Crypto Terms Explained
Stop wondering what those complex NFT, Web3, and crypto terms mean. We’re here to break down crypto lingo in simple terms.
NFT, WEB3 & CRYPTO TERMS DICTIONARY
Learn the Lingo – Learn Crypto Terms
Many complicated crypto terms are floating around out there. But we’re here to break it down. So, next time you hear NFT, Web3, or crypto lingo, you’ll know exactly what’s going on.
Discover all the crypto lingo beginning with “B”.
The term “bag” refers to a crypto investor’s holdings of a particular coin or token. For example, if a crypto holder says – “I have a bag of XRP” – this means that they hold XRP tokens.
Although there’s no specific number of coins or tokens in a “bag”, this crypto term typically describes a significant quantity. So, if someone says they hold a bag of something, this usually means they have a higher-than-average quantity of that particular asset.
A bag holder is a crypto investor who HODLs their investment too long. In some cases, bag holders can get stuck with worthless assets. This commonly occurs when the investor buys the asset at its peak price and misses their opportunity to sell before other holders sell and the price goes down.
A bear is a crypto investor who expects that the price of cryptocurrency will fall (in the short term, at least).
A bear market is a period in which cryptocurrencies are stagnant or decreasing in value. Many crypto investors recognize that it’s during a bear market that millionaires are made. This is because, during a bear market, crypto coins and tokens can often be purchased for a fraction of their price. Hence, by buying crypto at low bear market prices, you can make more money when the bull market comes around.
The term bear trap is often used to describe a situation in which crypto investors expect the price of a cryptocurrency to fall but it increases instead. As a result, any “bears” that chose to sell or short the asset (i.e. bet that the price would fall) will be blindsided by higher prices. Hence, a bear trap is a trap for bearish investors.
A block is a set of data within a blockchain. Blocks permanently store transaction data.
Each block can hold a specific amount of info. For example, each Bitcoin block can hold 1 MB of data. Although this doesn’t seem like a lot, it is enough to store more than 2000 transactions! Once this limit is reached, the data is validated, and the block is closed. The closed block is then “chained” to the block completed before it, and a new block is formed (hence the name block-chain).
What are Bollinger Bands, and what do they show? Bollinger Bands are a technical indicator used by many crypto traders to show whether the price of a cryptocurrency is relatively high or low. Bollinger Bands are one of crypto’s most popular technical indicators because they work well with volatile price movements.
Bollinger Bands consist of three bands:
- Middle band – the middle Bollinger Band is the Simple Moving Average (SMA).
- Upper band – the upper band is the SMA plus two standard deviations.
- Lower band – the lower Bollinger Band is the SMA minus two standard deviations.
When the market is volatile, the distance between the bands increases. This is known as the expansion phase.
When the crypto market is less volatile, the distance narrows. This is known as the contraction phase. The contraction phase often signals a good buying opportunity. Buying during the contractions phase can help you capitalize on upward price movement when the crypto returns to an expansion phase.
Below is an example of Bollinger Bands on the Bitcoin chart.
Crypto traders use this information to determine good entry and exit points. For example:
- When the price hovers near the lower band (or breaks through the lower band), this is often a good time to buy.
- When the price hovers near the upper band (or breaks through the upper band), this is often a good time to sell.
- If the price hovers around the SMA, this is referred to as “no man’s land” – in other words, it isn’t a good time to buy or sell.
Remember that Bollinger Bands should always be used with other indicators to determine when to buy and sell crypto. In fact, no technical indicator can reliably show price trends on its own.
A bull is a crypto investor who believes the price of cryptocurrency is on an uptrend and will continue to increase.
A bull market is when cryptocurrencies are increasing in value. In fact, many cryptocurrencies reach new all-time highs during bull markets. Therefore, many crypto investors make great financial gains during this part of the crypto cycle.
A bull trap is a scenario in which crypto investors expect the price of a cryptocurrency to increase, but it falls instead. This situation is the exact opposite of a bear trap. In this case, any bullish investors who bought an asset expecting its price to increase will be blindsided by lower prices. Hence, a bull trap is a trap for bullish investors.
To burn cryptocurrency means to remove a certain number of coins from circulation. For example, when the Stellar Lumens team burned 55 billion XLM tokens in 2019, they permanently removed these coins from the market.
Coins are burned by transferring them to a ‘burn wallet’ or ‘burn address’. Once sent to this address, the coins are lost forever, as the private key for the wallet is unknown.
Developers often burn tokens as a way to increase price. How does this work? Well, burning coins decreases the circulating supply. As a result, scarcity and demand increase, driving the price per coin up.
Some well-known cryptocurrencies that burn tokens include Ethereum (ETH), Binance Coin (BNB), and Bitcoin Cash (BCH).
BUY THE DIP
What does it mean to buy the dip in crypto? When you hear a crypto influencer or analyst tell you to “buy the dip”, what they mean is take the opportunity to buy a crypto coin or token while the price is down. In other words, the phrase “buy the dip” describes the opportunity to invest in a crypto project that has experienced a short or long-term price reduction.
Ok, that makes sense. But does buying the dip work with crypto? The answer is – yes, it can. Buying the dip can work well for crypto investors who are patient and consistently buy the dip. It allows investors to buy strong projects at a discounted price.
That said, dollar-cost averaging has proven to be the most effective strategy for investing in crypto.
Learn crypto terms that start with “D”.
DAO stands for Decentralized Autonomous Organization. A Decentralized Autonomous Organization is a corporation that is not directed by any individual or central authority. Instead, rules and decision-making processes are predetermined and encoded into the program (known as a smart contract) by developers. These preset rules are completely transparent and initiated automatically by the smart contract (hence, “smart”).
Certain decisions are also made using a democratic voting system. In other words, all the individuals who have invested in the DAO can vote on these decisions. Decisions are implemented automatically based on the outcome of the vote.
The goal of DAOs is to eliminate human error and corruption.
Dapps stands for Decentralized Applications. Decentralized Applications are similar to traditional apps. However, unlike normal apps, dapps run on blockchain technology. This means that no single company (e.g. Apple) has control over the distribution of dapps.
Dapps are open-source. This means that the app’s code is public. As a result, the code can be modified and shared. The information and records held by dapps are also transparent and available to the public.
DCA stands for Dollar-Cost Averaging. This refers to a popular investing strategy in which investors buy crypto consistently over time. Those who dollar-cost average into an investment make regular purchases, regardless of price. This strategy is often very effective, as it removes the emotional aspect of crypto investing.
It is extremely hard to time the very bottom of a cryptocurrency’s price (i.e. to enter at the perfect moment). Therefore, by purchasing crypto consistently over time, investors can get the best average price.
DCA Example: buying $100 of Bitcoin each week, regardless of price.
Keep in mind, crypto investors can also use the DCA strategy when selling cryptocurrency. This means selling small increments of crypto as the price increases. This helps investors make the most of their investment – without having to perfectly time the top. You may hear this referred to as “dollar-cost averaging out”.
DEAD CAT BOUNCE
A dead cat bounce is a temporary and short-term recovery in crypto prices after a substantial decline. This term is often used in crypto but first originated on Wall Street.
A dead cat bounce is sometimes referred to as a Sucker Rally. It earns this name because many investors believe that this uptrend signifies a reversal in the market (i.e. that prices will continue to go up). As a result, they start to buy but are sorely mistaken when prices continue to fall after the short rally.
What causes a dead cat bounce?
There are several common reasons for a dead cat bounce in crypto. This includes:
- Short positions being cleared
- Investors buying because they believe the bottom of the market is in
- Assets being oversold, etc.
This common crypto term refers to a project with no central authority. In other words, a decentralized project does not rely on an individual or organization. Instead, control and decision-making are handled by a distributed network (i.e. many different entities share control).
That said, the terms decentralized and distributed should not be confused. While decentralized means that no central authority has control, distributed means that computational processes and data storage occur in various locations (see distributed ledger technology).
When comparing decentralized vs distributed blockchains, it is important to note that all blockchains are distributed but not all are decentralized.
DeFi stands for Decentralized Finance. Decentralized Finance, or DeFi, allows individuals to complete financial transactions without a centralized organization like a bank or government. For example, people can borrow, lend and trade crypto without a centralized institution using DeFi.
The goal of DeFi is to eliminate the control that banks and other large institutions have over money and financial services.
DEX stands for Decentralized Exchange. A DEX is a crypto exchange that is not controlled by any central organization. Rather, it is a peer-to-peer exchange, meaning that crypto traders can trade coins and tokens amongst each other without the need for centralized oversight. To complete these trades, a DEX uses automated algorithms.
For example, Coinbase is a centralized exchange. This means that a large business oversees all operations and crypto trades – and makes money from it. On the other hand, PancakeSwap is a decentralized exchange. Therefore, no one organization or person has control over it and no business makes money from it. Instead, crypto traders can simply exchange tokens with one another.
There are several other important differences between centralized and decentralized exchanges, including privacy and ownership distinctions. Check them out here – coming soon.
The crypto term “Diamond Hands” refers to someone who holds their crypto no matter what is happening in the market. Regardless of volatility, a person with diamond hands will not sell their crypto.
DLT stands for distributed ledger technology. Put simply, DTL is a way of recording, storing, and sharing information.
A distributed ledger is similar to a database. Like a traditional database, a distributed ledger is used to store data (e.g. transactions). However, unlike a typical database (which stores its data in one place), DLT uses multiple computers (often referred to as nodes) to store data in various locations. In other words, records are distributed across many different computers.
Blockchain is a type of distributed ledger.
You may have come across the term “doxxed” in your crypto research. Most often, this refers to a cryptocurrency project team. If a crypto or NFT team is doxxed this means that they have shared their personal information with the public. For example, a fully doxxed team will publish their real names, background, work history, pictures, etc. This helps to build trust within the community.
When researching a new crypto project, always look for a team that is fully doxxed. Why? Well, teams that share their personal details publicly are much less likely to be involved in rug pulls*.
*Note that we said “less likely”. Even cryptocurrencies with fully doxxed teams can fail.
DYOR stands for Do Your Own Research. This is a best practice for investors and something that many crypto influencers and educators emphasize – including your friends at Daily Crypto Guide!
It’s extremely important that you always do your own research before investing in crypto (or any investment for that matter), regardless of what others recommend. You will be putting your hard-earned money at risk. Therefore, it’s essential that you know exactly what you are investing in.
That said – what does it actually mean to “do your own research”? Well, in the case of cryptocurrency, this means looking into the project’s team, understanding its utility and use cases, and keeping up with the latest news and achievements of the project.
Discover crypto lingo beginning with “F”.
FDV stands for Fully Diluted Valuation. A coin’s FDV is its total market cap if all tokens were in circulation. You can find the FDV of any coin by multiplying its current price by the total supply.
For example, if the cost of Bitcoin on a given day is $50,000, its fully diluted valuation is 50,000 x 19,000,000 (total maximum supply) or 950,000,000,000 (i.e. 950 billion).
Fiat is government-issued money. In other words, fiat is the legal tender of a country. Examples of fiat money include the U.S. dollar (USD), Canadian Dollar (CAD), European Euro (EUR), Japanese Yen (JPY), British Pound (GBP), etc.
FUD stands for Fear, Uncertainty, and Doubt. Periods of FUD often occur when negative news and general fear rule the crypto market. Negative events in the crypto space commonly provoke FUD. However, in many cases, these events are exaggerated or even completely fabricated.
FUD often prevents people from participating in the NFT, Web3, and crypto markets because they are uncertain of what the future holds.
Learn crypto terms that start with “H”.
What is a hard fork in cryptocurrency? A hard fork is a dramatic upgrade to a blockchain that requires a new version to diverge (or “fork”) from the current version.
A hard fork in cryptocurrency is only required when an upgrade to a blockchain is so drastic that is causes previous blocks to become invalid. As a result, two versions of the blockchain must exist separately – one version using the old set of rules and the new version using a new set of rules.
One of the most well-known examples of a hard fork is Ethereum. In June 2016, Ethereum was hard forked from the original Ethereum Classic blockchain when a smart contract called the DAO was hacked.
Learn more about Ethereum and the DAO hack here – What is Ethereum?
Keep in mind that not all blockchain upgrades result in a hard fork. Less drastic changes can result in a soft fork.
A high-cap (or large-cap) is a cryptocurrency with a market cap of more than $10 billion. Typically, large-cap cryptos are those in the top 10. Examples of high caps include Bitcoin and Ethereum. Although all cryptocurrency carries some risk, high-cap projects are considered to be relatively safe investments.
HODL stands for Hold On for Dear Life. This common crypto term describes the strategy of buying and holding cryptocurrency (even through the ups and downs of the market). The term was first introduced when someone (explaining that he would HOLD his Bitcoin) misspelled “hold”. Very quickly the term became a meme. Now, hodl is used widely throughout the crypto community, especially during times of extreme volatility.
Crypto terms that start with “J”.
Crypto terms that start with “L”.
Wondering – what is liquidity in cryptocurrency? This crypto term refers to how easily you can convert an asset into cash or another asset – without affecting its price. For instance, how easily you can convert a coin or token into another coin or fiat.
What does it mean if an asset has good liquidity (i.e., the asset is liquid)? An asset with good liquidity can be quickly and easily bought or sold. In addition, buying and selling large amounts of a liquid asset will not have much effect on its price.
Cash, for instance, is an extremely liquid asset. In fact, it is the most liquid asset on earth and can be quickly and easily converted into other assets. In crypto, stablecoins are the most liquid assets.
What about assets with poor liquidity (i.e., illiquid assets)? An illiquid asset can’t be bought or sold easily. Also, if an asset is illiquid, it is difficult to exchange it without significantly impacting its price.
For example, exotic cars, rare books, and artifacts are considered relatively illiquid because selling them isn’t always easy.
When it comes to crypto, large-cap cryptocurrencies like Bitcoin and Ethereum don’t have issues with liquidity. However, some altcoins (especially low-cap coins) may lack liquidity.
If you invest heavily in illiquid coins, you may get stuck holding the bag – without the ability to sell at your desired exit price. Thus, it’s generally safer to trade assets with reliable liquidity.
Low-cap (or small-cap) refers to a cryptocurrency with a low market capitalization. A low-cap crypto has a market cap of less than $1 billion. Typically, low-cap cryptocurrencies are still in early stages of development. As a result of their low market capitalization, low caps are the most susceptible to wild price swings due to market volatility.
Learn crypto terms that begin with “N”.
NFA stands for Not Financial Advice. Crypto influencers and educators (as well other financial educators) often use this term to remind viewers that they are not financial advisors. Therefore, the knowledge they share is not financial advice but, instead, for informational purposes only.
Only certified financial advisors can provide sound financial advice – and most people online are not financial consultants. Therefore, it’s very important to DYOR before investing in any crypto project.
NFT stands for Non-Fungible Token. A non-fungible token is a unique token that is unlike anything else.
To make this idea clearer, consider a single dollar vs a baseball trading card. You could swap your dollar with your friend’s dollar and there would be no difference. The two dollars are (essentially) the same. However, if you were to swap an extremely rare baseball card with your friend’s not-so-rare card, there could be an issue. These two cards are completely different and it’s unlikely you would want your friend’s card in exchange for your more valuable collectible. These basecall cards are non-fungible.
The idea behind NFTs is similar to baseball trading cards. An NFT can be traded or sold and no two are alike.
Some popular NFTs you may have heard about include Bored Ape Yacht Club, World of Women, and Azuki. These NFTs can sell for hundreds of thousands of dollars.
In blockchain and crypto, a node is a computer that participates in a blockchain network. Nodes run blockchain software and have two main purposes:
- Validate and record new data and transactions
- Store a copy of the entire blockchain
Learn crypto terms that begin with “P”.
Crypto enthusiasts often use the term “paper hands” to describe someone who sells their crypto at the first sign of trouble in the market. You can think of someone with paper hands like a poker player who folds too easily.
People with paper hands are not comfortable with volatility. Therefore, they sell their crypto whenever they see the market going down. In most cases, investors with paper hands sell too early, resulting in unnecessary losses.
Crypto terms that begin with “R”.
RSI stands for Relative Strength Index. It is a market trend indicator that stock and crypto traders use when performing technical analysis. RSI is a very common indicator used by crypto traders.
More specifically, the Relative Strength Index shows whether a cryptocurrency is overbought or oversold. To provide this insight, the RSI formula considers a cryptocurrency’s average price gain vs average price loss over a certain period. Using this data, traders can see whether the asset is overbought (i.e. RSI is equal to or greater than 70%) or oversold (i.e. RSI is equal to or less than 30%).
The rule of thumb when using the RSI indicator is to buy when a cryptocurrency is oversold and to sell when a crypto is overbought. This is because an oversold asset will likely experience an upcoming uptrend, and an overbought asset will most likely experience a downtrend soon.
Below is an example of the RSI indicator on the Bitcoin chart. When the purple line (RSI) is above the horizontal dashed line (i.e. above 70), Bitcoin is overbought. This is often a good time to sell. When it is below the dashed line (i.e. 30), it means that Bitcoin is oversold. This is often a good time to buy.
The best crypto trading platforms will allow you to add an RSI line graph below your market charts at the touch of a button. Therefore, using RSI to predict market trends is easy!
Keep in mind that RSI should always be used with other technical indicators to predict trends and prices better.
A rug pull is a type of scam in the crypto industry. A rug pull occurs when a project team heavily promotes their coin, token, or NFT, then abandons the project and runs off with investors’ money.
Typically, in a rug pull, the project developers hold a significant number of coins or tokens. They promote or “shill” the project online and once the price goes up they quickly sell. This often causes the price to fall to zero, meaning investors lose everything.
Cryptocurrency lingo that starts with “T”.
TA stands for technical analysis. Technical analysis uses price patterns and technical indicators to predict crypto price fluctuations.
Cryptocurrency investors often use TA to predict prices, including entry and exit points for trades.
Some of the most common technical indicators in crypto include:
- RSI (Relative Strength Index)
- MACD (Moving Average Convergence/Divergence)
- MA (Moving Averages)
- Bollinger Bands
A testnet is a blockchain platform that is still in the development and testing stages. In other words, a testnet is a prototype that isn’t ready for public use.
Developers use testnets to test and troubleshoot projects before releasing them to the public. Once testing, troubleshooting, and development are complete, the project is released via a mainnet launch.
TO THE MOON
“To the moon” is a phrase that is often used by crypto investors and enthusiasts. It refers to the idea that a certain cryptocurrency will rise significantly in price.
For example, you may hear someone say “Dogecoin is going to the moon!”. This means that the individual believes that the price of Dogecoin will skyrocket in the near future.
You may have heard or seen a crypto influencer tell their followers to “touch grass.” And, you’re probably wondering – What the? Don’t worry; we’re here to explain.
The slang term “touch grass” is commonly used in the crypto community to remind people to stop staring at their screens and to go outside. While touch grass can be used as an insult, crypto educators often use the term to remind people that it is essential to reconnect with the real world – especially the outdoors. Unfortunately, many crypto investors become so enchanted with charts and monitoring their portfolios that they forget there is a whole world outside to enjoy!
So, like other crypto educators, we’re here to tell you not to forget to “touch grass” today!
Cryptocurrency terms that start with “V”.
What is vesting in crypto? This crypto term refers to the time an investor must wait until they gain complete control over an asset they have purchased. For example, tokens sold during an ICO are vested. Crypto tokens cannot be sold, exchanged or traded during this time. Once the vesting period is over, investors gain full control over the assets. This vesting period is also known as a token lockup period.
The purpose of a vesting period in crypto is to help new projects avoid liquidity issues while they are still building a solid foundation.