It’s easy to get confused or get intimidated when you listen to people talk about cryptocurrency when you are not familiar with all that jargon they use like ALT coin, shitcoin, etc.
Before buying any coin, get yourself educated.
This guide breaks down the complex concepts associated with cryptocurrency. The aim is to give you a head start in pursuing an investment in crypto. We’ll attempt to cover as much as possible and this document will always be updated — you should bookmark it.
Let’s get into it…
An altcoin is the combination of the words: ‘alt’ and ‘count’ which means an alternative to Bitcoin. They are all cryptocurrencies other than Bitcoin. Most of them are built following Bitcoin’s original structure with additional modifications. For instance, Litecoin has the same code and functionality as Bitcoin but approves mining transactions faster by processing a block every 2.5 minutes rather than bitcoin’s 10 minutes.
Namecoin is the earliest recognized altcoin introduced in April 2011. It was developed from Bitcoin’s software but had a different blockchain protocol.
Unlike Bitcoin which was built as an alternative currency and an upgrade of the financial industry, the creators of Namecoin we’re aiming at improving internet privacy and security by decentralizing the translation of human-readable domain names (e.g www.coinsem.com) to machine-readable IP addresses (e.g 0.0.0.0.0)
The goal was to dilute the control from central authorities like ICANN. With the help of Namecoin, there can be domain names owned by untraceable individuals.
In 2016, Ethereum had the largest following of any altcoin. According to Bloomberg News, it was the most used blockchain in 2020.
Based on their functionality and consensus mechanism, altcoins are classified into different types.
- Mining-based Altcoins:
These coins are mined into existence. Most mining-based altcoins use the proof-of-work (POW) structure which requires miners to solve complex mathematical puzzles to generate new coins. An example of a mining-based altcoin is Litecoin.
There are also pre-mined coins that do not follow this mining technique, instead, they are distributed before they are listed in the cryptocurrency market. An example is Ripple’s XRP.
- Utility Token:
They are used to provide services within a network. An example is Filecoin which is used to purchase storage space on a network.
- Security Token:
They are similar to securities traded in stock markets. They promise equity and dividend payout to holders.
- Stable Coins:
They reduce the volatility of cryptocurrencies by pegging their value to more stable goods like fiat currency, metal, or other cryptocurrencies. Price fluctuations for stable coins do not exceed a narrow range. An example is USDC.
A block is like a page of a ledger or record book. It stores cryptocurrency transactions in the present time, meaning that an open block records transactions of a particular cryptocurrency as it happens. When the block is filled, it is closed and a new block is opened.
To open a new block under Proof-of-work (POW) structure, crypto miners compete to solve complex mathematical puzzles. The winning miner is awarded (in Bitcoin, the miner is given a newly minted 12.5 BTC)and a new block is open.
The first record on the new block is the transaction that awards the winning miner.
Under the Proof-of-stake structure(as seen in ETH 2.0) new blocks are opened by staking coins.
Transactions in a block cannot be altered or removed and are impossible to hack.
Blockchain is a type of decentralized ledger technology that is made up of a growing number of blocks linked together using cryptography. Since each block records transaction data with a timestamp and information about the previous block, the blockchain stores the transaction history of a particular cryptocurrency just like a ledger.
Because blockchain is decentralized and every block is dependent on the others, to successfully hack a block, the hacker would have to alter the data across every node and block; it is impossible.
The invention of the blockchain for Bitcoin made it the first digital currency to solve the double-spending problem without any central authority
It was invented by a person (or group of people) under the name Satoshi Nakamoto in 2008.
A node is a computer connected to the blockchain system. The role of nodes is to validate and verify cryptocurrency transactions, providing support and ensuring that the network is secure.
Blockchain technology is supported by hundreds of thousands of nodes. To validate transactions, nodes have to download the entire blockchain data. Nodes that do this are called full nodes.
Downloading the entire data with a full node is a time-intensive activity, the system can experience a delay in processing transactions if the blockchains are multiplied.
Lightweight nodes help the system achieve speed by downloading only headed data about the transaction.
Decentralized nodes in cryptocurrency make hacking the system impossible as the hacker would have to alter the data at every node.
Mining is the only way new cryptocurrencies get into circulation. In Bitcoin for instance, apart from the coins minted via the genesis block (the first block created by the founder), every other bitcoin was minted by miners.
Mining requires the use of sophisticated computers to validate transactions and solve complex mathematical puzzles that lead to the minting of new coins
The role of mining in validating transactions is to help verify transactions and ensure there is no double-spending. But validating transactions does not lead to the minting of new coins, it supports the system.
When a block is filled, miners compete to solve complex mathematical puzzles. The first miner to solve a puzzle is rewarded with a newly minted coin which goes into circulation.
Decentralization means the transfer of authority and control from a centralized entity to a distributed network.
In cryptocurrency, the control is diluted by the government, meaning that the government does not have any authority over the amount of currency in circulation.
The concept of decentralization is also used in decentralized applications (Dapps) which are created on some blockchain systems (like Ethereum).
A major drawback for cryptocurrencies is their unpredictable price fluctuations. Stablecoins reduce this problem by pegging their value to more stable assets like fiat currency, commodities, or other cryptocurrencies.
The assets serve as collateral or reserve. When the price of the cryptocurrency drops and the investor wants to cash out, the number of coins they have would be exchanged for the asset. Meaning that the value of the cryptocurrency cannot fall below that of the asset it is tied to.
Examples of stablecoins tied to fiat currencies are USD Tether, USD coin, and Diem.
An example of a stable coin tied to another cryptocurrency is Wrapped Bitcoin (WBTC).
Stablecoins can also be tied to other commodities like precious metals such as gold.
A shitcoin is a cryptocurrency that has little to no value or immediate purpose besides serving as a means of exchange. Shitcoin is characterized by a short-term price increase followed by a massive drop that is caused by investors dumping their coins to make a short-term profit. Shitcoins are considered to be bad investments.
According to Naira Metrics, Dogecoin is a shitcoin because, besides its use as a means of exchange, it has no unique purpose.
9). Pump and Dump
Pump and Dump in cryptocurrency refer to a scheme that attempts to boost the price of a coin by false recommendations or exaggerated remarks.
Most times, the schemer claims to have inside information about a crypto investment assuring that its price would soon experience a drastic rise. Once buyers jump in and the price of the coin significantly increases, the schemer sells off their coins causing a major crash on the cryptocurrency.
To avoid losing out in pump and dump, watch out for obvious red flags like exaggerated promises on high returns on investments or pressure to buy a coin before it rises.
10). Genesis Block
The genesis block is the first block a cryptocurrency ever mines. It serves as a template or prototype on which other blocks in the blockchain are built on.
The first genesis block also known as block 0 was created by Bitcoin’s developers Satoshi Nakamoto in 2009.
Bitcoin’s genesis block models the proof-of-work structure from which other blocks in the blockchain followed.
Genesis block provides the foundational transactions of the blockchain.
11). Cold Wallet
Cold wallets are cryptocurrency wallets that store users’ private keys offline.
When a cryptocurrency is sent to an address, the private key is used to give the user access to their coins. It digitally signs the transaction and broadcasts the signed transaction to the network for verification and storage. If a hacker gets in contact with this private key, they would be able to access all cryptocurrencies connected to it.
Cold wallets help to reduce the risk of losing cryptocurrency through hacks by storing private keys offline. They could be in the form of paper wallets, hardware wallets, or offline software wallets.
Paper wallets let users print out their private and public keys through a physical printer. These keys are usually in the form of QR codes that could be scanned to sign transactions.
Hardware wallets store private keys on offline devices or smart cards. An example is TREZOR.
Paper wallets and hardware wallets provide maximum security to private keys but could lead to permanent termination of access to funds in events where the offline devices are lost or damaged.
Offline software wallet splits the wallet into two platforms: an online wallet with a public key and an offline wallet with a private key. Examples are Electrum and KeepKey.
12). Hot Wallet
Hot wallets are cryptocurrency wallets that store users’ private and public keys online. This makes the transaction process seamless as the private key being connected to the internet can sign transactions with ease.
The drawback to this walker is its vulnerability to hacks.
13). Custodial and non-custodial wallet
With custodial wallets, users are not fully responsible or in control of their cryptocurrencies. This type of digital wallet stores users’ private keys and creates a backup service. Meaning that there is no permanent loss of private keys as they could be retrieved from the server.
In custodial wallets like Freewallet, the transaction fee is free across the platform.
Other examples of custodial wallets include Binance, Coinbase, and BitMEX.
The non-custodial wallet makes it harder for hackers to get access to the cryptocurrency as private keys are not saved online. When private keys are lost, they cannot be retrieved. Users are fully responsible for their cryptocurrency.
Examples of non-custodial wallets include Trust wallet, Electrum, and Exodus.
14). Private keys
Private keys allow users to access wallets, check balances, initiate and sign transactions. It proves the user’s ownership of a wallet.
Private keys could be in the form of QR codes, Mnemonic phase, 64 digit hexadecimal code, or 256 characters long binary code.
Private keys can be stored online as in hot wallets or offline as in cold wallets. They could be retrieved as in custodial wallets.
15). Public Keys
Public keys are like addresses that let users receive a token without revealing their identity. A hacker’s access to a public key does not imply access to the cryptocurrency attached to it.
Dapps are decentralized applications that are accessible on blockchain systems like Ethereum.
Developers create and publish these applications on the platform, after which they cannot be retracted. Their control is decentralized.
Dapps are not prone to sudden shut down as their information is stored by servers created by hundreds of thousands of computers.
Ether is the cryptocurrency used as the means of exchange on the Ethereum blockchain.
It was developed by Vitalik Buterin and a team of seven others consisting of Mihali Alisie, Anthony Di Lori, Amir Chetrit, Charles Houskinson, Gavin Wood, Jeffery Wilckle, and Joseph Lubin from December 2013 to early 2014.
A fork is a change in blockchain protocol. It is a situation when the blockchain splits into two paths or when two or more blocks have the same block height.
Forks are classified as accidental forks or intentional forks.
Accidental forks occur when two or more miners find a block at nearly the same time. The network resolves this by abandoning blocks that did not form the longest chain.
Intentional forks are made to modify the rules of the blockchain. They are initiated by developers.
An example of intentional forks is hard forks which split the blockchain system into two functional paths; one with the old protocol and the second with the changed protocol. There are also soft forks that result in only one path. The nodes stop processing blocks following the old protocol.
19). Hard Fork and Soft Fork
Hard fork is a radical change in the protocol of a blockchain which leads to the splitting of the network into two functional paths; one with the original blockchain protocol and the other with the new protocol.
For example, after the 2016 DAO event on the Ethereum blockchain where a hacker stole 50 million USD, the Ethereum community executed a hard fork which splitted the block chain into two; one with the theft reversed called Ethereum (ETH) and the second that continued with the original protocol called Ethereum Classic (ETC).
Bitcoin also hard-forked in 2017 resulting in a split that created Bitcoin Cash.
In soft fork, the change in the block chain protocol results in only one valid branch. Every node using the old protocol becomes invalid.
DeFi is decentralized finance. It is a system which provides financial products on a decentralized blockchain network making it available to anyone. The goal is to blur out the need for middlemen like banks and brokerage.
DeFi makes it possible for buyers, sellers, lenders and borrowers to interact peer-to-peer or with a strictly software-based middleman.
21). Crypto Portfolio
A crypto portfolio acts like an investment portfolio only that it is a collection of one type of investment: cryptocurrencies.
Crypto portfolio is a description of all coins and tokens an investor or trader has. The more cryptocurrencies an investor owns, the more diverse their portfolio.
The total value of the coins in the crypto portfolio is called portfolio worth.
A crypto portfolio tracker is used to keep track of the value of the coins as their prices change. Examples of portfolio trackers are coin market manager, Kubera and Delta.
22). Smart Contract
A smart contract is a transaction protocol which automatically controls, executes and documents actions according to the contract or agreement.
It was developed by Nick Szabo in the early 1990s. The term ‘smart contract’ originally refers to a set of promise specified in digital form, and protocols within which the promises are performed.
The goal of smart contracts is to reduce the need for trusted intermediates, arbitrators, fraud loss and enforcement costs.
Gas refers to a fee required to successfully conduct a transaction in the Ethereum blockchain.
Gas prices are set by crypto miners based on the supply and demand of computing energy of the network needed to process smart contracts and other transactions. Gas prices are denoted in small fractions of ether called Gwei.
Gas limit is the maximum amount of gas a user is willing to spend to process a transaction. If the gas limit of a particular transaction is too low, miners can decide to ignore that transaction.
HODL is the misspelling of ‘HOLD’. It means to retain a crypto asset for an extended period.
The term ‘HODL’ originated in 2013 on a cryptocurrency platform Bitcointalk, when an intoxicated member typed “I AM HODLING”. This was after the Chinese government caused the price of Bitcoin to fall drastically within a day.
The logic behind this strategy is that novice traders in an attempt to time the market lose money or make less than they would if they were holding onto their coins.
To hard-core believers in cryptocurrency, HODL is more than a strategy to prevent losing money. They believe that cryptocurrency would eventually replace fiat currency, they see the current fiat-cryptocurrency exchange as irrelevant.
Rekt is a slang word that means ‘wrecked”. In the crypto community, it refers to a person who experiences a heavy financial loss due to wrong investment or trade. It could also refer to a digital asset that loses value. However, Rekt assets can bounce back.
Halving refers to cutting in half the reward for mining a cryptocurrency. This cuts in half the number of new coins created and coins available for supply.
Halving leads to high demands (as a result of low supply) which push the price higher.
ICO stands for initial coin offering. It is a form of crowdfunding a cryptocurrency venture which involves selling cryptocurrency in form of tokens to investors for the exchange of a more established cryptocurrency.
Unlike initial public offering (IPO), investors do not get ownership shares in the venture they are staking money to.
ICO is considered a huge risk, if the cryptocurrency does not rise in value, the investor loses all their money.
28). Market Cap
Market cap is the short form of Market Capitalization. It is the collective value of all coins or tokens of a cryptocurrency that are currently in circulation. The higher the market cap, the more dominant it is considered in the market.
The market cap of a cryptocurrency is calculated by multiplying the current price of that currency by the circulating supply of its token.
For example, if the current value of Bitcoin is $45,000 and there are 18,000 BTC in circulation, the market cap is $45,000 × 18,000 which equals 810,000,000.
A cryptocurrency wallet is a device that stores the private key and public key for a cryptocurrency transaction.
Crypto wallets can be in the form of hardware wallets like Ledger, mobile apps like Coinbase wallet, desktop wallets like Exodus, web wallets, or paper wallets.
Unlike physical wallets that store actual currencies, a crypto wallet does not store cryptocurrencies. A crypto investor’s holdings live in the blockchain and can only be accessed through a private key.
Losing your private key equals losing ownership of your cryptocurrencies. A crypto wallet helps to store these private keys.
A coin is a cryptocurrency that is built on its native or independent blockchain network. Examples are Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), and Litecoin (LTC).
These coins serve the same purpose as physical coins, they can be used as means of payment.
A token is a cryptocurrency that is built on another blockchain system. They do not have an independent blockchain system. Examples are Tether (USDT), and USDCoin (USDC).
NFT stands for non-fungible tokens. They are built on blockchains following cryptocurrencies programming but they cannot be exchanged for (or equal to) one another. NFT is used to represent arts, music, books, etc.
A cryptocurrency exchange is a digital marketplace where investors can trace cryptocurrencies for other digital assets or fiat money. Examples of crypto exchanges are Binance and Coinbase.
Rugpull is a situation where crypto developers abandon a project, scamming investors of their money.
Rugpull is common in decentralized finance (DeFi) especially decentralized exchanges (DEXs) where users can list a token for free without audit.
To avoid rugpull, it is wise to invest in established coins (like Bitcoin and Ether) and tokens that are trusted.
Since crypto investors are looking for safe ways to maximize profit on decentralized finance, PrimeXBT and Convesting are teaming up to offer ‘Convesting Yield Accounts’ that aims at reducing the risk of DeFi protocols.
With Convesting Yield Account, crypto users can lock up idle tokens within a secure PrimeXBT wallet and earn through the DeFi protocol without the need to connect to an untrusted interface.
EIP stands for Ethereum Improvement Proposal.
One of Ethereum’s major upgrades was EIP 1559 which was released on the 5th of August to help improve the way Ethereum’s network fees work.
Instead of users bidding for how much they are willing to pay to get their transaction picked up by a miner, the EIP 1559 upgrade lets an automated bidding system handle the process. The bidding system had a set fee amount that fluctuates in response to how congested the market is.
The EIP 1559 upgrade also aims at decreasing the number of either in circulation thereby boosting its price. There are several other EIP upgrades on the way before ETH 2.0 release, you can check them out on the Ethereum’s website
36). 51% attack
A 51% attack represents an invasion on a blockchain where more than half of the computing power is concentrated on a group of miners or an individual miner.
Which could result in the miner having almost full control over this blockchain. This could allow the miner to stop payments between some or all users or double-spend coins.
37). ERC-20 and BEP-20
ERC-20 is a technical standard used to issue tokens on the Ethereum blockchain. It is a set of rules that guides developers on what to do to get a token to function properly on the Ethereum blockchain.
BEP-20 is a technical standard on Binance smart chain that extends ERC-20. It is a blueprint that describes how tokens can be spent, who can spend them, and rules for their usage.
DYOR stands for ‘Do Your Own Research’.
This term first became popular between 2016-2018 when a wave of ICO projects crossed cryptocurrencies platforms. Many investors were duped by scams entering the market at that time as get-rich-quick crowdfunding schemes.
DYOR advises investors to investigate a coin or token before committing money to it.
DYOR is also a disclaimer used by crypto enthusiasts when they post about projects or analyses on social media.
FOMO stands for ‘Fear Of Missing Out’. This is the feeling of anxiety that you are missing out on a potentially profitable investment.
FOMO is prevalent when there is a sudden rise in the price of a cryptocurrency over a short period.
FOMO is also a marketing strategy used by crypto developers to entice investors to buy a coin or token.
To avoid losing money due to FOMO, it is wise to invest only after proper investigation. Create rules for investing/trading and set limits for allowable profit and loss.
DCA means ‘Dollar Cost Averaging’. It means investing a total sum of money in small increments over a short period of time.
For instance, if an investor wants to invest $1,000 in cryptocurrencies, instead of investing all at once, they buy in small installments over a length of time.
When dollar-cost averaging, the investor buys when the crypto asset drops and others are selling off.
This gives the investor the advantage of buying low and selling high.
41). Airdrop – a way for projects to distribute coins to holders of certain coins
42). AML – anti money laundering
43). APE – invest in something without doing you’re own research
44). ATH – all-time high
45). Bags – what you’re holding (your investments)
46). btd/btfd – buy the f***ing dip, buy when the market is red
47). bpd – bitcoin pizza day, big pay day
48). Capitulate – sell your coin holding
49). CBDC – central bank digital currency
50). CEX – centralized exchange (e.g. coinbase)
51). DAO – decentralized autonomous organization
52). Defi – decentralized finance
53) . degen – degenerate as in a degenerate gambler
54). Diamond hands – not going to sell
55). DEX – decentralized exchange (e.g. 1inch)
56). fud – fear, uncertainty, and doubt
57). hodl – a misspelling of “hold” or “hold on for dear life”
58). hold – don’t sell
59). kyc – know your customer
60). lp – liquidity provider
61). moon – when coins drastically rise in price
62). nft – non-fungible token
63). ngmi – not gonna make it. This term is used to stress the point that a crypto investor could miss a huge profit.
64). nyknyc – not your keys, not your coins
65). paper hands – someone who sells easily
66). poh – proof of history, to measure time before consensus used by solana
67). pos – proof of stake, a consensus mechanism used by ethereum 2.0
68). pow – proof of work, a consensus mechanism used by bitcoin
69). pump and dump – artificially inflate the price of an asset and sell high
70). satoshi – the pseudonymous founder of bitcoin and 0.00000001 btc
71). shill – to peddle a coin
72). shitcoin – a useless coin or a coin with poor fundamentals
73). tor – the onion router, a browser used to access the “dark web”
74). tps – transactions per second
75). wagmi – we’re all gonna make it
76). whale – an investor with a large amount of crypto
77). when lambo – when will you have enough money to buy a lambo
78). xbt – an alternative abbreviation for bitcoin (btc)
Knowing these terms will help you through your crypto investment education journey. Good luck.
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Emmanuella Elenbalu is the Content Manager at Coinsem. She is passionate about cryptocurrency, investment, and learning new things.
Very useful information. Thanks for sharing
Thanks, Krystal. I’m glad you found it useful.
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