Sometimes something as small as a single word or phrase can create confusion within an otherwise informative article or YouTube video. This is why we’ve decided to begin a blog series of various vocabulary words and phrases explained simply.
- What Does “Liquidity” Mean?
Liquidity refers to the availability of an asset and how easily that asset can be bought or sold at the expected price. For example, I can trade $1000 for another $1000 very easily and not expect to receive more or less than $1000 for my $1000. However, if I use my $1000 to buy a rare doll, I cannot expect to receive that same $1000 if I wanted to sell the doll. I could earn far more if that doll happened to be in demand, or I could earn far less if I can’t find the right buyer, or if no one aside from myself valued it to be worth $1000.
In crypto trading, the more liquid a market, the more stable it is and the more likely you are to purchase crypto at the price you expected going into the trade. If the market has low liquidity, you’re more likely to enter a trade expecting to receive a certain amount of crypto, but end up receiving either more or less for the same price. This difference is referred to as slippage.
2. What is the “Blockchain”?
The blockchain is a public “ledger” or a live record of transactions taking place between individuals. There is a lot of complex technology and checks and balances going on here, but we’ll keep it as easy to understand as possible. Every time someone wants to send someone else crypto, they have to request that the blockchain be updated with their transaction. This is the only way for crypto to change hands, by essentially a consensus agreeing that that amount of crypto left one wallet and entered another. The reason it’s called a “blockchain” is because these transactions are displayed in a chain of blocks, and every single transaction is its own block.
3. What is”Bitcoin”?
Bitcoin is the original cryptocurrency, designed to address the problems presented by fiat currency (see below). It has a limited supply, capped at 21 million, and its highly secure blockchain is updated by a vast network of miners.
4. What is “DeFi”?
DeFi stands for decentralized finance, which is a general term for the many, many innovations blockchain technology and crypto currencies have allowed for. Learn more about it from our CEO, Nick Merten!
5. What is a “Bull Market”?
A Bull Market refers to a market that is trending upwards, or even expected to do so. There are no strict requirements to call a market a bull market (but a 20% uptrend is often considered the standard), so it is often surrounded with and used by optimists. Usually bull markets last extended periods of time. These upwards trending markets are called bull markets because when a bull attacks, they use their horns to stab upwards.
6. What is a “Bear Market”?
A Bear Market is essentially the opposite of a bull market (above). It refers to when a market is on the decline (a percentage often used is 20%). The reason they use the term “bear” is because when a bear attacks, it swipes in a downwards motion.
7. What is “APR”?
APR simply stands for “Annual Percentage Rate”. It refers to the percentage either charged or paid out annually. On a credit card, it refers to how much you’d have to pay on an annual bill, or the annual interest charged for taking out a loan. For example, in the Digifox app, if you deposit $100 into Celsuis at 10.94% APR, you will have about $110.94 by the end of the year (rates fluctuate and are volatile).
8. What is “Compound Interest”?
Compound interest refers to earning interest on your interest. Basically, in the above example, you would not actually only have $110.94 at the end of the year, because every single time you receive an interest payment (weekly, in the case of Celsuis, and every 15 seconds in the case of Compound), that interest is added to your principal (the original $100 you deposited) and then you’re no longer earning interest on just $100, you’re earning interest on $100.20 or whatever the interest payment added up to.
9. What Does “Staking a Coin” Mean?
Staking a coin is a less energy-consuming method of verifying transactions and securing a crypto blockchain. Instead of providing your proof-of-work (solving a math problem, like in the Bitcoin blockchain) to earn the right to update the blockchain with the next block, you just have to provide proof-of-stake.
To do this, you must “lock up” your crypto in a specific smart wallet in order to be chosen by the protocol to update the blockchain. Instead of “bidding” or competing with your computing power, how much you stake or “lock up” directly correlates to how likely you are to be chosen to update the next block. If you are chosen by the protocol to update the blockchain, you will receive a reward. How much of a reward you will receive varies depending on the network you’re on, how much of a coin you’ve staked, and so on.
In summary, staking a coin means using the crypto you already own to enter into a pool with other crypto-holders to be randomly chosen by the blockchain protocol to update the blockchain. It is less energy-consuming than mining, but still profitable, since you’re essentially rewarded for owning crypto and “staking” it in order to win the privilege of updating the blockchain.
10. What is “Fiat Currency/Onramp”?
Fiat currency is money backed by the government instead of a limited resource such as gold. Essentially, fiat currency only has value as long as the government stays in power and gives it value. For example, the U.S. dollar is backed by the U.S. military, which is run by the U.S. federal government.
A fiat onramp is simply a service which allows people to send their government-backed money to another platform. For example, we use fiat onramps like Moonpay and Gem to allow users to send money from their traditional bank or card to their Digifox wallet.
