Blockchain Jargon Buster

Confused by crypto? Baffled by blockchain? Then read part one of Blockchain Jargon Buster – our new series which aims to explain, in simple terms, the technical terminology and street slang used in the crypto industry.

ICO – or an Initial Coin Offering, is an unregulated process by which funds are raised for a new crypto venture via the issue of a cryptographic token. Because this form of fundraising is (largely) unregulated it has a number of advantages for issuing companies, especially in terms of reduced time and costs.

The first ICO was completed in early 2013 by asset platform Mastercoin (now known as Omni) and over the following years they became an increasingly popular and alternative way for companies operating in the blockchain and related industries to raise funds for expansion. After an explosion seen in 2017and 2018, funds raised through ICOs are now starting to decline as a result of the fall in the price of cryptocurrencies, along with regulatory and legal concerns.

STO – Security Token Offering. A security token is type of cryptoasset which exists on a blockchain but with the key characteristic that it meets the UK regulatory definition of being a “Specified Investment”, like shares or a debt instrument. Security tokens are classed as securities because they grant certain rights to holders associated with traditional securities, like ownership of a company/asset, voting rights or rights to a share of the profits. STOs see the initial issuing of a security token and are becoming increasingly popular as token issuers want to avoid the associated risk of issuing an unregulated instrument.

Tokenised Security – similar to a security token but with one key difference. While security tokens are initially created on the blockchain, a tokenised security first existed in another form, such as a paper share certificate, and was then “tokenised”. This process effectively sees a new “wrapper” put around an existing asset with a view to improving liquidity.

Stablecoin – as an answer to one of the main drawbacks of cryptocurrencies, extreme price volatility, stablecoins were created. In order to minimise volatility, the value of a stablecoin is pegged to another stable asset such as a currency, like the US dollar, or commodity, such as gold. The value can also be stablised by a specially designed algorythmy. With a current market cap of just over $2 billion, Tether (USDT) is perhaps the best known stablecoin. Pegged to the US dollar, Tether is designed to trade at a price of $1 and is 100% backed by fiat currency assets which are held in a reserve account.

BTC – just like stocks and shares, crypto currencies have their own short “code” or “ticker symbol”. BTC stands for the ubiquitous and market leading Bitcoin, the first cryptocurrency ever made in 2009 by the mysterious Satoshi Nakamoto. Bitcoin holders saw the price of their cryptocurrency rise from as low as 6 cents in mid-2010 to a peak of just over $20,000 in December 2017, before it slidto just under $4,000 as we write in February 2019.

ETH – the ticker symbol for Ether (often mistaken as Ethereum), currently the second largest cryptocurrency by market cap behind Bitcoin. Ether’s blockchain is generated by Ethereum – a decentralised platform that runs smart contracts (see below). Ether is used to pay for transaction fees and computational services on the Ethereum network and is and the token with which miners are rewarded for producing blocks.

Gas – Ether (above) is used to pay for “gas”, a unit which measures how much work an action or set of actions takes to perform. Every operation that can be performed by a transaction or contract on the Ethereum platform costs a certain amount of gas, with operations that require more computational resources costing more gas than operations that require few computational resources.

TPS – stands for Transactions Per Second, the number of transactions completed every second by an information system, used to determine how fast a platform or network is at executing transactions. The Ripple settlement system, which uses the cryptocurrency known as XRP, consistently handles 1,500 transactions per second. This compares to Ethereum at around 15 and just 7 for Bitcoin.

HODL – a slang term amongst the crypto community which means a crypto owner is holding on to a coin rather than selling it, often in the midst of a tumble in its price. The term originated from a (possibly intoxicated) user of the bitcointalk.org forum who said that he would be “hodling” his Bitcoin despite the price having crashed. What originated as a spelling mistake has been turned into an acronym, with HODLers now being said to Hold On for Dear Life.

SHILL – to promote, hype, pump, plug, tout or generally shout about the prospects for a cryptocurrency or digital token (often unjustifiably) in order to attract buyers. The intention is to create a buzz around the crypto asset so its price rises and the “shiller” can make a profit – a bit like “pumping and dumping” shares. Shilling is often done via popular internet forums, websites and social media and can be done by the holder of the asset or by paid for goons.

Moon – large object which orbits the Earth at an average distance of 238,855 miles and hoped for destination of cryptocurrency prices by holders. Reaching the moon, or “mooning” means that a crypto asset has spiked in price and holders have a (often very brief) opportunity to sell out and retire to a desert island.

Smart Contract – a binding virtual agreement between two or more parties where the terms are written into lines of code on a decentralised blockchain network. Smart contracts can be used for a range of activities, from share trading to employment contracts, rental agreements to property sales. They are self-executing and self-enforcing contracts, being governed by explicit terms and conditions laid out within them. First proposed by computer scientist Nick Szabo in the 1990s, smart contracts have a number of advantages over traditional contracts including improved accuracy, transparency, trust and the elimination of often expensive middlemen like lawyers and estate agents.

On-chain – when a transaction in a cryptocurrency/token is carried out “on-chain” is has occurred on the blockchain, being verified by the community and stored on the public ledger.

Off-chain – in contrast to on-chain transactions, off-chain transactions take the value of the transaction outside of the blockchain. For example, when two parties agree to settle a debt between themselves or even when tokens are moved on to another blockchain which can support transactions. They have a number of advantages over on-chain transactions, including faster processing times, the elimination of transaction fees and greater anonymity of transactions.

If you are interested in participating in a token offering or would like to raise funds then find out more on the Crowd for Angels site here: https://crowdforangels.com/learn-about-tokens

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