It’s a brand new week with the Crypto Terminology: A to Z series and below, we highlight three simple and seemingly intuitive, but important crypto terms starting with the letter “V”.
Unlike in Proof of Work (PoW) systems where blocks are processed within a network of miners, the work of verifying blocks falls on validators. These are participants that have placed individual stakes on a particular network and depending on the mode of governance implemented, validators are given opportunities on a rotational or random basis — for example, to process blocks and take home earnings for completing said task.
High volatility is often raised as a significant deterring factor for new crypto market entrants, as assets such as Bitcoin in particular often see large magnitudes of price fluctuations within a short period of time. The Bitcoin Volatility Index created by analytics firm CryptoCompare measures how much prices have spiked or dipped over a period of time. As evidenced in the graph, volatility spiked during the May 22, 2021 to May 25, 2021 period, reflecting the time when Bitcoin prices took an abrupt nosedive and fell below the $35,000 mark from above $50,000.
Exchanges often use trading volume as an indicator of how successful the platform is. The higher the trading volume, the higher the number of transactions that are occurring in a single time frame. On the whole, trading volume can also be used to get a brief sense of how the market is doing — for example, increased trading volume coupled with a sharp increase or drop in price could represent a shift in fundamentals and the possibility of a price reversal.