CRYPTOCURRENCY GLOSSARY: Most Used Cryptowords
Let me introduce you to the cryptocurrency glossary—a basic technical jargon of the cryptocurrencies and cryptoassets world.
Note: this is an on-going article and if you know of any terms that could contribute to this glossary, please leave your comment below and we will add it!
Last updated: 13/08/2017
51% attack: known as the hostile takeover of a blockchain; as mentioned in my previous article, it is possible in theory and highly unlikely to be executed in practice. It takes a lot of computing power, which costs a lot to be set up and to be maintained, to mine in a blockchain. A hacker would need to mine at least 50% to do some damage like reversing current and new transactions or to prevent new data blocks to be created. Moreover, they will need to keep that mining majority for a decent amount of time to be successful. This will cause some interruption in the network, but they would not be able to steal currency or hack investors’ accounts. The work-to-reward is not worth it. It’s a dramatic potential threat, hence, makes for good media headlines although it is unlikely to happen.
Altcoins: altcoins stand for Alternative Coins. Those are the coins created after the successful launch of bitcoin. Generally, altcoins serve the purpose of better substitutes to bitcoin as many of them are targeting any limitations occurring in bitcoin. The good altcoins (unlike PotCoin, PutinCoin, TrumpCoin, etc) indeed have competitive advantage, think of LiteCoin, Ripple.
Bitcoin: it is the first cryptocurrency to the public by Satoshi Nakamoto in 2008. As a pioneering cryptocurrency, which was left with no competition for a few years, it is easily the most easily recognisable one. It is mined using Proof of Work method (PoW). It is dividable in up to 8 decimal points where 0.00000001 bitcoin is called Satoshi.
Block: it is the collection of the transaction data, one of the fundamentals of crypto. Remember, when I was talking about the paper sheets in which we were putting down the transactions of each person? Yes, this is the white paper sheet, the technical word is block.
Block reward: this is the payoff given to a miner, who successfully computed the hash of the data block (or sealed & generated the unique name) during the mining. Because the verification of the data generates new coins, a part of them are given to the miner. The newly minted coins are called virgin coins as they have not been used before.
F.U.D: Fear, Uncertainty, Doubt. You will see this abbreviation used a lot by crypto veterans as some people/companies publish news/signals/rumours leading to a FUD in the market (especially across the newbies).
Fiat: refers to fiat money the currencies of nations we are using now (USD, GBP, CAD, JPY, EUR, BGN, AUD, etc).
Hash (function): random and complex mathematical function. It is generally used to map data of arbitrary size to data of fixed size. The values returned are called hashes. Or in other words it is the process of calculating the new “unique name” for our block. The level of difficulty of this calculating is set quite high to prevent the rewards to be distributed too quickly and the coins to be mined too much (this could destabilize the currency).
ICO: stands for Initial Coin Offering; ICO is a preferred form of funding for blockchain startups because they can raise tens or hundreds of millions of dollars in the matter of a few minutes to a few days. You can track most ICOs over here.
Mining: cryptocurrency transactions are stored in a block, which needs to be promptly processed. As a central authority cannot process this much information quickly, the investors do so. After successful calculation of the hash, new coins are minted. Some of them go into the exchange and other part is reserved to reward the miners. If the said currency has a supply cap, eventually mining will become extinct once the mintage cap is hit.
Collective mining: as mining requires lots of computational power, which from another side requires lots of investment to build those super computers, the costs for electricity are high and there is a need of proper cooling systems, miners join fellow miners in the so-called mining pools and distribute the processing burden.
Proof of Work (PoW): the rewards for this type of mining are quite straightforward: the miners process the block and calculate the hash, which is their proof of work and then get paid in newly minted coins or transaction fees. With some coins like Bitcoin this is the only rewarding system.
Proof of Stake (PoS): the rewards here are based on the amount of currencies the miner already invested. The more currency a miner holds, the higher the potential for rewards is. It is not used a standalone method, it is usually paired with PoW.
Pump & Dump: this is a process of market destabilisation executed in 2 steps. Step 1 is the pump. A person or a group of people will buy the currency or asset when the price is low. Then they will publicise aggressively often using misleading statements. The pump is designed to create interest in other investors and stimulate the price hike. Then in step 2 the same people who pumped the market will sell everything they bought before the pump accumulating profits for themselves. But then the big sell orders will flood the market with currency asset supply and the price will decrease. That is the dump phase. Although it is a method for relatively quick profits, it often results in market destabilisation and public mistrust in the said currency/asset.
Now you are one step ahead in your crypto journey!