Analysis | What is a cold wallet? A guide to popular crypto terms


The crypto community has a lexicon of buzzwords and slang that may seem like a foreign language to the uninitiated. When digital assets crashed in 2022 and euphoria gave way to despondency, the terminology also changed. Here’s a guide to new and old terms to know.

This reference to a prolonged decline in crypto markets was used for the 2018 crisis which wiped out up to 88% of the market value of all crypto assets. It reappeared in 2022 as digital tokens crashed again, with Bitcoin dropping 76% from its November 2021 peak to mid-November 2022.

● Cold Storage/Hot Wallet

Cautious crypto users keep their coins in what’s called cold storage, usually on a hard drive that isn’t connected to the internet, so they’re harder for hackers to steal. Hot wallets are where funds are held online or with an exchange and ready to be exchanged. When crypto exchange FTX filed for bankruptcy in November, it moved some customers’ digital assets into cold storage to protect accounts.

Decentralized financial platforms allow people to lend or borrow crypto assets, bet on the evolution of their value or trade them. Unlike corporate-run crypto exchanges with offices and paid employees, DeFi typically operates through automated user-designed contracts. The collapse of stablecoin TerraUSD and its associated DeFi site, Anchor, in May raised broader questions about whether certain crypto products may be fraudulent schemes luring investors in with unsustainable returns.

Risk-taking crypto investors place their coins on yield farming platforms to make a profit. A typical strategy is to lend one token, borrow another, and earn yet another token. At one point, investors were getting triple-digit returns from such complex combinations. All of this lending and borrowing of different tokens means that if one farm yield arrangement runs into trouble and depositors start withdrawing funds, it could drag several others with it.

They are software platforms connecting cryptographic services that cannot otherwise communicate with each other. They allow users to move tokens from one blockchain to another. These links make it easier for crypto users to invest in a multitude of different projects. They also make the ecosystem more interconnected and more vulnerable if weaker entities run into trouble.

These crypto investors believe that the original digital coin is the only one the world will ever need. They stick to this view and dismiss concerns about its volatility and vast power consumption.

Some crypto tokens aim to peg their value to another asset to make them more stable than highly volatile currencies like Bitcoin. Most stablecoin issuers claim to maintain stability by buying safe assets like US dollars. However, the largest stablecoin project, Tether, was fined by the US Commodity Futures Trading Commission in 2021 for misleading customers when it claimed the token’s value was “entirely secured” by fiduciary assets. Interest in another category, algorithmic stablecoins, plummeted when the system used by the TerraUSD token to manage supply and demand failed.

A non-fungible token confirms unique ownership of a digital asset. NFTs have been most commonly used for digital art or collectibles such as music videos, memes, or items used in online games. At the height of crypto mania in early 2022, NFT series such as Bored Ape Yacht Club and CryptoPunks were raking in millions of dollars, fueled by celebrity endorsements such as Paris Hilton and Snoop Dogg. By June, prices for many NFT collections had crashed.

A vision of a more decentralized World Wide Web based on cryptographic technology that empowers Internet users from giant tech companies. Proponents say the current model, known as Web 2.0, gives too much control to a handful of platforms that track our online activity and monetize information through advertising. Web 1.0 refers to the early days of the Internet, when it was simply a means of remotely accessing static pages of text and images.

Slang swap for “crypto winter”

HODL: A meme dating back to a typo that implores traders to keep ‘hodling’ their nerve through wild gyrations. Today is also “Hold on for life”.

WAGMI: “We’ll all get there.” Used by crypto fans to show support for each other or to inspire confidence in a project. You can guess what NGMI stands for.

Rekt: Short for “castaway,” this term describes a big loss or liquidation caused by a bad investment or misguided trade.

Applying to McDonald’s: During times of declining crypto assets, traders joke about working at the burger chain instead as they lament their dotted fortunes.

–With the help of Muyao Shen.

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