Blockchains are underlined by a protocol, that is, a set of rules dictating how data is exchanged, shared and communicated. These rules are common knowledge to all participants on a blockchain. Changes in these rules or a break down of these rules results in temporary and permanent (soft and hard) forks.
- Temporary Fork: Protocols dictate the consensus process needed to validate transactions. One miner finds the target hash and is communicated to all other miners. Nonetheless, when two or more miners find a target hash at the same time or a few seconds after each other, there is a break in the consensus formation process and the blockchain is temporarily split into two. One part will validate one miner’s transaction and another part the other miner’s transaction. A temporary fork is corrected when one part of the split chain validates the next block of transactions making it the ‘true’ chain while the other part is discarded. The Ethereum platform goes further by rewarding ‘uncle blocks’ i.e. hashs that are valid but are not included in the block.
- Hard Fork: A hard fork can be planned or controversial. A planned hard fork is initiated by the developers and captured in the currency’s roadmap document. A controversial hard fork implies that two incompatible sets of rules try to govern the blockchain and generally involves the creation of a new cryptocurrency. Users of the original blockchain then have to choose which set of rules to follow.
- Soft Fork: A soft fork is usually deliberate (initiated by the developers) and involves upgrades to the system for all users.
Fear, Uncertainty and Doubt. People who define bitcoin as a bubble and do not believe in cryptocurrencies are called FUDsters. Negative news on cryptocurrencies are usually spread through social media and are based on FUD. Negative media coverage makes cryptocurrency prices volatile.
- Hard cap
This is the maximum amount a crowdsale will receive. If an ICO reaches its hard cap, they will stop collecting any more funds.
Hashing is the process of using algorithms (mathematical formula) to generate a unique encrypted identifier, to validate transactions on a blockchain. Each block in a blockchain is made of up of data (details about the transactions), a hash of the previous block and a hash of the current block. A hash is fixed in length hence regardless of the number of times the same transaction is inputed, it will produce the same output (hash). Any change (even minor changes) to the original transaction produces a different hash to the original. Thus, hashing assists with the security of transactions on the blockchain. On the Bitcoin blockchain, it takes approximately 10 minutes to generate a hash while it takes 2.5 minutes on the Litecoin blockchain.
Hold on For Dear Life -The word is intentionally spelt HODL from hold, which is used by cryptocurrency enthusiast especially in the Bitcoin community to refer to holding cryptocurrency and not selling it. When prices are highly volatile, you HODL!
- Initial Coin Offering (ICO)
This is similar to an IPO (Initial Public Offering), an ICO is an unregulated fundraising mechanism used by new cryptocurrency ventures in which they sell their underlying crypto tokens in exchange for popular cryptocurrencies like Bitcoins or ether. It is used to fund the development of the new crypto token. ICOs are unregulated by institutional regulatory agencies such as the US Securities and Exchange Commission (SEC). This characteristic of an ICO has two impacts: (a) it allows startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks (b) makes an ICO prime for fraudulent activities.
- Limit Order
This is an order placed by traders to buy or sell a set amount of cryptocurrency or tokens at a particular price or when the price reaches a certain limit. A buy limit order can only be executed at the limit price(or lower) while a sell limit order can only be executed at the limit price (or higher).