Crypto Slang exposed
Since Bitcoin and blockchain became the words on everyone’s lips, all kinds of technical terms have been plaguing the media like a swarm of frightened pigeons. There is rarely a fair or conference organized today that doesn’t feature these technical crypto terms. “We’re studying how we can use the blockchain in our companies,” we hear from companies in almost every industry. Then right at the next table, it says: “We are planning an ICO based on an ERC20 token.”
The professionals are astonished; the laymen look on in wonder. The end of the fiat currencies is always mentioned. I always thought that a FIAT was something you can drive, an Italian car. However, FOMO and FUD are everywhere. No one knows exactly what they mean, but everyone is curious.
Now it’s time to detangle these terms, er, sorry, tangles are uses by the IOTA blockchain. Of course I meant: time to unravel these terms. Clear English, simple words so everyone understands. Of course, arranged alphabetically. After all, how do you need consensus or not? So, let’s go:
ALTCOIN: This is an alternative cryptocurrency that inevitably arose out of Bitcoin and is often based on the Bitcoin software. Many of today’s cryptocurrencies are clones of Bitcoin, which are called “fork” in the art. Litecoin is a prominent example of this, and many others were subsequently developed and then “forked” again to create more new altcoins.
ATH: Stands for “all-time high” and refers to an all-time high in the purchase price of a coin. It is always celebrated when a new ATH is achieved as new maximum value is reached. There is always a particularly great celebratory mood when an ATH is replaced quickly with yet another ATH. However, when this happens, as was the case with Bitcoin in December 2017, the rational investor can be certain that a collapse is coming soon—and so the mood is dampened.
BITCOIN: The mother of all cryptocurrencies was theoretically presented in a technical paper (white paper) in November 2008 by the anonymous Satoshi Nakamoto. It subsequently appeared as a software solution in January of 2009. Today, Bitcoin is the leading cryptocurrency and the foundation of the entire cryptocurrency market. Bitcoin invented blockchain technology and this protects the Bitcoin network against manipulation. Bitcoin is completely independent of any governments or companies. Unlike other centralized systems in modern daily use, such as Facebook, Amazon, Google, but also systems like registration office data, the DMV, the banks and the central banks, with Bitcoin, no one has any influence on the network and no one can change the system.
BLOCKCHAIN: As the name suggests, this is simply a chain of data blocks concatenated together. The concatenation is done using cryptographic methods. The hash—something like a checksum—of the predecessor block is included in the calculation of the current block. As a result, manipulations in an already existing block from the past are immediately detected because all the hashes are changing across all of the blocks. Because the blockchain is always stored separately on many thousands of computers, these manipulations would have to be done on these many thousands of computers simultaneously, which is not possible. Therefore, a public blockchain is a very safe way to store data.
PUBLIC BLOCKCHAIN: A public blockchain is a software system that anyone can join. Additionally, anyone can operate a network node, which is a software package. The relevant software can be downloaded and put into operation by anyone. This strengthens a public blockchain because no single person or group can gain control over the network nodes. The software itself is public but the data does not have to be stored unencrypted and publicly. This is a distinction that is often confused.
PERMISSIONED / PRIVATE BLOCKCHAIN: In contrast to a public blockchain, such as Bitcoin or Ethereum, the all-important network nodes of a non-public blockchain are operated only by authorized persons or companies. Of course, it is possible that they could collude to manipulate or to change data to their specific benefits. Because of this, you can never truly rely on data from a non-public blockchain, even though it is a blockchain.
BITCOIN ADDRESS: Essentially, this is similar to an account number. This address, which typically consists of 27-35 characters, numbers and letters, is used to transfer and receive Bitcoins. However, any Bitcoins sent to this address can only be used by the person who has the “private key” from which the address was derived. Since this is the only way in the universe to use these Bitcoins, it is so important that the private key is very securely kept. The address itself is generated from the private key belonging to the public key with a double hash function, and it is not—as often claimed—the public key. For this reason, it is also impossible to steal Bitcoins from an address with only knowledge of the Bitcoin address itself.
BULL / BEAR MARKET: Standard terminology in securities trading and on the stock market. The bulls expect a price increase; the bears expect a price decline. Both terms are frequently used to the financial world and have also found their way into the crypto-world.
COLD STORAGE: This is a very important term related to crypto-values that describes the way in which Bitcoins or other crypto-coins are stored. Cold storage means that the coins are not stored online but are separated from the Internet in a suitable storage unit. So, it is enough to simply write the private key—the code that unlocks the values—on a sheet of paper and keep it somewhere safe. Since the values are no longer in a hot storage (not connected directly to the Internet), they are considered to be in cold storage. Users who deal with cryptocurrencies must be familiar with these techniques because only proper handling and security of the private keys will protect against massive losses.
DIFFICULTY: Each blockchain system must ensure that all nodes have the same data. This is achieved by a built-in brake in the system called mining. As the miners become faster and faster, they must be slowed down by a braking effect. To achieve this, the level of difficulty of mining is regularly increased. For Bitcoin, this happens after every 2016 blocks, which translates into about every two weeks. The system determines whether the required computational effort still takes ten minutes to complete. If it gets faster, because new miners join, the difficulty increases to slow them down. If miners leave the network, the difficulty is reduced accordingly. The goal is that a new block is generated every ten minutes, and this new block can then be attached to the existing blockchain.
CRYPTO EXCHANGE: To buy Bitcoins and other cryptocurrencies, it is necessary to find someone to trade their cryptocurrencies for Euros, Dollars, or other fiat currencies or cryptocurrencies. To make this possible, there are companies that operate websites to service respective buyers and sellers, more or less bringing them together in an automated way. The services offered by these exchanges can vary. However, these types of exchanges represent a key risk to a given crypto-system because they can potentially fail or get hacked, causing customers to lose their money. That’s why decentralized exchanges, which are protected against such risks, are being developed at a high rate.
FIAT: The term “fiat” comes from a Latin term related to creation and means “let it be done”. The crypto-world uses this term as a shortcut to differentiate between just fiat currencies, like Dollars, Euros, Yen, etc., and cryptocurrencies. Fiat currencies are those simply created by states or central banks out of nothing. They are created as the economy requires them. They are backed by nothing except the promise of the state that they are worth something. Historically speaking, fiat currencies have never survived. Sooner or later, any extra creation of currency will create an uncontrollable bubble of infaltion, depriving citizens of their savings or even their total purchasing power. The current example is Venezuela, which now has inflation of 18,000%—and still rising sharply.
FOMO: Fear Of Missing Out. In the recent past, this fear drove the Bitcoin price to nearly $20,000. Everyone was afraid that they would miss the opportunity to get onboard with crypto before it really took off. Driven by FOMO, the value of Bitcoin skyrocketed, before the inevitable crash that returned it to normal levels, of course.
FUD: Fear, Uncertainty and Doubt. Most news in the crypto-world is just that: FUD. The boss of JP Morgan says Bitcoin is fraud, leading others to predict the end of the cryptocurrencies. Spreading fear, uncertainty and doubt does nothing except to unsettle and frighten prospects and investors.
FUDSTER: Someone who disseminates the FUD because he or she does not understand it, or because their own business or job is at risk, or, as is probably true in the case of JP Morgan, because he wants to drive down the market to get involved himself.
FORK: This refers to a fork or branch in the source code of a crypto-system. The existing program is taken, copied and used with a few changes as a new program. The famous example of such a fork is Bcash (Bitcoin Cash), which intended to copy the success of Bitcoin. Many forks are legitimate and welcomed because they enrich the crypto-world.
HASH: A hash function is a cryptographic formula that is usually based on an elliptical curve. It makes it possible to calculate any input data in a decided format. This output format is always the same length, regardless of the size and length of the input value. The same input will always result in the same output value. If only a single bit has been changed in the input value, then the output value is completely different. If even a single comma has been moved to send 1.25 instead of 12.5 BTC, the initial hash is fundamentally changed and the manipulation is easily detected.
HALVING: At Bitcoin, the output quantity of Bitcoins is strictly regulated to a total of 21 million Bitcoins. To accomplish that, the Bitcoin algorithm halves the output of new Bitcoins to miners every four years. In the beginning, a miner that successfully calculated a block got a full 50 Bitcoins. Since 2012, there have been only 25 Bitcoins, and since 2016, there have been only 12.5 Bitcoins—halving every four years. In the summer of 2020, that number will be down to only 6.25 Bitcoins, and in 2140, the last ever bitcoin will be minted.
HOT WALLET: This describes the situation in which private keys are stored in an online system, e.g., in a crypto-exchange or an online wallet. However, these private keys are then exposed to very large risks on a regular basis because hackers can obtain many private keys for many Bitcoin addresses at the same time. Thus, they can potentially clear many accounts in a timely manner. If the private keys are not stored online, but are securely saved offline, as they should be, then the hacker would have to crack each customer individually without knowing whether this is worthwhile in individual cases. For this reason, hot wallets are not recommended!
HODL: Initially, this term was just a typo by a frustrated Bitcoin investor who was writing in an online forum that he was abandoned by his girlfriend, lost his job, and was now suffering from the drop in the Bitcoin price. He wrote that it didn’t matter—he would still keep his Bitcoins. Instead of typing the English word “hold”, he tapped in “hodl”. He was probably too drunk, but he tried it again. He typed “hodl” again and that excited the Bitcoin community so much that the term Hodl or Hodler is now a synonym for holding onto Bitcoin, no matter how it is doing in terms of value.
ICO: The famous Initial Coin Offering, also known as an Initial Token Sale. As a rule, an existing system is copied, changed and a new crypto-coin is launched on the market. Since 2017, it also uses a so-called Ethereum ERC20 mechanism. Anyone can generate their own cryptocurrency in minutes and spend their own coins. Whoever can make theirs convincing and clever can sometimes make a lot of money very fast. That could be $35 million in 30 seconds, like the BRAVE Token’s ICO.
CRYPTOCURRENCIES: While digital money has been around for a while now, cryptocurrencies are relatively new. For example, online banking or shopping online is a form of digital money and trade. However, it is not safe. It can fail or be hacked at any time. Any kind of manipulation is conceivable. That is not the case with cryptocurrencies—or at least those that are properly structured—meaning they are neither vulnerable nor open to manipulation. That makes them especially safe and trustworthy. Cryptocurrencies can also be operated anonymously, while digital money is always monitored by the state and secret services. If desired, digital money can also be stopped, and it has been known to happen. State cryptocurrencies do not exist and will not exist, as the value of a cryptocurrency is a result of its independence from states and banks.
MARKET CAP: This abbreviation is not new; it refers to the sum of the value of all outstanding shares of a company. If a stock is worth $1,000 and there are 250,000 shares, then the value of the company on the stock exchange is just $250,000,000. At the moment, about 16 million Bitcoins are minted; thus, the value of the whole market amounts to the daily value times 16 million. You can easily look up the market cap for all crypto-values on the page: coinmarketcap.com
MOONING: A term that refers to the increase in Bitcoin. Many assume that the price will rise to the moon and beyond. “Up to the moon” is the exclamation of people who predict sharply rising prices.
MINING: In every blockchain system, it must be ensured that all the computers (the nodes) involved have the same content in their records. Otherwise, it does not make any sense. For this purpose, one uses so-called “consensus mechanisms”. These ensure that transactions are summarized in a block and then sent to the nodes. This creation of blocks is called mining. Mining can be done through various methods, such as the proof-of-work or proof-of-stake methods and a few other approaches.
MINING REWARD: Miners are usually rewarded for their work by creating new crypto-coins and distributing them to the miner who created the block. This approach does two things: the miner is rewarded, and new coins are also created. At the moment, Bitcoin is distributing 12.5 BTC per correctly found block to the relevant miner. This ensures that no external manipulation is possible and that the new coins are created in the system itself. Hence the term “miners”, who, so to speak, uncover these new coins with each success, just as gold must be extracted from the rocks.
PROOF-OF-WORK: In order to summarize the transaction data and package it in a block, these data are taken from miners and added together using cryptographic methods. As a rule, a kind of checksum—called a hash—is calculated across all transactions. In addition, the hash of the previous block is also included in this hash, so that the blocks are invariably linked together. If you change a transaction in a block that is far behind, all the hash values of the previous blocks are changed. In addition, the miner must also include a freely selected variable, so that the value does not exceed a minimum value specified by the system. This is done by sheer trial and error and must be completed billions of times a second by specialized computers. It uses a lot of electricity, so it is also called Proof of Work.
PROOF-OF-STAKE: This consensus mechanism does not do work like that of proof-of-work (PoW). Instead, in Proof of Stake, packing transactions into blocks is done by “normal” computers using a much simpler method. As a result, the system is generally more susceptible to manipulation, and it is not as secure as the PoW system. To increase security, the miners must deposit a certain amount of their crypto-money so that the community can withdraw it if the miner plays wrong. That is, they “stake” a certain amount and may mine for it. If they get caught doing wrong, then they lose their stake; hence the name, Proof-of-Stake. In addition to the security itself, the fact that one can purchase many more mining stake if they can deposit a larger stake is also often criticized. In practice, this means that the rich get richer through higher mining yields, which violates the basic crypto-philosophy.
PUBLIC KEY: If PKI—Public Key Infrastructure—is used for a system, then there is usually a key pair that match. The public key, the public part of the couple, will be announced publicly. Data can then be checked for authenticity against this public key, and messages or transactions can also be securely exchanged. Without its counterpart, the private key, this public key is essentially useless.
PRIVATE KEY: Every public key has a private key, which you have to guard with your life. Only with this private key can a transaction or message sent to a public key be decrypted. Also, a transaction, for example, can only be executed by the signature of its private key. The person who owns the private key essentially has the master key to the account and can move all valuables or send messages as if they had been sent by the real owners. The private key must never be given out or announced—ever! In online wallets and crypto exchanges, the private key is stored for the user. This is convenient but highly dangerous. You cannot eliminate the risk of a hacker or a bad-tempered employee of the service stealing or abusing the private keys.
PUMP AND DUMP: Pump and dump refers to actions that are used to make a value, whether that’s a share or even cryptocurrencies, through targeted measures to investors, so that the price goes up. If the exchange value has then increased accordingly, then the “pumper” sells their previously hoarded coins and the latecomer, who has bought only in the rising course, falls by the wayside as the course falls again because of the pumper selling their coins. This is quite dramatic and happens quite fast. Of course, the pump and dump is illegal in most jurisdictions around the world, but it’s still a very common method.
ROI: The return on an investment is referred to by the abbreviation ROI. This term does not originate from the crypto-world, but was, like many others, simply taken from the general economic lexicon or stock market jargon.
SATOSHIS: In honour of Satoshi Nakamoto, the inventor of Bitcoin and thus the first blockchain in the world, the smallest arithmetic unit of a bitcoin is called a “Satoshi”. A bitcoin consists of 100 million Satoshis. Thus, it is feasible to charge micro- and even nano-payments in order to, for example, charge an electric car at the traffic lights for 30 seconds for three Satoshis. A Satoshi is equivalent to 1/100 millionth of a bitcoin.
SATOSHI NAKAMOTO: A concept describing the Bitcoin system was published on the Internet as a concept in the fall of 2008. This white paper presented a technical concept, and the Bitcoin system was developed based on this. Nakamoto then put the first software version online in early 2009, which launched this system and further developed this software. At some point in 2010, he did not respond to e-mails and became otherwise unreachable. Nobody knows who Satoshi Nakamoto is, although some have suggested that it is possibly a group of people rather than an individual.
WALLET: Wallets, also known as crypto-wallets, are software applications that allow you to access a blockchain system and see and trigger transactions in Bitcoin or other cryptocurrencies. There is a distinction between cold storage or hot wallets depending on whether the storage is online or offline, software or hardware. In any case, one must always own and protect their own private keys; otherwise, the person in control of the keys can freely and anonymously transfer or spend the Bitcoins or other coins in that wallet. This is the single most important rule in the world of Bitcoin & Co.
WHALE: This refers to people who have large amounts of cryptocurrencies and may therefore have a significant impact on the exchange rate. In general, people with great investment potential are referred to as whales. In Las Vegas, there are whole teams dedicated to trying to lure these whales into their casinos. The whales are not only attracted with free suites and complimentary food and drinks, but also flown into town on private jets. The crypto-world has simply adopted this term.
WHITE PAPER: A technical description of how an idea is technically implemented is usually called a white paper. The Bitcoin white paper from 2008 is famous. Meanwhile, the world is currently overwhelmed with ICOs and these white papers, most of which are anything but technical instructions. In fact, most white papers are now marketing papers and are often no different than financial brochures—or at least that’s how it looks to those in the know.