Crypto Industry Lingo

Airdrop: A marketing tactic where free tokens or cryptocurrencies are distributed to users to promote a project. It is the developer’s or organization’s way of distributing cryptocurrency in a decentralized and democratic manner to increase the visibility and adoption of new projects within the cryptocurrency community.

Altcoin: Any cryptocurrency other than Bitcoin. 

Atomic Swap: A peer-to-peer exchange of cryptocurrencies without the need for a centralized exchange. 

Bitcoin: The first and most well-known cryptocurrency, created in 2009 by an anonymous individual or group known as Satoshi Nakamoto.  

Block: A collection of transactions that are bundled together and added to the blockchain as a single unit.  

Blockchain: A decentralized digital ledger that records transactions in a secure and immutable way. 

Byzantine Fault Tolerance (BFT): A property of a blockchain network that allows it to remain secure even if some nodes in the network are malicious. 

Capital Gains: The profit that an investor makes when they sell an asset for a higher price than they paid for it. In the case of cryptocurrencies, capital gains tax may be applicable when an investor sells cryptocurrency for a profit. 

Coin: A type of digital currency that operates on its own blockchain network. It is designed to be used as a medium of exchange or a store of value and can be bought, sold, and traded on cryptocurrency exchanges. Examples include Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Ripple (XRP).

Cold Wallet: A method of storing cryptocurrency offline in a physical device, such as a hardware wallet, to protect against online hacks and attacks. 

Consensus Algorithm: The method by which a blockchain network reaches agreement on the state of the ledger, such as Proof of Work or Proof of Stake.  

Consensus Mechanism: A process used by a blockchain network to verify transactions and maintain the integrity of the ledger. 

Cost Basis: The original value of an asset for tax purposes. In the case of cryptocurrencies, the cost basis is the price at which the cryptocurrency was acquired. 

Cost Basis Reporting: In some jurisdictions, cryptocurrency exchanges and brokers are required to provide cost basis information to their customers, which can help with calculating capital gains and losses. 

Crypto Wallet: A software application that allows users to store, send, and receive cryptocurrencies. 

Cryptocurrency: A digital or virtual currency that uses cryptography for security and operates independently of a central bank. 

Data Aggregator: Cryptocurrency market data providers are companies that collect and analyze data from various cryptocurrency exchanges and other sources in order to provide users with up-to-date information on cryptocurrency prices, trading volumes, market capitalization, and other key metrics. In addition to CoinGecko, other popular cryptocurrency data aggregators include CoinMarketCap, CryptoCompare, and Messari.

Decentralized Autonomous Organization (DAO): An organization that is run by smart contracts on a blockchain, with decisions made through a decentralized voting process. 

Decentralized Exchange (DEX): A type of cryptocurrency exchange that operates on a blockchain network and allows for peer-to-peer trading without the need for centralized authority. 

Decentralized Finance (DeFi): A financial system built on top of blockchain technology that is designed to be more open, transparent, and accessible than traditional finance.  

Decentralized Governance: A system of decision-making for blockchain networks that allows token holders to vote on proposals and changes to the network. 

Digital Currency: Refers to any form of currency or asset that exists in digital or electronic form and is created and managed using cryptographic encryption techniques. It can be used for a variety of purposes and represents a growing area of finance and technology. 

Digital Signature: An electronic signature that is used to verify the authenticity and integrity of a digital document or transaction. 

Distributed Ledger Technology (DLT): A general term for any decentralized database that is shared and synchronized across a network of nodes. 

Do Your Own Research (DYOR): A phrase commonly used in the cryptocurrency and investment communities to encourage individuals to conduct their own investigation and analysis before making investment decisions. It emphasizes the importance of being an informed investor and taking responsibility for your own investment decisions. It involves gathering information including reading the project’s whitepaper, team members, community, roadmap, and competition, and evaluating the information to make an informed decision. It involves assessing your own risk tolerance and financial situation before investing any funds.

Exchange: A platform that facilitates the buying and selling of cryptocurrencies for other cryptocurrencies or fiat currencies. 

Fiat: Government-issued currency that is not backed by a physical commodity, such as gold or silver. Fiat currency derives its value from government regulation or law, rather than from any inherent or intrinsic value. It is used as a medium of exchange in the economy and is generally accepted as a form of payment for goods and services. Examples of fiat currency include the US dollar, the euro, and the Japanese yen.

FIFO: Short for First-In-First-Out, which is a method of accounting for cryptocurrency transactions where the first coins purchased are assumed to be the first coins sold when calculating capital gains. 

Form 1099-K: A tax form used to report payment cards and third-party network transactions, which can include transactions involving cryptocurrencies. 

Form 8949: A tax form used to report capital gains and losses from the sale or exchange of assets, including cryptocurrencies. 

Gas: The fee paid in Ethereum for the execution of smart contracts or transactions on the network. 

Gas Limit: The maximum amount of gas that can be used in a single transaction on the Ethereum network. 

Gas Price: The price paid for each unit of gas used in a transaction on the Ethereum network. 

Halving: An event that occurs in some cryptocurrency networks, where the block reward for miners is cut in half, reducing the rate of new coins being created. 

Hard Fork: A significant divergence in the blockchain resulting in two separate chains with different transaction histories, resulting in the creation of a new blockchain. A type of fork where the new rules are not compatible with the old rules, resulting in the creation of a new chain with a different transaction history. 

Hash Rate: The measure of a miner’s computational power in solving the cryptographic puzzle required to mine a block on a blockchain network. 

Hashing: The process of converting data of any size into a fixed-size output using a mathematical function. 

HIFO: Short for Highest-In-First-Out, which is a method of accounting for cryptocurrency transactions where the coins with the highest cost basis are assumed to be the coins sold first when calculating capital gains. 

HODL: A term that originated from a misspelling of “hold,” which has become slang in the cryptocurrency community for holding onto cryptocurrency assets for the long-term. 

Holding Period: The length of time that an investor holds onto an asset before selling it. In the US the tax rate for capital gains can vary depending on the holding period of the asset. 

Hot Wallet: A wallet that is connected to the internet and is therefore more vulnerable to hacking and other security threats. Hot wallets are typically used for storing smaller amounts of cryptocurrency that are needed for frequent transactions or for trading on exchanges. 

Immutable: A property of a blockchain network where data that is recorded on the blockchain cannot be altered or deleted. 

Initial Coin Offering (ICO):  A fundraising method for new cryptocurrency projects. a fundraising method for new cryptocurrency projects where tokens are sold to investors in exchange for funding. 

Initial Exchange Offering (IEO): A fundraising method for new cryptocurrency projects where the tokens are sold on a cryptocurrency exchange. 

Initial Liquidity Offering (ILO): A fundraising method for new cryptocurrency projects that involves providing liquidity on a decentralized exchange in exchange for tokens. 

Initial Miner Offering (IMO): A fundraising method for new cryptocurrency projects where miners are given the opportunity to buy tokens before they are made available to the public. 

Initial Token Offering (ITO): An alternative term for an Initial Coin Offering (ICO), used by some projects to emphasize that their tokens have utility beyond just a currency. 

Layer 2 Solution: A secondary network built on top of a primary blockchain network to improve scalability and transaction throughput. 

Merkle Tree: A data structure used in a blockchain network to efficiently verify the integrity of large amounts of data. 

Mining: The process of creating new coins or tokens by solving complex mathematical equations.  In the US, mining income may be taxable as ordinary income. 

Mining Pool: A group of miners who combine their resources and computing power to increase their chances of successfully mining a block and earning rewards. 

Multisig: Short for multisignature, a feature that requires multiple parties to sign off on a transaction before it can be executed on a blockchain network. 

Node: A computer that connects to a blockchain network and helps to maintain the network by verifying transactions and storing a copy of the ledger. 

Non-Fungible Token (NFT): A unique digital asset that is stored on a blockchain and represents ownership of a particular item, such as artwork or collectibles. 

Oracles: Third-party services that provide data to a blockchain network, such as price data for cryptocurrencies. 

Private Blockchain: A blockchain that is only accessible to a select group of individuals or organizations. 

Private Key Storage: The secure storage of a user’s private keys, typically in a hardware wallet or cold storage device. 

Proof of Authority (PoA): A consensus algorithm that uses a group of pre-approved validators to validate transactions on a blockchain. 

Proof of Work (PoW): A consensus algorithm that requires miners to solve complex mathematical problems to validate transactions and earn rewards. 

Proof of Stake (PoS): A consensus algorithm that requires validators to hold a stake in the network to validate transactions and earn rewards. 

Protocol: refers to the set of rules and procedures that govern how the technology works. This includes the technical specifications, algorithms, and network architecture that underlie the cryptocurrency system. 

Private Key: A string of alphanumeric characters that is used to authenticate transactions in a cryptocurrency network. It is a secret code that is generated randomly and known only to the owner of a cryptocurrency wallet, and it is used to sign transactions to prove ownership of a specific cryptocurrency asset. A user’s private key is used to create a digital signature for each transaction they initiate. This signature is then broadcast to the network along with the transaction details and is used to verify that the user has the authority to initiate the transaction. Since private keys are used to access and manage a user’s cryptocurrency holdings, they must be kept secure and confidential. If a user’s private key is lost, stolen, or compromised in any way, they may lose access to their cryptocurrency assets permanently. It is important to keep private keys safe and backed up in a secure location.

Public Key: A string of alphanumeric characters that is associated with a specific cryptocurrency address in a cryptocurrency network. Unlike a private key, a public key is not kept secret and is intended to be shared with others. User’s public key is used to receive cryptocurrency transactions. When a user wants to receive cryptocurrency from another user, they provide them with their public key, which is a public identifier that is associated with their cryptocurrency wallet. The sender then uses the public key to initiate the transaction, which is then verified by the network and added to the blockchain ledger. Public keys do not need to be kept secret and can be shared freely. However, it is important to note that while public keys cannot be used to steal cryptocurrency assets, they can be used to track the flow of cryptocurrency on the blockchain ledger, which can compromise user privacy. It is recommended that users generate a new public key for each transaction to maintain privacy and security.

Rug Pull: A type of scam that typically involves a fraudulent project or token that is promoted as a legitimate investment opportunity but is designed to deceive investors and steal their funds. Developers of the project or token create hype around their product through aggressive marketing tactics or by partnering with well-known influencers in the crypto community. They create false or misleading information about the project, such as exaggerated claims about its features or partnerships. Once enough investors have invested their money into the project, the developers will suddenly abandon the project, taking with them all the funds that have been invested.

Satoshi: The smallest unit of measurement in Bitcoin, equal to 0.00000001 BTC. 

Satoshi Nakamoto: The pseudonym used by the unknown person or group of people who created the Bitcoin whitepaper and launched the Bitcoin network in 2009. 

Seed Phrase: Used to generate the private keys that are associated with a user’s cryptocurrency wallet, and they are used to recover the wallet if the original private key is lost or destroyed. The 12-word mnemonic phrase is designed to be easy to remember and difficult to guess, and it is often used as a backup measure to ensure that users can regain access to their cryptocurrency assets if their original private key is lost or stolen. It is advised that you keep your Seed Phrase in a safe place and only share it with those you’d share your bank account passwords.

Segregated Witness (SegWit): A protocol upgrade for Bitcoin that separates transaction signatures from the main transaction data, allowing for more transactions to be included in a block. 

Smart Contract: Self-executing contracts with the terms of the agreement directly written into lines of code that run on a blockchain network.  

Smart Oracles: A decentralized method of providing external data to a blockchain-based smart contract. 

Stablecoin: A type of cryptocurrency that is designed to maintain a stable value relative to another asset, such as the US dollar. A type of cryptocurrency that is designed to maintain a stable value relative to a fiat currency or asset, typically by being pegged to a specific value. 

Short-Term vs. Long-Term Capital Gains: In most jurisdictions, the tax rate for capital gains can vary depending on whether the asset was held for a short-term period (typically one year or less) or a long-term period (typically more than one year). 

Soft Fork: A type of fork where the new rules are backward-compatible with the old rules, allowing non-upgraded nodes to continue participating on the network. 

Tax Lot: A specific set of assets that an investor has purchased at different times and/or prices. In the case of cryptocurrencies, tax lots are used to calculate the cost basis of the cryptocurrency being sold. 

Taxable Event: A specific event that triggers a tax liability, such as the sale of an asset. In the case of cryptocurrencies, taxable events can include selling cryptocurrency for fiat currency or exchanging one cryptocurrency for another. 

Token: A digital asset that represents a unit of value or a utility within a particular blockchain ecosystem. 

Tokenomics: The economics of a cryptocurrency project, including the token distribution, supply, demand, and use cases. 

Token Swap: The process of exchanging one type of cryptocurrency or token for another, typically facilitated by a

cryptocurrency exchange or a decentralized exchange (DEX). 

Virtual Currency: A type of digital currency that is not issued or backed by a central authority, and is created and managed using cryptographic encryption techniques. It can be used for online transactions and is decentralized, but can still be subject to regulation and taxation in some jurisdictions. 

Wallet: A digital storage space that holds cryptocurrencies and allows users to send and receive them. 

Wallet Address: A string of alphanumeric characters used to identify a particular cryptocurrency wallet on the blockchain. 

Wash Sale: A transaction where an investor sells a cryptocurrency at a loss, and then repurchases the same or a substantially identical cryptocurrency within 30 days before or after the sale. Wash sales are not deductible for tax purposes. 

White Hat Hacker: An ethical hacker who uses their skills to identify and fix security vulnerabilities in a blockchain network. 

Whitepaper: A document that outlines the technology, goals, and potential use cases for a cryptocurrency project. 

Yield Farming: A process in DeFi where users can earn rewards by providing liquidity to liquidity pools on decentralized exchanges.