businessman on phone

Popular Terms Every Crypto Beginner Needs to Know

Cryptocurrency is an exciting new technology that has strongly impacted the financial sector in its short existence. Bitcoin, the first cryptocurrency, was launched in 2009.

Like any new technology, cryptocurrency has introduced a host of new terminology and phrases with subtle or clever meanings perhaps unbeknownst to the average person. For a crypto beginner, learning these nuanced phrases and acronyms might help to buy the dip and HODL through a wave of FUD. (By the end of this article, you’ll know exactly what that means.)

Recommended: Crypto 101: A Beginner’s Guide

16 Crypto Slang Terms to Know

1. FOMO

FOMO stands for “fear of missing out.” FOMO happens across all parts of life. In this context, it’s a common investor psychological state in which an investor feels a combination of panic and envy for not having an active position in a powerful market move from which others are benefiting.

In crypto, this typically refers to when a sharp bullish breakout occurs and anxious investors debate whether or not to buy into an already high-priced market in hopes they will be along for the remainder of the move. FOMO can apply to any financial market but is commonly heard in crypto markets which are largely composed of amateur retail investors trying to navigate extremely volatile price action as they attempt to build a well-balanced crypto portfolio.

Used in a sentence: “I bought at an all time high yesterday and now it’s down 25% today. The FOMO got to me!”

Recommended: What is FOMO Trading and How to Avoid It

2. HODL

HODL stands for “hold on for dear life.” HODL is a popular crypto meme and misspelling of the word “hold” (which some people then misinterpreted as standing for “hold on for dear life”).

The term originated on a Bitcoin forum during a period of market turbulence in late 2013 in which an unsettled investor ranted about how investors are ill-suited to trade highs and lows, but rather simply buy and hold in their own crypto wallet.

Since then, HODL has exploded in popularity and is widely exclaimed during price rallies in which investors will instruct other investors to HODL through steep price volatility.

Used in a sentence: “The price of Bitcoin is dropping, but I plan to HODL through it!”

3. FUD

FUD stands for “fear, uncertainty, and doubt.” FUD, as it’s commonly exclaimed in crypto circles, is a psychological method of inspiring negative sentiment about a particular asset to prevent further buying or even instigate selling or short-selling.

The objective is to suppress an asset’s price so the FUDer can accumulate at a lower price, or can inflict financial pain onto others that are holding the token for what may be a competing crypto project.

There are many ways to spread fear, uncertainty, and doubt, including proclaiming poor fundamentals, questionable project leadership, stagnant or bearish price movement, unclear roadmaps, lack of adoption, low network usage, and inability to be transacted in certain countries.

Used in a sentence: “He panic sold all his coins because he listened to the FUD.”

4. Shill

Shilling is the act of using propaganda, or false or exaggerated narratives to promote a service or investment, particularly of low quality, for a financial incentive.

Shilling has a negative connotation and is widely used in pump-and-dump schemes but can be used in other contexts as well. For example, an influencer might be paid to promote a cryptocurrency or service, a cryptocurrency project developer might shill their project to help it gain users and see it succeed, or a casual investor might shill an underperforming cryptocurrency in their portfolio to sell it for a profit at a higher price.

Used in a sentence: “It’s often frowned upon when people shill coins on social media for their own personal gain.”

5. Rekt

Rekt, an intentional misspelling of “wrecked,” is a slang term used in crypto to describe an investor’s portfolio or investment getting handily defeated. It’s used sensationally on social media to alert overleveraged positions being liquidated causing massive financial losses.

Used in a sentence: “After the price of XRP fell, my position was rekt.”

6. Sats

Satoshis, commonly abbreviated as “sats,” are the smallest unit of Bitcoin — 0.00000001 BTC, to be precise. Named after the credited creator of Bitcoin, a developer named Satoshi Nakamoto (which may actually be a pseudonym for a group of people), one satoshi is equivalent to 100 millionth of a Bitcoin.

Because Bitcoin is easily divisible and constantly transacted in fractional amounts, being able to denominate arbitrary fractions of a Bitcoin is essential. This is especially important since the Bitcoin price has risen precipitously over its decade-old existence, making it much more expensive for new investors to buy one whole Bitcoin.

A similar popular term, “stacking sats,” refers to an investing strategy in which an investor accumulates satoshis, fractions of a Bitcoin, to increase a Bitcoin position.

Used in a sentence: “I transfered three sats to my wallet.”

7. Whale

In crypto, a whale is an entity that has a massive position in regard to a specific cryptocurrency. For instance, a Bitcoin whale may be a company that owns 50,000 bitcoins, allowing it to move the markets with a single trade.

Used in a sentence: “A whale sold a big position this morning, and as a result, the price of Bitcoin is dropping.”

8. Pump and Dump

“Pump and dump” doesn’t merely apply to cryptocurrency; it’s seen in stocks, too. It is considered market manipulation and is illegal in regulated securities. Essentially, a pump-and-dump scenario unfolds when investors hype or inflate the price of an asset, like a cryptocurrency, and subsequently sell their holdings before the price falls again. They pump it up — and then dump it before it falls.

Used in a sentence: “I was caught up in a pump-and-dump scheme involving a new crypto, and now my position is underwater.”

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.


*Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

9. Bagholder

You never want to get caught holding the bag, but that’s what a “bagholder” is in the crypto world. A bagholder is someone who bought into a position at an elevated price, and subsequently saw the value of their holdings fall.

Used in a sentence: “Sell your position now before the price drops, otherwise you’ll be the bagholder.”

10. When Lambo?

At some point, Lamborghinis — yes, the expensive sports cars — became associated with crypto culture. Mostly because people making a lot of money from crypto were able to buy them. As such, the term “when Lambo?” became synonymous with a crypto’s success. It’s essentially asking when the asset in question will gain enough value that its holder can buy a Lambo.

Used in a sentence: “I just bought into Coin X…. When Lambo?”

11. Flippening

“Flippening” refers to the hypothetical — and some say inevitable — moment in which the value of Ethereum overtakes the value of Bitcoin.

Used in a sentence: “I’m loading up on ETH in anticipation of the Flippening.”

12. No Coiner

A “no-coiner” is someone who’s pessimistic about crypto and doesn’t believe that there is a use case for it. As such, they have no holdings, no crypto tokens, and no coins. They’re a “no-coiner.”

Used in a sentence: “I just got an earful from some no-coiner about how Bitcoin is going down the tubes.”

13. Vaporware

“Vaporware” refers to a sexy, cool idea or concept that will, in all likelihood, never exist or come to fruition. It can also refer to prospective cryptocurrencies that have no apparent use.

Used in a sentence: “The idea sounds great, but it’s all vaporware — it’ll never get off the ground.”

14. BTD/BTFD

BTD stands for “buy the dip” and is a common term in financial markets meaning to enter a long position during a suspected brief decrease in an asset’s price. It is more commonly used in bull markets to support the bullish sentiment and rising prices but also used in crypto bear markets to buy at good historical value for a longer-term investment horizon.

BTFD, short for “Buy the [Expletive] Dip” is an exuberant exclamation of BTD, typically used during manic bullish rallies.

Used in a sentence: “When the market pulls back, some suggest to BTD.”

15. Cryptosis

“Cryptosis” is when someone is bitten by the crypto bug, and simply can’t shut up about it. The afflicted reads, writes, discusses, and otherwise consumes information about crypto all day, nonstop.

Used in a sentence: “I introduced my brother to Bitcoin, and now he has a serious case of Cryptosis.”

16. KYC

KYC, or “know your customer“, is a form of identity verification required by many crypto exchanges since being imposed by regulatory agencies in 2017.

The Security Exchange Commission (SEC)’s Rule 17a-3(17) requires that broker-dealers (exchanges) make a good-faith effort to obtain personal information and create a record for each account with each individual customer. KYC ensures that customers are relatively suited for their trades or investments, customers are who they say they are, and customers’ transaction histories are recorded for tax purposes. KYC is commonly hyphenated KYC-AML (Anti-Money Laundering) as the two guidelines closely complement each other.

KYC is a long-standing regulatory standard in traditional finance but has been met with some animosity in crypto. Some Bitcoin-maximalists and crypto enthusiasts emphatically oppose KYC as they claim it defeats the point of crypto’s decentralized philosophy .

Here are some other cryptocurrency rules and regulations to know.

The Takeaway

Crypto is a new space for a lot of investors but is quickly changing the way people think about and transact money. Crypto has some similarities to traditional finance as it’s both a standalone network and considered by some as a store of value.

As these crossovers enable opportunities for technical integrations and mainstream adoption, a new wave of specific terminology has sprouted up. It can be helpful to learn these terms and phrases unique to crypto before investing in this dynamic new asset class.


Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

SOIN20305

Read more
What Mooning and Other Cryptocurrency Slang Mean

What Does ‘to the Moon’ Mean in Cryptocurrency?

There was a time when “mooning” meant baring your bare backside to someone or something you disapproved of. These days, if you’re looking for a mooning definition, you’re more likely to find answers pointing toward different cryptocurrencies.

So, just what does mooning mean in cryptocurrency? It has to do with lofty hopes and expectations. Read on to get a mooning definition and to find out what mooning has to do with cryptocurrency.

What Does “Mooning” Mean in Crypto?

Investors typically want to see their assets gain value — as much value as possible. Put another way, investors want to see their assets reach sky-high valuations so that they can earn the most money.

And what’s in the sky? The moon. So when it comes to crypto, “mooning” basically means that a cryptocurrency’s valuation is “going to the moon” — experiencing a significant spike in price and volume. If you were to look at crypto charts, it would appear that the mooning asset’s value has taken a sharp turn up and to the right.

Where Did Mooning Come From?

Mooning, as a term and concept, can be traced back to 2017, when Bitcoin first started accumulating massive amounts of value — that is, it went to the moon! Looking at Bitcoin price history for that year, one can see that it started out at less than $1,000, and ultimately peaked at just under $20,000. Bitcoin mooned that year (and as we now know, it would do so again).

Despite any original or subsequent mooning phenomena by Bitcoin or other types of cryptocurrencies, the fact remains that past performance is not an indicator of future results. Crypto remains an exceptionally volatile investment.

How Do Cryptocurrencies Gain Value?

Mooning can be great when you’re holding the right crypto. But how and why does one crypto gain value when another might lose value? That’s more or less dependent on the same forces that determine value in any other market: Supply and demand.

When there are more buyers (demand) for a certain cryptocurrency, holders (supply) can ask for a higher price on crypto exchanges. Supply and demand will also dictate prices and values on the stock market, houses, cars, NFTs — just about anything, really.

Examples of Cryptocurrencies “Mooning”

Depending on how you want to define the parameters of “mooning,” cryptocurrencies do it quite often. We already discussed Bitcoin’s mooning in 2017, for instance. But here are a couple of other examples:

•   Dogecoin (DOGE) saw its price increase from around $0.01 in January 2021 to more than $0.70 in May 2021.

•   Ethereum (ETH) “mooned” during 2021 as well, rising in value from less than $1,000 to nearly $5,000 between January and October 2021.

These examples are not indicators of any future success these or other crypto might see. It bears repeating that cryptocurrency is a very volatile asset.

The Takeaway

Mooning — in which the value of a cryptocurrency skyrockets “to the moon” — is just one phrase used in the crypto world by people in the know. After reading this article, you should have a full vocabulary of crypto slang at your disposal; no amount of crypto slang and jargon can stand in your way of understanding or getting involved in cryptocurrency.

Photo credit: iStock/Ridofranz


SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN1121500

Read more
What is Blockchain Technology?

What Is Blockchain Technology?

Blockchain technology is a persistent, transparent, append-only digital ledger that can be used to track or record almost any type of asset, from goods and services to patents, smart contracts, and more. Blockchain technology relies on cryptography and a system of peer-to-peer verification to secure transactions and, in the case of cryptocurrency, to mine coins and tokens.

Although most people think of crypto when they think of blockchain, in fact the way blockchain technology works lends itself to many applications. Blockchains run on a decentralized network of computers, called nodes, which enable a form of consensus (peer-to-peer) confirmation that can drive faster, more secure transactions that are visible to everyone on the network — making fraud and duplication more difficult.

The combination of speed, security, and transparency has enabled many organizations to explore blockchain’s applications and uses. Keep reading to learn more about the pros, cons, and potential of blockchain.

What Is Blockchain?

Although the word blockchain has become synonymous with cryptocurrency, and is sometimes described as “the blockchain,” there is no single blockchain. Rather, there are many different blockchains that have been developed by a wide range of organizations. So “the Bitcoin blockchain” or “the Ethereum blockchain” are indeed separate entities.

Why is it called blockchain?

Another way to phrase the question is: What is blockchain technology built with? Blockchain got its name from two of its key components: blocks of data that are appended together in chronological order to make a chain of transactions that are visible to everyone on the network.

For this reason, blockchain is considered a type of distributed ledger technology (or DLT). Once a block is updated, the new data is visible to everyone on the blockchain simultaneously.

What are nodes?

Distributed ledger technology typically relies on thousands of powerful computers, called nodes. As new data gets added, it becomes part of a block of transactions that are then verified by the nodes, which use complex mathematical calculations known as cryptography to create a hash or a cryptographic record of each transaction that cannot be reversed or deleted.

The majority of nodes must agree on each transaction before it can be added to the blockchain. Thus, no single person or computer can update the system without buy-in from the larger network. This form of consensus verification is a big reason why blockchain technology is considered more secure than most standard record-keeping systems.

Recommended: What Are Nodes? 7 Types of Blockchain Nodes

What is mining, and what are miners?

The term miners may bring to mind an actual person doing the mining (for cryptocurrency, say). And while individuals can be miners if they have powerful enough hardware, a miner is basically shorthand for any entity that verifies blocks of transactions on the blockchain network. When a miner is successful in being the first to verify a block of transactions, they are typically rewarded in the native crypto of that blockchain.

For this reason, crypto mining has become a highly competitive space.

3 Main Characteristics of Blockchain

Blockchain has three main characteristics that distinguish it from other types of digital recordkeeping.

It’s decentralized

When you think about traditional digital forms of accounting and record keeping, what might come to mind is a central authority, like a traditional corporate structure, that monitors and manages a primary record keeping source.

In contrast, blockchain relies on a network of computers or nodes, as described above, to verify data and blocks of transactions — a system that requires consensus among a majority of nodes before new blocks can be added to the chain. Thanks to this peer-to-peer verification, it’s possible to avoid reliance on third party services, and there is no need for a central authority to keep tabs on transactions and asset movements.

It’s transparent

Transparency is one of the hallmarks of blockchain technology, because as each block of transactions is verified, it’s visible to everyone on the network. That way, each node has a chronological record of the data that’s been stored on the blockchain, and no single node can alter that information. If a blockchain is breached in some way, or there is an error in one node’s data, the other nodes can identify and correct it.

This transparency, in addition to other features, have helped develop the technology that smart contracts need to function on a blockchain network.

It’s super fast

Modern business operations increasingly require real-time updates and responsiveness that require highly sophisticated digital networks (like Internet of Things, or IoT) or artificial intelligence to function. Blockchain enables greater speed and accuracy that can support many business operations.

How Blockchain Came to Be

Using cryptography as part of a distributed, digital system for payments and other transactions emerged in the early 1980s, thanks to the work of cryptographer David Chaum.

In the early ‘90s, other researchers, including Stuart Haber and W. Scott Stornetta sought to enhance the verification process by adding timestamps to blocks of transactions that could not be altered, as well as a Merkle tree structure for encoding data. By the late ‘90s, data scientist Nick Szabo was working on a currency based on blockchain technology.

But it wasn’t until 2008 that developers working under the pseudonym Satoshi Nakamoto published a white paper laying out a more clear-cut case for the use of blockchain in relation to digital currencies — paving the way for Bitcoin, and soon after many other forms of crypto.

Among its many breakthroughs, Nakamoto’s research overcame a persistent hurdle in digital finance: the so-called double-spending problem. Although you can’t spend a $10 bill twice, it’s possible to duplicate the coding of digital currencies and “spend” those funds more than once. But thanks to the way blockchain is built, with timestamps and other codes that establish a payment’s validity, as well as the consensus mechanism that governs all transactions, it’s virtually impossible to execute the same financial transaction twice.

Today, not only are many cryptocurrencies also built on blockchain platforms, but a growing number of them utilize blockchain technology to create smart contracts, non-fungible tokens, and many other applications.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.


*Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Is Blockchain Safe?

One of the chief appeals of blockchain is its ability to keep transactions secure, without the use of middlemen or third parties to verify identities or confirm the exchange of property. Blockchain technology is often called “trustless” because there is no need for one entity to confirm the validity of another entity — the blockchain itself takes care of that.

As each new block of data is added to the blockchain, it’s appended in chronological order, with the latest block at the end of the chain. On the Bitcoin platform, for example, a new block is added every 10 minutes, adding to its “height.” The height of a block can refer to the location of a transaction on the blockchain, or the current length of the blockchain. As of April 2021, the Bitcoin blockchain height was over 677,350 blocks.

That doesn’t mean cyber criminals can’t attack a blockchain platform — there are several examples of blockchains being hacked — but the decentralized nature of blockchain platforms does offer a form of protection. To alter a block on the chain, a hacker or criminal would need control of more than half of all the computers in the network — a feat that’s nearly impossible. And because most blockchains are public, anyone with the right equipment can access the information stored on each block on the blockchain, adding to the transparency.

Some of the largest and best-known blockchain networks, such as Bitcoin, Litecoin, XT, and Ethereum, are public or permissionless, and typically allow anyone with a computer and an internet connection to participate. Instead of creating a security crisis, having more people on a blockchain network tends to increase security. More participating nodes means that more people are checking one another’s work and calling out bad actors.

That’s one reason why, paradoxically, private or permissioned blockchain networks that require an invitation to participate might be more vulnerable to attack and manipulation. Private blockchains may not have the same security because they lack peer-to-peer verification.

Pros and Cons of Blockchain

Blockchain’s potential seems almost unlimited, and there are a growing number of industries exploring new use cases for blockchain. Many believe that blockchain technology could transform commerce and economics. Here are some of the pros and cons of blockchain technology.

Advantages of blockchain

The upsides of using blockchain include enhanced user privacy, transactional security, lower costs, and more.

Transparency

A public blockchain uses open-source code, accessible to virtually anyone who has the necessary equipment. The technology of the blocks themselves, which are permanently linked together on a chain, permits greater visibility for all involved, which can aid peer-to-peer verification and help prevent fraud.

Cost efficiency

In traditional transactions such as using credit cards to make payments, users typically pay a fee. Eliminating third-party verification means lower costs per transaction. The use of smart contracts potentially reduces time costs as well as actual fees.

Accuracy

By using thousands of computers on the blockchain network to confirm and validate transactions, the potential for human error is all but eliminated. This leads to greater accuracy in the recording of data.

Helps prevent hacks

Decentralization makes it harder to tamper with any particular block of data, because all data is secured using peer-to-peer verification, rather than a central authority. This self-policing, so to say, contributes to the security of the blockchain.

Financial alternative

Blockchain potentially provides a banking alternative for those who are unbanked (a common problem in many developing nations), and a way to secure personal information for citizens of countries with unstable governments.

Disadvantages of blockchain

The obstacles facing blockchain’s growth and adoption aren’t only technical — especially for businesses adapting their existing operations — but in many cases regulatory.

Sustainability issues

Because blockchain relies on vast networks of super-powerful computers for almost any function (e.g. mining cryptocurrency), the technology typically uses significant amounts of energy that many believe can be harmful for the environment. In particular, crypto mining that relies on a “proof of work” system is particularly inefficient, using quantities of energy comparable to some countries.

Assuming electricity costs of $0.03~$0.05 per kilowatt-hour, mining costs (not including the cost of hardware) can be as much as $7,000 per coin. Miners who are compensated for their efforts with coins may recoup those costs, but it’s a factor for many others.

Recommended: Exploring NFTs and Their Environmental Impact in 2022

Speed bumps

Although blockchain can speed up transactions, they may not be as fast as legacy systems (like credit cards), which can process thousands of transactions per second.

Illicit activity

The security and privacy that are hallmarks of blockchain technology cut both ways, in effect, as both legal and illegal activity can take advantage of these features. Indeed, blockchain has a history of being used as part of illegal networks like Silk Road, considered part of the dark web.

Changing regulation

Blockchain technology and its many applications — especially cryptocurrency — still exist in a gray zone, as governments and businesses seek to establish new laws and policies, as well as best practices. This is changing, though, as financial institutions and other organizations begin to embrace both cryptocurrency itself as a legitimate form of payment, and explore new ways blockchain technology can be used.

What Is the Difference Between Blockchain and Bitcoin?

The reason it’s hard to separate blockchain technology from Bitcoin is that Bitcoin’s crypto (BTC), like so many types of cryptocurrency, would not exist without blockchain technology. But in the case of Bitcoin, the emergence of blockchain was critical to launching this new currency nearly 13 years ago. So although Bitcoin is built on a blockchain and relies on blockchain technology, the two entities are quite distinct.

A blockchain, or blockchain technology, is a type of digital ledger that can be used by any company. Although bitcoin was the first crypto to successfully use blockchain technology, since then thousands of other cryptocurrencies have made use of blockchain platforms.

How blockchain and bitcoin work together

In 2008, an individual or group of individuals going by the pseudonym Satoshi Nakamoto, published a paper called, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Although various digital currencies had been attempted in previous decades, as discussed earlier, this was perhaps the first to propose “a system for electronic transactions without relying on trust,” and depending instead on a peer-to-peer system of verification via a blockchain.

In January 2009, the first Bitcoins were created using a blockchain platform, and the bitcoin mining system was established.

How does crypto mining work with blockchain?

Unlike fiat currencies like the dollar or euro, cryptocurrencies typically aren’t issued or regulated by a central authority like a bank. Rather, miners use special computer hardware to do the complex mathematical cryptography required to confirm each item on the blockchain — a process called a “proof of work” that involves literally billions of calculations. When a miner successfully confirms a block of transactions on a certain platform, they’re typically rewarded with coins or tokens native to that platform.

What Is Blockchain Technology Used For?

From its roots as a platform for cryptocurrency, blockchain is now emerging as a potent force for many different kinds of businesses. Following are just a few of the current use cases that are emerging as organizations explore blockchain’s potential.

Recommended: Web 3.0 Guide for Beginners

Smart contracts

Smart contracts are part of what makes many other blockchain platforms possible. The contracts that exist on the blockchain can be executed without an intermediary, only occur when specific conditions are met, and can’t be altered.

The development of smart contracts has fueled a rise in different blockchain applications. Insurance companies, health care companies, governments, and more are exploring ways to use this technology to their advantage.

Finance

In the last year or so, one of the most disruptive new blockchain applications might be the rise of decentralized finance or DeFi. In many cases, DeFi removes the need for traditional financial institutions by giving users more control over their transactions.

Peer-to-peer lending is a popular DeFi application. Instead of getting a loan from a bank, people can make loans to each other in the form of cryptocurrency and other digital assets. The terms of the loan will be enforced by programs written in smart contracts, holding both parties accountable.

Supply chains

Increasingly, blockchain is being used to track goods as they move from one end of the supply chain to the other, verifying quality, provenance, and even food safety in some cases.

Also, by using blockchain businesses can help identify inefficiencies within their supply chains more swiftly, while also being able to pinpoint where any item is at any given time.

Insurance

The way the insurance industry conducts business today leaves room for error and increases the risk of fraud. Indeed, false property and casualty insurance claims cost the industry more than $40 billion every year. Blockchain could offer insurance companies a way to store information securely and potentially reduce incidents of fraud via smart contracts, authentication of claims, and by creating a permanent, immutable record of all transactions.

Recommended: Blockchain in Insurance: Evaluating the Pros & Cons

Equity and currency trading

A decentralized exchange (DEX) is a peer-to-peer marketplace where transactions aren’t managed by banks, brokers, payment processors, or any other intermediary. On a DEX, for example, crypto traders can simply trade with each other.

Some of the most popular DEXs run on the Ethereum blockchain, and are part of the growth in DeFi apps and tools that are making more financial services available to users via a crypto wallet. In just the first quarter of 2021, DEXs saw some $217 billion in transactions. This trend could one day revolutionize the way people buy, sell, and trade assets of all kinds.

Recommended: Blockchain in Finance: What Does it Mean for Fintech?

Does Blockchain Have Naysayers?

While the excitement surrounding blockchain’s ascendance gets a great deal of attention, there are, of course, skeptics as well.

Although blockchain promises to revolutionize how transactions are done, how contracts are executed, and much more, some industry analysts compare blockchain’s status to the earliest days of the internet, pointing out that it was close to two decades before the majority of people incorporated internet use into their daily lives.

In the coming years, governments and businesses would need to reconceive their basic operations, as well as their technical needs — and be prepared to make new investments in those structures — in order for widespread use of blockchain to take hold.

Certainly, the potential benefits of blockchain are compelling enough that many people are betting that there could be something akin to a blockchain revolution in the future, but it’s hard to predict when or what that will look like.

The Future of Blockchain

While the future of blockchain isn’t 100% clear, new approaches and innovations are emerging every day. For example, dozens of central banks worldwide are exploring ways to create digital currencies themselves — with China, Sweden, and the Bahamas in the lead.

The coins would likely be issued on centralized blockchains controlled by the central banks themselves, giving them greater control over monetary policy and the financial system at large.

The Takeaway

Blockchain may have entered the digital landscape as a kind of technological sidekick to Bitcoin, but the many advantages of this transparent, peer-to-peer distributed ledger technology have fueled a seemingly unlimited number of possible new use cases. Although blockchain technology will always be known for its ability to power cryptocurrency platforms, these days organizations are considering all kinds of new applications, from using blockchain to shore up supply chains, end voter fraud, support health care privacy for patients, and more.

That said, one of the most compelling applications of blockchain technology continues to be in the crypto realm, where blockchain is enabling more than digital currencies, powering far-reaching innovations like DeFi apps and tools, smart contracts, and more.


SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

SOIN18118

Read more
What Is a Bond Option? Definition & Examples

What Is a Bond Option? Definition & Examples

A bond option allows the contract holder to buy or sell an underlying investment (in this case, a bond) at a specific price and at a specific time. While considered less risky than stock options, bond options still typically carry higher risk than more traditional investments.

Like all options, bond options are derivative securities, used by investors to bet on the direction of an underlying security. Understanding what bond options are and how they work can help you understand these risks and determine whether bond options make sense for your portfolio.

Here’s a closer look at bond options, and the risks and rewards they bring to investors.

What are Bond Options?

A bond option is a legal contract to buy and sell underlying bond assets, usually via a call bond (i.e., the option to buy an underlying bond) or a put bond (the option to sell a bond) at a specific price (known as the “strike price)” at or before a specific time deadline (known as the “expiration date”).

For example, an investor might purchase a bond call option with a strike price of $900. The level value (also known as “par value”) of the underlying U.S. government bond is $1,000. Let’s say market conditions push the value of that bond up to $1,100. In that scenario, the option holder has the right to buy the government bond at $900 – even as the value of that underlying bond now stands at $1,100.

Investors typically trade options, including bond options, through over-the-counter exchanges. Bond options are also typically available wherever U.S. Treasury bonds are sold in fund form through investment companies.

Recommended: A Beginner’s Guide to Options Trading

Pros and Cons of Bond Options

There are benefits and drawbacks to incorporating bond options in your portfolio.

Pros of Bond Options

Higher return potential. As discussed in the example above, when executed well a bond options strategy can increase a trader’s gains on a particular investment. Bond options can also protect against downside risk. Investors often use bond options as hedges against more risk-laden investment strategies.

Risk hedging. Bond options investors can leverage derivative contracts to take advantage of interest rates and other short-term drives of investment performance. Investors can also lean on bond options to take advantage of pricing variations in options pricing or to position their portfolios ahead of major geopolitical events, like presidential elections, potentially big Federal Reserve policy decisions, or major recessions and other powerful economic forces.

Cons of Bond Options

The risk of non-exercise. Bond options investors may do well to let an options contract expire rather than execute a trade that goes awry and loses money. While a bond options investor isn’t obligated to exercise their bond options contracts, letting a contract expire means the original money used to buy or sell a bond option is gone forever. So, too, are the fees investment companies charge to handle options trades.

The risk of unlimited investment loss. While call options provide an investor with the possibility of unlimited gain if the underlying security rises in value, that same investor faces unlimited loss potential if that investor is selling a call or put option. If the underlying assets plummet to a value of zero, the options investor could face massive financial losses.

The risk of losing money quickly. As options, by nature, are short-term investing instruments, investors need to have extensive knowledge of near-term investment price movements to minimize the downside risk of investing in bond options. Often, traders make decisions about their options strategy based on a short time horizon. That means all options investors must master two key trading objectives – knowing the right time to purchase an options contract and knowing when to sell that contract, or cut losses by allowing the contract to expire without exercising the option to buy or sell by the expiration date.

Recommended: 10 Options Trading Strategies

Types of Bond Options

Bond options offer investors the right to buy or sell (via calls and puts) an underlying investment security at a specific time and at a set price.

Call Option Bonds

With a bond call option, if the price of the underlying bond option rises in value, the contract holder can earn a profit on the call by exercising the option to purchase the asset (with a call option) at a lower price and then selling it when the underlying asset goes up. A call option is in the money if the strike price is lower than the current market price of the underlying bond.

Bond Put Options

A bond options investor who buys believes a bond will go up in price may purchase a put option or put bond. With that option, buy the asset at the current low price and sell it at the rising strike price, assuming the price moves in the direction the trader had hoped. What a bond investor strives to avoid is being on the wrong side of an options trade, i.e., selling at a below market rate or buying at an above-market rate.

If an investor anticipates that bond prices will decline, given future expected market conditions, they’d purchase a put option. If the level value of the underlying bond option were$1,000, a bond put option gives the contract holder the right to sell the option contract at the strike price of $900 – on or before the expiration date. If bond prices fall, the underlying bond is now valued at $870. Now, that bond option investor can exercise the sale of the options contract at the strike price of $900, even as the bond’s value has fallen to $870. That guarantees a big profit for the investor, given the outsized nature of options contracts.

Embedded Bond Options

Embedded bond options are bonds in which the holder or the issuer has a right to take a specific action with a certain period going forward. Examples of embedded bond options include call provision, convertible provisions, and floored floating-rate provisions.

Callable Bond Options

Callable bonds are one type of embedded bond option. With callable bonds, the issuer has the option to repay investors the face value of the bond before the maturity date.

Recommended: Popular Options Terminology You Should Know

Bond Options Pricing

Given all the variables, including the current price and future price of a bond, volatility levels, interest rates, and time to expiration, it can be very complicated to properly price a bond option. Investors rely on several different mathematical formulas for this, including the Black-Derman-Toy Model and the Black Model.

The Takeaway

Options traders may use a bond option as a hedge against economic volatility in key areas like interest rates, currency rates, and bond yield rates, a bond option can be a useful portfolio management tool. However, there are plenty of other types of investments that an investor can use when building a portfolio, without trading bond options.

But for investors who are curious to start options trading, SoFi offers a user-friendly platform to do so. With an intuitive and approachable design, you can trade options on the web platform or through the mobile app.

Trade options with low fees through SoFi.


Photo credit: iStock/PeopleImages

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
SOIN0821362

Read more
What Are Vanilla Options? Definition & Examples

What Are Vanilla Options? Definition & Examples

Once you’ve started investing, you may want to learn about different assets beyond stocks and bonds. Among the alternative assets you might consider, are options, and vanilla options are a great way to get started with this type of investment.

Options give investors the — you guessed it — option to purchase or sell a stock at a certain price over a certain period. Options are derivative financial instruments, which means they are based on an underlying asset. Vanilla options are the most basic type of option contract, and they’re often standardized and traded on exchanges.

Vanilla Option Definition

Vanilla options, in contrast to exotic options, which have customization features, have simple and straightforward terms of the strike price, or the price for which an investor buys or sells a stock, and the period in which they can exercise their option. The last day that an investor may exercise an option is known as the expiry date.

How Do Vanilla Trades Work?

Let’s look at how options trading works with vanilla trading.

Each option has a strike price. If that price for purchase is lower than the market value of the stock, investors call that option “in the money.”

Investors pay a premium to own an option. This premium reflects several factors, including:

• How close the strike price is to the market price

• The stock’s volatility

• How length of time before the option expires

Investors don’t have to wait until the option expires to complete the trade, and they are typically under no obligation to exercise the option.

Recommended: Popular Options Trading Terminology to Know

What are the Different Types of Vanilla Options?

When it comes to options for vanilla stock options, there are two types, calls and puts.

Calls

A vanilla call option gives an investor the option to buy an asset at a certain price within a certain period. A call option is a bit like a down payment; the investor pays the premium so that, later, they can buy the stock at a good price and profit from it.

However, an investor can pay the premium and never exercise the option. If they decided not to exercise it, they would either lose what they paid for the premium, or they could sell the call option to someone else before it expires.

Puts

In contrast, a put option allows an investor to sell an asset at a fixed price within a certain time period. If a stock tanks in value over the period that option is exercisable, the investor can still sell it for the put price and not lose as much of his investment. But if the stock’s value goes higher than the put price in the market, the vanilla options are worthless because the investor could sell it at the market price and realize more of a profit.

Characteristics of Vanilla Options

Like all investments, vanilla options include a level of risk and volatility. But they can also provide the opportunity for profit.

Premiums

Whether you are interested in a vanilla call or put, you will pay a premium, in addition to what you would pay to purchase the stock with a call. The premium isn’t refundable, so if you don’t exercise the option, you’ve lost what you paid for the premium.

Volatility

The volatility of an option determines its price. The higher the volatility of the option, the higher the premium because there is more opportunity for profits (as well as the risk of loss).

One way to reduce volatility is to use an options trading straddle where you buy a put and call option simultaneously.

Risk Level

Like most other types of investments, options are not without risk. If a stock is lower in price on the market than a call option, the option is worthless. And if a stock has a higher price on the market, the put option won’t net more return on investment.

However, a vanilla option may be less risky than buying a stock outright, since the only thing you’re guaranteed to spend is the premium.

Pros and Cons of Vanilla Options Trading

Trading vanilla options can have potentially great returns…or large losses. Here are the pros and cons.

Pros

Cons

Minimizes risk; no obligation to exercise Risky; may lose premium investment and more
Option to control more shares than buying them outright May be complex to understand
May offer large returns Fluctuations in market may render option worthless

Pros

Options may be less risky than buying a stock outright, since you’re only buying the option to purchase or sell a stock at a certain price. The premium is all you invest initially.

Typically you can purchase more shares through options than you could buying them on the market, so if you’re looking for larger investment opportunities, options could provide them.

And while they’re volatile, there is the potential for larger returns.

Cons

That being said, you don’t always see large returns. You can lose your entire investment if the option is out of the money when it expires.

Options can be complicated or confusing for new investors. Not only should you fully understand the risks you take with this investment tool, but you also should understand options taxation.

Examples of Vanilla Options

If you’re considering vanilla options as part of your options trading strategy, here are a few examples to illustrate how they work for both calls and puts.

Example of a Vanilla Put Option

A put is a bit like insurance in case your stock you’re holding goes down in value. It’s one way that investors might short a stock. Here’s an example.

Let’s say you own 100 shares of a stock that is currently trading at $25 per share. You buy a put option at a premium of $1 per share that expires in two months at a strike price of $25. So in total, you paid $100 for a premium for 100 shares.

In a month, the stock price drops to $18 per share. This is a good time to exercise that premium because your strike price allows you to sell the shares for $25 rather than $18. You wouldn’t gain any money because you’re essentially selling the stocks for what you paid for them ($25), and you would even lose a little (that $1 per share premium), but the alternative would be to lose even more if you waited and the price dropped more or you didn’t have the option.

Example of a Vanilla Call Option

A call option allows you to purchase a stock at a certain price within a specified time period. Bullish investors who expect a stock to go up in price typically purchase call options.

For our example, let’s say you’re interested in a stock that trades at $53, and you can buy a call option for this stock within one month to purchase the stock at $55 per share. The option is for 100 shares of this stock.

The premium for this option is $0.15 per share. So you would pay $15 for the premium. You aren’t obligated to purchase the stock. If the stock trades at more than $55.15 (option price plus premium), you can realize a profit.

Let’s say in two weeks, that stock is trading at $59. It is, as they say, “in the money.” Now would be a great time to exercise your option because you can realize $3.85 per share and $385 for 100 shares. You can sell the shares immediately to cash in on that profit or hold onto it to see if the stock price continues to rise.

The Takeaway

Vanilla stock options can be a way to diversify your investment portfolio and increase your investing savvy. When it comes to options trading, it helps to have a platform like SoFi’s, which boasts an intuitive design. Plus, you’ll have access to educational resources to learn about any other terminology that comes up on your options trading journey.

Trade options with low fees through SoFi.


SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
SOIN0821369

Read more
TLS 1.2 Encrypted
Equal Housing Lender