The world of cryptocurrencies can be overwhelming at times due to the volatility and rapid progress inherent in relatively new markets.
When working towards a complete understanding of the cryptocurrency landscape, a good first step is to learn the common cryptocurrency terms.
We have put together a helpful glossary of the most common and important crypto terms and their definitions. While some of the terms on the list might be familiar to you, others may be completely new.
Hopefully this glossary will help you gain a clearer insight into the crypto world and make you feel comfortable with this new and growing technology.
ASIC stands for application-specific integrated circuit. An ASIC miner is a machine that is customized for a particular use, which in this case is mining cryptocurrencies.
This is a subunit of a Bitcoin. One Bitcoin accounts for one million bits. The ability to break a Bitcoin into bits allows Bitcoin traders to buy and sell less than one Bitcoin.
When written with a capital “B,” this term represents the fundamental concept of Bitcoin that includes the software, technology, protocol and community associated with the cryptocurrency.
When there is no capital B, this term represents a specific unit of the cryptocurrency.
A block represents a part of the blockchain. It records and confirms the waiting transactions on the network of a particular cryptocurrency. On average, a new block including transactions is formed every 10 minutes. As soon as a new block is created through the mining process, it is appended to the blockchain.
Block height represents the number of blocks that are mined following the first block on the chain.
When miners are in the process of mining new coins, they claim a reward for each block they mine successfully. This block reward comes in the form of new coins that are credited to the miners.
The blockchain is a public record of all transactions that have occurred using a particular cryptocurrency. Every transaction since the inception of the currency is recorded in chronological order on the blockchain.
These terms are commonly used to describe the perceptions of analysts and traders regarding the possible future price movements of the cryptocurrency in question, based on technical indicators.
If a movement is described as “bullish,” it means the price is likely to increase, while a “bearish” movement drags the price lower.
If a system is centralized, it is under the control of one or a few parties.
This is a security measure taken by some cryptocurrency traders. The private keys of their coins are kept disconnected from the online world using either a USB storage device, a hardware wallet or a physical document of the keys.
Whenever a crypto transaction occurs, the blockchain has to confirm the validity of the transaction. When the validity is confirmed, the transaction is unlikely to be reversed because the network has already processed it. When the transactions are included in a block, they receive a confirmation for each subsequent block.
This is a process used by groups of peers in order to reach consensus on the contents of the blockchain. This confirms the validity of the transactions that have occurred on the blockchain.
This refers to an entity or individual that has limited control over a crypto wallet, in addition to the owner of the wallet.
A digital currency that uses cryptographic techniques to regulate the generation of the currency, to verify transactions and provide security for users of the coin. Bitcoin is the world’s first cryptocurrency.
This is the computer science concept that forms the backbone of all cryptocurrencies. It is the most general term that includes most other concepts that exist in the crypto world.
One of the most important features of most cryptocurrencies is that they are decentralized. This means that no single entity governs the network, unlike the centralized systems described above.
Bitcoin has an open network where all participants communicate directly and their funds are not handled by a third party, eliminating the need for banks or other middlemen.
Within the context of Bitcoin mining, this is a metric that refers to how hard the block verification process is in a specific Bitcoin network.
This term describes a situation in which a fraudulent user aims to send their Bitcoins to different recipients simultaneously. In this case, the consensus process will be used to determine which transaction will be considered valid and will be added to the blockchain.
This term describes the process of encoding information in a way that only authorized parties will be able to access it. Cryptocurrency networks use encryption to protect wallets from unauthorized entries.
A faucet is a website or service that pays users in cryptocurrencies, most commonly “Satoshis,” if they complete certain tasks or play a game for a particular amount of time.
This is a currency that does not inherently have value but is given a value by a government or other ruling body. In other words, a fiat currency is a centralized and regulated currency used to facilitate transactions in and by a nation. Common examples are dollars, euros and pounds.
This is the term used to describe a program or computer that fully validates the entirety of the blockchain of a particular cryptocurrency. Full nodes are often operated by volunteers who donate their spare computing power and bandwidth to help with the consensus process, allowing their chosen cryptocurrency to grow.
As its name may suggest, halving is a 50 percent reduction in block reward that occurs once a particular number of blocks have been mined. In the case of Bitcoin, halving takes place every 210,000 blocks.
This is a physical type of crypto wallet that stores the user’s private keys.
This is the unit of measurement for the processing power of a cryptocurrency network. For security purposes, these networks need to rapidly complete complex mathematical operations. For example, if a network reaches a rate of 10 Gigahashes per second, more commonly written as 10 GH/s, it means that the network has the ability to make 10 billion calculations in one second.
Contrary to a cold wallet or a wallet in cold storage, a hot wallet is a wallet on a device that is connected to the internet. They are generally installed on the user’s computer or smartphone.
An initial coin offering or ICO is a new type of decentralized crowdfunding that uses cryptocurrencies. In an ICO, the public can make their first purchase of the new token or cryptocurrency that is being launched. An ICO is analogous to an initial public offering or IPO in the traditional stock trading world.
For more information on this topic, check out our comprehensive guide to ICOs.
M of N
For a multi-signature crypto transaction to take place, M number of cosigners must give their signature out of a total of N cosigners. A common M of N is “2 of 3” which means that out of three total cosigners, two must provide signatures in order for the transaction to be valid.
Mining represents the process in which a computer’s hardware is used to complete complex mathematical calculations to confirm the transactions made using a given cryptocurrency network and to increase its security.
Cryptocurrency miners are people who use their computer for mining. In exchange, they are rewarded with an amount of coins based on their level of contribution.
This is an abbreviation of multi-signature, which refers to a type of crypto transaction that requires signatures from multiple parties before a transaction can be executed.
The participants in the crypto networks are called nodes. All of the nodes in one network share a copy of the blockchain of their chosen cryptocurrency and relay new transactions to other nodes for verification.
P2P is an abbreviation for peer-to-peer or person-to-person and refers to a system that allows direct interaction among participants.
This is a mechanism for storing Bitcoins offline. The process of creating a Bitcoin paper wallet includes printing Bitcoin addresses and their private keys on paper. This is considered one of the most secure ways of storing your cryptocurrencies.
Proof-of-Work and Proof-of-Stake are the two main algorithms used to achieve consensus on a distributed network. Crucial differences exist between the two mechanisms, but both help to establish consensus, which is one of the most important features of every blockchain.
To learn more, check out our guide to PoW/PoS systems.
Private keys are secret, alphanumeric passwords that prove ownership of a cryptocurrency. If you use a software wallet, your private keys are stored on your computer. If you use a web-based wallet, then your private keys are stored on remote servers. These keys can also be stored in hardware or paper wallets.
This is a specific set of rules that are applied when the participants of a crypto network communicate. The protocol specifies every aspect of a cryptocurrency network, including the number of coins that must exist at any given time, and the ways the nodes connect and communicate with each other. Every member of a network must follow the protocol.
Public Key/Wallet Address
A public key or wallet address is similar to an email address or a physical address. These are typically alphanumeric addresses that are derived from private keys. They are used to receive coins from other users.
Pump and Dump
This common cryptocurrency scheme involves increasing the price of a cryptocurrency using misleading statements that create the illusion of value or possibility of personal gain resulting from an investment in the cryptocurrency.
People employing this practice make disingenuous claims about a cryptocurrency, often low-priced currencies, in order to get others to invest, driving the price higher. This is the pump phase of the scheme. When the price reaches a satisfactory level, they sell (or dump) their coins, causing the price to drop dramatically.
Similar to the barcodes on everyday products, a QR Code is a pattern that can be scanned to make a direct connection to a particular cryptocurrency address.
Replace-by-fee or RBF is a method that gives a cryptocurrency sender the opportunity to replace an unconfirmed transaction with a new one that has a higher fee. The higher fee is the result of the sender being charged a fee for the original transaction as well as the fee for the replacement transaction.
This is done to stop users who are producing multiple transactions from only paying a single fee. It also prevents any entity from overloading the network and causing a denial of service for other users.
Recovery Phrase/Seed Keyword
This is generally a combination of 12, 18 or 24 random words that are used to acquire multiple pairs of public and private keys. These phrases are used to recover cryptocurrency wallets.
SHA stands for Secure Hash Algorithm, while 256 is a type of hash function. SHA-256 is commonly used in blockchain for securing transactions in the mining process.
A Satoshi is the smallest unit of Bitcoin. Named after the creator of Bitcoin, Satoshi Nakamoto, .00000001 bitcoin equals one Satoshi.
This is a cryptographic mathematical mechanism that gives a user the ability to spend their coins.
This term refers to a change in the protocol of the software where previously valid transactions or blocks are made invalid. A soft fork is backwards-compatible since the old nodes will recognize the new blocks or transactions as valid.
This is an alphanumeric string that allows a user to see the details of a transfer publicly. Such details include the amount of cryptocurrency sent, the sending and receiving addresses, and the date on which the transfer occurred.
A wallet is a piece of software or hardware used to store the private keys for your coins. Just like a physical wallet, a crypto wallet contains the balance of your coins and lets you pay a specific amount of currency to a particular person.
A whale is a person or entity that holds a large amount of a specific cryptocurrency. They have the ability to manipulate the market of their chosen cryptocurrency due to the sheer volume of currency they possess.
A whitepaper is a report written by the founders of a specific project that highlights a problem and details the solution they have devised to rectify it. These are very common in the tech industry, especially among crypto/blockchain startups.