transaction is going to cost more gas than what is offered, the transaction will not go through. If it costs less, the difference will be refunded.
Gas Price- The amount you are willing to pay for a transaction on the Ethereum network. If you want miners to process your transaction fast, then you should offer a higher price. Gas prices are usually denominated in Gwei.
Genesis Block- The first or first few blocks of a blockchain.
Group Mining- Another term used to describe a mining pool (see below).
Gwei- The denomination used in defining the cost of gas. Set a gas price of 20,000 Gwei, for example.
Halving- Every time miners approve transactions on the bitcoin blockchain, they earn bitcoin. As each block on the blockchain fills up with transactions, a certain amount of bitcoin enter the marketplace. However, the number of bitcoin that will ever be created is finite, locked at 21 million. In order to ensure this cap is kept, the amount of bitcoin earned by miners for filling one block is halved at the completion of that block. This is called halving. For the record, by the year 2140, all 21 million bitcoin will be in circulation.
Hard Cap- During an ICO, the creator can set a hard cap. This is the maximum amount it planned to raise, and it will therefore stop offering coins at this figure.
Hard Fork- A fork in the blockchain that converts transactions previously labeled invalid to valid, and vice versa. For this fork to work, all nodes on the network must upgrade to the newest protocol.
Hardware Wallet- A physical device, similar to a USB stick, that stores cryptocurrency in its encrypted form. It’s considered the most secure way to hold cryptocurrency.
Hash- The shorthand for cryptographic hash function (see description above).
Hash Rate- Measurement of performance that reveals how many hashes per second your computer is capable of producing. Each hash is an attempt to find a block by creating a unique block candidate and testing it against the network.
Hashing Power- The hash rate of a computer, measured in kH/s, MH/s, GH/s, TH/s, PH/s or EH/s depending on the hashes per second being produced. 1,000 kH/s = 1 MH/s, 1,000 MH/s = 1 GH/s and so forth.
HODL Acronym for “hold on for dear life”.
ICO- Acronym for “initial coin offering”. Initial Coin Offering- In order to raise funds, the creator of a cryptocurrency will put an initial batch of its coins up for purchase. This is an initial coin offering.
JOMO- Acronym for “joy of missing out”.
KYC- Acronym for “know your customer”, which refers to a financial institution’s obligation to verify the identity of a customer in line with AML laws.
LAMBO- Shorthand for Lamborghini, which is how someone might refer to themselves if they are getting rich quickly. The idea being there is so much money coming in that they are going to go buy an exotic car.
Ledger- A record of financial transactions. A ledger cannot be changed, it can only be appended with new transactions.
Leverage- A loan of sorts offered by a broker on an exchange during margin trading (see below).
Lightning Network- A peer-to-peer system for cryptocurrency micropayments that is focused on low latency, instant payments. They’re typically low cost, scalable and can work across chains, and transactions can be public or private.
Limit Order/Limit Buy/Limit Sell If you set a rule whereby a cryptocurrency is sold or bought when at a certain price, you are setting a limit order. When traders place an order for a buy or sell, the system looks for these limit orders.
Liquidity- The liquidity of a cryptocurrency is defined by how easily it can be bought and sold without impacting the overall market price. Locktime- If a transaction request comes with a rule delaying when it can be processed to a certain time or certain block on the blockchain, that is referred to as the locktime.
Long- When you intend to take a large amount of cryptocurrency and stockpile it with the anticipation that it will grow in value, you are going long (or taking a long position).
MACD Acronym for “Moving Average Convergence Divergence”.
Margin Bear Position- This is the position you are taking if you are going “short”.
Margin Bull Position- This is the position you are taking if you are going “long”.
Market Capitalization This is defined as the total number of coins in supply multiplied by the price. Cap = supply x price.
Margin Trading A risky strategy used by experienced traders where they risk their existing coins to magnify the intensity of their trades. This allows them to buy more than they can afford using leverage provided by an exchange.
Market Order- As opposed to a limit order, a market order does not wait until a certain price to buy or sell; it trades wherever the price is at the time the transaction order is made.
MCAP- Acronym for “market capitalization”.
Mining- The term, somewhat confusingly, given to the process of verifying transactions on a blockchain. In the process of solving the encryption challenges, the person donating the computer power is granted new fractions of the cryptocurrency.
Mining Contract An investment in mining hardware whereby you rent out the hashing power of mining hardware for a certain amount of time. The renter does not pay for the hardware or the maintenance and electricity required to run it.
Mining Pool- If a number of miners combine their computing power together to try and help complete the transactions required to start a new block in the blockchain, they are in a mining pool. The rewards are spread proportionately between those in the mining pool based on the amount of power they contributed. The idea is that being in a mining pool allows for better chances of successful hashing and therefore getting enough cryptocurrency reward to produce an income.
Money Services Business- A legal term used to represent an entity that transfers or converts money.
Moon- A term used to describe a major price movement upwards. For example, Ripple is mooning.
Moving Average Convergence Divergence- A part of the technical analysis of a cryptocurrency’s value, this tracks the momentum of price change to try and forecast into the future.
MSB- Acronym for “money services business”.
Multipool Mining- If a miner moves from one cryptocurrency blockchain to another depending on the profitability provided by the network at that moment in time, they are engaging in multipool mining.
Multi-Signature (Multi-Sig) Wallets- If, in order for a transaction to go through, more than one user needs to provide their unique code, then it is multi-signature. This system is set up at the creation of the account and is considered less susceptible to theft.
Network- A network refers to all the nodes committed to helping the operation of a blockchain at any given moment in time.
Node- Any computer that is connected to a blockchain’s network is referred to as a node.
Nonce- When a miner hashes a transaction, a random number is generated, called a nonce. The parameters from which that number is chosen change based on the difficulty of the transaction.
OCO- Acronym for “one cancels the other order”.
One Cancels the Other Order- When two orders for cryptocurrency are placed simultaneously with a rule in place whereby if one is accepted, the other is cancelled.
Oracles- The smart contracts stored on a blockchain are stuck within the network. They can only be reached by the external world through a program called an oracle. The oracle sends the data to and from the smart contract and the outside world as required. Oracles are most commonly found on the Ethereum network.
Overbought- If a large number of purchases have been made on a cryptocurrency, its price will increase for an extended period of time. At this juncture, it is considered overbought and a period of selling is expected.
Oversold- If a cryptocurrency has spent significant time being sold without an upward movement, it is considered oversold. In this condition, there would be concerns about whether it will bounce back.
Paper Wallet- Storing your wallet code (your private key) on a physical document makes it a paper wallet. It’s also sometimes referred to as cold storage.
P2P Acronym for “peer to peer”.
Peer to Peer- In a peer-to-peer connection, two or more computers network with each other without a centralized third party being used as an intermediary.
PND- Acronym for “pump and dump”.
Pre-Sale- A period before an ICO goes public when private investors or community members are able to buy the cryptocurrency.
Private Key- A string of numbers and letters that are used to access your wallet. While your wallet is represented by a public key, the private key is the password you should protect (with your life). You need your private key when selling or withdrawing cryptocurrencies, as it acts as your digital signature.
Proof of Authority (PoA)- A private key that gives the holder the right to create the blocks in a private blockchain. It can be held by a single entity or a set number of entities. This is an alternative to the proof-of-work model, as instead of getting multiple random nodes to approve a transaction, a group of specific nodes are given the authority to approve. This is a far faster method.
Proof of Stake (PoS)- Another alternative to proof of work, this caps the reward given to miners for providing their computational power to the network at that miner’s investment in the cryptocurrency. So if a miner holds three coins, they can only earn three coins. The system encourages miners to stick with a certain blockchain rather than converting their rewards to an alternate cryptocurrency.
Proof of Work (PoW)- In order to receive a reward for mining a cryptocurrency, miners must show that their computers contributed effort to approve a transaction. A variable is added to the process of hashing a transaction that demands that effort before a block can be successfully hashed. Having a hashed block proves the miner did work and deserves a reward – hence proof of work.
Protocols- The set of rules that defines how data is exchanged across a network. Public blockchain A blockchain that can be accessed by anyone through a full node on their computer.
Public Key- This is your unique wallet address, which appears as a long string of numbers and letters. It is used to receive cryptocurrencies.
Pump- This is a term used to refer to an upward price movement, usually driven by whales investing large sums of money in a cryptocurrency.
Pump and Dump- The frowned-upon practice of buying a lot of one cryptocurrency to drive up its price and encourage others to invest, then selling the lot when there is a suitable margin.
REKT- Shorthand slang for “wrecked” and a term used to describe a bad loss in a trade.
Relative Strength Index- A type of technical analysis whereby you determine the momentum of price change over time. It looks at recent changes in price exponentially, with the most recent changes given more weight than older ones. This produces an overall trend of movement for a cryptocurrency that can determine if the market is overbought (a reading higher than 70) or oversold (a reading lower than 30).
Ring Signature- A ring signature is a type of encryption process that retains anonymity for the user. The concept gives the network of nodes the power to approve a transaction on a blockchain without identifying which of the nodes requested the transaction. As a result, it cannot be traced.
RSI- Acronym for “Relative Strength Index”.
Satoshi Nakamoto- The individual, or group of individuals – it has never been confirmed – who created bitcoin.
SATS- This is the smallest unit of bitcoin, which is 0.00000001 BTC. The name SATS is shorthand for Satoshi Nakamoto, which is the fake name used by the creator of bitcoin.
Scrypt An algorithm that encrypts a key in such a fashion that it takes a serious amount of RAM to hash it. The system makes it challenging to attack for hackers. Despite its spelling, Scrypt is pronounced “ess-crypt”.
Seed- The origin point from which you created your wallet ID. Usually, a seed is a phrase or a series of words that can be used to regenerate your wallet ID if you lose it. Something to keep very secret.
Segregated Witness- The processes of separating digital signature data from transaction data. This lets more transactions fit onto one block in the blockchain, improving transaction speeds.
SEGWIT- Acronym for “segregated witness”.
Selfish Mining- If a miner finds or creates a new block in the blockchain and then doesn’t share that information with the network, he or she is partaking in selfish mining. This is because other miners are now burning their computational power on an old block, allowing the selfish miner to get a head start on the new block.
Sell Wall- When a large limit order has been placed to sell when a cryptocurrency reaches a certain value, that is a sell wall. This can prevent a cryptocurrency from rising above that value, as supply will likely outstrip demand when the order is executed.
SHA-256- The name of the cryptographic hash function (the hashing algorithm) used by bitcoin. It’s been subsequently used by a number of altcoins too.
Sharding- Sharding is a way of splitting up the full blockchain history so each full node doesn’t need the whole copy of it. It’s considered a scaling solution for blockchains because as they grow larger, it begins to slow the network performance if every node is required to carry the full blockchain.
Shit Coin No points for guessing this one. It’s a term used to describe a cryptocurrency not expected to have a positive future.
Short- Also known as short selling, this is a concept whereby traders sell an asset they don’t have. The hope is that they can then buy the asset at a lower price than which they sold it to complete the deal. Thereby they earn a margin in the interim.
Smart Contracts- When a contract is written in computer code, as opposed to traditional legal language, it is deemed a smart contract. This programmed contract is set up to execute and carry itself out automatically under specified conditions. When a smart contract is on the blockchain, both parties can check its programming before agreeing to it, and then let it do its thing, confident that it cannot be tampered with or changed. It lets two parties agree to complex terms without needing to trust each other and without needing to involve any third parties. This functionality is the defining feature of the Ethereum blockchain.
Soft Fork- A fork in a blockchain protocol where previously valid transactions become invalid. A soft fork is backwards-compatible, as the old nodes running the old protocol will still consider new transactions valid, rather than disregarding them. For a soft fork to work, a majority of the miners powering the network will need to upgrade to the new protocol.
Software Wallet- A common form of wallet where the private key for an individual is stored within software files on a computer. This is the system you are likely to use if you sign up for a wallet online that is not associated with an exchange.
TA- Acronym for “technical analysis”.
Technical Analysis- Using a trading tool to look at historical data on a cryptocurrency in the hope of forecasting its future.
Test Net- When a cryptocurrency creator is testing out a new version of a blockchain, it does so on a test net. This runs like a second version of the blockchain but doesn’t impact the value associated with the primary, active blockchain.
Timestamp- The moment in time when a transaction was encrypted and regarded as proof that the data compiled in that transaction existed.
Token- The “coin” of a cryptocurrency is a token. Effectively, it’s the digital code defining each fraction, which can be owned, bought and sold.
Tokenless Ledger- When a distributed ledger exists but doesn’t need a currency in which to operate. With these blockchains, the miners upholding the network typically don’t get a reward/payment.
TOR- Acronym for “terms of reference”.
Transaction- The value of cryptocurrency moved from one entity to another on a blockchain network.
Transaction Fee- Usually very small fees given to the miners involved in successfully approving a transaction on the blockchain. This fee can vary depending on the difficulty involved in a transaction and overall network capabilities at that moment in time. If an exchange is involved in facilitating that transaction, it could also take a cut of the overall transaction fee.
Turing Completeness- If a machine is capable of performing all conceivable programmable calculations, then it is Turing complete. This machine can process any computable function and includes most modern computers.
Unconfirmed- When a transaction is proposed, it is unconfirmed until the network has examined the blockchain to ensure that there are no other transactions pending involving that same coin. In the unconfirmed state, the transaction has not been appended to the blockchain.
Unspent Transaction Output This refers to the amount of cryptocurrency sent to an entity but not sent on elsewhere. These amounts are considered unspent and are the data stored in the blockchain.
UTXO- Acronym for “unspent transaction output”.
Volatility The fluctuation in an asset’s price is measured by its volatility. Cryptocurrency prices are notoriously volatile compared to other assets, as dramatic price shifts can happen quickly.
Wallet- A wallet is defined by a unique code that represents its “address” on the blockchain. The wallet address is public, but within it is a number of private keys determining ownership of the balance and the balance itself. It can exist in software, hardware, paper or other forms.
Whale- A term used to describe extremely wealthy investors or traders who have enough funds to manipulate the market.
Whitelist- Prior to an ICO, interested parties can sign up/register their involvement and intent to purchase or even purchase under pre-sale conditions. The list of these parties is referred to as the whitelist.
White Paper- A detailed explanation of a cryptocurrency, designed to offer satisfactory technical information, explain the purpose of the coin and set out a roadmap for how it plans to succeed. It’s designed to convince investors that it’s a good choice ahead of an ICO.
Zero Confirmation Transaction- Alternative phrasing for an unconfirmed transaction.
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