The digital asset industry uses a wide array of unique language that might seem confusing to someone looking in from the outside. This is an ongoing list of different terms, phrases and words that people often get confused on.
Basic Language Used
DYOR – “Do Your Own Research”, Always do your own research and fully understand anything you invest in. Do not listen to others or copy others ideas. Crypto is such a new industry and there are very very few people who genuinely understand the space, educating yoursels if always worth the time. If you invest in a protocol, you should understand every aspect of the protocol, as if you were becoming the sole owner.
FOMO – “Fear Of Missing Out” is one of the concepts that loses investors billions every year. We all get excited and want to make money but patience and comprehension is key to success. Almost every person involved in cryptocurrency can remember a time they saw hype and excitement on social media and made an investment without thinking or doing proper research. 9/10 times this leads to buying something at the “top” price, right before it starts crashing. It also leads to further emotional trades due to not understanding the asset fully.
FUD – “Fear, Uncertainty and Doubt” is often said in terms of people “spreading FUD” or spreading negative rumors basically. FUD is used to describe the general emotion around a project or the market.
HODL – “Hold On for Dear Life”, Said when the market is going up radically. People often say “Bitcoin is going to the moon, HODL”.
Not Your Keys, Not You’r Coins – If you hold your cryptocurrency in any wallet where the seed phrase is accessible to anyone besides yourself, the community considers them “not your coins”. The seed phrase is essentially your “key” to your crypto and anyone who has it can access your digital assets.
Smart Contract – Code on the blockchain that automates transactions and provides a trustless intermediary. If a smart contract says “When X mints Y NFT, Y NFT will be sent to X” the process is automatically executed
NFT – Non-Fungible Token, a type of smart contract that lives on the blockchain.
Blockchain – Technology that allows you to store data and record transactions, transactions are often linked in a peer-to-peer network instead of being controlled by one entity.
Public Ledger – Public ledgers are utilized by some blockchains, allow anyone and everyone on the network to see the ledger of transactions.
Decentralization – The trickiest concept to grasp that many people struggle with truly understanding. To be fully and 100% decentralized, a network or blockchain must be completely self sufficient. This is in regards to where data comes from and is stored. The next aspect is there can not be anyone, or anything in control. The network itself must be self sufficient without any team or company behind it. This can refer to how transactions are settled, how major decisions get made and if any person or team has the capability of shutting down or harming the network.
Consensus Mechanism – How transactions get settled on the blockchain. Decentralized consensus mechanisms include both Proof-of-Work (used in Bitcoin) and Proof-Of-Stake (Used in Ethereum 2.0) and ongoing arguments debate wether either can be 100% decentralized in nature.
POW – “Proof-of-Work” used by BTC. New coins are mined with computers and GPUs. Computers work together in “mining pools” and split the reward if won. The computers are working to solve math equations that are getting more and more complicated each round, keeping it fair. Although you used to be able to mine Bitcoin on a regular PC, a much larger investment and serious machinery needs to go into a profitable setup. These computers participate in the Bitcoin ecosystem and help the network stay decentralized all over the globe.
POS – “Proof-of-Stake” used by ETH2.0. Holders of the coin lock up their coins for a specified period of time. Staked coins earn a certain percentage of interest over time. Stakers are often helping validate transactions as well and help sustain the networks decentralization. Oftentimes there is no minimum for staking but network gas fees present a potential issue if you are staking small amounts.
POAP – “Proof Of Attendance Protocol”. Similar to an NFT.
Layer 1 – Blockchains creating entire networks (think Ethereum) where there is not one central focus. Layer ones are often similar to the internet and have many aspects like DeFi, smart contracts, different dApps and more.
Layer 2 – These run on layer one blockchains and act as extensions (think Polygon). A layer two like Polygon builds off of Ethereum and attempts to either improve on the layer one application or add value. Some layer two applications, like Polygon, attempt to solve problems the layer one faces. Polygon solves the high gas fee and long transaction time problems Ethereum has, offering a quicker and more convenient solution.
dApps – Decentralized apps built on the blockchain
Liquidity – Liquidity is more important in cryptocurrency than other investment classes. In such a small industry, especially when placing riskier allocations, a lack of liquidity can present problems such as not being able to sell when you hope too.
Staking – Staking on a POS network allows users to earn rewards for participating in the network.
Hot Wallet – Always connected to the internet. If your seed phrase is connected to the internet, it can theoretically be hacked. Not the safest long-term option but by far the most convenient option for short-term holds and buying and selling. Typical safe practice is to make purchases and sales with a hot wallet and transfer assets to a cold wallet for safe keeping.
Cold Wallet – Not connected to the blockchain. Seed phrase is stored offline. This makes hacks much more difficult. Ledger and Trezor are two of the most reputable options available.
Whale – Someone with very large holding of a certain cryptocurrency. Whales can have implications on the market and are worth paying attention too. If it looks like someone is about to sell ten billion dollars worth of Bitcoin, the market may panic. Wallets holding the largest amounts of cryptocurrencies are good to monitor and keep an eye on.
Open Source – Refers to the code used in the protocol, software or program. For decades companies have spent billions of dollars protecting their IP rights and specific coding used as corporate secrets. Blockchains have recently flipped this phenomenon, utilizing open source code that any average person can check out, investigate or copy. Many blockchains share the idea that open source code encourages innovation of the code and builds trusts with users.
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