Investing can be intimidating, especially for beginners. Sometimes, you just don’t know where to start. So we thought it would be a good idea to shed a bit more light on the terms and expressions frequently used either on the ICONOMI platform or otherwise in the world of investing. Let’s start with some basics.
Welcome to the crypto world
First off, there’s this thing called cryptocurrencies, or just crypto. What is that in the first place? A cryptocurrency is a digital asset that uses cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Still confusing? How about ‘internet money?’
That’s all well and fine, but what on earth is cryptography? See, it’s not that simple after all. 😉 According to Wikipedia, cryptography means constructing and analyzing protocols that prevent third parties or the public from reading private messages. In essence, to prevent people from sticking their nose into your business.
By now, we’re sure everyone reading these lines has heard of Bitcoin. But there are so many other cryptocurrencies out there. And they even have a common name – Altcoins, or ‘Alts’ for short. Alts were conceived as an alternative to Bitcoin and therefore encompass all cryptocurrencies that are not Bitcoin.
Moving on – we’ve written before that Bitcoin and Blockchain are two different things. But what is blockchain anyway? This one’s a tough cookie, so we’ll just borrow from the internet: a blockchain is a growing list of records, called blocks, which are linked using cryptography. It’s basically a network of hundreds, sometimes even thousands of computers running software code that enables Bitcoin and Alts to exist and travel from one address to another.
Address? Like a postal address? Well, not quite. Similar to an email address, a blockchain address is an alphanumeric string of characters that represent a destination where crypto can be sent to and from. For example, a Bitcoin address looks like this: 3KbWWjumBGLBUWYCeidydxe1uET9QyWoEg. Harder to remember than your phone number, yes, so thank the universe for copy/paste.
An address usually involves the use of a public and private keys. And no, we’re not trying to confuse you, these things actually do exist, we swear!
So now you have your public and private keys. But where’s that Bitcoin? Technically, Bitcoin and other cryptocurrencies are always stored on the blockchain, you just move them with the help of private keys. You can do this using computer language, or make your life a lot easier and use a wallet. And no, not the thing you put in your back pocket. This one is different. A crypto wallet is software that allows users to store their cryptocurrencies in a user-friendly way.
You also might have heard of the term cold storage. Only without actually using a fridge. The term cold storage refers to preserving cryptocurrencies offline, which is generally considered a safer option, preventing your crypto funds to be stolen by hackers. This is especially important when dealing with a large amount of cryptocurrency.
At the end of the day, this is still finance
Having covered the basics, you either have invested or want to invest. And since you’ve come to ICONOMI, we’ll guide you through a phrase or two you might not fully understand.
Let’s start with the market price, which is the economic price for which a good or service is offered in the marketplace.
Apart from market prices, we also show the market cap of individual cryptocurrencies. A market cap (short for market capitalization) is the total capitalization of a cryptocurrency’s price. Essentially, the market price multiplied by the total number of coins that are circulating in the market.
Similar to a market cap for individual currencies, our Crypto Funds show something called AUM, or Assets Under Management. AUM measures the total value of assets invested in an individual fund.
Anyone wondering what an asset is? That one’s easy - an asset is any useful or valuable thing. Conversely, a digital asset (e.g. a cryptocurrency) is an asset that’s stored digitally and has no physical form.
In showing the performance of a crypto fund, we also show you its Volatility and Max drawdown. Nope, we’re not making words up just for fun. Volatility is the degree of variation of a trading price series over time. In plain English, how much the price of an asset swings up or down. Generally, the higher the volatility, the riskier the asset. Max drawdown, on the other side, is the highest loss from a peak (highest point) to a trough (lowest point) in a given time period. To draw from real life – in an amusement park, the higher the volatility and max drawdown, the louder the screams on the way down. Clearer?
Once you set up your own crypto fund (which can be done in a matter of minutes, btw), you have the option to rebalance the fund. This is easier to do if you actually know what it means. Rebalancing is the process of buying or selling assets to maintain an original desired level of asset allocation. For example, you designed your fund to contain 50% Bitcoin and 50% Ether. Let’s say Bitcoins price rises higher than that of Ether. You may end up with Bitcoin comprising 60% of your fund (or, since we’re smart now, 60% of your AUM). Rebalancing simply means selling some Bitcoin and buying some Ether so that their shares in your fund get back to 50% each. But let us do the complex math and trading, your job is finished with a few simple clicks.
Another look at rebalancing is changing the weights of individual assets in your fund (e.g. if you want Bitcoin to represent 30% of your fund instead of 50%), adding new assets to your fund or removing existing assets from your fund structure.
But how do you know whether you’ve won or lost money from your investments? Worry not, we’ve got you covered. 😉 We’ll also show you your returns. A return, also known as a financial return, in its simplest terms, is the money made or lost on an investment over some period of time. We want to make your life easier and call this profit (or, god forbid, loss).
In crypto, you’ve surely heard of ATH, especially in the case of Bitcoin. ATH means All Time High, i.e. the highest price ever reached by a cryptocurrency. Conversely, ATL, or All Time Low, is the lowest price ever reached by a cryptocurrency.
Then there’s FOMO and FUD. Again, no, these are not jams, but established terms in the vocabulary of the crypto world.
FOMO, or Fear Of Missing Out, is the driving force behind enormous price increases in times of bull markets (more here).
FUD, short for Fear, Uncertainty, and Doubt, however, refers to very dark and unsettling times regarding the future of something. It commonly results in panic selling, leading to sometimes massive drops in prices of cryptocurrencies. Some (among the bravest of) investors regard FUD as a buying opportunity as prices tend to rebound after dramatic drops, but that is not a game for the faint of heart, so proceed with caution.
There’s one word you’ll never hear in the “old” world
Last but not least, we have showed you that investing is a marathon, not a sprint. Often, our best advice is to keep calm and hodl. Say what? Ok, that one isn’t actually a word, but has become synonymous with long-term investing in crypto. The word itself stems from a legendary typo on the bitcointalk forum way back in 2013 (where a crypto investor wanted to use the word “hold”, as in - don’t sell), which inadvertently lead to the formation to one of the very few words existing exclusively in the crypto vocabulary and found nowhere else. So if you hear some say they are a hodler, it simply means they are not selling their crypto investments but waiting for the price to go up.
So there you go, we hope we have made your crypto journey easier to understand, or maybe you even learned a word or two. Thank you for your time. HODL! 🖖🏼
Many thanks to the good people of Data Driven Investor who have compiled a massive crypto vocabulary – you can find tons more stuff here.