Cryptocurrency has been around for about 10 years but is still a bit of a mystery to those who don’t know much about it. If you’re thinking about investing in cryptocurrency (also called “crypto” or “digital currency”), here are 7 terms you need to know before you start.
HODL
HODL is one of the biggest terms in cryptocurrency. The term was first used as a misspelling of the word “hold” on a Bitcoin forum in December 2013, but it has since taken on a life of its own.
A HODLer is someone who buys and holds cryptocurrency for an extended period of time. This can be done for any number of reasons; some people believe that holding onto their coins will help them gain more value than if they sold them right away or converted them into fiat currency like dollars or euros.
Other HODLers are betting that their coin will increase in price over time—and they may even be hoping to make money by trading with other people who have purchased different currencies at different prices.
Cryptocurrency Exchange
You can buy or sell cryptocurrency according to its current prices on exchanges. Exchanges are a central hub for trading and storing cryptocurrency, but they aren’t the same as a wallet. You won’t keep your coins in an exchange forever, but you will use them for trading into other coins or into fiat currency (USD, EUR).
Exchanges can be hacked and have been hacked before. You should never store your crypto on an exchange for extended periods of time because it’s not secure enough for that kind of storage. And if you do decide to store crypto on an exchange, make sure you’re using two-step authentication and don’t store large amounts there.
Exchanges are also used as trading platforms for more than just cryptocurrencies like Bitcoin or Ether: They often trade securities as well — so if you want to buy stocks or bonds with your bitcoin holdings instead of cashing out entirely, exchanges are where you’d go!
Mining
Mining is the process of verifying crypto transactions and adding them to the blockchain. As a reward for their work, miners receive cryptocurrency such as bitcoin or Ethereum as payment.
Mining is also the only way new cryptocurrency can be added to the supply—the supply of bitcoin, for example, is limited by its protocol so that no more than 21 million will ever exist (that’s why it’s called “digital gold”). Mining requires processing power: typically provided by CPUs and GPUs (graphics cards) but increasingly being done on specialized chips known as ASICs (application-specific integrated circuits).
Blockchain
For a good example of this, look at the technology that makes cryptocurrency possible: blockchain. You may have heard of blockchain before, but what exactly is it?
Blockchain is a distributed ledger technology that allows people to record and exchange information without needing an intermediary like a bank or government. It works by storing records of transactions on blocks, which are linked together into a chain through cryptography (think complex math).
Each block contains data such as the transaction time and date, as well as information about its predecessor block. Each new block contains all previous data from its predecessors until now; therefore, no one can change any old records without changing all subsequent ones too.
As you might have guessed from its name, blockchain was originally developed for use with cryptocurrencies—but it’s more commonly used for other things these days! For instance:
Hash rate
Hash rate is a measure of how fast your computer can process the mathematical problems that are needed to verify transactions and record them on the blockchain. The higher your hash rate, the more quickly you can process those problems—and earn cryptocurrency as a reward.
Hash rate is also an indicator of network health: when there are lots of miners on the network, it means that many people have invested in machines (or other equipment) they use to solve those math problems. If lots of miners leave the network because they don’t think mining is worth it anymore, then blockchains could become unstable or even stop working altogether.
In this case, the hash rate would decrease because fewer people are contributing resources to keep their blockchains running smoothly; this would mean less money earned by mining pools, too—but if everyone leaves, then there won’t be any blocks at all!
You might also hear about another term called “hash power” alongside “hash rate.” This refers specifically back to its original purpose: calculating how much electrical power an individual miner uses per second for their rigs’ GPUs/CPUs in order to find new blocks (to earn rewards). The lower this number is compared against others who aren’t using efficient hardware means more profit potential since cost savings due to having more efficient hardware allows more profits after paying electricity bills.”
FOMO
Fear of missing out, or FOMO, is a term that refers to the human tendency to want what other people have. It’s often used in reference to investing, where investors feel they must buy into an investment before it’s too late and they miss out on making money.
FOMO can lead you to make bad decisions about when and how much you invest in cryptocurrencies. If you’re considering investing in cryptocurrency but don’t understand what drives its price movements, it’s better not to jump right in with both feet. Take some time first to learn about how cryptocurrencies work so that you can make more informed decisions later on.
When considering investing in crypto assets like bitcoin or ether (the currency behind Ethereum), consider following these steps:
- Research what makes each coin unique from others on the market; this will help guide your decision about which coins might perform well as investments over time (and which ones might not).
- Have an exit plan for selling off your assets at least once every three months—but only if those sales are part of a preplanned strategy for managing risk based on current market conditions.
Bag Holder
If a person is a bag holder, they are someone who holds onto cryptocurrencies that are losing value.
The phrase “bag holder” comes from the image of someone holding onto their bags with all of their possessions in them—essentially everything they have. The idea was that if you sold your cryptocurrency before its value fell and you were left with nothing, then you would be without any money or resources—just like if you lost your entire bag to someone else.
When investing in crypto, especially when trying to purchase other coins at low prices, it’s important not only to know what terms mean but also how those terms can affect your own investments and trading practices.
So you’ve decided to get into the cryptocurrency market, but you’re not sure what kind of terminology will help you. While it’s true that some of these terms are specific to the cryptocurrency market and can be confusing, they’re not so complicated as to be impossible to understand.
There are plenty of terms that are used in common language and aren’t specific at all. If a term seems unfamiliar or too technical for your liking, try looking it up on Google—you might find some great explanations there!