Crypto terms for dummies, Blockchain, Defi, Sats, Hodl, Bitcoin Maximalist, FOMO, Mining, NFT, Altcoins, Stablecoins, etc.
Getting started in your crypto learning journey? If yes, then you might have come across some technical terms that are quite difficult to understand. Every crypto lover who starts learning about cryptocurrencies and blockchain faces some difficult terms which may result in a bad beginning. In such a case you must have a collection of such terms.
Keeping this in mind, I came here with a list of the most important crypto terms for dummies. Keep reading all the terms if these feel new and interesting or just skip to the next term if you are aware of the previous one.
So, let's start!
1. Blockchain
Blockchain is a distributed ledger of activities that keeps the full record of all that is happening on the network. It involves miners that run the nodes of the chain and verify the transactions.
Let's understand it in simple words. It is a programming code that allows users to do a particular activity on a particular network. In the case of Bitcoin, you can make transactions of this currency with the help of the blockchain. Every transaction happening in Bitcoin is recorded on the blockchain of the Bitcoin. As the word itself expresses, blockchain is a chain of blocks and the transactions are recorded in a block. These blocks then constitute a chain.
Every new forming block is linked to the previous one and cannot be created without the validation of the first one. This makes it the most secure place for doing a digital activity.
2. DeFi
DeFi stands for Decentralized Finance. These are online financial platforms that do not use an intermediary like traditional banks, credit card company or any other institution for providing financial services.
These run on blockchain technology to remove the intermediaries. Rather than intermediaries, they use smart contracts and blockchain technology to be fair with the users. These are not run by a single entity. Rather, their software is open source one that can be edited or improved by anyone participating in the process.
3. Sats
Bitcoin was discovered by a pseudonymous person named Satoshi Nakamoto in 2009. Satoshi had a long vision and that's why he added a lot of extraordinary features in blockchain that are very difficult for a normal person to think about.
Satoshi knew that the demand for Bitcoin will rise in the future that will lead to an increase in the value of bitcoin. Generally, an expensive commodity cannot be used to make day-to-day transactions as normally used items are of low cost.
So, Satoshi divided one Bitcoin into 100 million parts and these parts are known as Satoshis or Sats.
To summarize, a Sat is a part of a Bitcoin and is equal to 0.00000001 BTC. As when I am writing these lines, one Bitcoin is nearly equal to $50,000 which means one Sat is worth $0.0005.
It means a transaction as low as $0.0005 can be made with Bitcoin while the price of one Bitcoin is $50,000.
Keep cheering up...
4. Bitcoin Halving
For the transactions to be completed on bitcoin, a number of miners compete with each other and the winner receives the transactions fees and block reward. The block reward is given to the miner who validates and confirms the formation of a new block.
The block reward is given in the form of bitcoins to the miner and is the only way for new bitcoins to come into circulation. The reward in the initial days of bitcoin, i.e. in 2009, was 50 BTC. In 2012, it got reduced to 25 when the first bitcoin halving occurred.
Now, you must have understood that bitcoin halving is the process by which the block reward given to the miners is cut in half. This reduces the pace at which new bitcoins come into circulation and hinders the inflation in bitcoin.
The halving has occurred three times till the last halving on May 11, 2020, when the block reward was reduced to 6.25 BTC. It occurs once after 210,000 blocks are mined and is known to occur once every 4 years. The next halving is estimated to occur in early 2024.
5. Hodl
Hodl is the disrupted form of the English word "hold". In the crypto world, hodl means holding the cryptocurrency for a long time in the wait for the prices to go higher. The hodlers buy a particular cryptocurrency and keep it intact in their wallets.
They believe that the prices of cryptocurrency will definitely go higher in the future as crypto is the need of the hour. Hodlers are just opposite to crypto traders who buy shares for a small-time when prices are low and sell them when the prices go higher.
Now, I want to hear from you, if you were a crypto investor then which option will you have gone through? The comment section is just for you.
6. Bitcoin Maximalist
A Bitcoin maximalist is a person who considers Bitcoin as the superior of all the cryptocurrencies, of all the traditional methods of financing. Bitcoin is the most important asset in such a person's vision. He/she generally thinks that the price of Bitcoin is less than what it deserves and it must be increased.
He/she also thinks that the price will definitely increase and keeping this in mind he does invest in Bitcoin for the long term. The investment is not like that of other persons, he/she invests a lot of money.
Do you want to be a Bitcoin maximalist? Do you know anyone who is a Bitcoin Maximalist?
7. FOMO
FOMO stands for Fear of Missing Out. The word is of use to crypto traders. Traders generally use cryptocurrency as a speculative investment. They wait for the right opportunity to buy and sell the shares.
When they buy a particular cryptocurrency, they have a fear whether it will give any return or not. The fright of the market fluctuation makes them feel that their money will be lost in the investment.
Have you ever invested in cryptocurrency? Did you ever feel something like this?
8. Mining
Mining in the crypto world is similar to mining in the real world. As we mine precious metals and stones in the real world, some people mine Bitcoins and other cryptocurrencies. Such people are known as miners and in the case of Bitcoin, the Bitcoin miners.
Let's take the example of Bitcoin. There is a network of miners in the whole world. Whenever a user tries to make a transaction in Bitcoin, a difficult mathematical problem gets created. The transaction cannot proceed until the mathematical problem is solved. Miners solve the problem with their high-powered computers.
In return, the miners receive some block rewards and transactions fees. These are incentives to the miners. The more the number of miners in a blockchain, the more secure is the whole chain.
9. NFT
NFT stands for Non-Fungible Token. The word non-fungible means something that cannot be replaced for anything. Let's take the example of Bitcoin. One Bitcoin can be traded or exchanged for another. One Bitcoin always equals another in value at a particular point of time on a particular place.
An NFT is not like a Bitcoin. It is a digital certificate of authenticity that can represent any physical or digital asset. The range varies from digital art to physical assets like real estate. NFTs generally run on the Ethereum blockchain.
With the help of NFT, ownership of every item can be tracked while the originality remains the same.
To get a detailed explanation of NFTs, read our standalone guide on NFTs.
10. Altcoins
While the history of cryptocurrencies is very short, the number of cryptocurrencies is very large at the same time. There are over 1,20,000 cryptocurrencies on the web in 2022 as when I am writing these lines(according to CoinMarketCap data).
The term altcoin, or simply alts, refers to all the alternatives bitcoins. While there are so many altcoins, each of these bears at least one quality of bitcoin. Most of these altcoins do not last for long as these do not provide any real-world value and some of these even try to improve the existing structure of bitcoin.
These try to give more scalability, higher speed of transaction, low volatility, fast processing, and many more. For example, Litcoin(LTC) is a fork of bitcoin developed by Charlie Lee as the light version of bitcoin. Unlike bitcoin, its supply cap is not limited to 21 million. There are 84 million litecoins that may exist.
Binance Coin(BNB) is an exchange-owned cryptocurrency that was developed by the world's largest crypto exchange Binance. It is a type of exchange-owned cryptocurrency and is the most popular in terms of market capitalization in its category.
11. Stablecoins
The value of bitcoin is very high these days and it reached an all-time high in November 2021 when its worth was over $64,000. But in December 2021, it reduced to about $47,000 which is a 26% dip in its previous value.
Can such a commodity be used in day-to-day transactions? Just imagine today you bought a bitcoin from an exchange and it has the purchasing power of 5 pizzas. On the next day, you wake up and see that only 4 pizzas can be bought with your bitcoin. Isn't it disappointing?
This is the reason why stablecoins are introduced. Stablecoins are just like other altcoins but these are pegged to an external reserve for maintaining their prices at a stable position. There is always an external organization or an algorithm that tries to keep the price stable.
Let's take the case of Tether's USDT which is a stablecoin and runs 1:1 with theUnited States Dollar. Tether Limited, the parent organization of USDT, issues and eliminates the tokens for keeping its prices at a stable position with USD.
Wrapping Up
These are all of the major difficult terms in the crypto world. Here I tried to explain these terms in very simple words. It doesn't matter whether you are a beginner or an advanced player in the field of the crypto game, you will be able to understand this.
Now, it's time to hear from you. Do you think that a difficult term is not included in this list? If yes, then let me know in the comment section. I will definitely try to add it to this article.
Other blog posts to help you in your crypto journey:
What are stablecoins and how do they work?