Understanding Cryptocurrency Terminology: A Comprehensive Guide
Navigating the labyrinthine world of cryptocurrency can be a daunting endeavour, particularly for newcomers. One of the primary challenges is understanding the specialized terminology that permeates discussions in this space. Here, we offer an in-depth guide to commonly used acronyms and phrases in the crypto realm, equipping you with the knowledge to engage in meaningful conversations and make informed decisions.
Key Acronyms and Phrases:
CEX: Centralised Exchange
A crypto centralised exchange is an online platform where users can buy, sell, or trade cryptocurrencies. It acts as a middleman between buyers and sellers, holding users' funds and managing trades. Centralised exchanges are operated by a central authority, which controls the platform and has access to users' funds and personal information. This structure is similar to traditional banks and stock exchanges. Examples of centralised exchanges include Coinbase, Binance, and Kraken.
DEX: Decentralised Exchange
Modern "Gen3" Decentralised Exchanges now offer functionalities akin to CEXs but operate without a central governing body. These platforms do not require KYC and merely necessitate a wallet connection to initiate trading. DEXs cannot freeze or seize assets, and many of these platforms now support multi-chain and cross-chain transactions.
FA: Fundamental Analysis
This investment strategy involves evaluating the intrinsic value of an asset by considering various external factors and internal metrics. In the context of risk assessment, FA aims to provide a comprehensive understanding of a project's strengths and weaknesses.
FaaS: Fundamentals as a Service
The FaaS (Fundamentals as a Service) tag signifies that a company, such as ours, specialises in fortifying the foundational elements of either individuals or organizations. This is accomplished through a spectrum of services including targeted education for individuals and comprehensive assessments followed by tailored solutions for businesses. FaaS aims to deliver enduring value by strengthening the core competencies that drive long-term success.
DCA: Dollar Cost Averaging
A risk-mitigation strategy for long-term investment, DCA involves purchasing or selling assets at different price points over time. This averaging approach helps neutralize the impact of market volatility, creating a more stable average entry or exit price.
TA: Technical Analysis
This investment analysis method involves examining historical price data to forecast future market movements. Effective TA employs a variety of indicators and models, and it is considered essential for any serious crypto trader.
CT: Crypto Twitter
Crypto Twitter serves as an invaluable source of real-time information and analysis, although it's a part of the broader Twitter platform. Predominantly populated by crypto-enthusiasts, influencers, and projects, this focused space filters out non-crypto-related noise, serving as a one-stop-shop for all things crypto. But be cautious, CT is inundated with fraudulent bot accounts seeking to exploit you by sharing malicious phising links, especially in relation to Airdrops. The famous blue tick is no longer proof of a verified account.
Telegram channels are the go-to forums for most crypto projects and communities. Typically, projects manage multiple channels— one dedicated to community discussions and another for official announcements. While the community channels can sometimes become cluttered with bot activities, the announcements-only channels maintain a cleaner flow of important updates.
The whitepaper is the foundational document for any crypto project, detailing everything from its vision and technical architecture to its tokenomics. Thoroughly examining the whitepaper is imperative when conducting your due diligence on a potential investment opportunity.
DYOR: Do Your Own Research
An abbreviation that encapsulates the ethos of self-empowerment in the crypto space, elaborated in Part One of our Crypto Guide for Beginners. Independent research is pivotal in validating a project's claims and assessing its viability.
FUD: Fear, Uncertainty, and Doubt
This term often refers to the dissemination of misleading or false information leading to volatile market behaviour, sometimes resulting in market crashes. Be cautious and corroborate information from multiple trusted sources before reacting to FUD.
FOMO: Fear Of Missing Out
FOMO is the emotional impulse to jump on the bandwagon when asset prices escalate rapidly. Often propelled by social media hype, FOMO can lead to ill-timed investments. Be wary of advice that creates urgency, as chances are you might be too late to the party.
HODL: Hold On for Dear Life
This investment philosophy advocates holding onto assets, particularly during market downturns, with the expectation of long-term gains. However, it's worth noting that 'holding' incurs opportunity costs and also runs the risk of enduring unrealized losses, particularly if a project fails.
BTD: Buy the Dip
This strategy encourages purchasing assets when prices decline, ostensibly to maximize future profits. Often utilized as part of a Dollar Cost Averaging (DCA) risk management strategy, BTD presupposes the asset in question has strong fundamentals and will recover.
WAGMI: We Are Going To Make It
A motivational acronym often seen on social media, particularly during mild market downturns, used either humorously or as an affirmation to galvanise community sentiment.
NGMI: Not Going To Make It
This acronym is the pessimistic counterpart to WAGMI and is often used jokingly or sarcastically to comment on unsuccessful projects or investments.
ATH: All Time High
This metric describes an asset's highest historical price point. In a bullish market scenario, an asset trading at its ATH may enter 'price discovery mode,' where no historical data exists to suggest a price ceiling. While selling at an ATH can be profitable, buying at this point can be risky.
TP: Take Profit
The practice of selling all or part of your investment to secure a favourable return. Conventional wisdom suggests liquidating at least your initial investment to mitigate potential future losses. Investors may employ different strategies; for example, some opt to reinvest initial gains in other assets for diversification, particularly after achieving a minimum of 3x returns.
SL: Stop Loss
A risk mitigation tool offered by centralised exchanges (CEXs) and some third-generation decentralised exchanges (Gen3 DEXs). When an asset drops to a predetermined price, the system will automatically execute a sell order. Keep in mind that transaction fees may apply, and that during extreme volatility events (like black swan events), a stop loss may not always be executed in time.
E2E: End to End
This term often describes the complete lifecycle of a blockchain transaction—from initiation to final verification. It serves as a measure of a transaction's efficiency and speed, especially in comparing different blockchain platforms or networks.
KYC: Know Your Customer
With increasing regulatory scrutiny, exchanges and crypto platforms are often required to implement KYC procedures. This entails verifying personal identification details such as name, address, and tax information. Failure to complete KYC often results in restricted platform use.
DeFi: Decentralised Finance
Regarded by some as the zenith of blockchain utility, DeFi aims to wrest financial control from centralized institutions, democratizing finance. However, the landscape is fraught with risk; untested economic models and less-than-ethical founders can lead to significant community and investor losses.
dApp: Decentralised Application
These are the individual projects or services offered on a decentralized platform, usually built atop existing Layer 1 or Layer 2 networks. These apps are autonomous, but they can be as varied as decentralized exchanges (DEXs) or online games.
REKT: Getting ‘Wrecked’
This colloquial term refers to incurring substantial financial losses, often due to risky investment behaviours like leveraged, futures, or margin trading. Unpredictable market movements can lead to mass liquidations, "wrecking" many investors.
NFT: Non-Fungible Token
Arguably one of the most groundbreaking blockchain innovations, NFTs have evolved from digital art and collectibles to offer utility across a range of applications, including asset ownership verification. The true potential of NFTs is vast and largely untapped, promising revolutionary changes in various sectors.
P2E: Play To Earn
Emerging mainly in the crypto gaming sector, this model allows players to earn income through gameplay. It not only redefines gaming economics but also promises to uplift those in financially disadvantaged situations.
PaE: Play And Earn
This model resembles P2E but places a higher emphasis on user experience. While still providing avenues for revenue, PaE models are seen as more sustainable due to a more engaging gaming environment.
M2E: Move To Earn
Introduced by the project Stepn, this concept incentivizes physical activity—initially walking and running—with crypto rewards. Its rapid adoption has spawned various imitations, further bolstering the trend of earning through non-traditional means.
DAO: Decentralised Autonomous Organization
Commonly associated with democratic governance models, a DAO allows a project to decentralise control, granting decision-making powers to a community or to selected members who are typically voted in. Participants in a DAO usually need to stake a certain number of governance tokens to propose and vote on various issues, such as tax/fee rates or expansion plans. While an authentic DAO commits to implementing the results of community votes, one downside is the potentially slow decision-making process, particularly in crisis situations, such as during fraudulent exploits of smart contracts not secured by the DAO.
PoW: Proof of Work
A consensus mechanism that relies on the computational power of network participants (known as miners) to solve complex mathematical problems. These solutions validate transactions and secure the network. Proof of Work systems, exemplified by Bitcoin, are considered highly secure but are often criticized for their energy consumption and lack of scalability.
DPoS: Delegated Proof of Stake
In a DPoS system, network security and transaction verification are maintained by validators, who are incentivized through token rewards. Community members can "stake" their tokens with trusted validators, and in return, receive a portion of the validation rewards. The system aims to balance speed, security, and decentralization. It also incorporates 'slashing' mechanisms to penalize non-performing or malicious validators. DPoS is a variant of the broader Proof of Stake (PoS) model, which has numerous other iterations such as Proof of Trust (PoT) and Proof of View (PoV).
ICO: Initial Coin Offering
An ICO is a fundraising mechanism in which a new cryptocurrency is offered to early adopters in exchange for established cryptocurrencies or fiat money. This allows the project to generate the funds needed for development. The investment often comes with conditions like a lock-up period and may require Know Your Customer (KYC) verification. Similar mechanisms include Initial Exchange Offerings (IEOs) and Initial Game Offerings (IGOs).
TGE: Token Generation Event
TGEs are closely related to ICOs but are explicitly for the creation and distribution of tokens, as opposed to coins which serve as the native currency for paying gas/gwei fees whilst completing transactions over a blockchain network.
EMAs: Exponential Moving Averages
A vital component of technical analysis, EMAs help traders understand market trends over specific time periods. These averages are often used to identify support and resistance levels, serving as crucial data points for market prediction.
TVL: Total Value Locked
TVL represents the amount of assets staked or locked in a particular DeFi protocol and is often compared to the project’s market capitalization to gauge its health and potential for growth. A higher TVL percentage suggests that the protocol is more likely to remain stable in adverse market conditions. Tools like DeFi Llama provide useful metrics on TVL across various protocols.
zK: Zero-Knowledge Proofs
A cryptographic method that allows one party to prove to another that they know specific information without revealing the information itself. In the blockchain world, zero-knowledge proofs offer enhanced privacy features, allowing users to conceal transaction details while maintaining network security. These proofs are increasingly relevant, with various networks either incorporating or planning to incorporate zero-knowledge technologies.
EVM: Ethereum Virtual Machine
An Ethereum Virtual Machine (EVM) is a blockchain network built on the Ethereum architecture, often using the Solidity programming language. The commonality in framework and language enables interoperability among different EVM-based networks, such as Binance Smart Chain, Avalanche, and Polygon, among others.
AVM: Algorand Virtual Machine
Comparable to an EVM but based on the Algorand framework, AVMs offer technologically advanced capabilities, although they currently lag behind EVMs in terms of adoption.
FVM: Fantom Virtual Machine
Similar to EVM and AVM, FVM refers to the virtual machine architecture built by the Fantom network.
2FA: Two-Factor Authentication
An essential security measure, 2FA enhances the protection of digital assets. However, the level of security depends on the medium used for the second authentication factor. Mobile phones and email accounts can be vulnerable; hence, time-limited authentication apps are often recommended. It's crucial to secure backup codes for 2FA to avoid losing access to secured accounts.
GM: Good Morning
Commonly used in social media platforms with character limits, such as Twitter, "GM" is an abbreviation of "Good Morning."
PoC: Point of Control
Utilized within the VolumeProfile Indicator on TradingView, the Point of Control indicates the level at which the highest volume of trading occurred over a specified period. Large buy-order volumes may suggest strong support levels, while high sell-order volumes may indicate robust resistance levels.
Smart Contracts are programmable algorithms embedded into blockchain-based applications. They serve to automate workflows and enforce agreements, operating under the principle of condition-based actions like "if A occurs, then execute B." The advent of smart contracts has significantly expanded the scope and efficiency of decentralised applications.
Bull Market and Bullish Sentiment:
Historically, a Bull Market in cryptocurrencies was characterised by a sharp rise in asset prices, usually following a Bitcoin halving event. However, with the infusion of institutional capital and changing macroeconomic factors since 2021, the traditional markers for a bull market have evolved. 'Bullish' refers to a positive sentiment, often influenced by central bank policies like interest rate cuts, known as 'Dovish' stances, which typically trigger upward price movements.
Bear Market and Bearish Sentiment:
A Bear Market is confirmed retrospectively and is characterised by a substantial and sustained downtrend in asset prices. It may affect multiple financial sectors and is often induced by global macro events like geopolitical crises, energy shortages, and high inflation. Contrary to popular perception, bear markets are essential for long-term market stability as they transfer assets from weaker to stronger hands. A 'Bearish' sentiment is often influenced by 'Hawkish' central bank policies like interest rate hikes, leading to downward price action.
A Fair Launch is an Initial Token Generation Event (TGE) devoid of pre-announcements, pre-sales, or venture capital participation. The initial asset price is set, and subsequent valuation is determined by market forces. vEmpire DDAO is often cited as an exemplar of a fair launch.
This term describes traditional, government-issued currencies like the U.S. Dollar (USD) or British Pound (GBP). These are issued and regulated by Central Banks.
Whitelisting is a vetting procedure that many platforms require for access to their services. Particularly prevalent in U.S.-based platforms, whitelisting often includes a Know Your Customer (KYC) process and a series of questions or tasks deemed relevant by the project. It's also a common prerequisite for participating in pre-ICO offerings.
Forking refers to modifications made to a blockchain's protocol. A Soft Fork involves an upgrade that is backward-compatible with the existing network. In contrast, a Hard Fork involves a radical change that renders previous versions obsolete. For instance, Ethereum underwent a hard fork, resulting in two separate networks: Ethereum and Ethereum Classic.
Whales are individuals or entities holding a disproportionate amount of a particular cryptocurrency. Their trading activities can significantly impact market conditions. While traders are often subject to these market forces, various strategies like Technical Analysis (TA), Fundamental Analysis (FA), On-Chain Analysis, and Dollar Cost Averaging (DCA) can help mitigate risks arising from market manipulation.
A sharp decline in the value of a crypto token or coin. Corrections are typically short-lived, ranging from a few days to weeks, and are considered healthy for the long-term market as they force out weak hands and liquidate over-leveraged positions. They may be triggered by global events, market dynamics, or whale manipulation.
A fraudulent practice where developers or a group of conspirators promote a token or coin, then collectively sell their holdings once the price reaches a certain level, causing the price to plummet and leaving other investors with significant losses. The growing prevalence of audits for legitimate projects is a response to the frequency of rug pulls.
Pump and Dump:
Similar to a rug pull, but the project typically continues afterward. An investor group, often organized in private chat groups, collectively buys a token or coin, creating artificial demand and attracting unsuspecting investors. Once the price reaches a predetermined level, the group sells en-masse, causing the price to drop.
Black Swan Event:
A significant and unexpected event that causes a major sell-off. Such events can include the collapse of a major financial institution, but sometimes the cause is unclear and may be the result of market manipulation by whales.
Price Discovery Mode:
Occurs when the price of a token or coin surpasses its previous highest or lowest value, entering a range with no historical data to indicate potential support or resistance levels.
A reward offered by projects to ethical hackers who identify and report security vulnerabilities instead of exploiting them. This practice helps improve the security of the project.
Cryptocurrencies other than Bitcoin. Some argue that Ethereum should not be classified as an altcoin due to its prominence and distinct functionality.
The alphanumeric code used to identify a cryptocurrency on exchanges and wallets. For example, Chainlink is the project, whilst LINK (or $LINK) is its token ticker.
A virtual reality space where users can interact in a computer-generated environment. Various crypto companies are developing their own metaverses with applications in gaming, advertising, real estate, and live events. The potential of the metaverse is vast and could lead to the creation of significant wealth.
Low Cap/Micro Cap Gems:
Young or small crypto projects with low market capitalisations but high growth potential. These projects are often considered "gems" due to their innovative concepts, technology, and teams, but they also carry significant risks.
A digital asset with a tradable value. A coin usually refers to a cryptocurrency native to its own blockchain, such as Ethereum's ETH, while a token is built on another blockchain, such as Verasity's VRA on Ethereum.
The economic model of a cryptocurrency, a portmanteau of 'Token Economics'. It is a critical aspect of a project as it determines its financial sustainability and long-term economic growth. A strong team, concept, or technology cannot compensate for poorly designed tokenomics.
The foundational technology of all cryptocurrencies. It offers advantages over previous technologies, such as data validation, dynamic versatility, security, and scalability. It represents the next stage in digital evolution.
The process of associating a crypto token with a specific stablecoin to assign it a value (e.g., LINK/USDT). Common pairings include USD-pegged stablecoins as they are easily understood. Some tokens offer pairings with major cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), each with its advantages and disadvantages. It is advisable for beginners to stick to USD-pegged stablecoins like USDC.
Staking involves holding funds in a cryptocurrency account to support network operations like transaction validation and block creation. In return, participants receive rewards. Projects built on a Proof of Stake (PoS) consensus can offer staking rewards, while Proof of Work (PoW) networks like Bitcoin cannot. However, some centralized exchanges offer staking rewards for PoW coins, funded by transaction fees and liquidations.
A mechanism to protect protocols from bank-like crises during financial turmoil. The redemption period can vary from 24 hours to 28 days or be measured in "epochs" (average 18.2 hours each), ensuring liquidity remains locked for a specified duration.
Bitcoin Halving Event:
An event that occurs approximately every four years or more specifically every 210,000 blocks mined, reducing the rewards paid to Bitcoin miners by half each event. This deflationary measure offsets the continuous devaluation of fiat currencies and, by reducing supply while maintaining or increasing demand, raises Bitcoin's valuation. The event usually marks the start of a recovery phase in the crypto market cycle. Based on the current hash rate (mining rate) the next halving event is anticipated April 2024 as this calculator shows.
On technical charts, green and red wicks represent price movements. Green indicates an increase in price, and red indicates a decrease. Different time frames, such as 1 hour, 4 hours, 1 day, and 1 week, are commonly used. A 'green candle' refers to a green wick, signalling a price increase.
A colloquial term for red wicks on technical charts, indicating price regression.
Layer 1 (L1):
Original blockchain networks like Bitcoin, Ethereum, Solana, and Algorand that offer unique utilities or services. These networks provide end-to-end transactions, and most allow the development of smart contracts. L1s form the backbone of blockchain technology.
Layer 2 (L2):
Networks built on top of L1s to address their limitations, such as transaction speed, transaction volume, and gas fees. Examples of Ethereum L2s include Arbitrum and Optimism.
A marketing or loyalty reward tool used by crypto projects to distribute tokens to compatible wallet addresses on a compatible network. While airdrops are generally free and can be sold at any time, there is a risk of fraudulent airdrops on social media platforms used to collect wallet addresses for malicious purposes. Many airdrops require participation in activities to succeed in eligibility. Genuine airdrops are often discerned by the use of on-chain snapshots (like a computer screenshot, except it captures all data on the network), instead of providing wallet addresses or private keys to receive promised rewards.
A digital interface for storing and managing cryptocurrencies, akin to a bank account. Wallets are categorized into non-custodial and custodial types. Non-custodial wallets, like MetaMask, do not store personal details and give users full control over their assets through cryptographic keys or seed phrases. Custodial wallets, on the other hand, may require personal information and have control over the user's assets. Wallets can also be classified as 'hot' or 'cold,' depending on their connectivity. Hot wallets, like MetaMask, are applications connected to the internet, whereas cold wallets, such as Trzor Model T, are physical devices isolated from the internet and activated via two-factor authentication (2FA). Cold wallets are generally considered more secure, albeit with compatibility limitations.
A technical indicator on trading charts representing a price level where a cryptocurrency tends to find buying support. Support levels are confirmed when an asset's price touches and bounces off the same level multiple times, commonly thrice. These levels are often seen as favourable buying opportunities, although there's no guarantee that the price will increase.
The antithesis of support levels, resistance levels indicate a price point where a digital asset face selling pressure. Confirmed resistance levels are often used as indicators to sell or take profits (TP).
Fibonacci Retracement Indicator (FIB):
A highly-regarded trading indicator used for identifying potential support and resistance levels, following the Exponential Moving Averages (EMAs) and horizontal Support/Resistance lines. The FIB indicator employs a scale ranging from 0 to 100, with values below 1 indicating bearish trends and those above 1 indicating bullish trends.
Wen Moon? / Wen Lambo?:
Colloquial phrases humorously used to inquire when the price of a particular asset will experience significant growth, often to the point where the investor can afford luxurious items like a Lamborghini.
Cryptocurrencies with little to no intrinsic utility that gain value through community support and speculative trading. Examples include Dogecoin and Shiba Inu. While some projects attempt to add utility post-launch, the majority of these coins are speculative and risky investments.
Various types of audits exist in the cryptocurrency space. The most prevalent is the 'Smart Contract Security Audit,' crucial for identifying vulnerabilities in contract code. Another growing trend is the 'Know Your Customer (KYC) Audit,' where project teams voluntarily verify their identities to boost investor confidence. Information is securely stored and only disclosed to authorities in cases of fraud or 'rug pulls.'
The earliest version of the internet characterised by a need-to-know specific URLs for accessing information. Most content was confined to closed networks, such as school or library intranets.
The current phase of the internet, featuring readily available information across global networks. However, data is controlled by centralized entities like Google, who monetize user information, usually in unethical manners.
The forthcoming version of the internet, Web 3.0, is structured on the bedrock of blockchain technology, and is deeply committed to revolutionising the way data ownership and control is perceived and exercised. This revolution is not merely confined to a more democratized infrastructure but extends to being censorship-resistant and highly scalable to meet surges in demand and increased usage; thereby eliminating lag times, even during peak periods, so streaming on Netflix wouldn’t be affected. This monumental shift vests users with unparalleled sovereignty over their personal data, thus overturning traditional centralised approaches to data storage and monetization. Pioneering protocols, like Mask Network ($MASK), are at the forefront of this movement, as they provide comprehensive end-to-end data tracking capabilities. Such features grant users unprecedented transparency into the consumption of their data and confer them the discretion to either restrict or authorize data sales, potentially receiving compensation in return. This heightened degree of autonomy signifies a groundbreaking transformation in the realms of data privacy and monetisation, enabling everyone to financially benefit from the data economy, instead of only a small number of Tech companies.
Censorship Resistance: Why is this crucial?
Censorship resistance is a cornerstone principle of Web 3.0, and it is critical for several reasons:
1. Freedom of Expression: In an era where centralised entities, governments, or corporations can manipulate or restrict access to information, censorship resistance is crucial for upholding the fundamental human right of freedom of expression. It ensures that all voices can be heard, regardless of the speaker's location or status.
2. Innovation and Creativity: A censorship-resistant internet fosters an environment where innovation and creativity can flourish without fear of suppression or manipulation by powerful entities.
3. Democratization of Information: Ensures equal access to information for all, regardless of geographical location or political affiliation. This is particularly important for people living in regions with oppressive governments or restricted access to information.
4. Resilience: A censorship-resistant network is more resilient to attacks and less likely to experience downtime. This is because the decentralised nature of the network means there is no single point of failure.
5. Trust and Transparency: Censorship resistance promotes trust and transparency as it prevents any single entity from controlling or manipulating the information. This is particularly important in the current digital age, where misinformation and manipulation of data are prevalent.
Ultimately, censorship resistance is vital for the evolution and health of the internet. It ensures that the internet remains a free, open, and democratized space where ideas can be shared, innovation can thrive, and individuals can retain control and ownership of their personal data.
In the ever-evolving world of cryptocurrency, understanding the intricate acronyms and terminologies is key to navigating the ecosystem effectively. From tokenomics and blockchain basics to wallet types, support levels, and the next generation of the internet, Web 3.0, this comprehensive guide has aimed to demystify the complex jargon that often surrounds the crypto space. With a firm grasp of these concepts, individuals are better equipped to make informed decisions, protect their digital assets, and participate in the ongoing transformation of the digital realm. As the crypto universe continues to expand and innovate, staying abreast of the latest terms and trends will be essential for anyone looking to thrive in this exciting frontier.
We will periodically update this segment to keep you abreast of the last terminology and acronyms used in this ever-evolving industry.
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The information in the "Crypto Beginners Guide" is for educational purposes only and is not intended as financial or investment advice. Cryptocurrency investments are volatile and high-risk. Consult a qualified financial advisor or do your own research before making any investment decisions. The authors, contributors, and the platform are not liable for any losses incurred due to the use of the information provided. Use the information in this guide at your own risk.