Any cryptocurrency that is not Bitcoin may be considered an altcoin. The term came from the words “alternative” and “coin” to denote the difference from crypto’s first and foremost digital asset.
Arbitrage is the act of buying a digital asset on one exchange or market and simultaneously selling it in a different market, capitalizing on the small price differences between markets and potentially profiting from those differences when the assets are traded.
An atomic swap involves peer-to-peer exchanges of digital assets between two parties, but with no 3rd party intermediary. Each atomic swap is automated and self enforcing using smart contract technology to ensure both parties lock up, then verify and unlock the crypto assets according to the predetermined contract.
Automated Market Maker (AMM)
An automated market maker uses a pricing algorithm and provides liquidity (marketability) for a decentralized exchange through the use of automating trading. AMMs are used by crypto exchanges for providing liquidity for digital assets.
The bid-ask spread signifies the difference between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to sell it for. It’s calculated using the best bid and the best ask displayed in an exchange’s order book.
Bitcoin is a self running, peer-to-peer payment system that enables people worldwide to transact with each other with no 3rd parties. Only 21,000,000 Bitcoins will ever be minted in a scheduled, decreasing manner; the protocol is hardcoded to build up demand and scarcity as time goes on. The Bitcoin Network consists of an algorithmic software, which permanently and cryptographically stores and secures all non-personal transactional data on a distributed ledger, called a blockchain.
A Block Explorer is an online tool for viewing every transaction on a blockchain. The wallet addresses, transaction amounts, and dates are shown for all transactions. No personally identifying information is ever needed or stored since blockchains require no 3rd parties, banks, or payment providers to transact in a peer-to-peer fashion.
A blockchain is an unchangeable distributed ledger of transactions that tallies and connects every transaction ever made on a blockchain through hashing algorithms. Blockchains are the foundation of cryptocurrencies, including the Bitcoin Blockchain and the Ethereum Blockchain. Both are open, community-driven public ledgers that anyone with an Internet device can access. Other blockchains may be called “enterprise.” They use a system of permissions and are privately owned and run.
Captive Insurance (for digital assets) A captive insurance company is owned and controlled by the insurance policy holders, with its reason for existence to provide risk insurance for that group of holders. As an example, Nakamoto, Ltd. is a captive insurance company that is licensed by the Bermuda Monetary Authority (BMA) and insures account holders in the Gemini Custody service. Cold Storage The “Cold” in Cold Storage refers to being offline. Cryptocurrencies are generally viewed as most secure when they are in cold storage, as opposed to storage in a “hot wallet” (which is an online wallet that holds your cryptocurrency for you) or a live crypto exchange. Cold storage can be a paper wallet (where you alone keep track of and secure your 12-word seed phrase to access your crypto), a hardware wallet (similar to a flash drive), or some other offline computing device. Crypto exchanges, for the sake of defending against hacks, keep as much of their users’ crypto in cold storage. Decentralized exchanges require users to store their own assets. Collateralized Debt Position A collateralized debt position (CDP) is a derivative variation first created in 2014 by MakerDAO. Using an Ethereum-based smart contract, MakerDAO designed the CDP as a token that remains relative to an underlying asset, the USD. The problem they were trying to solve was the volatility inherent with cryptocurrency trading. With MakerDAO, the CDP they created backs the stablecoin, DAI. Crypto Gas
Crypto gas is cryptocurrency that is paid by users and traders for transaction fees on exchanges and protocols built on the Ethereum Blockchain. Gas is measured in a subunit of ether (ETH) called gwei. When transaction volume increases on Ethereum, gas prices go up. Several gas prices (which vary) may be available to users and traders; the lower priced transactions will take longer and higher gas fees are reserved for the fastest available transaction speed.
A cryptocurrency is a digital asset that is issued by a blockchain network, giving it global accessibility, and quick, cheap, peer-to peer payment capabilities through the use of software digital “wallets” which are cryptographically secure.
Mining refers to using specialized computer hardware and software to perform work for a blockchain network by verifying transactions according to the blockchain’s consensus rules. To mine a block of transactions, miners must compete with each other to solve cryptographic puzzles. With PoW blockchains like Bitcoin, miners are awarded for the blocks they solve for in newly minted cryptocurrency. In Proof of Stake blockchains, miners are called forgers and still verify transactions to support the network. But instead of contributing computing power, they stake crypto assets to receive their block rewards.
Custody (in digital assets)
When an online platform or exchange holds the private keys to cryptocurrency assets for their users, they are providing a custody service. Regulated custodians must have the best in security because they are both holding the crypto assets and their users’ personal information; a combination that may be attractive to hackers. Well funded and regulated exchanges like Gemini and Coinbase provide custody service for investors who do not want to be in charge of their private keys (a string of words that, if they lose, there is no way to access them). Other users may use custody to have crypto in one place in order to use it in financial applications like trading and lending.
A decentralized autonomous organization is a business model that has no central authority but instead bases operations on a community governance model that is enforced through a blockchain-based consensus mechanism. As opposed to centralized companies, the DAO is not in existence to provide profits for its executives and shareholders, but exists to benefit the entire organization itself including its users.
Dark pools are private organizations that facilitate large volume crypto transactions to shield institutional investors from exposure until after the sale. Since a viewable order book is not available when using a dark pool for large crypto trades, the transaction information remains private until the transaction is settled. Dark pools offer pricing discounts on the buy-side but may lack transparency.
A distributed denial-of-service (DDoS) attack happens when a website or application experiences a targeted jam in web traffic, orchestrated by malicious attackers. The attacks are generally carried out by other computers, networks and IoT devices. A DDoS attack prevents others from accessing the website or app by flooding and thus compromising its server with fake or malicious traffic.
Decentralized Exchange (DEX)
A Decentralized Exchange (DEX) is a cryptocurrency platform that allows its users to buy, sell, trade, leverage, lend, borrow, and earn cryptocurrencies in a peer-to-peer, wallet-to-wallet way with no 3rd party intermediaries. DEXes generally have some functionalities (such as buy, sell, swap and transfer crypto) that require zero KYC verification and only an email address. Other tiers of service are available pending additional verification processes. Examples of decentralized exchanges include Kyber Network, Uniswap, and Bancor.
Decentralized Finance (DeFi) Decentralized Finance (DeFi) refers to platforms and applications that enable peer-to-peer financial services using cryptocurrencies without the need for 3rd party intermediaries, such as banks. Lending, yield farming, liquidity providing, spot trading and leverage are all examples of financial services offered on DeFi protocols. Dollar Cost Averaging Dollar cost averaging (DCA) involves making incremental buys of an asset on a regular basis. Also referred to as recurring buys, DCA is an investment tool used for accruing wealth over a long period of time. Dollar cost averaging removes the emotional aspect of investing in volatile assets like cryptocurrencies and helps average out the price through price spikes and drops. DYOR
Do Your Own Research (DYOR) is a common phrase in the cryptocurrency industry. Since crypto and blockchain-based startups are largely unregulated and use brand new technologies that evolve rapidly, it is important for participants in cryptocurrency markets to do their own research.
Ethereum is a blockchain network and platform that provides an infrastructure for the building of decentralized applications (Dapps). Founded by Vitalik Buterin in 2015, Ethereum’s open source protocol features smart contract technology written with the Solidity coding language. Ethereum enables others to build their own cryptocurrency tokens and platforms, all using Ethereum’s native token, ether (ETH) as “gas” to fuel transactions. It’s also the 2nd largest crypto by market cap and the most used blockchain. Since 2015, Ethereum has been a Proof-of-Work (PoW) blockchain. But it is currently migrating over to Proof-of-Stake (PoS), a move that represents one of their strategies for scaling the Ethereum Blockchain.
Exchange tokens refer to cryptocurrencies that are native to a digital asset exchange. An example would be BNB, which is Binance.com’s exchange token. Binance uses BNB in many ways that benefit the Binance system and, in turn, its users. For instance, transaction fees for trading are significantly reduced when users pay in BNB tokens.
In blockchain technology, a fork occurs when participants of a blockchain network (nodes) do not have unanimous consensus regarding the future path of the blockchain and so it splits into two blockchains, or a fork. A hard fork happens when nodes add new rules (software) that conflict with the old rules. In this situation, all new nodes can only communicate with the new version so a split occurs. A soft fork is the same except the upgraded rules/software are compatible with the old, so it’s essentially an addition to the previous software.
HODL stands for “hold on for dear life” and is a common phrase in the cryptocurrency investing industry. It mainly refers to holding onto assets like Bitcoin, even through high levels of volatility, because the cryptocurrency tends to gain value over the long term. People that HODL Bitcoin may be referred to as “HODLers.”
As part of a range of Anti Money Laundering (AML) regulations mandated nationally and internationally, KYC involves the requirement of MSB (money service business) companies to verify each customer’s identity during the onboarding process and in other certain circumstances. Verification is achieved by submitted identification, proof of ownership and personal information such as name, address, email address, phone number and tax I.D. number. KYC becomes a challenge in blockchain-based startups, many of which run in a decentralized manner with no central authority.
In the cryptocurrency industry, latency can mean two different things, both of which relate to time delays. The first type is blockchain latency, which refers to the delay between submitting a crypto transaction and the first confirmation. Exchange latency refers to the delay between trading orders and the processing of such orders. It is beneficial for users of blockchains and exchanges to have low latency, meaning the lowest possible delay, potentially helping to make cryptocurrency trading more profitable for the trader.
Liquidity in crypto markets is a measure of how easy it is to convert a crypto asset into cash or other digital assets without causing a strong effect on the asset's price. If a token has low liquidity, there are not many transactions being made with it. As such, one or two transactions could more easily affect the price. A highly liquid crypto asset such as Bitcoin or Ethereum sees thousands of transactions daily and big buys and sells do not have as much effect on their price.
The market cap of a cryptocurrency is determined by calculating the current price by the circulating supply. Market cap is generally how cryptocurrencies are ranked, with those with the highest market cap, like Bitcoin and Ethereum, considered the top coins.
A market maker provides liquidity to both buyers and sellers in a financial market by quoting prices for an asset on both the buy and sell side. They “make” a market and provide liquidity for that asset. Market makers essentially become a buyer and a seller of last resort, ensuring traders’ orders will be matched. Market makers run on algorithms and automatically place the orders according to the bot’s parameters, thus they are often called Automated Market Makers (AMM).
Mining pools allow miners to pool together their computing (hashing) power with other miners to help improve their chances of winning a block. In mining pools, block rewards in the form of newly minted crypto coins are distributed according to the level of computing power each miner contributes. With Bitcoin, blocks are added to the blockchain every ten minutes, creating a predictive supply that also gradually decreases to drive demand. Investing in mining pools provides an interesting investment option for people who don’t have the time, money, or technical expertise to become miners.
Options are a type of derivative that give traders the right to buy or sell an asset at a set price within a certain timeframe. Call Options give the trader the option to buy, while Put Options give the trader the right to sell the asset at the predetermined price and within the timeframe. Options may be used to generate income, to hedge risk, or for speculation.
An oracle is a 3rd party information source that is trusted and set up to automatically move data from an off-chain source to a smart contract, essentially creating a bridge from the outside world to the blockchain network on which it is built. Inbound oracles pull off-chain, real world data to the blockchain, while outbound oracles inform outside entities of an event that occurred on the blockchain. Examples of data that may be processed through oracles include price feeds, which through the use of APIs can connect many platforms and wallets to other blockchain-based protocols and applications.
An order book in cryptocurrency markets is a digital representation of current, open buy and sell orders for digital assets, including cryptocurrencies, governance tokens, privacy coins, and stablecoins. Each crypto exchange features a real-time, online order book that is constantly updated. When traders wish to trade, buy, or sell a crypto asset, they can do a swap at an exchange with a beginner’s interface (higher transaction fees), or perform the transaction by accessing an exchange order book (lower transaction fees).
Over the Counter (OTC) refers to buys, sells, and trades of large amounts which are not listed in an exchange’s order books. Cryptocurrency whales and institutional investors that want to broker a large purchase directly with an exchange usually will find a specific interface for OTC on the exchange’s website. When transactions take place OTC, they do not affect the spot price as much as if they were listed in the order book. The pricing of OTC transactions is not publicly accessible information.
Perpetual Swap A perpetual swap is a derivative that is unique to crypto markets. Similar to futures contracts in that traders use them to leverage their positions while buying into an underlying asset (but not the asset itself), perpetual swaps are otherwise very different from traditional derivatives. They do not involve any type of cash settlements or expiry dates and they deal solely in leveraged Bitcoin. Perpetual swaps enable traders to invest in crypto derivatives without dealing with the intricacies of expiration dates. Price deviations between quoted and settled prices in standard derivatives are larger than with perpetual swaps, which are more closely pegged to the underlying asset. BitMex Exchange was the first company to offer a Bitcoin Perpetual Swap. Privacy Coins
Privacy coins are cryptocurrency coins that use advanced cryptography, mixing technologies, and zero knowledge proofs (among other technologies) to shield user data. They enable private, peer-to-peer transactions of cryptocurrencies. Examples include Dash, which includes the option for user data privacy, and Monero, which defaults to user data privacy. Because the privacy aspect of these coins exclude KYC verifications, many crypto exchanges do not allowed list them for trading.
The private key is generally a 12-word, cryptographic “seed” phrase that is generated through a blockchain-based algorithm using encryption and decryption technologies. Private keys must be stored on- or off-line and can be used to access your cryptocurrency wallet and the digital assets connected to it. If you have the keys in your possession, it is considered “your coins”. If an exchange or other platform holds your private keys, the saying goes, “not your keys, not your Bitcoin”. If that exchange ever folds or gets hacked, you could potentially lose access to your crypto. By holding your private keys in cold storage (i.e. a paper or hardware wallet) you are ensuring that you maintain the rights and access to your own crypto coins.
Proof of Stake (PoS)
Proof of Stake (PoS) is a blockchain-based, distributed consensus mechanism used by some cryptocurrencies in order to verify and process transactions, thereby helping to operate and secure the blockchain network. Instead of miners solving cryptographic puzzles by using their computational power as you have in Bitcoin’s PoW, PoS involves validators who stake their coins and get rewarded for verifying transactions according to the blockchain’s consensus rules.
Proof of Work (PoW)
Proof of Work (PoW) is a consensus mechanism used by the Bitcoin Blockchain. It entails users called miners who run specialized computer hardware and software to verify transactions on the Bitcoin Network according to the consensus rules. As a reward, these miners receive newly minted Bitcoin. Proof of Work refers to the substantial computing work that goes into each Bitcoin transaction, keeping the network secure in a self running manner that benefits all Bitcoin users and the network itself.
Satoshi Nakamoto is the pseudonymous name of the unknown creator of a censorship resistant, peer-to-peer system of cash called, Bitcoin. Nakamoto published the Bitcoin Whitepaper in 2008 in response to the recent economic crash as away to create a more secure and corruption-free system of money. The first (“Genesis”) block of Bitcoin transactions was mined in January of 2009, which represents the beginnings of the Bitcoin Network. Small amounts of Bitcoin are called “Satoshis” or “sats” in honor of Bitcon’s inventor.
SIM Swaps A SIM (subscriber identity module) Swap is a type of fraud where scammers exploit two-factor authorizations that use an SMS text message. The scammer gathers your personal information through social engineering, then contacts your cell phone company to request activation for a new SIM card (or new phone), convincing the representative that they are you by using the personal data they gathered. Once the new SIM card is activated, the scammer has access to your phone’s SMS messages, which often contain SMS messages with password resets and verification codes. These codes may then be used to access the victim’s accounts. Slippage
Slippage is the difference between the expected price of a trade and the executed price. While slippage may occur at any time, it usually happens in volatile markets and when orders can’t be matched at prices requested by traders. Slippage may occur in Forex, stock and crypto markets.
A smart contract is an automated contract that is agreed upon by two or more entities and is enforced by code. Transactions that execute using smart contracts are processed on decentralized blockchain networks like Ethereum, so they can automatically be settled according to the contract’s terms without the need for a third party.
Stablecoins are cryptocurrencies that are pegged 1:1 to a more “stable” asset, such as USD, the EURO, another cryptocurrency like Bitcoin, or a basket of assets. Their design is such that they minimize price volatility relative to their peg. Stablecoins such as USDC and Tether also act as a gateway from traditional finance into crypto markets.
Staking is the process of setting aside cryptocurrency tokens in a special wallet to receive a specific benefit. Stakers who stake a set minimum amount may then participate in transaction validations to earn rewards in a Proof of Stake blockchain network.
A crypto wallet is an internet device, a computer application, or computer hardware that stores the private keys to a user’s crypto assets. One wallet may hold multiple cryptocurrencies and each wallet enables the user to access the crypto they are storing there. Some wallets enable you to make transactions directly from your wallet to other crypto platforms. Wallet-to-wallet transactions between any two individuals are also possible without any 3rd party intermediaries.
A whale is an individual or entity that holds large amounts of Bitcoin or another asset. Their holdings are so large that they could potentially make transactions that have a sharp influence on the asset’s price. Many of Bitcoin’s whales are early Bitcoin miners and enthusiasts who bought when prices were very low.
XBT vs. BTC
BTC is a common abbreviation for Bitcoin that’s been used for years in trading pairs like BTC/USD on crypto exchanges. XBT is a newer term for Bitcoin trading pairs that is now used by some exchanges to denote Bitcoin’s independence from fiat currencies. It’s similar to gold’s abbreviation, XAU, with the “X” denoting an international currency.
Yield farming is a term that became popularized in 2020’s DeFi industry. Also known as “liquidity mining”, it involves a user staking some cryptocurrency and providing liquidity (through trades called swaps) for cryptocurrencies on a decentralized exchange (DEX). Each time the users make a trade, they pay a fee, which is pooled and then distributed to all the liquidity providers in the form of crypto tokens. Yield farming protocols are generally decentralized and use smart contracts to automate the payouts.