Glossary of Cryptocurrency and Blockchain Terms
A public address is a unique alphanumeric string of characters that you provide to other parties to send you coins. Addresses function similarly to your traditional bank account number. For example, Bitcoin addresses start with the number 1 or 3; Ethereum addresses start with 0x.
A private key is required to access these funds, which is an equally unique string that operates as a password or PIN number.
When sending cryptocurrency, we recommend you double-check the destination address. As per the nature of the blockchain, transactions to an incorrect or incompatible address may result in you losing the funds sent. At BitPrime, we will compare the first and last five or six digits to ensure they are correct. We always copy and paste wallet address as there is far too much room for error when typing.
A way for a blockchain project to distribute free tokens to its community. Airdrops came about as a result of the realisation that tokens have more value when held in many different wallets. It’s a great marketing strategy too! A lot of people actively follow boards posting details of upcoming airdrops and spread the word among fellow crypto enthusiasts.
There are a few ways to participate in airdrops. With some, simply having an account with a particular exchange or holding a certain cryptocurrency is enough. Airdrops also happen with some hard forks. These usually require a ‘snapshot’ to prove one holds the original token before they receive the new token. Others may ask you to join a Telegram group or attend a public event.
Any cryptocurrency that isn’t Bitcoin. As of 16th September 2018, there are 1,951 altcoins listed on CoinMarketCap. Altcoins currently make up 68% of the entire cryptocurrency market 24-hour volume.
ASICs – Application-Specific Integrated Circuits
A piece of hardware designed specifically to perform cryptocurrency mining. ASIC miners are extremely powerful computing systems designed for mining a specific algorithm, and as such, the specific currencies running that algorithm. ASICs produce very high hash rates to perform the necessary cryptographic calculations as quickly as possible. It is worth noting that these miners can be very costly to buy and to run.
Atomic swaps allow two different cryptocurrencies belonging to different blockchains to be swapped directly. The development of this technology is in early stages and is being worked on by the likes of Komodo. It is said that the idea of Atomic swaps, or cross-chain transfers, was first discussed in a Bitcoin forum.
A bear trap a signal that wrongly indicates that a cryptocurrency will drop in price while really, its value is about to increase. Bear traps usually trick bearish investors into selling their positions or shorting the cryptocurrency.
Such a trap typically happens when a cryptocurrency seems to be breaking through a support level, but the support eventually holds.
A bear trend is a term used to denote an extended decline in the overall crypto market. Indicators such as a negatively sloped moving average are used to represent this trend.
Bitcoin is the first, and most widely used cryptocurrency. Created in 2009 by the unknown Satoshi Nakamoto, bitcoin is a decentralised digital currency built using a combination of cryptography, computer science and economics. Bitcoin is more than just a currency; it is, in fact, a cultural revolution. Inspired by the idea of minimal centralised authority (libertarianism), cypherpunks and “crypto-anarchists” grew increasingly concerned with privacy. Nakamoto’s whitepaper, released in 2008 described an electronic payment system based on cryptographic proof instead of trust in any one group or individual. This idea soon generated interest, and the first transaction of BTC occurred not long after on January 12th, 2009. Jump forward a year and perhaps the single most famous BTC transaction occurred. Laszlo Hanyecs made the first-ever purchase of a physical item using bitcoin; a pizza worth $25 (USD) for 10,000 BTC. Bitcoin’s all-time highest price was reached on December 17th, 2017; a whopping $29,818.93 (NZD). These days, bitcoin still dominates over half of all cryptocurrency transactions and has a market cap of over $131,000,000,000 (NZD)!
The term blockchain refers to a distributed database, or ledger, which is hosted by multiple computers, or nodes, simultaneously. A blockchain is comprised of blocks of data which, in theory, can’t be changed without consensus. These blocks tend to represent movements of value, such as a currency or can work as an access instrument for a platform providing services. The most well-known blockchain is Bitcoin.
William Mougayer, a blockchain specialist, has described blockchain technology as working in a similar way to Google Docs. Multiple parties can have access to the same document, at the same time, and the version being viewed is by each party is always the current one.
This refers to the number of blocks produced in a mined blockchain between any given block and the first block. The first block in a blockchain is usually referred to as the “genesis block”. Another way to think of block height is as the page numbers in a book.
A bull trap is a false signal indicating a possible rise in a cryptocurrency’s price when in reality, the price is about to fall. Such a signal makes bullish traders end up in bad trades.
A bull trap typically happens when a cryptocurrency looks like it is about to break through a resistance level but fails to do so.
Bull trend is the term used to denote a long term upward trend in the entire cryptocurrency market. Such a period is usually in terms of months or years, although different people have different ways of denoting it.
Buy the Dips
Buy the dips is a motto that supports the philosophy that you should only buy a cryptocurrency when its price has reduced significantly in the hope that it will eventually bounce back. This philosophy is mostly used for assets whose underlying value is compelling.
The opposite of a sell wall, a buy wall is a huge number of buy orders placed in the order book simultaneously.
A cryptocurrency that can operate independently from other cryptocurrency platforms e.g. bitcoin versus ether. However, it is worth noting that the terms “coin” and “token” are often used interchangeably to mean the same thing.
Cryptocurrency cold storage involves storing coins in a way that is NOT continuously connected to the internet. The primary benefit of cold storage is a reduction in the threat posed by hackers. Methods of cold storage include paper wallets, hardware wallets, and less commonly, sound wallets.
This is the presence of many analytical methods or indicators that predict the same upcoming movement in the price of an asset. This is used as a way to mitigate trading risks by waiting for many signals that indicate the same thing, instead of relying on one indicator alone.
A contagion is a disturbance that spreads from one market to another and has the ability to disrupt the trading strategies that rely heavily on market correlations.
Block difficulty represents the number of computations required to “find” a block, aka solve the cryptographic puzzle. It is an approximate figure based on how quickly the puzzles are solved on average.
The factors which determine difficulty include the rules set by the cryptocurrency and the global hashrate (computing power available). The difficulty adjusts so as to maintain a constant block time as miners join and leave the network e.g a 10-minute blocktime for Bitcoin.
Extra: Block difficulty is implemented as a requirement of a leading number of zeroes on the block header hash. As the difficulty increases, the number of zeros increases and vice versa.
A contractual agreement where a third party receives and then disburses something such as money or documents for the two primary parties. The release of the money or documents depends on pre-determined conditions being met by the two primary parties. Escrow services are used in both traditional financial arrangements as well as in some cryptocurrency platforms.
Fear of missing out (FOMO) is a phrase used to describe irrational and timeless behaviour. The fear of missing out drives traders to jump into an investment without making careful calculations because they are worried that a great opportunity might pass them.
Forks – Soft & Hard
Both soft and hard forks are a change or upgrade to the underlying protocol, or rules, of a blockchain. Soft forks are backwards compatible, meaning that changes can be reversed if need be. By contrast, hard forks are not. Additionally, there are also temporary forks that occur incidentally when two miners find a block at the same time. BitPrime has a handy infographic that explains the five key differences between hard and soft forks in more detail.
FUD – Fear, Uncertainty, Doubt
The term FUD stands for fear, uncertainty, and doubt. It is the opposite of FOMO. Most sell-offs that cannot be otherwise explained have been attributed to FUD. Traders worry that a particular asset will fall, and in panic, they sell the asset.
Liquidity is the measure of the ease of converting an asset into cash in a quick manner or vice versa. Liquid assets are easy to convert to cash. In the crypto trading world, the presence of numerous limit orders creates depth in an exchange’s order book, therefore, facilitating liquidity.
Market makers are people who provide liquidity to exchanges by placing limit orders on the exchange’s order book so that all trades are made within a range of prices. Most exchanges will usually offer rebates to these makers for the liquidity they added.
Moon is a term used in the crypto sphere to mean different things. When a cryptocurrency goes to the moon, for example, its price has skyrocketed for a limited period because of market sentiment or a major announcement, or in the long term due to the real value of the cryptocurrency.
Moon Lambos, on the other hand, refers to the lavish cars that some crypto enthusiasts plan on buying once their crypto holdings go to the moon.
The word moon is also sometimes used to describe people who are undereducated in the cryptocurrency world but are just buying coins in the hope that they will make a massive killing. When you see someone post ‘when moon’ on a crypto trader’s forum, they may be using the term to subtly tease.
Resistance is a term that is mostly mentioned when talking about technical analysis. The term is used to define the price level at which the buying pressure of an asset is historically low than the selling pressure. This means that when the cryptocurrency attempts to break through that level, it experiences resistance.
When day traders don’t expect a cryptocurrency to break through the resistance level, they sell the asset when it nears this level.
As soon as the cryptocurrency breaks through a resistance level, the level changes to a support level.
When many sell orders are placed on the order book at once at an undervalued price, they are known as sell walls.
Sell walls often happen when a group of HNWIs (High-Net-Worth Individuals) try to manipulate the market by making the price of an asset drop before it can go up again.
Typically, a group of High Net-Worth Individuals will conspire to buy a particular asset. Since they want to avoid paying a premium when they purchase a large order, each of the members buys a certain amount of the asset. The individuals then place undersold price orders simultaneously.
The market becomes flooded with too much sell volume, and the buying pressure is unable to eat through the wall quickly enough. All other traders who want to sell their positions in that crypto asset are forced to sell at a price lower than that which they bought. As a result, the assets price drops up to a level the HNWIs feel comfortable buying the quantity they initially wanted. Once they have bought the amount they wanted, they remove the sell wall and the asset’s price rises.
Slippage is the difference between the price at which a trader is expecting their trade to execute and the price at which it actually executes. Slippage can occur in several different circumstances, like when a trader places a trade that is large enough to move the market or when a trader places a market order in a volatile market. This is one reason why an OTC desk is preferable for placing orders of significant size as slippage is prevented.
Smart contracts work similarly to traditional contracts in that two parties agree on specific conditions which, when met, enable the contract’s terms to be executed.
A smart contract is a software programme stored on a blockchain that is automatically implemented when the specific conditions stated are met. I.e. If each party involved presents their asset, the transaction is automatically affected.
A significant benefit that smart contracts offer is their failure resistance. If one party fails to present its asset, the contract doesn’t execute, the second party retains its asset and moves on.
For more information on how smart contracts work, please refer to our “What you need to know about smart contracts” article.
Support is a technical analysis term used to describe the level at which a cryptocurrency’s buying pressure is historically greater than the selling pressure. Whenever the crypto coin attempts to go below the price level, it encounters support.
When traders want to make profits, they buy an asset when it is around a support level, and they are confident the support will hold.
When an asset breaks the support level, the level changes into a resistance level.
A cryptocurrency that depends on another cryptocurrency as a platform to operate on e.g. Zilliqa (ZIL) operates on the Ethereum network.
– Utility Token
Used to access services or assets offered. Similar to purchasing the rights to use a software programme or a product. These tokens are like pay-per-use software as a service offerings (SaaS), subscriptions to online magazine content, or a means of compensating the contributors of a platform. Think, in-game currencies like Shards in Dota.
– Security Token
Can represent an equity stake in an organisation, or a claim to the wealth generated by its activities. Similar to a traditional securities offering which is a discrete round of funding. Boils down to tokens that derive their value from externally tradeable assets.
Volatility is the measure of how much an asset’s value changes over time. A highly volatile asset is one whose value frequently fluctuates to a great extent. Such an asset is considered a high-risk investment. Volatility is an important factor for traders since it allows them to make profits through swing trading and day trading.
Whale is the term used to describe the biggest players in a crypto trading game. They can include hedge funds, high net-worth individuals, and large institutional investors. Whales are thought to be behind most of the typical market phenomena, such as sell walls and buy walls.