The cryptocurrency landscape is characterized by a unique lexicon that can be overwhelming for newcomers. A glossary of terms and acronyms is essential for understanding the intricacies of this rapidly evolving digital asset class. The world of cryptocurrency is characterized by a rapidly evolving lexicon that can be daunting for both newcomers and seasoned investors.
This glossary aims to demystify the complex terminology used in the cryptocurrency industry. It covers fundamental concepts, from the underlying technology of blockchain to the various types of digital assets and investment strategies.
Cryptocurrency and the entire language of related terms that have sprung up alongside the investing phenomenon can be hard to understand.
No matter how much one knows or doesn’t know about cryptocurrencies and the technology that underpins them, this jargon can make a challenging subject even harder to understand.
We’ve put together a glossary of common terms:ABCDEFGHIJKLMNOPQRSTVWXYZ
Altcoin – any cryptocurrency other than Bitcoin.
ASIC – Application-Specific Integrated Circuit. An ASIC is a powerful and expensive computing device used for mining cryptocurrency (see ‘mining’).
Bitcoin – the original, largest and best-known cryptocurrency.
Buy the dip – the notion of buying cryptocurrencies when prices have fallen in to potentially reap the benefits when they rise again.
Blockchain – the underlying technology on which cryptocurrencies operate. A blockchain is essentially a complete ledger of transactions held simultaneously by several people on a computer network. Read more about blockchain here.
Coin – a colloquial term for a cryptocurrency. See also: altcoin, memecoin.
Cold wallet – a physical storage device such as a flash drive, hard drive or solid state drive used to store cryptocurrency offline.
Cryptocurrency – a digital form of money that can be traded for goods, services or other currencies. Records of cryptocurrency transactions should be validated and maintained on a decentralised ledger by ordinary people using a computer technology called cryptography, rather than by a centralised authority such as a bank.
Cryptography – a computer science method of aiming to keep information secret and secure by scrambling it into indecipherable information. The information can only be decrypted and read with the necessary key.
dApp – a decentralised application (dApp) is one that isn’t controlled by a central authority. Twitter is an example of a centralised app, with users relying on it as an intermediary to send and receive messages. As such, users play by the rules it enforces and the algorithm it uses to control content.
A dApp is distributed on a blockchain, with users able to send and receive data directly without the need for an intermediary. Peepeth is a Twitter-like dApp. It claims that as an app it doesn’t optimise for advertising revenues, an issue it says users of centralised apps suffer from.
Defi – short for decentralised finance. Finance is traditionally centralised because it relies on intermediaries. For example, if someone wanted to send money to a friend or relative, they would need to rely on their bank to send it to the recipient’s bank. Defi requires no intermediaries, with participants able to send and receive assets directly. In theory, this makes transactions faster and cheaper.
DAO– decentralised autonomous organisation. A DAO is a group of people who work together towards a shared goal and abide by rules written into the project’s self-executing computer code. Bitcoin (the project, not the currency) is an example of a DAO.
Distributed ledger – in traditional finance, an organisation such as a bank holds a ledger of all its customers’ transactions. In defi, the ledger is shared and synchronised among users in different locations around the world. A blockchain is an example of a distributed ledger.
Double spend – If one handed a shopkeeper £5 for a sandwich, they would no longer own the £5 and couldn’t spend it again, and sophisticated anti-counterfeit measures prevent people from making copies of physical currency. Even with digital transactions, central authorities such as banks can secure and check their ledgers to verify the legitimacy of a payment.
However, digital information can be copied. In theory, a single Bitcoin could be copied 100 times and spent 100 times. A distributed ledger such as blockchain prevents this.
When someone sends a Bitcoin to someone else, they destroy their own version of it and create a new version for the recipient. Both destruction and creation are recorded on everyone’s copy of the ledger, preventing people from claiming they still own the spent coin and trying to spend it again.
E
Exchange – A website or app that allows users to buy and sell crypto assets.
Ethereum–The second biggest cryptocurrency by market capitalisation, after Bitcoin. (See market capitalisation.)
Encryption – The process of making digital information into a form that prevents unauthorised access. If one uses a password to access a website, the site should be encrypting it so that it is of no use to hackers if stolen.
Fiat – refers to traditional, state-backed currencies like Sterling, euro and US Dollar.
Fork – a fork occurs when a community makes a change to its blockchain’s governing protocols. The change marks a forking-off from the previous iteration of the blockchain in a new direction.
Soft forks involve iterative changes to the blockchain’s rules that can be considered as an update only. Hard forks are when changes are so significant that the new version is incompatible with the old version and stands apart from it.
Gas – Transactions on the Ethereum network carry a fee. For every transaction, users must pay an amount of the native Ethereum currency ether (ETH). This fee is referred to as gas. Gas is used to reward Ethereum ‘miners’ (see ‘mining’) for the energy they use validating transactions. Gas also serves as a deterrent against malicious users.
Graphics card – Verifying a transaction on a blockchain involves solving a cryptographic problem. Solving these problems requires significant computing power, which in turn uses significant amounts of energy. High-end graphics cards used in PC gaming have the kinds of processing power needed to validate transactions.
Hash – A hash is the result of a piece of data being put through a special algorithm. A hashing algorithm essentially compresses data of any size down into an almost-unique alphanumeric string of text.
For example, a hash of the word ‘Forbes’ using SHA-256 (more on that later) reads: ADD913C2C3CF3F4A0628B58B505BC09C6C3797F2EE7DEE86AD9F701A191E6E93. The lyrics to Tom Jones’ 1965 hit ‘It’s Not Unusual’ are expressed as: 8E58EFDE840DF7CEC1872DE2B48222F2C3844646E0EAE4F4E6DD6CC7FE183E50.
Change just one letter in the word Forbes, or one word in the song’s lyrics and you’ll get a different hash. This can be useful for identifying when some data has been changed.
This is important in crypto because a blockchain is an immutable record of transactions. Cryptographic hashing will flag attempts to change something, even when there are huge amounts of data.
If someone tried to alter a transaction in a block on the blockchain, they’d have to alter every consecutive transaction too, since each transaction refers to its predecessors. This makes cheating practically impossible.
Different cryptocurrencies use different hashing algorithms.
HODL –This meme became the rallying cry of crypto holders who wanted to encourage others to keep the faith as prices fell. It stems from a misspelling made by a Bitcoin forum user in 2013, in which they declared: “I AM HODLING”. The term has been retrospectively turned into the acronym Holding On for Dear Life.
Hot wallet – Online storage for cryptocurrencies, provided either by an exchange or a third party. Since storage is online and accessed with passwords, hot wallets are a target for hackers. However, hot wallet operators can help users regain access to their assets if they lose their access codes.
I
ICO – an Initial Coin Offering (ICO) is the cryptocurrency equivalent of an Initial Public Offering (IPO). It offers investors the opportunity to back a new crypto project.
Jager – the smallest denomination of the Binance cryptocurrency.
Know Your Customer (KYC) – exchanges are obliged to carry out certain identity checks on their customers under ‘Know Your Customer’ rules.
Ledger – a record of transactions, including times, dates, senders and recipients.
Market Capitalisation/Cap – the total value of a cryptocurrency. At the time of writing, all cryptocurrencies combined had a market cap of $1.3 trillion.
Mining – crypto mining is the process of verifying cryptocurrency transactions using computer hardware. Bitcoin miners are volunteers motivated by the chance to earn an amount of newly minted Bitcoin. In doing so, they collectively validate transactions on the blockchain and prevent double spending.
Mining involves guessing (as closely as possible) a 64-character hash, of which there are trillions of possible combinations. The more computing power someone has, the more guesses they can make within each ten-minute timeframe and the greater their chances of potentially earning new Bitcoin.
Mining requires graphics cards or ASICs. The amount of computing power necessary to mine crypto increases over time, and is now so immense that it’s no longer practical for home PC users. Instead, mining is now the preserve of companies dedicated to it.
Memecoin – An altcoin based on a meme, which is a kind of inside joke in the form of an image that’s repeatedly altered and shared online. Dogecoin is a memecoin based on this meme.
Node – A computer or device connected to other computers or devices that all hold a copy of a blockchain. Each node supports the network of nodes by sharing information and validating transactions.
NFT – A Non-Fungible Token is a digital collectible that uses the same underlying technology as cryptocurrencies. Read our guide to Non-Fungible Tokens.
On-chain – a transaction that is recorded on a blockchain.
On-ledger currency – a token that is both minted by and used on a blockchain, such as Bitcoin.
Orphan block – a block that has been solved but not accepted by the network and isn’t added to the blockchain.
P2P – Peer to peer. Refers to a transaction between two people without an intermediary or central authority involved.
Private key – A private key is essentially the password to an investor’s crypto holdings. It’s an impossibly long number that’s practically impossible to guess. Crypto users authorise a transaction by signing it with a hash of a private key that only they know. Their corresponding public key can be used by others to verify the authenticity of a transaction.
Public key – The public-facing address of your crypto wallet. To receive funds into one’s account, one has to share their public key. If a private key is like a password, a public key is like an email address or an account number.
Proof of work (PoW) – Proof that someone has done the computational work to guess the 64-character hash necessary to add a block to the blockchain. Broadcasting a solution allows other nodes to quickly verify that the resulting hash is correct and that the validator must have carried out the work required to get it.
Proof of stake (PoS) – Rather than proving someone has done the computational legwork to guess the hash (see proof of work), proof of stake shows they’ve staked a certain amount of coins for a chance to become a validator. The more coins one stakes, the better the chances of becoming a validator.
Should someone spend their way into the position in order to deliberately approve a fraudulent transaction, they risk losing their stake – so there’s a disincentive to cheat.
PoS is better for the environment since it requires less computing power and uses less energy, but favours users who have more money to stake and makes them richer as they are more likely to reap the rewards of validation.
Quantum computing – a field of computer science that uses principles of quantum physics to process much larger data sets at much greater speeds than traditional, binary-based computing.
Regulated – a market in which players are obliged to follow certain rules of risk fines and/or the loss of their operating licenses. For example, financial services is regulated in the UK.
Satoshi Nakamoto – The anonymous creator(s) of Bitcoin.
Satoshi – A Satoshi is to Bitcoin as a penny is to a pound.
Smart contract – A programme that executes itself on a blockchain when certain conditions are met, without the need for human intervention or an intermediary. Once executed, the contract cannot be changed or undone. For example, account 1 will release asset X to account 2 once it receives asset Y.
SHA-256 – a hashing algorithm that compresses data of any size into an alphanumeric string that cannot be reverse engineered, keeping the original data secret and secure while being useful for validating input data. It was developed in part with the US National Security Agency (NSA) and is used by Bitcoin.
Seed (phrase) – a random series of 12-24 words generated by a crypto wallet and used to gain access to it.
Stablecoin – a cryptocurrency such as Tether, whose value is tied to another currency, commodity or financial instrument.
Tether – a stablecoin pegged to the US Dollar
Terahash (per second) – the rate at which a computer or network can guess one trillion hashes per second when mining cryptocurrency.
Token – in crypto, a token is a unit of cryptocurrency other than Bitcoin or Ethereum – which are technically also tokens. Specifically, it’s a way to refer to a currency that runs on a particular blockchain. For example, XRP is a token on the Ripple blockchain.
Ripple price
Unregulated – Financial services in the UK are regulated, which means providers have to abide by strict rules designed to protect consumers’ interests. Crypto is unregulated in the UK, which means investors get no legal protection.
Volume – the total amount of currency traded in a 24-hour period
Validator – someone who pays for the chance to validate transactions and earn crypto on a proof of stake blockchain (see proof of stake).
Volatile – a market in which prices frequently and unpredictably rise and fall
Wallet – a digital storage device or location for keeping crypto assets secure. Wallets can be online (see hot wallet) or offline (see cold wallet).
Wei – a Wei is to Ether as a penny is to a pound.
Whitepaper – a technical document released alongside new crypto projects that explains how the system works.
XRP – XRP is a kind of cryptocurrency token that runs on the Ripple blockchain.
Yield – a return on investment, expressed as a percentage.
Zero confirmation – a transaction that has been confirmed but has yet to be recorded on a blockchain.
Cryptocurrency is unregulated in the UK. The UK regulator, the Financial Conduct Authority, has repeatedly warned investors that they risk losing all their money if they buy cryptocurrency, with no possibility of compensation.
Conclusion
The world of cryptocurrency is complex and rapidly evolving, filled with a unique lexicon of terms and acronyms. This glossary has provided a foundational understanding of the key concepts and jargon used within the cryptocurrency ecosystem. From the underlying technology of blockchain to the various types of digital assets and investment strategies, this compilation serves as a valuable resource for both newcomers and seasoned enthusiasts.
As the cryptocurrency landscape continues to expand and mature, it is essential to stay informed about the latest terminology. By grasping the meaning of these terms, individuals can navigate the crypto world with greater confidence and make informed decisions.
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