Ever since the introduction of Bitcoin in the market, the popularity of cryptocurrency has increased a lot. No doubt there were a lot of ups and downs during this journey from 2009 when Bitcoin was introduced to the market till date when Bitcoin is pricing at more than $50,000. This huge increase in price and profit earned by many traders has helped the crypto market to grow at a very rapid pace. If we go back in history, there were many traders who were not interested in trading cryptocurrencies as they thought that it is just a waste of money and has no future. The world has seen now how potent and big this market is, and that is the reason why most of the traders are investing their capital in this market.
No matter how popular this market of crypto trading has gotten, still, it is in the developing stage. If we talk about crypto trading, there are many traders who are joining this market on a daily basis. Thousands of traders are getting into this market every day, and that shows how big this market is going to be in the near future. But there are still some people who are not interested in investing their capital in cryptocurrency. The main reason for that is because they think that this market is extremely confusing and it is only a game for the experienced ones. A lot of confusing terms often frighten the traders.
As cryptocurrency is a digital currency, that means it has a lot to do with computers and technology. And most of the traders are not much aware of the technology. Rather, they only understand trading. But this article is going to help many new traders out. In this article, we are going to go through the terms that you have often heard from a crypto trader. And see, are they actually that confusing, or is it just a lack of education?
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Many experienced traders have been through the learning phase. If you are wondering that those people who are trading cryptocurrencies are superhumans, then it is not true at all. All of the traders who are trading cryptocurrencies are average humans and have just invested their time and energy in order to achieve those high goals. So if you are interested in achieving your goals, this is the right market for you to start from.
In order to make it easier for you to understand, I have done the research about the most asked terms and tried to explain them to you guys in the simplest yet elaborative way possible. All the technological parts have been cut out in this explanation, and everything is kept as simple as possible so that you can understand it better and easier. With all of that being said, let us jump into the list of important terms related to cryptocurrency asked by many beginners.
List Of Key Terms Related To Cryptocurrency
1. Crypto Broker
If you have heard about crypto trading, then most probably you must have heard about crypto brokers as well. But as a new trader, you won’t know much about what it is. Crypto broker is a firm that provides you with a platform where you can buy and sell cryptocurrencies. For example, if a trader is interested in buying or selling any crypto coin, he can buy or sell that coin through a crypto broker because it provides you with all the tools that you need in trading. Other than that, these brokers also provide you with the necessary help that you would need during your experience and help you improve your profits. Crypto brokers don’t only help experienced traders, but the main focus of professional brokers is to help new traders who don’t have much knowledge about crypto trading. It is a must for every trader to be affiliated with any type of platform that helps traders to connect with the crypto market. And brokers are no doubt the best way to do that.
If we talk about the names of the most popular brokerage firms, then there are some names like eToro, Coinbase, and many more as well.
2. Crypto Exchange
As we have discussed crypto brokers, crypto exchange is somehow similar to crypto brokers. But many traders often confuse these two terms and mix them with each other. Crypto exchange is a platform that allows traders to exchange one cryptocurrency with another. For example, if you own one Bitcoin, you can exchange that Bitcoin with any other cryptocurrency that you want. Unlike crypto brokers, crypto exchanges are more suitable for advanced traders or experienced traders.
3. Crypto Mining
You must have heard of the term crypto mining. If you are confused about what this is, then you have come to the right place. If we look at the word, it tells it pretty much everything about what it means. Just like every other mining, whether it is gold mining where miners dig holes in the mountains to extract gold, it is pretty much similar to crypto mining as well. But because cryptocurrencies are digital currencies, so it doesn’t require actually dig a hole. Rather what miners do is need extremely powerful computers to mine a specific cryptocurrency which will then be added to the blockchain. And in return, these miners get tokens as a reward for mining a cryptocurrency. Crypto Mining can be done from any part of the world, but it is not that easy to start crypto mining.
Many experienced traders use this method of earning profits. Arbitrage referred to the act of taking advantage of the price differences of two exchanges. Let me explain it through an example if you are interested in buying a crypto coin and you reach out to an exchange “A” where it is listed for $5000, but that same crypto coin is listed for $6000 on another exchange “B”. So as a trader, what you will do is buy it from the exchange “A” and sell it on the profit of $1000 to the exchange “B”. This whole process of earning profit is known as Arbitrage.
ATH is abbreviated as “All-Time-High”. I will try to explain it through an example of Bitcoin. From the day Bitcoin was introduced to the market, there have been many fluctuations in the price of Bitcoin. But the highest price that has been recorded of a cryptocurrency is known as ATH or All-Time-High. As we are talking about the most popular cryptocurrency, Bitcoin, it has the ATH of $64,941, which was dated 14-04-2021. But the current price of Bitcoin, which is $57,912, is much lower than the ATH. So this tells us that ATH can be different from the current price of a cryptocurrency, but as soon as the ATH goes up, it shakes the whole crypto market and attracts many traders towards it.
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If you have heard about cryptocurrency, then it is a must that you must have heard about the term Blockchain or blockchain technology. This technology is a technology on which the whole concept of cryptocurrencies is based. Blockchain technology is a technology in which blocks are validated and then added to the already existing blockchains. These blocks include the information of all the transactions that have taken place, and hence this system is not stored in only one place, so it is impossible for the hackers, intruders to hack or alter any of the information of a cryptocurrency. If we talk about Bitcoin, then from the day it was introduced, each and every transaction has been recorded and then made a part of blockchain technology by validating blocks to the chain.
FOMO is abbreviated as “Fear Of Missing Out”. This term can be used in everyday life as well if one is going through the fear of staying behind or missing out on something. But if this term is used in the crypto world, then it has a particular meaning. In the crypto market, FOMO means, Fear of Missing out on a good investment opportunity. If some traders are investing their capital in a particular asset, then other traders get tensed that maybe they are not seeing what others are seeing. Hence they often make decisions based on emotions and fear and neglect the logic of trading. FOMO is often also used to manipulate traders, some traders create a hype of an asset, and as a result, everyone starts to invest in that particular asset.
This is the next term which is often confused with the word “Hold”, but it is actually abbreviated as “HODL”, which means “Hold For Dear Life”. As we have discussed earlier that cryptocurrencies do face ups and downs, so that doesn’t mean a trader should sell his currencies if he is seeing that particular currency going down. Let us take the example of Bitcoin. When it was first introduced in 2009, it was not that expensive and was sold in pennies and even free to the people. But then the prices of Bitcoin increased, and now after almost 21 years, its price is more than $50,000. Imagine the traders who have bought hundreds of thousands of Bitcoins at that time with the minimum investment are now billionaires. This whole concept has been described in the abbreviation of HODL, which means to buy and hold the currency for a longer period of time.
At number nine, we have a term known as altcoins. This term is often referred to as cryptocurrencies other than Bitcoin. Back in 2009, there was only one cryptocurrency known as Bitcoin, and that is the pioneer of all of the other cryptocurrencies. This currency introduced the concept of crypto trading to the world of traders, and hence it is one of the most popular and expensive currencies. But now that is not the case anymore. There are thousands of other cryptocurrencies developed as well, which can be traded just like cryptocurrencies. So in order to distinguish those currencies from the original one, which is Bitcoin, traders use the term “Altcoin” to refer to those cryptocurrencies.
Many unfamiliar traders often confuse this term and think that this is the name of another cryptocurrency, but that is not the case. It is a comprehensive term used for all other cryptocurrencies, which included Ethereum, DASH, Ripple and thousands of others as well.
10. KYC Policy
If you sign up with a platform, whether it is an exchange or a broker, then there you will probably find KYC policy written under the section of privacy policies. What is this KYC policy, and why is it important for every regulated platform to adopt it? The answer to this question is that KYC policy is the abbreviation of “Know Your Customer” Policy which means that every trader who is signing up with a platform must provide some type of proof for his identity and residence. These proofs can be obtained by providing different documents like national identity card, utility bills, credit card bill, etc. so now to answer the question of why is it important for every platform to adopt this policy, it is because, in the world of crypto trading, there are many scammers which are working to scam young traders. To avoid the entry of such scammers into the platform, policies like KYC are introduced by many financial regulatory authorities, which will not allow scammers to sign up with a platform as it will require legal documents, which we are pretty sure that scammers will never reveal.
POA is the abbreviation of “Proof-Of-Authority”. These “proof of” terms refer to blockchain technology which we have discussed earlier. In the blockchain, the block of information and data needs to get validated and then added to the already existing blockchains. In POA or Proof of Authority, there are a couple of miners who are made responsible and given authority to validate the next block. This mechanism was not much appreciated by the miners because it disrupted the whole purpose of cryptocurrencies being decentralized and make it slightly centralized with authority.
POW is an abbreviation of “Proof-Of-Work”, and this is another term related to the blockchain technology and validation of the blocks. This mechanism is one of the oldest mechanisms to validate the next blockchain but requires a lot of energy and resources. Let me explain it to you in simpler words. Under this mechanism, miners are required to solve extremely complex mathematical equations which will prove that they have done the work, and after that work have been proven, they will get the reward out of it. It sounds quite simple to allow computers to solve mathematical equations, but it is not as simple as that. It requires supercomputers to solve those mathematical equations, and only then you would be able to validate the next block and earn a reward. This means that miners with less or minimum resources can’t validate the next block.
POS is an abbreviation of “Proof-Of-Stake”, which refers to blockchain technology and is the latest mechanism to validate the next block to the blockchain. Under this mechanism, traders are required to stake coins in order to validate the next block, which means the more coins a trader or miner is holding, the more chances are that he will validate the next block to the blockchain. This mechanism doesn’t require super fancy computers or resources but a lot of investment in cryptocurrencies.
14. Crypto Wallets
Everybody knows what a wallet is, right? It is a thing in which you store your money and cards etc., but that is the case of real-life and real money. How can you use those wallets to store a currency which is digital or, in other words, not even in hard form? So the answer is no, you can’t store cryptocurrencies in your everyday wallet, but you can store them in the special wallets which contain seeds, addresses and keys to store your crypto coins safely.
If we talk about the types of wallets, then there are two types of wallets often used. The first is a software-based or hot wallet, and the second one is a hardware-based or cold wallet. A hot wallet is a wallet that is usual software for your mobile phone or computer where you can store your crypto coins. This wallet is very convenient but risky at the same time. If we talk about cold wallets, then these are the wallets that are offline wallets and require you to store all of your crypto coins in a piece of hardware, yes, just like a USB or any hard drive because these cold wallets are not connected to the internet, so they are much secured but less convenient at the same time than hot wallets.
If you are new to the trading world, then it is normal that you won’t be aware of a lot of the terms which are used by experienced traders. But after reading this article, I hope that you would have gotten an idea of some of the basic terms used in cryptocurrencies and that these terms only look confusing, but in actual they are really easy to understand.