Diving into the world of cryptocurrencies can be daunting for beginners, especially when faced with the vast array of specialized vocabulary unique to this digital frontier.
Understanding these key terms is essential for anyone looking to navigate the complex and rapidly evolving landscape of crypto trading and investment.
This guide aims to demystify the essential vocabulary for beginners, providing a solid foundation for understanding the fundamental concepts and mechanisms that underpin the cryptocurrency market.
Crypto-trader’s vocabulary
Arbitrage
The activity of taking advantage of price differences between several exchanges to buy on one and sell on another. Arbitrage tends to equalize prices across all markets. When significant price differences persist, it’s often because the fees applied (to the transaction or to the withdrawal) are not the same.
Bitcoin
The first crypto-currency to emerge in 2008, Bitcoin remains the market leader, accounting for around 52% of the capitalization of all cyber-currencies. It remains the driving force behind the entire market, which is highly sensitive to fluctuations in the leading virtual currency. Note: since around 2020, the Bitcoin price has been more or less correlated with the Tesla share price.
Blockchain
This technology records all the blocks in a cryptocurrency’s transaction chain. It enables the information required for transactions to be stored and transmitted transparently and securely, without any controlling body. It is more or less a public, anonymous and forgery-proof accounting ledger.
CEFI
Company with a platform offering stacking products. Compared to DeFi, the rules are set by the company.
Cryptography
This branch of mathematics, based on solving complex mathematical problems, is the basis for verifying and securing transactions on a blockchain.
Dark pool
The practice of allowing whales, particularly institutional investors, to trade anonymously among themselves on a platform, i.e. without being visible to the rest of the market.
As such, the market trend is not altered as it might be by the publication of a large number of transactions, while the latter bring liquidity to the platform. This practice can lead to a sharp drop in prices if the transactions are revealed.
DeFi
DeFi stands for Decentralized Finance, and refers to an ecosystem of financial services, without financial intermediaries, thanks to blockchain technology.
The aim: to create an alternative monetary and financial system without the need for traditional players. Its best-known applications include crypto-currencies and borrowing and lending platforms.
Ethereum
Ethereum is a platform, similar to a “world computer”, on which applications can be run without the need for a centralized server.
Each node of the blockchain is responsible for part of the execution of the applications on it. Just as Bitcoin does not need an intermediary (bank) to exchange monetary units, Ethereum offers services that no longer need intermediaries to be executed.
Ethereum aims to build a Web where intermediaries between customers and the services they seek no longer exist. It would be possible, for example, to order a driver without going through a service like Uber, which takes a commission on each trip/transaction to put the customer and driver in touch.
The Ethereum blockchain works with the crypto-currency Ether, whose acronym is ETH.
Exchange
An exchange is a platform for exchanging crypto-currencies with one another, and for buying and selling them in exchange for legal tender. Some exchange platforms, like Coinbase, also allow you to keep your crytpo active.
Fork
A Fork is a split following a disagreement within a community, most often over how to use blockchain technology, which results in the creation of a new crypto-currency from an old one.
The original crypto-currency and the one created by the fork coexist, without the new one necessarily taking precedence over the old.
The best-known fork is the one that gave rise to Bitcoin Cash in 2017, although it failed to establish itself as a real alternative to Bitcoin.
FIAT
A currency issued by a central bank and legal tender in one or more countries, such as the euro, dollar, yen, etc.
Hash
A mathematical process which, from a quantity of input data, produces an output of fixed size. The hash function has two important characteristics: firstly, it is mathematically difficult to identify the initial data by looking at the output data; secondly, by changing a tiny part of the initial input, the output data is then completely changed. The hash is the result of a hash function.
Hold
The act of holding a crypto-currency and not selling it, regardless of price variations (rise/fall). Individuals who bought bitcoins in 2010 and are still holding have made a significant capital gain.
ICO
This is an innovative way for a company to raise capital by issuing tokens instead of shares.
ICO marketing is part of event planning. For a deeper insight into events in Dubai, read our article: “The Ultimate Guide to Choosing the Best Event Marketing Experts in Dubai.”
Lending
The activity of lending in cryptocurrencies via a smart-contract in order to earn interest.
The loan is secured by a deposit from the borrower.
Mining
Mining refers to the action of mining, which involves making one’s computer’s computing power available to confirm and increase the security of transactions taking place on the blockchain. In return, the miner is rewarded with tokens.
PSAN
Digital asset service providers are “financial intermediaries that offer various services relating to investment in crypto-assets”, according to the AMF, which created this status in order to provide a better framework for the purchase/sale and custody of crypto-assets. There are two levels of PSAN that are important to distinguish: registration, which is mandatory, and approval, which is optional.
All PSANs must be registered if they carry out one or more of the following activities:
- The preservation of digital assets on behalf of third parties
- The purchase and sale of digital assets against legal tender or other digital assets (brokerage)
- Operating a digital asset trading platform (stock exchange)
Other digital asset services such as order reception and transmission on behalf of third parties, portfolio management on behalf of third parties, consulting, underwriting, guaranteed placement and unguaranteed placement.
Pumping
Technique of artificially promoting a project or crypto-currency in order to encourage others to invest, drive up prices and sell advantageously.
Pump & Dump
Market manipulation, generally operated by a major player or group of major players, consisting of buying huge quantities of a crypto-currency in order to artificially drive up prices in the hope of creating a “FOMO” feeling attracting new buyers. Once this objective has been achieved, the pumper becomes a “dumper”, selling everything before anyone else in order to reap maximum profits.
Stablecoin
These virtual currencies are indexed to traditional assets such as FIAT currencies (dollar, euro, etc.), but also to precious metals such as gold.
As a result, they benefit from a stability that sets them apart from other crypto-currencies and gives them their name.
There are two types of stablecoin: classic stablecoins, which hold in reserve a quantity of the underlying equal to the value of the crypto-currency’s capitalization, and algorithmic stablecoins, which are based on another crypto-currency and whose prices are maintained by a balancing act that consists of destroying part of the tokens of one crypto-currency when tokens of the other crypto-currency are created.
Staking
The basis of proof-of-stake, staking involves locking up part of one’s crypto wallet to help support network operations. In return, the holder of the locked tokens receives a reward, similar to POS mining.
Token
Unit of account specific to a digital asset. Bitcoins are tokens of the Bitcoin network and ethers are tokens of the Ethereum network. For ICOs, certain tokens are created and deployed on the Ethereum network. They generally follow a standard called “ERC20”.
Trading bot
Program for buying and selling without human intervention, following a strategy defined by the programmer.
Wallet
This term refers to a digital wallet used to store crypto assets.
There are two types of wallet: hard wallets, which are physical wallets (USB key), and soft wallets, which are online wallets (software, app, etc.).
Whale
Large investors in virtual currencies are known as “whales”. By buying or selling assets, they can cause the price of the crypto currency concerned to fluctuate.
Read also: The United Arab Emirates (UAE) strengthens its regulatory position in the crypto sector