This post will serve as a dictionary for all terms used and referenced in other content posted on the website. I will continue to update as new terms become relevant in the cryptosphere.
- 0x Protocol - 0x is an Ethereum-based open-source platform for exchanging cryptocurrencies. It allows for the creation of features in a decentralized exchange (DEX), a wallet, or a marketplace.
- Altcoin – any cryptocurrency other than Bitcoin.
- ASIC – Application-Specific Integrated Circuit. An ASIC is a powerful and expensive computing device used for mining cryptocurrency (see ‘mining’).
- ATH (All-Time-High) - The highest point (in price, in market capitalization) that a cryptocurrency has been in history.
- ATL (All-Time-Low) - The highest point (in price, in market capitalization) that a cryptocurrency has been in history.
- AMM (Automated-Market-Maker) - An automated market maker (AMM) is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets. Instead of using an order book like a traditional exchange, assets are priced according to a pricing algorithm. Examples include Uniswap, Balancer, and Curve.
- Bitcoin – the original, largest and best-known cryptocurrency.
- Blockchain – the underlying technology on which cryptocurrencies operate. A blockchain is essentially a complete ledger of transactions held simultaneously by several people on a computer network.
- Central Bank Digital Currency - CBDCs are digital currencies issued by a central bank whose status as legal tender depends on government regulation or law.
- CEXs - A Centralized Exchange such as Coinbase, Binance, or FTX.
- Cold wallet – a physical storage device such as a flash drive, hard drive or solid state drive used to store cryptocurrency offline.
- Consenus Mechanism - A consensus mechanism is an underlying technology behind the main functionalities of all blockchain technology, which is used to validate a block and confirm the accuracy of the blockchain.
- Cross-Chain Communication - Cross-chain communication between blockchains allows different protocols to verify data and transactions without the intervention of a centralized third-party service.
- Custodial - Custodial cryptocurrency businesses are the ones that are in possession of their customers’ funds for the duration of the use of their services. For example, Centralized Exchanges are custodians of your coins that you hold on exchange. In contrast, a hot wallet (Metamask) or cold wallet (Ledger) means that only you can access your coins and are self-custody solutions.
- dApps - A type of application that runs on a decentralized network, avoiding a single point of failure.
- Directed Acyclic Graph (DAG) - A way of structuring data, often used for data modelling, and increasingly as a consensus tool in cryptocurrencies.
- DEXs - A peer-to-peer exchange allowing users to trade cryptocurrency without the need for an intermediary.
- DeFi – short for decentralised finance. Finance is traditionally centralised because it relies on intermediaries. For example, if you want to send money to a friend or relative, you rely on your bank to send it to the recipient’s bank. Defi requires no intermediaries, with participants able to send and receive assets directly. In theory, this makes transactions faster and cheaper.
- DAO – decentralised autonomous organisation. A DAO is a group of people who work together towards a shared goal and abide by rules written into the project’s self-executing computer code. Bitcoin (the project, not the currency) is an example of a DAO.
- Distributed ledger – in traditional finance, an organisation such as a bank holds a ledger of all its customers’ transactions. In defi, the ledger is shared and synchronised among users in different locations around the world. A blockchain is an example of a distributed ledger.
- Double spend – If you handed a shopkeeper $5 for a sandwich, you would no longer own the $5 and couldn’t spend it again, and sophisticated anti-counterfeit measures prevent people from making copies of physical currency. Even with digital transactions, central authorities such as banks can secure and check their ledgers to verify the legitimacy of a payment.
- However, digital information can be copied. In theory, a single Bitcoin could be copied 100 times and spent 100 times. A distributed ledger such as blockchain prevents this.
- When you send a Bitcoin to someone, you destroy your version of it and create a new version for the recipient. Both destruction and creation are recorded on everyone’s copy of the ledger, preventing you from claiming you still own the spent coin and trying to spend it again.
- Exchange – A website or app that allows users to buy and sell crypto assets.
- Ethereum–The second biggest cryptocurrency by market capitalisation, after Bitcoin. (See market capitalisation.)
- Encryption – The process of making digital information into a form that prevents unauthorised access. If you use a password to access a website, the site should be encrypting it so that it is of no use to hackers if stolen.
- ERC-1155- ERC-1155 digital token standard was created by Enjin and offers more security in comparison to older token standards. It can be used to create both fungible and non-fungible assets on the Ethereum network.
- ERC-20 - Tokens designed and used solely on the Ethereum platform.
- ERC-223 - ERC-223 is an Ethereum token standard that is powered by smart contracts that enable users to securely transfer tokens to a digital wallet.
- ERC-721 - A token standard for non-fungible Ethereum tokens.
- ERC-777 - ERC-777 is a tradable token standard spun out from ERC-20 to enable a new way to engage with a token contract while staying backward compatible.
- ERC-827 - ERC-827 is an ETH token standard that addresses the existing limitations of ERC 20 when it comes to the implementation of calls in transfers and approvals in particular.
- ERC-884 - ERC-884 facilitates the creation of tradable ERC-20 tokens, each of which symbolizes a numberless share issued by a Delaware corporation.
- ERC-948 - ERC-948 is a new Ethereum token protocol that is designed to connect subscription businesses with customers and allows for subscription-based transactions.
- Fiat – refers to traditional, state-backed currencies like Sterling, euro and US Dollar.
- Fork – a fork occurs when a community makes a change to its blockchain’s governing protocols. The change marks a forking-off from the previous iteration of the blockchain in a new direction.
- Soft forks involve iterative changes to the blockchain’s rules that can be considered as an update only. Hard forks are when changes are so significant that the new version is incompatible with the old version and stands apart from it.
- Flash Loans - Flash loans are a type of uncollateralized lending used in decentralized finance (DeFi).
- Gas – Transactions on the Ethereum network carry a fee. For every transaction, users must pay an amount of the native Ethereum currency ether (ETH). This fee is referred to as gas. Gas is used to reward Ethereum ‘miners’ (see ‘mining’) for the energy they use validating transactions. Gas also serves as a deterrent against malicious users.
- Graphics card – Verifying a transaction on a blockchain involves solving a cryptographic problem. Solving these problems requires significant computing power, which in turn uses significant amounts of energy. High-end graphics cards used in PC gaming have the kinds of processing power needed to validate transactions.
- GameFi - GameFi, better known as play-to-earn (P2E) games, is a rather new term in the field of both gaming and cryptocurrency industries. It references games that are designed with economic and financial aspects of blockchain and cryptocurrencies, enabling players to exert full control over their in-game assets to generate revenue.
- Genesis Block - The first block of data that is processed and validated to form a new blockchain, often referred to as block 0 or block 1.
- Governance Token - A governance token is a token that can be used to vote on decisions that influence an ecosystem.
- Gwei - The denomination used in defining the cost of gas in transactions involving Ether.
- Hash – A hash is the result of a piece of data being put through a special algorithm. A hashing algorithm essentially compresses data of any size down into an almost-unique alphanumeric string of text.
- For example, a hash of the word ‘theblocktopian’ using SHA-256 (more on that later) reads: ADD913C2C3CF3F4A0628B58B505BC09C6C3797F2EE7DEE86AD9F701A191E6E93.
- While entering the same input will always generate the same hash, the hash itself cannot be used to reverse engineer the underlying data, in this case "theblocktopian".
- Different cryptocurrencies use different hashing algorithms. For example, Bitcoin miners have to guess the hash of each block first to be eligible to earn mining rewards. Bitcoin also uses double hashing to safeguard against birthday attacks. A birthday attack is a scenario where an attacker is able to produce the same hash as another input by using a completely different input (called a collision). This breaks the third property of uniqueness. In the example above, the Bitcoin version of "theblocktopian" would hash the initial SHA-256 to create the final hash: 039B161BDD67F286F7BE691D8BFAE9D59948AAD8EF98CF2930D764C8B367D39E.
- Hot wallet – Online storage for cryptocurrencies, provided either by an exchange or a third party. Since storage is online and accessed with passwords, hot wallets are a target for hackers. However, hot wallet operators can help users regain access to their assets if they lose their access codes.
- ICO – an Initial Coin Offering (ICO) is the cryptocurrency equivalent of an Initial Public Offering (IPO). It offers investors the opportunity to back a new crypto project.
- Impermanent Loss - Impermanent loss is a unique risk involved with providing liquidity to dual-asset pools in DeFi protocols. It is the difference in value between depositing 2 cryptocurrency assets within an Automated Market Maker-based liquidity pool or simply holding them in a cryptocurrency wallet.Essentially, it occurs when depositing them into an automated market maker (AMM) and then withdrawing them at a later date results in a loss, compared to if you had just HODL'd and left them in your wallet.
- This usually happens when there is divergence in the price of tokens you despoited in a liquidity pool. As one (or both) of the tokens begins to fluctuate in value, the balance of the pool is going to shift. People are also trading in and out of the pool, which may also cause one side of the pool to grow or contract, ending up with something like a 60/40 balance.
- When this happens, it presents an opportunity for arbitrage traders who essentially get to purchase one of the assets at a discount, compared to the rest of the market. By taking advantage of this, arbitrage traders end up naturally rebalancing in the pool. This is an important part of how AMMs stay operational, but creates a problem for liquidity providers.
- In fact, you may not actually lose any money, but rather your gains are less relative to if you had just left your assets untouched. Inversely, losses can be amplified depending on how the market moves.Trading fees or rewards from the mining pools may be enough to compensate for impermanent loss.
- Layer 0 - Layer 0 is a network framework running beneath the blockchain. It is made up of protocols, connections, hardware, miners, and everything else that forms the foundation of the blockchain ecosystem.
- Layer 1 (L1) - Layer 1 refers to a base network, such as Bitcoin, BNB Chain, or Ethereum, and its underlying infrastructure. Layer-1 blockchains can validate and finalize transactions without the need for another network.
- Layer 2 (L2) - Layer 2 is the name given to a scaling solution that enables high throughput of transactions whilst inheriting the security of the underlying blockchain that it is built on.
- Lightning Network - A second-layer protocol that is designed to solve Bitcoin’s scalability problem by allowing transactions to be processed more quickly.
- Liquidity Pool - Liquidity pools are crypto assets that are kept to facilitate the trading of trading pairs on decentralized exchanges.
- Market Capitalisation/Cap – the total value of a cryptocurrency. At the time of writing, all cryptocurrencies combined had a market cap of $1.3 trillion.
- Mining – crypto mining is the process of verifying cryptocurrency transactions using computer hardware. Bitcoin miners are volunteers motivated by the chance to earn an amount of newly minted Bitcoin. In doing so, they collectively validate transactions on the blockchain and prevent double spending.
- Mining involves guessing (as closely as possible) a 64-character hash, of which there are trillions of possible combinations. The more computing power you have, the more guesses you can make within each ten-minute timeframe and the greater your chances of earning new Bitcoin.
- Mining requires graphics cards or ASICs. The amount of computing power necessary to mine crypto increases over time, and is now so immense that it’s no longer practical for home PC users. Instead, mining is now the preserve of companies dedicated to it.
- Mempool - A mempool is the node's collection of all of the unconfirmed transactions that it has seen.
- Metaverse - A metaverse is a digital universe that contains all the aspects of the real world, such as real-time interactions and economies. It offers a unique experience to end-users.
- Multi-Signature (Multi-Sig) - An added layer of security by requiring more than one key to authorize a transaction.
- Node – A computer or device connected to other computers or devices that all hold a copy of a blockchain. Each node supports the network of nodes by sharing information and validating transactions.
- NFT – A Non-Fungible Token is a digital collectible that uses the same underlying technology as cryptocurrencies. Read our guide to Non-Fungible Tokens.
- On-chain – a transaction that is recorded on a blockchain.
- On-Chain Governance - On-chain governance is a decentralized framework used for organizing and integrating updates/improvements to the blockchain networks.
- Orphan block – a block that has been solved but not accepted by the network and isn’t added to the blockchain.
- Optimistic Rollup - An optimistic rollup is a type layer 2 scaling solution that relies on off-chain computation to trustlessly record transactions that happen in the layer 2.
- Parachain - Parachains are application-specific data structures that run in parallel to each other within Polkadot.
- Private key – A private key is essentially the password to your crypto holdings. It’s an impossibly long number that’s practically impossible to guess. You authorise a transaction by signing it with a hash of your private key that only you know. Your corresponding public key can be used by others to verify the authenticity of a transaction.
- Public key – The public-facing address of your crypto wallet. To receive funds into your account, you have to share your public key. If a private key is like a password, a public key is like an email address or an account number.
- Proof of work (PoW) – Proof that you’ve done the computational work to guess the 64-character hash necessary to add a block to the blockchain. Broadcasting your solution allows other nodes to quickly verify that your hash is correct and that you must have carried out the work required to get it.
- Proof of stake (PoS) – Rather than proving you’ve done the computational legwork to guess the hash (see proof of work), proof of stake shows you’ve staked a certain amount of coins for a chance to become a validator. The more coins you stake, the better your chances of becoming a validator.
- Should you spend your way into the position in order to deliberately approve a fraudulent transaction, you risk losing your stake – so there’s a disincentive to cheat.
- PoS is better for the environment since it requires less computing power and uses less energy, but favours users who have more money to stake and makes them richer as they are more likely to reap the rewards of validation.
- Proof-of-History (PoH) - Proof of History (PoH) nodes have internal clocks that validate events and time. The incoming events are hashed using a verifiable delay function, also known as VDF, that increases the speed and scalability of a blockchain. For example, Solana runs on a hybrid protocol of proof-of-stake (PoS) and a proof-of-history (PoH).
- Protocol Layer - A protocol layer of the blockchain is defined as the rules and processes that govern how the network will operate. This is where we can find the different algorithms that determine how consensus is achieved and who gets to create new blocks.
- Quantum computing – a field of computer science that uses principles of quantum physics to process much larger data sets at much greater speeds than traditional, binary-based computing.
- Quorum (Governance) - A quorum is the minimum number of members of an assembly or group that must be present at any of its meetings to make the proceedings of that meeting valid.
- Rehypothecation - Rehypothecation is the practice where banks, and even the brokers themselves, use assets that have been posted as collateral by their clients for their own purposes.
- Satoshi – Named after Bicoin's creator Satoshi Nakamoto, a Satoshi is to Bitcoin as a cent is to a dollar.
- Sharding - Essentially, a shard is a portion of a blockchain network that has been split into multiple shards, which has its own data. Sharding is a scaling approach that enables splitting of blockchain states into partitions containing states and transaction history, so that each shard can be processed in parallel.
- Smart contract – A programme that executes itself on a blockchain when certain conditions are met, without the need for human intervention or an intermediary. Once executed, the contract cannot be changed or undone. For example, account 1 will release asset X to account 2 once it receives asset Y.
- SHA-256 – a hashing algorithm that compresses data of any size into an alphanumeric string that cannot be reverse engineered, keeping the original data secret and secure while being useful for validating input data. It was developed in part with the US National Security Agency (NSA) and is used by Bitcoin.
- Seed (phrase) – a random series of 12-24 words generated by your crypto wallet and used to gain access to it.
- Stablecoin – a cryptocurrency such as Tether (USDT), whose value is tied to another currency, commodity or financial instrument. Stablecoins come in two flavors - cash/fiat backed stablecoins (USDT, USDC) and algorithmic stablecoins (USDD, UST). Cash backed stables in theory can always be exchanged for one unit of the underlying, in this the dollar. Algorithmic stablecoins are instead pegged based on seniorage, and therefore more susceptible to bank runs.
- Total Exchange Volume - Total exchange volume is a measure of the total value that has been traded on an exchange(s).
- Total Supply - The total amount of coins in existence right now, minus any coins that have been verifiably burned. *see Circulating Supply and Max Supply.
- Total Value Locked (TVL) - Тotal value locked represents the number of assets that are currently being staked in a specific protocol.
- Trade Volume - The amount of the cryptocurrency that has been traded in the last 24 hours.
- Transactions Per Second (TPS) - Transactions per second (TPS) is a measure of a computer system's (or network's) capacity to perform transactions or calculations in a second.
- Unregulated – Financial services in the UK are regulated, which means providers have to abide by strict rules designed to protect consumers’ interests. Crypto is unregulated in the UK, which means investors get no legal protection.
- Unspent Transaction Output (UTXO) - A transaction that is left unspent after being completed, similar to leftover change after making a purchase.
- Volume – the total amount of currency traded in a 24-hour period
- Validator – someone who pays for the chance to validate transactions and earn crypto on a proof of stake blockchain (see proof of stake).
- Wallet – a digital storage device or location for keeping crypto assets secure. Wallets can be online (see hot wallet) or offline (see cold wallet).
- Wei – a Wei is to Ether as a cent is to a dollar. An ETH is worth 1000,000,000,000,000,000 Wei.
- Whitepaper – a technical document released alongside new crypto projects that explains how the system works.
- XRP – XRP is a kind of cryptocurrency token that runs on the Ripple blockchain. It is currently in court agains the Securities & Exchange Commission (SEC) on whether it is a currency or equity.
- Yield – a return on investment, expressed as a percentage.
- Yield Farming - Yield farming involves earning interest by investing crypto in decentralized finance markets.
- Zero confirmation – a transaction that has been confirmed but has yet to be recorded on a blockchain.
- Zero Knowledge Proof - Proving certain information or data is true without revealing it. There are two types of Zero Knowledge Proofs:
- Zk-SNARKSs - The acronym zk-SNARK stands for "Zero-Knowledge Succinct Non-Interactive Argument of Knowledge," and refers to a proof construction where one can prove possession of certain information, e.g. a secret key, without revealing that information, and without any interaction between the prover and verifier.
- Zk-STARKs - The acronym zk-SNARK stands for "Zero-Knowledge Scalable Transparent ARguments of Knowledge," and similarly refers to type of cryptographic proof technology that enables users to share validated data or perform computations with a third party without the data or computation being revealed to the third-party.
- Unlike Zk-SNARKs, Zk-STARKs do not require trusted parties to initially setup the ZK proof system.
- STARKs also improve scalability by allowing developers to move computations and storage off-chain.
- Finally, ZK-STARKs are quantum computing resistant.
- Zero Knowledge Rollup - A zero knowledge rollup is a type of layer 2 scaling solution that relies on zero knowledge cryptography