When you first enter the world of cryptocurrency it is normal to be confused and sometimes even overwhelmed by the unique terminology that is used. In order to help you navigate through the vast amount of information about cryptocurrency, we have listed some of the most commonly used terminologies.

Address

A cryptocurrency address consists of one of the two encrypted keys associated with a specific cryptocurrency account. More specifically, it consists of the public portion of the key pair. It is structured as a string of alphanumeric characters. It will be structured in a manner similar to this:

1PhD8scH1ksba2CRW67i3GR9T9ouwLK5dXQ

The address is what you would normally provide to other parties who wish to transfer funds to you. The two encrypted keys in tandem constitute what is normally referred to as your cryptocurrency wallet.

Altcoin

Most people are familiar with Bitcoin. There are, however, numerous other cryptocurrencies on the market. While each of these other digital currencies has its own name — such as Litecoin, Dash, and Monero — in general terms, altcoin is used to describe any cryptocurrency that is not Bitcoin.

Blockchain

The blockchain is the underlying digital infrastructure that makes any cryptocurrency possible. Essentially, it is a digitized permanent ledger of every transaction that has taken place with a specific cryptocurrency. Highly encrypted and decentralized, it can be viewed as a series of individual interlocking blocks.

If the blockchain is seen as the whole ledger, therefore, each block can be seen as an individual page of that ledger. Each new block — in addition to its own recently added transaction data — also contains the hash of the previous block. This is what makes the blockchain secure. It is what prevents others from altering previous transactions within it.

Block Reward

A block reward is an incentive that is given to individuals who contribute computing and processing resources to solve the mathematical equations involved with each block of the blockchain. This process of mathematical processing is commonly referred to as “hashing.” When a miner successfully completes the hashing of one block, they receive the reward. Put more simply, it is the compensation for cryptocurrency mining.

Cryptocurrency Wallet

A cryptocurrency wallet is a mechanism that stores the public and private keys associated with a cryptocurrency account. Cryptocurrency wallets are frequently assigned to customers of digital currency exchanges.

A wallet should not be confused with a cryptocurrency address. The latter only consists of the public key. The term wallet, when associated with cryptocurrency, is actually an abstract. Your actual cryptocurrency is not stored in it. Your funds are in the blockchain. The wallet is best seen as the housing of the keys that allow access and validation of your transactions on the blockchain.

A cryptocurrency wallet can exist in many forms. They can be software or hardware based. They can even exist as paper wallets.

Digital Currency Exchange

Digital currency exchanges, also known as DCEs or cryptocurrency exchanges, are business entities that help individuals and businesses purchase, sell, and trade cryptocurrencies. They offer the most secure method for the general public to acquire cryptocurrencies.

Digital currency exchanges usually operate under one of two business models. “Market makers” are DCEs that offer the public what are known as bid-ask spreads. These spreads are simply small differences between the selling and buying price of a cryptocurrency. That small difference is how those DCEs make a profit. Other DCEs bypass the bid-ask spread model and simply charge a fee each time their customers want to trade in cryptocurrency.

Some of the better known digital currency exchanges are CEX.io, CoinMama, Changelly, Paxful, and Coinbase.

Fiat Currency

This term is often used interchangeably with “traditional currency.” However, the technical definition of a fiat currency is that of a currency which value is not pegged to a specific commodity — such as gold or silver.

Fiat currency has no intrinsic value. Its only value resides in the fact that the parties accepting the currency agree that it has value. The US dollar, euro, and British pound are all examples of fiat currency.

Halving

Halving is a process in which the block reward received by miners is cut in half. In the case of Bitcoin, a halving event occurs every 210,000 blocks.

Halving exists to add stability to a cryptocurrency as it becomes more established and popular. It ensures that scarcities do not develop and provides continuous opportunities for a greater number of people to become involved with it.

Hash Rate

Hash Rate represents the speed at which a block is hashed. In other words, it is the rate at which the mathematical equations within a block are solved.

ICO

ICO is an acronym that stands for Initial Coin Offering. On a broad level, it is similar to an Initial Public Offering (IPO) of stock.

An ICO is a common method used to fund a new cryptocurrency project. It involves the issuers offering a set amount of the new cryptocurrency to the public in exchange for fiat (traditional) currency or other cryptocurrencies. The funds raised are used to cover the costs of infrastructure and manpower involved with the new currency.

The price that the new cryptocurrency is offered to the public in an ICO is known as the “base price.” Once the new cryptocurrency is fully launched, its market price will fluctuate based on normal supply and demand forces.

Long Trade

A long trade is one that involves opening a position in a cryptocurrency and profiting when its value rises. It is the most basic example of “buy low, sell high.”

Mining

Cryptocurrency mining is the process by which new blocks are added to the blockchain. It is also what spurs the release of new units of a particular cryptocurrency.

The complex action of solving mathematical equations to release each new block is known as hashing. By using the processing power of their computers, miners conduct these calculations. The first miner to hash an individual block receives the block reward.

This is why cryptocurrency mining can best be seen as the act of processing hashes across a decentralized network. No picks or shovels are involved. The reward does not come from finding physical nuggets or veins of ore, rather it comes as compensation for the computing resources contributed in the processing of transactions along the blockchain.

Nodes

In its simplest form, a node is a computer that is connected to a specific cryptocurrency network. Much as nodes within traditional computer networks, a cryptocurrency node will validate and relay transactions to other nodes on the network. Each node will also have an updated copy of the full blockchain. This is what allows for the decentralized nature of cryptocurrencies and the blockchain.

Price Volatility

To those outside of the realm of investment and trading, the word “volatility” can sound frightening. The reality is that in financial circles volatility is simply the measure of price movements of a particular instrument — such as cryptocurrencies — over a period of time.

Price volatility is what those involved in speculative trading of cryptocurrencies look for as the driver of their trading strategies.

Those involved with cryptocurrencies as a long-term investment can use price volatility to determine favorable entry points. In other words, when is the best time to buy and hold for the long haul.

Satoshis

Much as dollars can be divided into smaller fractions and a cent is the smallest fraction of a dollar, a Satoshi is the smallest fraction of a Bitcoin. It is equivalent to 0.00000001 Bitcoin. In other words, one Satoshi is one-hundredth of a millionth of a Bitcoin. It is named after Satoshi Nakamoto, the creator of Bitcoin.

Short Trade

When trading cryptocurrencies a short trade describes a position that is opened in order to capitalize on a downward movement of that particular currency. That means that if you open a short position and the cryptocurrency declines in value, you profit.

While most trading platforms that allow for direct or derivative trading of cryptocurrencies automate the complexities behind a short trade, technically what is happening is that your account is borrowing somebody’s stake of that cryptocurrency at its current price. It is then returning it at a later date at a much lower value. The difference becomes your profit. Likewise, if the cryptocurrency were to rise in value, that would represent a loss for you.

Smart Contract

A smart contract is a digitized and unalterable contract that is stored on the blockchain. Once it has been digitally signed by all parties involved, the fact that it resides within the inalterable blockchain structure means that it can never be changed or deleted.

Smart contracts are gaining popularity with both the private and public sector.