You have to learn fast to keep up with the crypto market. Between the constant innovation and developments and over 10,000 crypto coins created so far, the fast-changing market can make any seasoned crypto enthusiast’s head spin — but more so for anyone new to crypto.
Abra is here to help you understand crypto and make it a bit less overwhelming. Here’s your crypto glossary that gives basic definitions for the new technology, acronyms, and projects dominating the space right now.
After reading this article, you’ll hopefully have a better understanding of the crypto world.
DeFi — short for decentralized finance — is an emerging technology based on secure distributed ledgers similar to cryptocurrencies. The system removes banks’ and institutions’ control over money, financial products, and services.
Since DeFi removes third parties in financial transactions, anyone can use financial services anywhere, regardless of who or where. Check out our post that explains DeFi.
CeFi stands for centralized finance. In the context of banking, your money is centralized and held by banks or corporations. In a CeFi system, third parties facilitate money movement between parties, and each one charges fees for using their services.
In the context of crypto, trade orders occur in a central exchange. You don’t own a private key that provides access to your wallet.
NFT is an acronym for Non-fungible Token. NFTs are digital collectibles, and the concept behind these tokes is to introduce rights, ownership, and uniqueness into a digital token you own.
To understand what non-fungible means, let’s use the example of concert tickets. You have a front-row ticket, while your friend has a ticket in the nose-bleed seats.
They are both tickets, but they do not have the same value. So, if you trade them, you are trading something with lesser value for something with more value, and you no longer have the right to sit on the front row. They’re non-fungible.
Conversely, if the tickets were of the same value and both in the front row, they are fungible.
Check out the Money Talks episode about NFTs here to learn more.
Bitcoin or BTC
BTC is the abbreviation for Bitcoin, and it was one of the first cryptocurrencies ever created.
You can send Bitcoin to anyone, anywhere, with low fees, fast, and without third-party interference.
It’s the most valuable cryptocurrency, and it’s held as a speculative asset — meaning that some people have it in the hopes price will rise in the future — more so than a form of payment.
Blockchain is a digital ledger of information maintained by a network of independent computers. The computers are decentralized, produce a history of transactions that are impossible to manipulate, and are completely transparent.
Blockchain technology provides decentralization, immutability, and transparency. The technology powers cryptocurrency, and many banks and payment systems use it to streamline or quickly send cross-border payments.
Proof of Work
Proof of Work (PoW) is a blockchain consensus mechanism requiring large amounts of computing power to solve complex mathematical problems and validate crypto transactions.
Bitcoin has the highest market cap of any PoW cryptocurrency. Dogecoin (DOGE) and Litecoin (LTC) are examples of other cryptocurrencies that use Proof of Work.
Proof of Stake
Proof of Stake (PoS) is a blockchain consensus mechanism that allows users to stake (deposit) funds and verify crypto transactions.
Cardano (ADA), Solana (SOL), and Avalanche (AVAX) are examples of cryptocurrencies that currently use Proof of Stake.
Ethereum (ETH) is in the process of a multi-year migration from PoW to PoS, known as Ethereum 2.0. Once this transition is complete, ETH will be the highest-ranking cryptocurrency by market cap that uses Proof of Stake.
Altcoins — alternative coins — are cryptocurrencies other than Bitcoin (BTC). While they share some characteristics with Bitcoin, altcoins may differ in their consensus mechanism to produce blocks or validate transactions.
Many new altcoins provide new capabilities or additional features (such as smart contracts or low price volatility) that continue to revolutionize the crypto world.
Stablecoins are cryptocurrencies that don’t suffer volatility or drastic price swings. Stablecoins use various methods to maintain their price constant. There are several types of Stablecoins, but the most common is the Fiat-backed or pegged to a fiat currency with the largest market cap.
Due to the lack of volatility, stablecoins don’t see all-time highs. There might be some price fluctuations — due to the volatility of the crypto market, but the purpose of stablecoins is to maintain a stable price.
Rather than being held for increasing value, stablecoins are usually used for the utility of sending money, as savings, or generating interest by lending them on public platforms.
The utility of governance coins (or tokens) is to provide voting rights for holders and is used to shape decisions about proposed changes in operation and technical implementation.
Governance tokens place decision-making power in a collective group of people rather than having decisions made by a central authority,
The most popular meme coins currently are Dogecoin (DOGE), Shiba Inu (SHIB), and Dogelon Mars (ELON).
Utility tokens give users a real-world ability to solve problems. This functionality is known as “utility,” and it separates useful tokens from meme coins (which trade on their Internet popularity).
Useful tokens rise in price because of the great demand for their computational solutions. Additionally, utility tokens give certain rights (like discounts and voting) within a project or community.
Three of the most popular utility tokens are Polygon (MATIC), Chainlink (LINK), and Uniswap (UNI).
Market orders, buy or sell orders, you place immediately. The trade is executed almost instantly, be it buying or selling.
The most significant advantage of market orders is that the trade usually gets processed right away. But since the cryptocurrency market is so fast and unpredictable, you could have an issue with slippage.
Slippage — the difference between the expected and actual prices — can happen when your market order isn’t executed immediately.
Limit orders are buy or sell orders you place on a specific cryptocurrency. For example, if a cryptocurrency is trading at $13.00, you can place a buy or sell order when the price hits $10.00.
The most significant advantage of this method is that you don’t have to watch the market all day. You can just set your order and wait. Once the price hits your target, the trade will automatically execute.
The biggest drawback is that the trade won’t go through if the price target isn’t met. In the example above, the price goes down to $10.01. Then, it goes back up without reaching the $10.00 limit order threshold. In this case, the limit order wouldn’t execute, and the trader missed an opportunity to complete a trade.
In short, an ERC-20 token is a specific type of smart contract that is created on the Ethereum blockchain. ERC stands for “Ethereum request for comment.” ERC-20 was first proposed by the Ethereum community in 2015 and officially recognized in September 2017.
ERC-20 tokens were the first token standard that made it easy for anyone to create their own cryptocurrency with minimal coding knowledge. Although most ERC-20 crypto projects haven’t been able to gain noteworthy adoption, several have become well-known over the years. Several ERC-20 token projects have surpassed $1 billion in market caps today.
Web 3.0 or Web3 is the third iteration of the world wide web. It’s a decentralized internet that allows users to control their own data and manage their digital identity. Ethereum Co-Founder Gavin Wood introduced the term in 2014. Web3 is owned and operated by its users. It employs technologies such as blockchain, cryptocurrency, and NFTs to empower its users.
The easiest way to think of the metaverse is as an immersive experience. In this digital universe, people can interact with each other and with computer-generated objects in a realistic way. It’s like a massive multiplayer online game (MMORPG), where you actually feel like you’re living inside of it instead of just playing it. The metaverse is not meant to replace real life and could be seen as a natural extension of the internet where people can meet, interact and do business without ever having to leave their homes. The term metaverse was coined by Neal Stephenson in his science fiction novel “Snow Crash” and has been gaining popularity in recent years as video game worlds, like in the film “Ready Player One”, and virtual environments have become more realistic and lifelike.
A degen is a slang term used in the crypto community to refer to someone who makes risky or irrational investments in cryptocurrency. For example, someone might be considered a degen if they invest heavily in altcoins with no solid fundamentals, buy coins without doing research, or sell their entire position after a slight dip in price.
Paper hands is a term used in the cryptocurrency community to describe investors who are quick to sell their positions at the first sign of price fluctuations. This generally happens when an investor sees that their position is not performing as well as expected, and they take a loss in order to prevent further losses. Sometimes, paper hands investors will also sell their shares after a slight rebound in order to cash out on their investment.
The phrase “diamond hands” describes someone who is HODLing their cryptocurrencies through thick and thin. Since diamond hands has become shorthand for anyone who is committed to holding onto their investments for the long haul, regardless of market conditions, this attitude is exemplified by people buying more crypto when prices are decreasing.
More Definitions to Come
Crypto might seem too much to wrap your mind around to a new user. Here at Abra, you’ll always have what you need to learn something new about the crypto world.
Download the Abra app, follow us on Twitter and YouTube, and keep an eye out for our blog. Get one step closer to conquering crypto with Abra!Download App
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