15 Important Cryptocurrency Trading Terms Everyone Should Learn
15 Cryptocurrency Trading Terms Everyone Should Learn
When you start trading in cryptocurrencies like Bitcoin and Ethereum or any other top 10, 20 or 100 crypto asset, you'll likely feel like everyone's speaking a different language. No one can blame you for that feeling, mainly because it's true. The language required to utilize money is often wholly different from the kind needed to make or manipulate it, even more so when cryptocurrency trading strategies are involved and financial gains (or losses) are at stake.
Not knowing a few key terms can make it almost impossible to communicate with other traders, let alone try to make deals or profit. Here are some phrases and words you should put into your mental dictionary:
Alternative Coin or “altcoin” refers to cryptocurrencies that aren't Bitcoin. While other coins have value and a place in future markets, the fact is that Bitcoin was the first, so most language revolves around and refers to things relative to it.
When discussing cryptocurrency, you will inevitably hear talk about the blockchain. The blockchain is what makes digital currency possible. A blockchain is, in essence, a group of public and electronic ledgers that contain all crypto transactions for currency. The chain grows as users make more trades and mine new coins. Now, however, it's expanded beyond its original purpose. This technology has found use in many places, such as banks and voter registries, due to how it functionally stops all fraud.
Market capitalization or market cap refers to the size of a specific currency's market. You get it by multiplying the number of coins currently existing by its current trading value. You can use it to determine whether or not something is worth trading in, or what stage it is in its lifetime.
Some cryptocurrencies are pre-purchased before they're publicly released, for whatever reason. Some are into speculation, others truly believe in the technology behind it. In any event, those coins cannot be released yet, so purchasers get tokens that they can exchange for actual coins once the currency launches.
Trading in cryptocurrencies can be profitable, but not all businesses accept them currently. You may also not be comfortable keeping your profits in such a volatile environment and would like to put them somewhere more stable. That's where fiat currencies enter the picture. These are merely nation-used currencies, like the Euro or US dollars, the same ones you've been using all this time.
Initial Coin Offering
An initial coin offering is like the stock market's initial public offering. It's when cryptocurrencies, before launch, sell tokens. For many people, this is the most dangerous and exciting part of trading. You could get in on the ground floor and see nothing but profit, or end up buying something that ends up ultimately worthless, all before it hits the market.
Most traders will elect to diversify their portfolio, which inherently limits the number of coins they'll have per crypto. However, some people and entities will commit to specific coins, becoming whales, or people who own large percentages of a coin. More than a status symbol, it's a position of power. When whales sell or buy, they often sell enough to affect a coin's value.
While you can engage in peer-to-peer coin trades, most people will enter the market through exchanges. That's where people can purchase and trade their coins. Do your research, as each market has different sets of coins and possible trades. Few, if any, have all the coins, so make sure the one you choose has coins that interest you.
At the heart of every cryptocurrency is an equation. That equation is what lets the blockchain exist. It determines the validity of each block, and is the reason that blockchain-based transactions are so secure; you can't fake anything because it has to agree to the equation. Mining is the act of solving that equation. Once a person solves a problem, he or she gets a coin. Anyone can do it, but it's also time-intensive and requires a computer to do it efficiently.
If you think wallets are where you keep your crypto coins, you're exactly right. What you may not know is that there are a variety of options. Most who are only dabbling in trading use online wallets that exist in their chosen exchanges. More serious traders use hardware wallets to increase personal security. Some will lie somewhere in between with a software wallet based on their computer. Choose the one that's right for you.
Multi-signatures or multi sigs are a form of trade security, which is critical considering transactions are irreversible. When it is applied, more than one person needs to sign off on a transaction before it is approved. That increases transaction security by distributing authority across multiple entities, preventing a single person with the right access from stealing everything.
Smart contracts are one of the most useful and promising technologies to come with cryptocurrencies. Instead of relying on manual action, smart contracts allow traders to automate deals, either with each other or with their exchange. That can be something as simple as selling when your stock hits a percentage to maximize profit or minimize loss, or it could show up as a form of escrow.
Wallet addresses are what allow people and entities to transfer coins among themselves. Each one is unique, and while transactions can be anonymous, the activity is still traceable to a specific address. The address itself is a seemingly random string of characters, but that's what represents ownership of your coins. It's also the most crucial part of it. Lose your address, and you lose your coins.
Much like a small business, a cryptocurrency doesn't necessarily end the way it started. Forks are when something fundamentally changes in currency. Often, it's when its developers modify something that affects the currency's functionality. However, it could just as easily happen if a single entity owns the majority of computing power for a coin, as they mostly have control over it. It could also occur because there was a bug. Usually, these forks come before an immense dip or spike in value.
Pump And Dump
Pump and dumps are what made Bitcoin and other cryptocurrencies hit the public eye. They are cycles of notable gain and loss in value that has encapsulated the crypto experience. Some periods are due to recent news of significant events, while others are the result of groups of people who manipulate enough coins to create shifts in value when they sell or purchase a coin.
Crypto Terms All Traders Should Learn Conclusion
While these are far from the only terms you should learn if you're planning on trading cryptocurrencies, these should give you the needed foundation to understand the rest with greater ease. Don't expect to learn everything in one day. Learn something new every day, and you'll eventually assemble a base of knowledge that you can potentially use to generate profit.