7 relatively new cryptocurrency terms to learn
Cryptocurrency is a concept that is sometimes hard to describe in the modern vernacular. Like so many other industries, the crypto industry has had to work around the limits of language in order to find ways to properly express certain ideas. A whole new vocabulary has risen out of that effort. From 'crypto' to 'stablecoin' and 'central bank digital currency', there are new terms entering the lingo every day.
This post highlights seven of the obscure terms. All but a few are relatively new; some you would never need to know as a casual Bitcoin investor who only dabbles in cryptocurrency to shop online or play a favorite video slot game.
Bitcoin has matured to become as much of an investment as a monetary system. Some other cryptocurrencies have as well, but Bitcoin is the king. Thanks to its market capitalization and trading volume, serious investors employ many of the same strategies they would use to buy stocks, bonds, etc. One of those strategies is known affectionately as 'hold on for dear life' (HODL).
The HODL investing strategy is very much a long-term strategy. It is based in the belief that any investment will make money if you leave it alone long enough. So, have you ever read stories about Bitcoin investors who got in when the price was pennies per coin? Many of them are millionaires now. Their secret is that they held on to the majority of their coins for years.
The 'dear life' portion of this definition is indicative of a willingness to ride out bear markets. As this post was being written, Bitcoin was in the midst of one of the worst bears it has seen in a while. After starting the year at roughly $3,000 and approaching a peak of about $13,000, Bitcoin began to fall over the summer. It was trading at just under $7,000 at the time of this writing.
Anyone who adheres to a HODL investing strategy is standing fast. Some are even buying more coins as the price falls. Buying during bear markets is actually a very popular strategy among whales who learned their lesson way back when they bought at pennies per coin. If you have the stomach for it and the time to wait, HODL is an amazingly effective strategy for turning a profit.
FOMO and JOMO
These two terms are often described together because they are opposite sides of the same coin. FOMO is an acronym that stands for 'fear of missing out'; JOMO stands for 'joy of missing out'. They both describe opposite perspectives that relate to how cryptocurrency markets perform.
Perhaps you've read stories of Bitcoin millionaires who bought way back in the early days. You think to yourself, "I could have been a millionaire today if I had just invested in 2010." Such thoughts encapsulate what fear of missing out means. You kick yourself for not having purchased back then, but you're bound and determined not to make that same mistake. So you buy Bitcoin just when you think the price is about to surge. You are willing to take the chance because you do not want to miss out on big gains.
The opposite side of that coin is the joy of missing out. Remember when Bitcoin peaked at about $20,000 back in 2017? It wasn't very long after that peak that prices began plunging. Imagine being someone who bought at $19,000 only to see the price fall to $10,000.
You would be absolutely ecstatic to know that you didn't buy at peak. You missed out on the big crash, to your own financial advantage. That is where the joy of missing out comes into play. You are happy you missed out on the bear even though you might be a little disappointed that you missed out on the previous bull.
Bear and bull markets
As long as we are talking about bears and bulls, let's define those two terms as well. Both are terms applied to the world of investing. A bear market is a market in decline while a bull market is one on the rise. It is not clear where the two terms came from. Indeed, there is plenty of debate over their etymology.
At any rate, there are investors who wait for bear markets to buy. They are confident that falling prices will eventually stabilize and rise once again. As such, they employ a strategy of purchasing when they think the price is nearing its bottoming out point. Then they buy as much as their budgets will allow.
More than one Bitcoin whale has made a fortune doing so. If you follow cryptocurrency news, pay attention to what the whales are doing during bear markets. You will notice they tend to accumulate coins while everyone else is selling. You can tell because trading volume remains pretty static but the price continues to drop.
Bull markets tend to have the opposite effect on casual investors. They began seeing the market rise and they are motivated to get in. The dangerous thing about bull markets is that they can lead to pump and dump schemes. A pump and dump scheme occurs when a small number of investors aggressively pump a specific asset for the sole purpose of increasing its price. Once they think the price is as high as it will go, they dump their holdings, take their profit, and run.
Central Bank Digital Currency (CDBC)
Next up is the CDBC. Of all the terms in the cryptocurrency glossary, this one may be the newest. It was derived to describe digital monetary systems developed by central banks. There are some distinct differences between CDBCs and traditional cryptocurrencies, making the new term necessary.
It was okay to use the term 'cryptocurrency' as a catch-all back in the day. For example, we would call both Bitcoin and Ethereum cryptocurrencies. But they are not. Bitcoin is a cryptocurrency platform while Ethereum is a blockchain development platform. Likewise, to refer to digital monetary systems created by central banks as cryptocurrencies would be a disservice to the real thing.
The central component of a CDBC is the entity behind its creation. A CDBC is created by a central bank as a companion to, or a replacement of, fiat. China's new CDBC is a good example. For the time being, the People's Bank of China intends that it be used alongside yuan. Eventually though, they hope to replace their fiat altogether.
What makes CDBCs different? Consider the following:
- Control - A true cryptocurrency is controlled by no one individual or entity. It is completely decentralized, meaning control rests in the hands of everyone involved. That includes developers, coin miners, investors, and even casual users.
- Manipulation - Control equals manipulation in the financial world. A CDBC can be manipulated by the central bank that created it, in the same way central banks manipulate fiat. Private cryptocurrencies are free from such manipulation, for the most part.
- Permissions - A cryptocurrency is permissionless, which is to say that anyone can get a hold of a copy of the blockchain for whatever purpose. You can download a copy of Bitcoin's blockchain if you wanted it. That is not the case with a CDBC. Where the Bitcoin blockchain is kept secure through encryption and consensus, a CDBC blockchain is kept secure with permissions.
- Legal Status - CDBCs are intended to be legally recognized currency similar to fiat. Cryptocurrencies are not. In the eyes of government, a cryptocurrency is merely a digital payment system. Cryptos do not carry the same weight as fiat or CDBCs in terms of being legal recognition.
There are some other technical differences between cryptocurrencies and CDBCs, but they are not worth discussing here due to the many CDBC projects now in development. Suffice it to say that a CDBC is developed and controlled by a central bank for the purposes of replacing or complementing fiat.
Finally, pseudonymity relates to how user and transaction information is kept private on a blockchain network. Pseudonymity is the order of the day inasmuch as true anonymity does not really exist. The closest thing to true anonymity is the system employed by Monero, but even that can be breached with enough time, effort, and resources.
The idea of pseudonymity comes from the literary world. An author who writes under a pseudonym is protecting his or her real identity by using a different name. In the blockchain world, the same concept is applied to information found on the blockchain ledger.
Whenever you complete a Bitcoin transaction, information about that transaction and your wallet is added to the blockchain. Encryption is used to protect that information from spying eyes. Someone randomly downloading Bitcoin's blockchain from the internet would certainly have access to millions of alphanumeric characters written across millions of lines of code. But it would be meaningless because the viewer would not understand what it meant.
As such, your transactions and Bitcoin addresses are protected by alphanumeric pseudonyms. It is technically possible to decrypt the data, but the amount of time and resources necessary to do so makes it impractical. As such, Bitcoin is quite secure.
Hopefully, this post has helped you better understand some of the more of obscure cryptocurrency terms. Happy trading and may the bulls be with you!