Cryptocurrency is a fantastic investment opportunity that offers huge financial gains for those who are willing to shoulder a bit of risk and ride out the market.
However, the technical language that surrounds cryptocurrencies can make them an intimidating prospect for the uninitiated. Use this handy jargon buster to get up to speed with some of the most common terms and phrases and you’ll be well on your way to becoming a more confident investor.
Blockchain is the technology that makes cryptocurrencies such as bitcoin possible. It’s what’s known as a distributed ledger, a kind of decentralised digital logbook that’s used to keep a record of every transaction. It is stored across thousands of computers, which means that the transactions can’t be altered – that’s one of the reasons that currencies such as bitcoin are considered so secure.
Your digital wallet is what you use to store your crypto. It can be ‘hot’, which means that it’s connected to the internet and able to make transactions instantly. Or it can be ‘cold’ – stored offline, usually on a server.
We haven’t included bitcoin in our jargon buster as by now its infamous as the most popular form of cryptocurrency and the one that kicked off the investment trend. However, these days there are many different currencies available; so many, in fact, that the term ‘altcoin’ has been coined to refer to them en masse. So if you read about altcoin, it doesn’t refer to a specific currency that you can buy.
Listing every type of currency – or even just the most popular ones – could easily take up the whole article, but it is worth calling out bitcoin cash. Bitcoin cash is an entirely different currency to bitcoin, which was created when the blockchain that bitcoin is stored on ‘forked’. Forking simply refers to the blockchain splitting, creating a new alternate version (in this case, bitcoin cash) which runs simultaneously.
Fiat currency simply means traditional currencies such as the UK pound or US dollar, which are backed by the government that issues them. You’ll often hear it referred to in contrast to crypto, which is not a fiat currency and therefore not controlled by a centralised bank.
There is a rich internet culture surrounding cryptocurrency investment, and its participants have started to develop their own slang to refer to different investment principles and shared experiences. This includes the use of popular acronyms such as ‘HODL’ and ‘FUD’.
HODL – or ‘hold on for dear life’ – is essentially an investment strategy. It means that, once you buy into your currency of choice you should hold (avoid selling) even if the value appears to be dipping. Eventually, the theory goes, the price will recover and you will see an impressive return on investment.
Those who become overly negative about the performance of their currency may be accused of spreading FUD: ‘fear, uncertainty and doubt’. Because cryptocurrencies are so volatile, its expected that the price will both rise and fall, and many investors have little time for those who are overly pessimistic.
There is now a range of software available to help investors maximise their returns. These use trading algorithms to help identify the right time to buy and sell, giving tips to investors so that they can hopefully buy low and sell high. Apps such as bitcoin loophole let you open an account for free and start investing with relatively small sums.