facts people News CRYPTO BASICS GLOSSARY

BLOCKCHAIN GLOSSARY

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    Definition
  • A process or set of rules to be followed in problem-solving or calculation operations, usually by a computer, although humans tend to follow steps algorithmically as well (let’s say doing math or following a recipe).
  • "Altcoin" is used to describe any cryptocurrency that is not Bitcoin — an alternative digital currency. As Bitcoin was the original cryptocurrency, any cryptocurrency that was created after was treated as an "alternative."
  • Application-specific integrated circuits (ASICs). An acronym for application-specific integrated circuit — a device designed for the sole purpose of mining cryptocurrencies.
  • A cash point where people can trade fiat currency and bitcoins
  • A business license permitting regulated virtual currency activities, issued by the New York State Department of Financial Services.
  • A file containing information on transactions completed during a given time period. Blocks are the constituent parts of a blockchain.
  • An online tool for exploring the blockchain of a particular cryptocurrency, where you can watch and follow live all the transactions happening on the blockchain. Block explorers can serve as blockchain analysis and provide information such as total network hash rate, coin supply, transaction growth, etc.
  • A value describing the number of blocks preceding a given block in the blockchain.
  • The coins awarded to a miner or group of miners for solving the cryptographic problem required to create a new block on a given blockchain.
  • A distributed ledger system. A sequence of blocks, or units of digital information, stored consecutively in a public database. The basis for cryptocurrencies.
  • Central bank digital currencies (CBDC’s) are fiat currencies that exist in a digital form and are issued by central banks.
  • Centralized exchanges (CEXs) are a type of cryptocurrency exchange that is operated by a company that owns it in a centralized manner. As of 2021, CEXs are the most widespread mode of operation for cryptocurrency exchanges. The speed and cost-efficiency of processing transactions by a single point of authority make them a convenient venue for day traders and crypto investors to purchase and sell crypto.
  • Cryptocurrency mining with remote processing power rented from companies. Classical cryptocurrency mining requires huge investments in hardware and electricity. Cloud mining companies aim to make mining accessible to everybody. People just can log in to a website and invest money in the company which already has mining data centers. The money is managed by the company and it is invested in mining equipment. Investors get a share of the revenue.
  • Offline storage of cryptocurrencies, typically involving hardware non-custodial wallets, USBs, offline computers, or paper wallets.
  • Cold wallets are cryptocurrency wallets that are not connected to the internet or any other unsecure networks when not in use. This is done to provide an additional layer of security over that offered by the more widespread hot wallets, which are software wallets stored on a user’s local computer or accessed from a service provider’s servers via a website interface.
  • A fundamental problem in distributed computing is to achieve overall system reliability in the presence of a number of faulty processes. This often requires processes to agree on some data value that is needed during computation. The consensus problem requires agreement among a number of processes for a single data value. Some of the processes may fail or be unreliable in other ways, so consensus protocols must be fault tolerant. The processes must somehow put forth their candidate values, communicate with one another, and agree on a single consensus value. The bitcoin blockchain uses electricity to ensure the security of the system. It creates an economic system where you can only participate by incurring costs, Proof of work (POW). You do that for the possibility of reward/bitcoin. If you spend money, and you play fair by the rules, you get money back. If you cheat, you lose money. It doesn’t pay to cheat. This simple game theoretical equilibrium is the core of the bitcoin consensus algorithm.
  • A consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which ten must sign every block for the block to be valid. The right to read the blockchain may be public or restricted to the participants. There are also hybrid routes such as the root hashes of the blocks being public together with an API that allows members of the public to make a limited number of queries and get back cryptographic proofs of some parts of the blockchain state. These blockchains may be considered “partially decentralized”.
  • Cryptocurrencies are digital currencies that use cryptographic technologies to secure their operation.
  • Distributed Denial of Service (DDoS) Attack is an attempt by a bad actor to disrupt the operation of an application, server or network by flooding it with traffic. DDoS attacks are among the most common forms of cyberattack. They often make use of networks (botnets) of devices (bots) that have been compromised by malware — placing them under the control of the bad actor.
  • Decentralization refers to the property of a system in which nodes or actors work in concert in a distributed fashion to achieve a common goal. Decentralized organizations are those that do not rely on a single center of authority to enforce the rules and maintain operation. Instead, they are composed of numerous decision-makers with the same or comparable degrees of authority over the rest of the system and rely on varied consensus mechanisms to reach a common plan of action. A prominent example of decentralized systems are cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), which are supported by networks of independent computer-nodes that achieve consensus via algorithms such as proof-of-work (PoW) to infallibly and uniformly process and record all transactions.
  • A peer-to-peer exchange allowing users to trade cryptocurrency without the need for an intermediary. Transactions conducted on centralized exchanges are custodial — meaning the platform holds the asset that is being exchanged. Decentralized exchanges tackle this issue, offering theoretically complete anonymity and, crucially, non-custodial transactions. This means the actual asset being exchanged never passes through the hands of an intermediary. DEXs are seen by many as a vital part of the next wave of development in crypto.
  • Decentralized Finance (DeFi) is a movement encouraging alternatives to traditional, centralized forms of financial services. The DeFi movement is based on the idea that the financial system should not be controlled by monopolistic third-party providers of this sort, and that it should instead be decentralized. There is a large and growing range of players in the world of DeFi. Most major applications are built on Ethereum, which allows for the development of decentralized software. They make use of smart contract technology to minimize or completely remove the need for human or corporate gatekeepers.
  • A financial instrument deriving its value from the value of an underlying asset. Derivatives are extremely common and popular financial instruments. They are often used for risk hedging. Crypto derivatives can be used as a means for speculators to make profit, just like derivatives based on fiat currencies.
  • A measure of how hard it is to validate a new block on a blockchain.
  • A currency that exists only in digital form, as opposed to traditional physical currencies. Digital currencies (theoretically) perform all the functions of fiat money, in that users can pay for goods or services with them. However, they present a number of potential advantages. These can include faster transaction speeds, lower transaction costs, greater transparency, and the potential for decentralization.
  • A method for proving the authenticity of a digital communication. Digital signatures employ cryptography to provide a way of determining whether a digital message or document is real. Digital signatures use public key cryptography, in which encryption and decryption is carried out using pairs of public and private keys. As the name suggests, public keys are broadcast publicly, while private keys are kept secret. Digital signatures are not the same as electronic signatures.
  • The potential for a digital currency to be spent twice. Double spending is an issue associated with digital currencies because of the relative ease with which data can be reproduced, and the increasing availability of the computing power required to do so. Double spending was one of the primary concerns associated with digital currencies when they first emerged. Bitcoin, however, is now considered to have solved double spending. It achieves this through the requirement that all transactions are recorded on the blockchain.
  • ERC-20 tokens are based on the Ethereum blockchain. Just like mainstream cryptocurrencies such as Bitcoin, they can be used to make purchases — or traded for fiat currencies and crypto. These assets, which usually have a fixed supply, can be stored in a dedicated Ethereum wallet. A wide range of ERC-20 tokens were created in 2017 and 2018 during the boom of initial coin offerings. They usually form the backbone of decentralized apps, otherwise known as DApps for short.
  • A financial instrument where assets or cash are held by a third party while a buyer and a seller complete a deal. Escrow accounts come into play when there is uncertainty over whether one party or another will be able to meet the terms of a transaction. Escrow can be useful when individuals want to trade assets from their digital wallets for cash, but are unsure whether the other party will back out once funds are sent.
  • Ethereum is an open software platform based on blockchain technology that enables developers to write smart contracts and build and deploy decentralized applications(Dapps). The native token of the blockchain is called Ether which is used to pay for transaction fees, miner rewards and other services on the network. The main innovation of Ethereum is the Ethereum Virtual Machine (EVM) which runs on the Ethereum network and enables anyone to run any application. As opposed to Bitcoin, its scripting language is Turing-complete and full-featured, expanding the kinds of smart contracts that it can support. The Ethereum project wants to “decentralize the web” by introducing four components as part of its roadmap: static content publication, dynamic messages, trustless transactions and an integrated user-interface.
  • Cryptocurrency exchanges (sometimes called digital currency exchanges) are businesses that allow customers to trade cryptocurrencies for fiat money or other cryptocurrencies.
  • A security that tracks a basket of assets such as stocks, bonds, and cryptocurrencies but can be traded like a single stock.
  • A cryptocurrency reward system usually on a website or app, that rewards users for completing certain tasks. It is mostly a technique used when first launching an altcoin to interest people in the coin.
  • Fiat currency is “legal tender” backed by a central government, such as the Federal Reserve, and with its own banking system, such as fractional reserve banking. It can take the form of physical cash, or it can be represented electronically, such as with bank credit.
  • An acronym that stands for “Fear of Missing Out” and in the context of investing, refers to the feeling of apprehension for missing out on a potentially profitable investment opportunity and regretting it later.
  • A software fork, also known as a project fork, is when developers take the technology (source code) from one existing software project and modify it to create a new project. An example is Litecoin, which was a software fork of Bitcoin.
  • Forks, or chain splits, create an alternate version of the blockchain, leaving two blockchains to run simultaneously. An example is Ethereum and Ethereum Classic, which was forked after the DAO hack.
  • Futures, also known as futures contracts, are legally-binding agreements to trade a given asset or commodity at a previously-agreed date and price in the future. In addition, they track the price movement of an underlying asset or commodity.
  • A genesis block refers to the first block in a blockchain and is usually hardcoded into its application’s software. The first block of data that is processed and validated to form a new blockchain, often referred to as block 0 or block 1.
  • More commonly known as a graphics card, it is a computer chip that creates 3D images on computers, but has turned out to be efficient for mining cryptocurrencies.
  • Group mining refers to the practice of multiple people or entities pooling their computational resources to mine together. Miners do this to mine more profitably, share rewards and mitigate security risks.
  • Hacking is the process of using a computer to manipulate another computer or computer system in an unauthorized fashion.
  • A halvening (or halving) is a deflationary blockchain event where block subsidies or rewards received for validating transactions decrease by half. It is significant in the sense that it reduces the rate of supply coming into circulation at every instant, and thus increases the scarcity by bringing fewer and fewer units of coins/tokens into existence. These events are programmed directly into the code and made known in advance. For instance, Bitcoin rewards are programmed to decrease approximately every four years.
  • A hard fork is an event where a blockchain “splits” into two separate blockchains running parallel with each other, each with different parameters from a common previous chain. Even if the transaction history and parameters are the same before the hard fork, the history of both networks dissociates from one another after the event and any further activity beyond the fork will not reflect on the other. Hard forks can result accidentally from bugs/errors in the blockchain or be done intentionally. For instance, the proposal to hard fork Bitcoin in 2017 in order to increase its block size from 1 MB to 8 MB for faster and more transactions was met by strict opposition from the majority of the community. As a result, a part of the community split and formed Bitcoin Cash (BCH).
  • The act of performing a hash function on input data of arbitrary size, with an output of fixed length that looks random and from which no data can be recovered without a cipher. An important property of a hash is that the output of hashing a particular document will always be the same when using the same algorithm.
  • Hash power, or hash rate, are interchangeable terms used to describe the combined computational power of a specific cryptocurrency network or the power of an individual mining rig on that network. The hash rate of a mining rig is the number of hashes that it can calculate per second. The combined hash power of a cryptocurrency network is the sum of the hash rates of all mining rigs that are in operation at any given moment. The hash rate of an individual device is a key metric for measuring the profitability of a mining setup as it determines the likelihood of finding a “good” hash that will produce a mining reward.
  • A type of passive investment strategy where you hold an investment for a long period of time, regardless of any changes in the price or markets. The term first became famous due to a typo made in a Bitcoin forum, and the term is now commonly expanded to stand for “Hold On for Dear Life.”
  • A cryptocurrency wallet that is connected to the internet for hot storage of crypto assets, as opposed to an offline, cold wallet with cold storage.
  • ICOs are types of crowdfunding mechanisms conducted on the blockchain. Originally, the main idea of an ICO was to fund new projects by pre-selling coins/tokens to investors interested in the project. Entrepreneurs present a whitepaper describing the business model and the technical specifications of a project before the ICO. They lay out a timeline for the project and set a target budget where they describe the future funds spending (marketing, R&D, etc.) as well as coin distribution (how many coins are they going to keep for themselves, token supply, etc.). During the crowdfunding campaign, investors purchase tokens with already established cryptocurrencies like Bitcoin and Ethereum.
  • ITOs are similar to initial coin offerings — but have more of a focus on offering tokens with intrinsic utility in the form of software or usage in an ecosystem.
  • In the world of cryptocurrencies, a ledger is known as a record-keeping system. The ledger keeps track of different participants’ balances and all transactions that take place.
  • Leverage is a loan offered by a broker on an exchange during margin trading to increase the availability of funds in trades. The term leverage relates to the extent by which a trader’s position and hence profitability has risen through the loan. It is also known as the amount of debt borrowed by a firm to fund assets.
  • The Lightning Network is a "second layer" payment protocol that operates on top of a blockchain. It is designed to enable fast, scalable transactions between and across participating nodes, and has been touted as a solution to Bitcoin’s scalability problem.
  • In its most simple form, liquidity refers to how easy it is to convert cryptocurrency into cash quickly — and whether this can be achieved without the asset’s value suffering.
  • A practice where a trader uses borrowed funds from a broker to trade a cryptocurrency, which forms the collateral for the loan from the broker. It can be relatively risky for inexperienced traders who may receive a margin call if the market moves in the opposite direction of their trades.
  • Total capitalization of a cryptocurrency’s price. It is one of the ways to rank the relative size of a cryptocurrency.
  • An online digital wallet that allows users to manage, transfer and receive Ethereum, operating as an extension to a regular browser.
  • One millionth of a bitcoin or 0.000001 of a bitcoin. Often confused as a fork of Bitcoin.
  • Contributors to a blockchain taking part in the process of mining. They can be professional miners or organizations with large-scale operations, or hobbyists who set up mining rigs at home or in the office.
  • A process where blocks are added to a blockchain, verifying transactions. It is also the process through which new bitcoin or some altcoins are created.
  • Another term for cloud mining, where users can rent or invest in mining capacity online.
  • Mining difficulty measures how hard it would be to find the next block. Every proof of work consensus algorithm has a mining difficulty which is also adjustable. Depending on how many miners join the network the difficulty might rise or fall. The aim of the difficulty is to keep the block times even and make the network secure. The average time for finding a Bitcoin block is set for 10 minutes. Litecoin is set for 2.5 minutes.
  • A setup where multiple miners combine their computing power to gain economies of scale and competitiveness in finding the next block on a blockchain. Rewards are split according to different agreements, depending on the mining pool. Another term for this is Group Mining.
  • The reward results from contributing computing resources to process transactions. Mining rewards are usually a mix of newly-minted coins and transaction fees.
  • A network refers to all nodes in the operation of a blockchain at any given moment in time.
  • A node is the most basic unit and critical part of a blockchain infrastructure, storing its data and allowing all communication (transaction) to pass through it.
  • Smart contracts on the blockchain cannot access the outside network on their own. Therefore oracles sit between a smart contract and the external world, providing the data needed by the smart contract to prove performance while sending its commands to external systems.
  • Over-the-counter is defined as a transaction made outside of an exchange, often peer-to-peer through private trades.
  • Trade between one cryptocurrency and another, for example, the trading pair BTC/ETH.
  • A collection of cryptocurrencies or crypto assets held by an investment company, hedge fund, financial institution or individual.
  • A private key generally refers to an alphanumeric string that is generated at the creation of a crypto wallet address and serves as its password or the access code. Whoever has access to a private key has absolute control over its corresponding wallet, access to the funds contained within, and can transfer or trade assets and use the account for other purposes.
  • A Proof of authority is a consensus mechanism in a private blockchain which essentially gives one client(or a specific number of clients) with one particular private key the right to make all of the blocks in the blockchain
  • A blockchain consensus mechanism involves choosing the creator of the next block via various combinations of random selection and wealth or age of stacked coins or tokens.
  • A blockchain consensus mechanism involving solving of computationally intensive puzzles to validate transactions and create new blocks.
  • The set of rules that define interactions on a network, usually involving consensus, transaction validation, and network participation on a blockchain.
  • A public address is the cryptographic hash of a public key, allowing the user to use it as an address to request for payment.
  • Ring signature is a cryptographic technology that could provide a decent level of anonymisation on a blockchain. Ring signatures make sure individual transaction outputs on the blockchain can’t be traced. A message signed with a ring signature is endorsed by someone in a particular group of people. One of the security properties of a ring signature is that it should be computationally infeasible to determine which of the group members’ keys was used to produce the signature.
  • Short for “Return on Investment,” the ratio between the net profit and cost of investing.
  • Satoshi Nakamoto is a person or group of people who created the bitcoin protocol and reference software, Bitcoin Core (formerly known as Bitcoin-Qt). In 2008, Nakamoto published a paper on The Cryptography Mailing list at metzdowd.com describing the bitcoin digital currency. In 2009, they released the first bitcoin software that launched the network and the first units of the bitcoin cryptocurrency, called bitcoins. The identity of Satoshi Nakamoto has never been confirmed.
  • The smallest unit of Bitcoin, equal to 0.00000001 BTC.
  • An independent agency of the United States federal government, responsible for enforcing federal securities laws, proposing securities rules, and regulating the securities industry, the nation's stock and options exchanges, and other related activities and organizations.
  • A security token is essentially a digital form of traditional securities. There are three primary types of traditional securities: equities, debt and a hybrid of debt and equity. Examples of securities include stocks, bonds, ETFs, options and futures. Hypothetically, any of these things can be tokenized to become a security token. It is possible that in the near future, security tokens could serve as a very viable alternative and competitor to stocks and other traditional securities.
  • Segwit is a soft fork upgrade to the Bitcoin network, meant largely for mitigating scalability problems by increasing block size limits on its blockchain. SegWit works by removing signature data and reducing the size of the transactions, allowing more transactions to be included in the same block.
  • Secure Hashing Algorithm (SHA) -256 is the hash function and mining algorithm of the Bitcoin protocol, referring to the cryptographic hash function that outputs a 256 bits long value. It moderates the creation and management of addresses, and is also used for transaction verification. Bitcoin uses double SHA-256, meaning that it applies the hash functions twice.
  • A smart contract is a computer protocol intended to facilitate, verify or enforce a contract on the blockchain without third parties.
  • A protocol upgrade where only previously valid transactions are made invalid, with most soft forks requiring miners to upgrade their mining software.
  • A cryptocurrency with extremely low volatility, sometimes used as a means of portfolio diversification. Examples include gold-backed cryptocurrency or fiat-pegged cryptocurrency.
  • Participation in a proof-of-stake (PoS) system to put your tokens in to serve as a validator to the blockchain and receive rewards.
  • In the context of Blockchains, a token is a digital identity for something that can be owned. It does not have a store of value on its own, but is made so that software can be developed around it.
  • A payment for using the blockchain to transact. At the moment, many transactions are typically processed in a way where no fee is expected at all, but for transactions which draw coins from many bitcoin addresses and therefore have a large data size, a small transaction fee is usually expected.
  • Utility tokens are tokens that are designed specifically to be able to help people use something. The use of utility tokens is limited to the particular ecosystem that the utility token is designed for. For example, one day, Uber could have its own utility token which people use to pay for rides on the Uber network. Utility tokens are not designed as investment vehicles.
  • A participant on a proof-of-stake (PoS) blockchain, involved in validating blocks for rewards.
  • A statistical measure of dispersion of returns, measured by using the standard deviation or variance between returns from that same security or market index.
  • A cryptocurrency wallet is a secure digital wallet used to store, send, and receive digital currency, and are divided into two categories: hot wallets and cold wallets.
  • A term used to describe investors who have uncommonly large amounts of crypto, especially those with enough funds to manipulate the market.
  • A document prepared by an ICO project team to interest investors with its vision, cryptocurrency use and crypto economic design, technical information, and a roadmap for how it plans to grow and succeed.