Cryptocurrency terms glossary

Cryptocurrency is often a tough nut to crack, especially if you’re new to the crypto space. Here are some of the basic cryptocurrency-related terms that you must know if you want to explore the murky water of crypto!

1. Blockchain

A blockchain acts as a database, storing information in a decentralized platform. It can be accessed across computer network nodes. They are well known for their critical function in keeping a secure and decentralized record of transactions in cryptocurrency systems like Bitcoin. The most popular application of blockchain is cryptocurrency. Unlike currency, crypto employs blockchain to operate as a public ledger and an advanced cryptographic security system, ensuring that all online transactions are processed and safeguarded.

2. Cryptocurrency

A cryptocurrency is a digital currency (also called virtual currency) that is protected by encryption, making counterfeiting and double-spending exceedingly difficult. It is monitored and verified by blockchain (a decentralized peer-to-peer network).

Cryptocurrencies are mined or bought on cryptocurrency exchanges. Not all e-commerce sites accept cryptocurrency payments. Nevertheless, cryptocurrencies’ expected potential has made them prominent as trading instruments. They are also utilized for cross-border transactions to a limited degree.

3. Cryptocurrency Exchange

A crypto exchange is a platform for buying and selling cryptocurrencies such as Bitcoin, Ether, and Dogecoin. Cryptocurrency exchanges function similarly to other trading platforms you might be acquainted with. They set up accounts for you where you may generate various order types to buy, sell, and predict in the cryptocurrency market.

In general, there are two types of cryptocurrency exchanges: centralized and decentralized exchanges. The presence or absence of intermediaries is the key distinction between centralized and decentralized exchanges.

Centralized Exchange

Centralized cryptocurrency exchanges operate as an intermediary between buyers and sellers. Almost all cryptocurrency transactions happen through centralized exchanges because they are more reliable. Centralized cryptocurrency exchanges include Coinbase, GDAX, Kraken, and Gemini, to name a few.

Decentralized Exchange

Decentralized crypto exchanges, popularly known as DEXs, are blockchain-based apps that facilitate large-scale crypto asset trading among multiple users. Rather than having a centralized entity control the transactions and collect the fees, in a DEX, users known as liquidity providers pool their funds for other users to trade with, and are rewarded with a percentage of the swap fee.

4. Cryptocurrency Wallet

Crypto wallets protect your private keys. This private key lets you send or receive cryptocurrencies such as bitcoin and Ethereum.

5. Cost Basis

The cost basis of a token is the amount you paid in US dollars for it, plus any fees. For instance, suppose you paid $500 to buy 1 ETH in 2019. So the cost basis will be $500, plus the fair value in USD of the gas fee to transfer it.

6. Taxable Crypto Events

Some crypto taxes are categorized as capital gains and some as income taxes.

Capital Gains & Loss Events

– Selling cryptocurrencies for fiat money, or government-issued money
– Payment for goods or services, such as buying a car using Bitcoin income
– The process of converting one cryptocurrency for another.

Income Tax Events

– DeFi lending
– Receiving airdropped crypto
– Mining, Staking and liquidity pools
– Crypto as a reward or bug bounty
– Earning from transaction fees or block rewards for crypto mining
– Token rewards from play-to-earn games like Axie Infinity
– NFT artists minting income

7. Non-Taxable Crypto Events

– Purchasing cryptocurrency with fiat currency
– Transfer cryptocurrency from one of your wallets to another one you control
– Crypto gifts are non-taxable to a certain limit
– Donate cryptocurrency to a tax-exempted non-profit organization

8. Crypto Tax Accounting Method

You must pay taxes (capital gains or income) when you sell your cryptocurrency, which may be computed using the formula:
‍
‍Capital Gain = Price at the time of sale – Cost Basis
‍
‍You’ll suffer a capital loss if the value at the time of sale is larger than the cost at the time of acquisition. The accounting system you use to calculate your taxes determines how much tax you must pay and can potentially lower your taxes greatly.

The following are the most common tax accounting methods:

1. FIFO Cryptocurrency Cost Basis Method
2. LIFO Cryptocurrency Cost Basis Method
3. Specific Identification Cost Basis Method

 

FIFO Cryptocurrency Cost Basis Method

One of two recognized ways for assessing the cost basis of Cryptocurrency is First in First Out (FIFO). The difference between the sale price and the earlier buy price is used to compute capital gains under FIFO.

LIFO Cryptocurrency Cost Basis Method

Last in, first out, or simply LIFO is an accounting approach for calculating gains based on the difference between the purchase price and the latest buying price.

Specific Identification Cost Basis Method

A Cryptocurrency trader can define which asset it is trading and calculate profits or losses based on the cost basis of that particular asset using Specific Identification. The best tax strategy for limiting obligation is often specific identification.

9. IRS Tax Forms

Tax Form	Purpose
Form 8949 (Sales and Other Dispositions of Capital Assets)	Complete summary of all crypto activities like, selling, trade, etc.
Schedule D (Capital Gains and Losses)	Summary of your Form 8949 and includes the sum total of short term and long term capital gains
Form 1040 (Individual Income Tax Return)	Calculates total taxable income
Schedule 1	Your total additional income from crypto activities
Form 1099 K	Report non-employment income to the Internal Revenue Service.

 

10. Crypto Tax-Loss Harvesting

The method of selling a cryptocurrency that has suffered a loss is known as tax-loss harvesting. Investors can reduce taxes on both profits and income (up to $3000) by “harvesting” the loss. To preserve an ideal investment strategy and predicted returns, the traded crypto can be restored in the portfolio.

11. Miscellaneous Terms

Airdrop

Crypto airdrops are a type of distribution strategy used by cryptocurrency companies. It includes sending bitcoins or tokens to existing cryptocurrency traders’ wallets for free or as a reward for participation.

Hard Fork

When the program code changes so much that the latest version is no longer backward compatible with previous blocks, a hard fork occurs. The blockchain divides in two in this scenario:

– The original blockchain
– A new one that matches the bunch of rules

This results in the creation of a completely new cryptocurrency, which is the source of several well-known coins.

ICO

ICO is short for initial coin offering. An ICO can be used by a firm to acquire funding for the development of a new cryptocurrency, software, or service.

To put it simply, the cryptocurrency industry’s equivalent of an initial public offering (IPO) is an initial coin offering (ICO).

Margin Trading

Margin trading is a method of conducting asset transactions utilizing funds supplied by a third party. Margin trading accounts, as opposed to standard trading accounts, allow traders to get extra funds and assist them in leveraging positions.

Mining

Mining is the method by which Bitcoin and other cryptocurrencies bring in new coins and validate new transactions. The miners authenticate and safeguard blockchains, which are virtual ledgers that record bitcoin transactions.

Proof of work (POW) systems verify transactions and reward miners with bitcoin in exchange for their efforts.

Non-Fungible Tokens

NFTs are individual tokens that contain important information. They can be purchased and sold like other physical pieces of art because their worth is mostly determined by the market and consumers. The distinctive data on NFTs makes it simple to verify their ownership as well as token transfers between owners.

Proceeds

Proceeds are the amount you made when you sold or exchanged a cryptocurrency. You will get a greater profits amount if you trade regularly.

It must be noted that you are not taxed exclusively on the profits you make. Rather, subtract your profits from your cost basis to determine your gain or loss.

Staking

The process of keeping cryptocurrency to validate transactions and sustain the network is known as staking. Staking allows you to earn money without having to work. The proof-of-stake system eliminates the need for specialized equipment and the related energy expenses that come with mining.

12. Initial Coin Offering (ICO)

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13. Ethereum Virtual Machine

Once each new block is added to the chain, the Ethereum Virtual Machine, also known as the EVM, computes the state of the Ethereum network and executes smart contracts. The hardware layer and node network layer of Ethereum are on top of the EVM.

14. Centralized Exchange (CEX)

A centralised exchange (CEX) is a third-party platform that allows the trading of crypto assets between buyers and sellers. It is privately run by a central entity.

15. Total Value Locked (TVL)

Total value locked refers to the total amount of underlying supply that a certain application is fully securing. This value does not refer to the number of existing loans, but rather the total amount of underlying supply that is now being staked in a particular protocol.

16. Token Generation Event (TGE)

The technical creation of the token on a blockchain-based network and its introduction to the market, typically in the form of a public sale, private sale, or initial coin offering, are both considered to be part of a token generation event (TGE), which is a brief commercial and technical act (ICO).

17. Gwei

Gwei is a combination of the terms giga and wei. The digital token used on the Ethereum network, ether (ETH), has a unit called “gwei.”

18. Anarcho-capitalism

According to the political concept known as anarcho-capitalism, private property rights are what society needs, not governments.

19. aNFT (Autonomous NFT)

Non-fungible tokens known as aNFTs (autonomous NFTs) have the ability to be programmed to start transactions on their own.

20. Adaptive State Sharding

Adaptive state sharding automatically divides data depending on specific parameters to increase performance and effectiveness.

21. Nifty Gateway

The Winklevoss twins have since bought Nifty Gateway, a digital art online auction site for non-fungible token art that was developed by Duncan and Griffin Cock Foster.

22. Rug Pull

In the cryptocurrency sector, a rug pull occurs when a development team abruptly drops a project and sells or eliminates all of its liquidity. The expression “take the rug out from under (someone)” is the origin of the word, which refers to abruptly ending assistance.

23. Mainnet

The phrase “mainnet” refers to a fully functional, operating blockchain. Like the blockchains for Bitcoin and Ethereum, a mainnet network has been completely implemented and is now in use.

24. Vitalik buterin

Ethereum was created by Russian-Canadian computer programmer Vitaly “Vitalik” Buterin. Buterin became active with cryptocurrencies in the very beginning, helping to launch Bitcoin Magazine in 2011.

25. 0x Protocol

A system called 0x makes peer-to-peer (P2P) trading of Ethereum-based assets possible. The protocol, created by 0x Labs, is an open standard and fundamental DeFi building component for any developer in need of exchange capability.

26. Fee Tiers

The phrase “fee tiers” refers to the fee structure that establishes the cost associated with an investor’s money deposit or withdrawal and transaction execution on a cryptocurrency exchange. Every exchange has a unique fee structure that frequently varies based on trade volume and kind.

27. Annual Percentage Yield (APY)

The annual percentage yield (APY) of an interest-bearing account, such as a savings account or certificate of deposit (CD), is the amount you may expect to make in a single year.

28. Initial Dex Offering (IDO)

A cryptocurrency startup can launch its native token or coin on a decentralised exchange using the initial DEX Offering (IDO) crowdfunding approach (DEX).

29. Byzantium Fork

The Ethereum network had a hard fork known as Byzantium in October 2017 at block 4,370,000. The Ethereum network underwent a crucial upgrade with the Byzantium hard fork.

30. Odysee

In the LBRY decentralised blockchain, there is a video sharing service called Odysee.

31. Zero Knowledge Rollups

A layer-2 scalability method known as zero-knowledge rollups, or zk-rollups, enables blockchains to validate transactions more quickly while simultaneously guaranteeing that gas costs are kept to a minimum.

32. Automated Market Maker (AMM)

A sort of decentralized exchange (DEX) called automated market makers (AMMs) uses algorithmic ‘money robots’ to make it simple for independent traders to purchase and sell crypto assets. Users trade directly through the AMM rather than directly with other users as they would with a typical order book.

33. FUD

FUD, or dread, uncertainty, and doubt, is an acronym. When the market refers to anything as ‘FUD,’ it often denotes that a bad event has occurred with notable fluctuations in the price of Bitcoin that have a substantial impact on the whole crypto market.

34. Ethereum Virtual Machine (EVM)

The compute engine for Ethereum that controls the blockchain’s state and makes smart contract functionality possible is called the Ethereum Virtual Machine (EVM). The client software you require to run an Ethereum node, such as Geth, Nethermind, and others includes the EVM.

35. BEP-20

The most popular Ethereum token standard, ERC-20, is extended by the BEP-20 token standard on the BNB Smart Chain (BSC). It functions as a set of guidelines for tokens that specify how they may be used, who can use them, and other usage restrictions.

36. SHA-256

The United States National Security Agency created a collection of cryptographic hash algorithms called SHA-2, which was initially released in 2001. They are created utilizing the Davies-Meyer structure from a specialized block cipher and the Merkle-Damgrd construction from a one-way compression function.

37. Bubble

The Bubble Group has created Bubble, a visual programming language, a platform for no-code development, and an application platform as a service that enables non-technical individuals to create web apps without having to enter any code.

38. Gold-Backed Cryptocurrency

A derivative digital asset called a gold-backed cryptocurrency is one whose value is purportedly guaranteed by the gold’s equivalent price. Each gold-backed cryptocurrency arbitrarily assigns each of its tokens a value in grams or troy ounces of gold, requiring that this value be physically stored as collateralized assets in the company’s reserves or vaults or those of a reputable custodian.

39. Changpeng Zhao (CZ)

Changpeng Zhao, sometimes known as CZ, is a Canadian software engineer, businessman, and investor who was born in China. As of July 2022, Zhao is the co-founder and CEO of Binance, the largest cryptocurrency exchange in the world by trading volume.

40. Liquidity Provider Tokens (LP Tokens)

Liquidity Provider Tokens, or LP Tokens for short, are an incentive system used to encourage the exchange of one currency for another. To guarantee that there is a market for trading cryptocurrencies that is constantly open, decentralized exchanges rely on liquidity providers.

41. DYOR

Do Your Own Research, or DYOR is a term that cryptocurrency enthusiasts frequently employ. The term is not, however, specific to the world of cryptocurrencies. Since to how quickly and readily false information can spread online, it is frequently employed.

42. Whitelist

Typically, a whitelist is a list of individuals or objects that are viewed as acceptable. A specific crypto event, such as a pre-sale, an Initial Exchange Offering (IEO), or an Initial Coin Offering, refers to a list of authorized participants in the crypto-verse (ICO).

43. Terahashes Per Second

Terahashes per second (Th/s), a measure of a computer or mining machine’s power, is equal to 1 trillion (1,000,000,000,000) hashes per second.

44. Decentralized Exchange (DEX)

Users can trade cryptocurrencies on a DEX (decentralized exchange) in a non-custodial setting without the requirement for a middleman to handle the transfer and custody of the money.

45. Impermanent Loss

By taking part in DeFi liquidity pools, there is a chance of experiencing temporary loss. That takes place when the value of your depository assets fluctuates since you deposited them.

46. Slippage

Slippage is the discrepancy between an order’s anticipated price and the price at which it actually executes. The slippage % displays the amount of price movement for a certain asset. An asset’s price may frequently change based on transaction volume and activity due to the volatility of cryptocurrencies.

47. Layer 0

In a sense, Layer 0 protocols serve as the foundation for Layer 1 blockchain architecture. Layer 0 protocols, which serve as the base for blockchain networks and apps, are one of several approaches being used to address issues with scalability and interoperability that the sector is currently experiencing.

48. Physical Bitcoins

Physical bitcoins can be compared to a bank card or a gift voucher. There is no value in the paper or the card. Instead, what grants you access to the real cash is the magnetic strip on the front of the card or the certification on the voucher.

49. Bonding Curve

A bonding curve is a mathematical concept that is used to explain the connection between an asset’s price and supply. The bonding curve’s foundation is the premise that once someone buys a limited-quantity item (like Bitcoin), each future buyer will have to pay a little bit more for it.

50. FOMO

Making an illogical choice to acquire or sell a cryptocurrency without doing your homework is known as ‘FOMO’ in the world of cryptocurrency investment.

51. Miner Extractable Value (MEV)

The miner extractable value (MEV) is the value that miners may acquire by altering the order of transactions within the blocks they create. For permissionless PoW coins, order fairness is thus a concern.

52. Soft Cap

The term “softcap” describes the lowest amount that may be raised during an ICO, IEO, or other type of fundraising campaign. Its definition is arbitrary and speculative. In contrast, a hard cap is the highest amount of financing that a team is attempting to get.

53. Honeyminer

A Bitcoin mining application called Honeyminer is available for different devices to download. The application may automatically switch between one currency and another coin at intervals of ten minutes, utilizing GPU and CPU resources to mine the most lucrative currencies.

54. Capitulation

The significant increase in selling pressure in a losing market or asset that signals a widespread investor surrender is referred to as “capitulation” in the world of finance. Given that those who chose not to sell during a panic are unlikely to do so soon after, the ensuing sharp decline in market prices can signal the end of a decline.

55. Delegated Proof-of-Stake

A consensus technique called Delegated Proof of Stake (DPoS) is a version of the traditional Proof of Stake (PoS) system. With DPoS, which developed from PoS, network users can elect delegates to validate blocks.

56. IOU

An IOU, which is a phonetic abbreviation for the words “I owe you,” is a document that recognises the existence of a debt.

57. DeFi Degens

DeFi degenerates. a subculture linked to a shady area of decentralized money that is notorious for pump-and-dump operations.

58. Peg

The PEG ratio, also known as the price/earnings-to-growth ratio, is a measure that aids investors in valuing a business by taking into consideration a company’s market price, profits, and potential for future development.

59. Arbitrage Pricing Theory

An asset’s returns may be anticipated using the linear connection between the asset’s expected return and a variety of macroeconomic factors that represent systematic risk, according to the arbitrage pricing theory (APT), a multi-factor asset pricing model. It is a helpful tool for value investors to employ when examining portfolios to find assets that could be momentarily mispriced.

60. Swing Failure Pattern

A trader places a stop-loss at a point below a swing high or above a swing low in an attempt to drive the market in the opposite direction by generating the necessary liquidity. This is known as a swing failure pattern (SFP). Swing trading patterns can be used to find trading opportunities in high-quality markets.

61. InterPlanetary File System (IPFS)

The InterPlanetary File System is a peer-to-peer network, protocol, and hypermedia system for sharing and exchanging files in a distributed file system. Each file in a global namespace linking IPFS servers is uniquely identified via content-addressing, which is used by IPFS.

62. Deflation

A drop in the average level of prices for goods and services is referred to as deflation. When the inflation rate is less than 0%, deflation sets in. Over time, inflation lowers the value of money, whereas abrupt deflation raises it.

63. ERC-721

The ERC721 standard is used to express ownership of non-fungible tokens, or tokens with a unique identity. A more complicated standard than ERC20, ERC721 is divided among many contracts and has a number of potential expansions.

64. Layer-1 Blockchain

A base network’s core infrastructure, such as that of Bitcoin, BNB Chain, or Ethereum, is referred to as Layer 1. Without a second network, layer-1 blockchains can validate and complete transactions.

65. Ticker Symbol

A ticker symbol is a combination of two or three alphabets that is used to represent shares that are traded on the stock market. It is a distinctive and simple way for investors to identify and buy/sell a certain stock on the stock exchange.

66. Paul Le Roux

Many suspects that Paul Le Roux, an infamous criminal, is Satoshi Nakamoto, the mysterious person who created Bitcoin.

67. Directed Acyclic Graph (DAG)

A set of actions can be conceptually represented by a directed acyclic graph (DAG). A graph, which is graphically represented as a collection of circles with some of them connected by lines to indicate the flow from one action to the next, is used to show the sequence of the activities.

68. Token Economy

A contingency management system based on the methodical reinforcement of goal behaviour is known as a token economy. Symbols or tokens that may be traded for other reinforcers are known as reinforcers.

69. Apeing

Apeing is a phenomenon that occurs in the cryptocurrency market when a trader buys a token soon after the project launch date without fully investigating it.

70. Whitepaper

A detailed treatise explaining the technical and financial features of a particular cryptocurrency is called a whitepaper. It acts as a guide for potential investors, miners, and users and is often produced by the cryptocurrency’s development team or core members.

71. Fiat

While cryptocurrency is a digital asset whose value is derived from its native blockchain, fiat money is legal tender whose value is linked to a government-issued currency, such as the U.S. dollar.

72. Graphical Processing Unit (GPU)

In the realm of computers, graphics processing technology has developed to offer special advantages. The most recent GPUs provide up new opportunities in gaming, content production, machine learning, and other areas.

73. Uncle Block (Ommer Block)

It is feasible for a network to produce two blocks at once. There will be one block missing when this occurs. The term “ommer block” refers to this unused block.

74. Token Migration

A token project must transfer its tokens to the new blockchain when switching from one to another. It’s known as a token migration.

75. Absolute Advantage

Absolute advantage is the capacity of an individual, business, region, or nation to produce more of a good or service per unit of time using the same amount of inputs than its rivals, or to produce the same amount of a good or service per unit of time using less inputs.

76. Absolute Return

The complete return on an investment is its absolute return. The investment term is not taken into account by the absolute return.

77. Algorithmic Market Operations (AMOs)

AMOs, also known as direct deposit modules, are actions taken by contracts to manufacture or burn stablecoins without providing immediate collateral to support these stablecoins.

78. Unbanked

Adults who do not utilise banks or other financial institutions in any way are referred to as unbanked. Although it is frequently a problem in underdeveloped nations, there are some unbanked adults in rich nations like the United States.

79. Gray Swan Event

The phrase “grey swan” refers to a potentially highly important event whose likelihood of occurring may be foreseen in advance but whose chance is viewed as low. To put it another way, it is a risk that might have a significant impact but has a low perceived possibility of occurring.

80. Token Issuance

The process of producing new tokens and adding them to the overall token supply of a cryptocurrency is known as token issuance.

81. Backflush Costing (Backflush Accounting)

A just-in-time (JIT) inventory system typically uses backflush costing, a method of product costing. It is, in essence, an accounting technique that does not begin to record the expenses related to creating an item or service until after it has been created, finished, or sold. Backflush accounting is another name for backflush costing.

82. Backorder

A backorder is a purchase order for an item or service that cannot be fulfilled right away owing to a shortage of stock. Although the product might not be in the firm’s current inventory, it might still be in production, or the company might need to continue producing more of the item.

83. Typosquatting Easy

Typosquatting is a form of social engineering assault that targets internet users who use a search engine instead of entering the right URL into their web browser. Typically, it entails using URLs that are popular misspellings of trustworthy websites to deceive consumers into accessing harmful websites.

84. Antitrust Law

Antitrust laws are rules that promote competition by restricting a firm’s ability to dominate the market. This frequently entails dismantling monopolistic enterprises as well as making sure mergers and acquisitions don’t excessively concentrate market power.

85. Chain Split

Another name for cryptocurrency forks, or the division of a single initial coin into numerous separately maintained projects, is chain splits.

86. Laser Eyes

In essence, altering your profile image to a pair of laser eyes was an indication that you were enthusiastic about Bitcoin and other cryptocurrencies. In actuality, it was also color-specific; red stood in for Bitcoin and blue for Ethereum.

87. Moloch DAO

The Moloch DAO is a decentralised autonomous organisation that provides funding for initiatives intended to strengthen and advance the Ethereum ecosystem.

88. ConsenSys

Joseph Lubin started ConsenSys, a private blockchain technology business with headquarters in New York.

89. Proof of Reserves (PoR)

Proof of reserves (PoR) is an open auditing procedure for cryptocurrency businesses that offers a frank assessment of the assets held in reserve by the businesses.

90. Regulatory Compliance

In order to stop the actions of financial fraudsters and cybercriminals, cryptocurrency compliance makes sure that cryptocurrency investors and businesses adhere to particular standards and rules.