Cryptocurrency has been around for more than a decade now. The multiple use cases of crypto have made it popular in the technological and financial world. Crypto trading is a common practice of trading cryptocurrency to make money. However, when new investors enter the domain of crypto trading, they often have to deal with some unique terms.
Here we will explain the top 15 common terminologies from the crypto world that confuse new traders.
In the world of cryptocurrency, the address is basically the bank account number. When you want some to send funds to your wallet, you share your wallet address with them. Unlike the bank account number, the wallet address is a long series of random letters and numbers. It can be made public without the fear of getting your account hacked.
Altcoins are alternative cryptocurrencies ie. currencies other than bitcoin. The crypto market is made up of thousands of altcoins. The value of altcoins is often more volatile than bitcoin. They make up 40% of the total market value of cryptocurrencies.
Multiple altcoins are released every month. They either solve a specific problem or present a certain use case. For instance, Ether (ETH) is the native currency of the Ethereum blockchain. It is used for building smart contracts on Ethereum Blockchain.
ATH is the abbreviation for All-Time High. ATH tells you where the currency has been and where it will go next. It is used as a reference point while investing in a currency.
Bitcoin and altcoins have different ATH. For example, Ether’s ATH is $4,345. Whereas bitcoin peaked at $65K. During crypto trading, check the all-time high of a cryptocurrency to invest at the right time.
4. Fiat Currencies:
‘Fiat’ is another term used in the world of cryptocurrency. It refers to the currencies issued by central banks around the globe. Dollar, Euro, and Pounds are examples of fiat currencies.
The value of fiat currencies depends on multiple factors within a country’s economy. The main difference between fiat and crypto is that fiat is centralized whereas crypto is decentralized. Fiat currencies often devalue when the government starts printing more of them.
Stablecoins, as the name suggests, are stable in value compared to other cryptocurrencies. The reason for their stability is that they are pegged to fiat currency. For instance, the stablecoin Tether (USDT) is pegged to United States Dollar. Thus the price of 1 USDT is always equivalent to 1 USD with a slight difference.
Crypto traders buy different coins using Stablecoins. The value of stablecoins is immune to volatility. Hence the price is stabilized.
Blockchain is the basis of the cryptocurrency network. Nonetheless, it has applications outside of the crypto world as well. The blockchain is a decentralized, distributed ledger that contains information regarding transactions in the form of blocks.
The parent cryptocurrency, Bitcoin, uses blockchain technology for the verification of transactions. Other coins like Ether (ETH) have their own blockchains.
7. Smart Contracts
Smart contracts are coded terms and condition which predefine an action. These contracts are self-executing and do not need the intervention of a third party. You can create your own smart contracts on the blockchain.
Smart contracts are an alternative to legal contracts. They save time and money for both buyers and sellers. Moreover, the terms of smart contracts are transparent and verifiable.
DeFi stands for decentralized finance. It is the digital replacement of the centralized financial system presented by Cryptocurrency. DeFi has smart contracts at its core.
The decentralized financial system uses cryptocurrency namely ether (ETH) for performing the functions of lending and borrowing etc. All the record of transactions is secured on the blockchain.
9. Rug Pull
Rug Pull is another common term in the crypto market. It refers to the practice in which the developers of a cryptocurrency project run off with the investors’ money.
Also Read: 7 Common Bitcoin Scams
The listing of projects and coins has become easy with DEX. Anyone can freely list their project on a decentralized exchange. As a result, developers can easily scam people and abandon projects after collecting capital from investors. Crypto traders have to be careful of Rug pulls.
HODL is common terminology used by crypto traders. It refers to the act of holding on to your assets over a longer period of time. HODL is an abbreviation of ‘Holding on For Dear Life.’
This term was coined in the early days of crypto when a desperate trader misspelled hold for hold. Now, this is permanent crypto jargon. The most committed investors call themselves the ‘Hodlers‘.
FUD is an abbreviation of ‘Fear, Uncertainty, and Doubt.‘ This a slang term used by crypto traders for anyone who shows disbelief in the potential of crypto.
The hodlers advise new traders to not listen to the FUD. And if a noob trader sells his holding then he has given in to FUD.
‘Whale’ is a term used for big investors. These investors hold hundreds and thousands of dollars worth of cryptocurrency. The public addresses of bitcoin wallets are available online and you can also check how much funds are present within an account. Thus, it is easy to identify whales.
The crypto markets still have a smaller number of investors as compared to other markets. Therefore, the decision of whales (to buy or sell) can impact the price of a currency. Hence the crypto traders monitor the Whale moves to see where the market might go.
‘Mooning’ or to the moon means that the price of a currency is headed upward. You will often hear crypto traders say that a certain coin is mooning. It means that the price of that particular coin is spiking.
The crypto market is also vulnerable to market sentiment manipulation. The noise regarding the mooning of a currency may bring the pump in price which doesn’t represent the actual worth. It is only a sudden growth in interest. Hence, invest carefully when you see a cryptocurrency mooning.
FOMO is short for ‘Fear of Missing Out.’ FOMO occurs when the investors see that a particular crypto asset is making huge gains. They too run to make hay while the sun shines. As a result number of investors for the already spiking coin increases.
Many wall street investors flocked to buy bitcoin when they heard of Tesla’s investment in the currency. This is a classic case of FOMO.
15. Pump and Dump
Pump and Dump is a common practice in the crypto market. The Crypto industry is still in its infancy. The number of investors is low. As a result, the decision of a few investors can identify the market’s direction. Pumping is the practice of artificial rise in an asset price by creating hype.
Nonetheless, the spike is followed by the dump. When the individuals behind gains are done with making the necessary profit, they pull out their investment. Resultantly, the asset’s value goes down sharply.
New investors often fell prey to the pump and dump schemes. Hence, it is necessary to do your own research before purchasing cryptocurrencies.