Crypto ABC’s Part III

Credit to Nick Black and the Crypto and Coffee Team!

Game theory: The process of modeling the strategic interaction between two or more players in a situation containing set rules and outcomes, often employed by Nick Black to determine the best strategy for profiting from a crypto investment.

Gas: The unit used to calculate the computational effort required to execute a transaction on the Ethereum network; in essence, the amount of gas required sets the transaction fee. The Neo cryptocurrency also uses the gas method to calculate fees.

Genesis block: The very first block of data created in a blockchain.

Ghost chain: A cryptocurrency with a high market cap but little to no real-world usage. Frequently used as an insult, often without justification.

Halving or halvening: An event in which the block reward given to miners for solving a block is cut in half. Bitcoin has had three halving events so far. The first reduced the mining reward from 50 bitcoins to 25; the second reduced it to 12.5 bitcoins; the third reduced it to 6.25. This type of event only applies to cryptos that use a proof-of-work (PoW) system.

Hardware wallet: A physical device designed specifically to store the private keys of your cryptocurrency offline (in cold storage). These devices are sold commercially.

Hash rate: The speed at which a computing device (e.g., mining hardware) can convert a set of data into a “hash” – an alphanumeric string of characters. It’s described in hashes per second. So a “megahash” is 1 million hashes per second, and a “gigahash” is 1 billion hashes per second. The power of mining hardware is determined by its hash rate – the higher the better. The higher the hash rate of your mining equipment, the more likely you are to solve a block and receive the block reward.

HODL: A term that describes a crypto investor’s determination not to sell regardless of price action. A person who does this is called a “HODLER.” Originally a misspelling of the word “hold” in a Bitcoin forum post in 2013, it is invoked often by crypto enthusiasts on social media. Also understood to stand for the phrase “hold on for dear life,” as derived from the component letters.

Hot wallet or hot storage: A cryptocurrency wallet connected to other networks or the Internet, and thus considered more vulnerable to hackers.

Hoskinson, Charles: Co-founder of Ethereum and founder of the Cardano (ADA) cryptocurrency.

Howey test: A test created in 1946 by the Supreme Court to determine if an investment fits the definition of a security. Using the Howey Test, the Securities and Exchange Commission (SEC) views most Initial Coin Offerings as securities – meaning they were sold to the public illegally. The criteria are: 1) whether money was invested; 2) whether the investor has an expectation of profits; 3) whether the invested funds are pooled in a common enterprise; and 4) whether any profits made derive from efforts and operations outside the investor’s control.

ICO: Stands for initial coin offering, a form of crowdfunding done in which an organization creates a cryptocurrency and then offers a portion of the total for sale to buyers. The money raised is used to fund the project, much as capital raised in a stock IPO is used to fund a new company. Some ICOs were later revealed to be scams that simply stole investors’ money. Also, the format used by most ICOs runs afoul of the Howey test, making most of them illegal.

Lee, Charlie: Lee is the computer scientist responsible for the creation of Litecoin (LTC), which he based on the open-source Bitcoin code. He sold nearly all of his Litecoin in 2017 to avoid the appearance of a conflict of interest. He remains the managing director of the Litecoin Foundation. His brother, Bobby Lee, founded the Chinese cryptocurrency exchange BTC China.

Lightning Network: A second layer on top of a blockchain network that enables near-instant, low-cost, secure transactions by creating payment “channels.” Plans are for the fully developed networks to allow for millions of transactions per second (a credit card system like Visa can process 45,000 per second). When fully developed and deployed, Lightning will solve Bitcoin’s scaling issues. Lightning also facilitates atomic swaps between different cryptocurrencies.

Litecoin (LTC): A cryptocurrency derived from Bitcoin’s code base by Charlie Lee and released in October 2011. Employs faster block generation times than Bitcoin (2.5 minutes rather than 10 minutes), a larger maximum number of coins created (84 million rather than 21 million), and a different hashing algorithm.