Crypto Glossary: Major Cryptocurrency Terms

The cryptocurrency market can appear confusing to many traders at first, with a plethora of new and specific terminology necessary to understand when entering this arena. Below, you'll find a primer on some of the key concepts you're likely to encounter when trading crypto and Crypto CFDs:

Blockchain Technology and Associated Crypto Terms

Blockchain and Cryptography

Blockchain uses a peer-to-peer network of computer nodes to verify cryptocurrency transactions and ownership. This verification process uses cryptography for security. Cryptography involves the use of complex mathematical formulas and it is what gives cryptocurrencies their name. Cryptography transforms regular text into a ciphertext algorithm which secures the currency from attackers by making it harder for them to decipher.

Nodes

Nodes are every computer in a network that runs a particular software. Some specialist nodes are tasked with solving cryptographic problems, which are used to secure cryptocurrency transactions. They are awarded newly minted cryptocurrency units for their trouble. Because they put in work to eke out new cryptocurrency units, the term used to refer to these specialist nodes as 'miners'.

Wallet

A blockchain wallet is a digital tool used by crypto traders to store keys that facilitate the trading of Bitcoin, Ethereum, and more. When traders use their crypto wallets, their private, personal key is used to authorise the transaction internally, while their public key can be seen by anyone in the crypto ecosystem and is necessary for the tokens themselves to be sent and received.

Staking

Staking in cryptocurrency is a process where users can earn rewards by committing their holdings to support the operations of a blockchain network. Major crypto systems like Ethereum (ETHUSD), Cardano (ADAUSD), and Solana (SOLUSD), among others, make use of staking. This mechanism operates via a system called Proof of Stake. Through staking, the crypto coins a trader holds are put to work validating transactions and maintaining the network's security, replacing the energy-intensive mining process used by older mechanisms like Proof of Work. Stakers lock their tokens as a form of collateral, ensuring they act honestly while helping to secure and validate the blockchain. In return, they receive rewards, making staking a popular choice for long-term crypto holders to grow their assets passively. However, staking often involves locking up funds for a set period, which can limit flexibility.

DeFi vs. CeFi

Centralised finance (CeFi) and decentralised finance (DeFi) represent two approaches to cryptocurrency management. CeFi relies on centralised exchanges like Binance and Coinbase, which oversee asset custody, transactions, and services like fiat-to-crypto conversion and margin trading. These platforms require identity verification (KYC) and charge fees, offering convenience and customer support. DeFi, on the other hand, eliminates intermediaries by using blockchain-based smart contracts on platforms like Ethereum to enable peer-to-peer transactions. Users maintain full control of their assets, benefit from lower fees, and access decentralised apps (dApps), but DeFi lacks customer support and carries higher security risks. Both aim to facilitate cryptocurrency use but differ in their emphasis on centralisation versus autonomy.

Gas Fees

Gas fees are an integral aspect of how the Ethereum blockchain functions. In essence, they are the transaction costs paid by users to perform functions ranging from sending tokens from one wallet to another, to executing more complex contracts. Gas fees were implemented in order to incentivise users to allow their personal ETH tokens to be used to validate and secure the networks as a whole. These fees can change based on the amount of work validators are able to perform and the overall load on the system.

Different Kinds of Cryptocurrencies -- Coins and Tokens

One of the first things to learn about cryptocurrencies is why some are referred to as 'coins' and others as 'tokens' or sometimes even 'utility tokens'.

Cryptocurrency Coins

Cryptocurrency coins are cryptocurrencies that are intended to be used to buy and sell all kinds of goods and services as an alternative to traditional 'fiat' currencies such as the dollar, pound, euro, or yen. Bitcoin, the very first cryptocurrency, is an example of a 'coin' cryptocurrency, as are other coins such as Bitcoin Cash and Litecoin.

Bitcoin Cash came into existence as a result of a 'hard fork' in the Bitcoin blockchain. For a chance to be made in the underlying 'protocol', or blockchain software, at least 51% of the nodes that form the blockchain have to be in agreement about implementing the change. A part of the Bitcoin network wanted to make some technical changes they thought would make the blockchain more efficient. Cryptocurrency coins are sometimes called Stablecoins, which are cryptocurrencies that tend to earn their value from external sources like other currencies or commodities. In other words, Stablecoin cryptocurrencies are paired with external assets like Bitcoin (BTCUSD), which is paired with the US dollar.

They didn't have the 51% majority required but went ahead with the change to the protocol anyway. This created a hard fork in the blockchain, which means it split into two separate coins. One part of the network approved the changes, and the other rejected them. From the fork onwards, the side of the blockchain that included the changes became a new cryptocurrency -- Bitcoin Cash. Plus500 offers Bitcoin Cash in the form of Bitcoin Cash ABC.

Whenever a cryptocurrency's blockchain is updated, there is a fork. When one side of the fork is continued as a new, standalone cryptocurrency, that side is referred to as a 'hard fork'.

Another term you will often come across is 'Altcoins'. Altcoins refer to any cryptocurrency other than Bitcoin and were first 'coined' when cryptocurrencies of different kinds began to appear after the concept of cryptocurrencies was popularised by the launch of Bitcoin. Examples of Altcoins include Cardano, Polkadot, Chainlink, and Uniswap, among others, all of which are available at Plus500's trading platform.

Cryptocurrency tokens

Cryptocurrency tokens are not designed to be 'spent' in the same way as traditional currencies. Instead, they are associated with blockchains that have a particular function. This function could be a smart contracts blockchain like Ethereum, which is used to build decentralised applications, known as 'Dapps', or a payments blockchain. Tokens are only 'spent' to pay for the use of these single-purpose blockchain platforms.

Smart contracts

Smart contracts are software-based sets of rules. When combined in different and complex ways, they can be used to create applications, much like any other software application. The only difference is that these contracts are verified and enforced through the peer-to-peer blockchain. This is why applications created from such contracts are referred to as decentralised applications (dApps).

While the above is certainly not a comprehensive round-up of all of the specialist cryptocurrency terms you will encounter, it should briefly cover many of the terms you will come across. There are plenty of online resources available should you wish to learn about them in more detail.

Crypto Dynamics

In this relatively new market sphere, how digital currencies come into being and the different ways they're traded is crucial to understand. Let's take a look at a few useful terms touching on how crypto coins like Bitcoin hit the market:

Bitcoin Halving

Bitcoin Halving is a key crypto milestone in the cryptocurrency world, occurring approximately every four years. It reduces the reward miners receive for verifying transactions on the Bitcoin blockchain by 50%. This deliberate mechanism ensures Bitcoin's scarcity, supporting its deflationary nature and long-term value proposition.

Since Bitcoin's inception in 2009, there have been four halving events, with the latest on 19 April 2024. Each event has historically influenced Bitcoin's price and the broader crypto market. For miners, halving reduces profitability, necessitating higher efficiency or price gains to maintain operations, while also impacting supply and demand dynamics via the limitation of new tokens entering circulation. The fifth Bitcoin halving is expected in March 2028

Mining

Bitcoin mining is the process underpinning the entire ecosystem of this premiere digital currency. Mining validates Bitcoin transactions and secures the blockchain by solving complex math problems. Miners compete to find a cryptographic solution that meets specific, exacting criteria, which in turn enables the addition of a new block of transactions to the blockchain. The first miner to achieve this earns a reward in newly minted Bitcoin and transaction fees.

The aforementioned reward system incentivises miners to sustain the network. However, the total number of Bitcoins is capped at 21 million, meaning mining rewards will eventually cease, with miners earning only transaction fees thereafter. The process relies on a system called Proof of Work (PoW), which ensures that every block added to the blockchain is verified and valid.

Shorting

The volatility of cryptocurrencies presents traders with unique opportunities along with increased risks, and this is especially true when it comes to the strategy known as Bitcoin shorting. Shorting with CFDs involves speculating that a cryptocurrency's price will decline, potentially allowing traders to profit from downward market movements without owning the asset.

CFDs use a slightly different trading process by removing the need to borrow or physically sell the cryptocurrency via a crypto wallet. Traders open a sell position and aim to close it later at a lower price, with the profit being the difference between the two. This strategy requires the use of technical analysis and monitoring indicators like RSI, for example, although positive trading results cannot be guaranteed.

NFTs

NFTs are digital assets that represent ownership of unique items, ranging from art, music, and GIFs to real estate, in-game items, and even tweets. Built on blockchain technology---primarily Ethereum---NFTs are distinct due to their non-fungibility, meaning each token is one-of-a-kind and cannot be exchanged on a like-for-like basis, unlike cryptocurrencies such as Bitcoin.

Their market value stems from their unique nature and exclusivity. Each NFT is tied to a digital signature, ensuring authenticity, much like owning an original artwork versus a decorative reproduction. This uniqueness has spurred significant interest and innovation.

For those keen on the NFT market, exposure is possible through trading NFTs directly or engaging with NFT-related stocks, like DraftKings (DKNG), or indices such as the NFT Giants Index.

Conclusion

Understanding key cryptocurrency terms is essential for navigating the ever-evolving crypto landscape. From blockchain technology and mining to concepts like NFTs and shorting, a solid grasp of these terms equips traders with the knowledge to make informed decisions and engage confidently in this dynamic and complex market, although the risks involved in CFD trading must always be taken into account.

Now that you are familiar with the major crypto terms, you can start trading Cryptocurrency CFDs with Plus500