Crypto jargon words explained

2017 was pivotal for crypto, and the industry will continue to grow in 2018. As with any type of investing, whether stocks, bonds or crypto, there’s lingo that newbies might not understand. And that could derail potential investors.

Before you get lost scrolling through Reddit, forums or the meme culture on Twitter, check out our jargon breakdown.

Bitcoin maximalist

These guys reject Bitcoin alternatives like Ethereum and Litecoin, and push for the monopolization of Bitcoin only going forward.

To quote Vitalik Buterin, the founder of Ethereum:

It is a stance that building something on Bitcoin is the only correct way to do things, and that doing anything else is unethical (see this post for a rather hostile example). Bitcoin maximalists often use “network effects” as an argument, and claim that it is futile to fight against them.

Hodl

Probably the word you see floating around most, it’s a misspelling of the word “Hold” from a likely drunk Bitcoin forum post. It’s meant to signify the “long and hold” strategy of investing in cryptocurrencies regardless of price fluctuation. Now the community also uses HODL to mean “Hold on for dear life.”

Fork

You probably haven’t read a crypto news article without it mentioning the real and potential forks of Bitcoin and other cryptocurrencies. A fork on a blockchain is a technical event that occurs because some members disagree on common rules and processes of a protocol.

Hard forks are changes that make the two blockchains incompatible with each other, like the Ethereum DAO hard fork or the August Bitcoin Cash fork. A soft fork, on the other hand, is a proposed change that coexists with existing software logic. For example, the proposed Segwit change (not Segwite2x!) requires a majority of the vote to take full effect but can be rolled out without affecting up time.

FOMO

“Fear of Missing Out is” commonly used in everyday millennial speak, but carries special significance as a driver of crypto investing.

New investors might get caught up in the hype and buy into a coin that may already be at its peak price or enter an unwise position just because everyone else is doing it. This goes against trusted investing values.

The best way to combat FOMO is to understand blockchain as a technology that aims to transform the world into decentralized applications. Only when you believe in the long-term potential should you invest.

Altcoins

Altcoins are cryptocurrencies that are different from Bitcoin. Bitcoin is the main driver for the market, like the S&P 500, and generally reflects how other coins move that day. Usually these coins modify certain aspects of Bitcoin, the most common being the proof of work mechanisms, and how consensus is reached.

Consensus

Consensus, like the traditional meaning of the word, implies resolution from opposing parties. In blockchain technology, consensus is achieved by algorithms. A consensus algorithm does two things: 1) ensures that the next block in a blockchain is the ground truth and 2) prevents system hijacks and security breaches. When you hear about bitcoin ‘Mining’, it’s computers running consensus algorithms to validate the blockchain.

There are two main consensus algorithms, Proof of Work (PoW) and Proof of Stake (PoS). Since Bitcoin was the first to introduce and successfully implement a PoW strategy, each altcoin has its own variations that can be found in the descriptions of most cryptocurrency investing sites. PoW uses computing power to validate the work done by a miner, while PoS will pick a ‘validator’ (the “miner” in the PoW) by the amount of stake (coins) a validator has and the respective age of the stake.

Tokens

Even though coins and tokens are often used interchangeably, there are subtle differences between the two. At a high level, a coin is a digital version of money. So it allows you to store and transfer value.

Tokens, on the other hand, have no inherent value but represent the value of the decentralized application or community project it’s meant to serve. For example, the Golem Project pays app developers in GNT, the internal medium of exchange. (See here for a deeper look.) People who participate in this ecosystem must have GNT (which is also be tradable on different exchanges outside of the project).

ICO

ICO (Initial Coin Offering) involves the selling of new digital currencies or tokens at a discount to raise capital. Just like in an IPO (Initial Product Offering), sophisticated investors hope to profit in the long run by investing early. However, unlike an IPO, ICO investors don’t have ownership in the company or cash distributions like dividends.

ICOs really took off in 2017 — some companies even raised over $200 million, bypassing traditional methods like expensive venture capital dollars. This year, however, skepticism is high. Especially from a regulatory perspective. The Securities and Exchange Commission requires private companies to file a disclosure whenever they raise private capital. After very little guidance initially, the SEC has since warned companies that they could be violating securities laws with these token sales.

FUD

Another acronym, this one meaning Fear Uncertainty and Doubt. Just like with traditional assets, news and social media can cause emotional frenzies that drive investing decisions. Because crypto is a much smaller and less liquid market, these effects can be more pronounced. A great example of FUD was JP Morgan’s Jamie Dimon saying Bitcoin was a fraud that would eventually blow up. It’s important to recognize true criticism vs. what’s meant to drive away investors.

A final word

Now you’re prepared for crypto investing in 2018! Stick to what you know, focus on the long-term and carry on.

Disclosure: The views contained in this post are my own and do not represent investment advise, the views of my employer or anyone else. This content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find in this post and wish to rely upon, whether for the purpose of making an investment decision or otherwise.