Financial Education

10 (More) Financial Terms You Should Know (Part 2)

November 11, 2020

Sometimes something as small as a single word or phrase can create confusion within an otherwise informative article or YouTube video.  This is why we’ve decided to begin a blog series of various vocabulary words and phrases explained simply. This is the second installment in this series.

1. Ethereum

Ethereum is an open-sourced, programmable blockchain platform created after Bitcoin with the intention of taking the original concept of Bitcoin, and giving it the opportunity to grow into multiple applications.  There are numerous services available on Ethereum which utilize the blockchain technology, and most of them relate to financial services, such as decentralized exchanges and savings tools.  Ethereum also has its own cryptocurrency known as “ETH”.

The potential consequences of default includes raised interest rates and a damaged credit score which can make it incredibly difficult to get a loan in the future.    

2. Yield Farming

Yield farming is very similar to staking a coin, in the sense that you lock up your assets and in return, get paid.  The difference is you are not using your tokens to secure an updated blockchain, which is what staking’s primary purpose is.  Instead, you’re using protocols such as Compound to earn high yields.  Serious yield farmers might move around their assets from protocol to protocol in search of the highest rewards.  

3. Altcoin

An Altcoin is a term used for all coins that are not Bitcoin.  They are called “Altcoins” because they were created as an alternative to Bitcoin.

4. Non-Custodial/Custodial Wallet

Digifox is a non-custodial wallet.  A non-custodial wallet is a crypto wallet which allows the owner of said wallet to be entirely and solely responsible for the security of their funds.  The owner must keep track of their wallet address and their seed phrases in order to maintain access to their crypto.  This is very secure, but also presents the serious risk of having absolutely no way to recover funds if any of the necessary information is lost.  In the cases of Digifox, your seed phrases are actually stored on your device, so there is no risk of losing your funds due to human error.

Celsius is an example of a custodial wallet, which is a wallet backed up by a company.  Though some might be concerned by this, the reality is the risk of losing funds is seriously reduced and even if a phone or password is lost, a wallet can still be recovered along with the assets stored inside.  

5. Inflation

Inflation is when the purchasing power of your currency or asset is decreased.  Increasing prices are a major indicator of inflation, and is caused by an overall increase in the volume of the currency or asset in circulation or existence.

6. Default

To default means to fail to pay back a debt (principal owed plus interest) according to the requirements laid out in the original contract or agreement.  It may not technically be in default right away depending on the contract, but failure to make appropriate payments will eventually result in default.

7. Collateral

Collateral is an asset used to insure a loan in case of a default.  If a loan is defaulted on, the collateral becomes the property of the loaner in order to help cover the cost of the loan.  Cars, houses, stocks, and bonds can all be used as collateral.  Specific crypto, though volatile in value, can also be used as collateral for loans in DeFi.  

8. Litecoin

Litecoin is a cryptocurrency known to be faster than Bitcoin due to more frequent block updates in the blockchain.  There are expected to be 84 million Litecoins eventually put into circulation, and is one of the most popular cryptos in existence after Bitcoin, Ethereum, and Ripple XRP.

9. Sharding

Sharding is a technique used to scale blockchains and transactions, allowing for faster processing of new transactions.  Instead of making all nodes in a network come to a consensus in order to update the blockchain with new transactions, it splits the blockchain into many different “shards” with their own nodes who maintain their own date and transaction history.  Sharding is primarily being tried and tested on the Ethereum blockchain.  

10. HODL

HODL stands for “hold on for dear life” and is a term used when someone intends on holding their crypto currencies instead of swapping, trading, or selling.  

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