Lesson 3 — Crypto Terminology Essentials

In crypto, you will come across many new terms. Understanding these terms is important before you start investing or trading. In this lesson, we will learn the most commonly used crypto terms in simple language.

1. Market Cap

Market capitalization, or market cap, is the total market value of a cryptocurrency. It is generally calculated by multiplying the current price by the circulating supply.

A simple formula is: Market Cap = Price × Circulating Supply.

2. FDV

FDV means Fully Diluted Valuation. It estimates the value of a cryptocurrency if all the tokens that can eventually exist were already in circulation.

FDV is useful because a coin may have a small market cap today, but a much larger valuation when more tokens are released.

3. Circulating Supply

Circulating supply is the approximate number of coins or tokens currently available in the market.

It is important because market cap is calculated using circulating supply.

4. Maximum Supply

Maximum supply is the maximum number of coins or tokens that can ever exist according to the project's rules.

Not every cryptocurrency has a fixed maximum supply.

5. Liquidity

Liquidity means how easily you can buy or sell an asset without causing a large change in its price.

Highly liquid cryptocurrencies normally have many buyers and sellers and can handle larger trades more easily.

6. Volume

Trading volume shows how much of an asset has been traded during a particular period.

High volume generally means there is more trading activity in the market.

7. Funding

Funding is mainly used in perpetual futures contracts. It is a payment exchanged between long and short traders.

Funding helps keep the perpetual contract price closer to the underlying market price. The funding rate can be positive or negative.

8. Bull Market

A bull market is a period when prices are generally moving higher and market sentiment is positive.

In a strong bull market, investors often become more confident and more willing to take risk.

9. Bear Market

A bear market is a period when prices are generally falling and market sentiment is weak.

Crypto bear markets can be very sharp and can last for a long time.

10. HODL

HODL is a popular crypto term for holding an asset for a long period instead of frequently buying and selling.

The term originally came from a misspelling of the word "hold."

11. DCA

DCA means Dollar Cost Averaging. It means investing a fixed amount at regular intervals instead of investing the entire amount at one time.

For an Indian investor, the same idea can be applied using a fixed amount in Indian Rupees at regular intervals.

12. Wallet

A crypto wallet is used to interact with blockchain assets. It manages the private keys or credentials needed to control your assets.

Wallets can be software wallets or hardware wallets. Your private keys and recovery phrase must be protected carefully.

13. Layer 1

Layer 1 is the main blockchain network.

Bitcoin, Ethereum and Solana are examples of Layer 1 blockchains.

14. Layer 2

Layer 2 is a system built on top of a Layer 1 blockchain to improve scalability, speed or transaction costs.

Many Layer 2 networks are built around the Ethereum ecosystem.

15. Meme Coins

Meme coins are cryptocurrencies that are often based on internet culture, memes, communities or popular trends.

Their prices can be extremely volatile and may depend heavily on community interest and market sentiment.

16. Stablecoins

Stablecoins are crypto assets designed to maintain a relatively stable value compared with a reference asset, usually a fiat currency.

USDT and USDC are examples of widely used stablecoins.

17. Gas

Gas is the fee paid for performing transactions or using certain applications on a blockchain network.

The amount of gas required can change depending on the network and the level of activity.

18. Staking

Staking generally means committing crypto assets to support a proof-of-stake blockchain network.

In return, participants may receive rewards according to the rules of that network.

19. DeFi

DeFi means Decentralized Finance. It refers to financial applications built using blockchain and smart contracts.

DeFi applications can provide services such as trading, lending, borrowing and other financial activities.

20. CEX

CEX means Centralized Exchange. It is a company-operated platform where users can buy, sell and trade crypto assets.

Binance and CoinDCX are examples of centralized crypto exchanges.

21. DEX

DEX means Decentralized Exchange. It allows users to trade crypto assets through blockchain-based protocols and smart contracts.

Unlike a traditional centralized exchange, a DEX does not operate in exactly the same way as a company-controlled trading platform.

22. Fear and Greed Index

The Crypto Fear and Greed Index is a sentiment indicator designed to show whether market sentiment is closer to fear or greed.

Extreme fear can indicate that investors are very nervous, while extreme greed can indicate strong optimism and risk-taking.

It is a sentiment indicator, not a guaranteed buy or sell signal.

23. Whales

Whales are individuals, companies or entities that hold a very large amount of a particular cryptocurrency.

Large transactions by whales can sometimes influence market liquidity, price and investor sentiment.

Key Takeaway

You do not need to memorize every crypto term immediately. But you should understand these basic terms before you start investing or trading.

In the coming lessons, we will use many of these terms while discussing exchanges, market cycles, research, trading and investment strategies.