Glossary for Beginners
Glossary for Beginners
Blockchain terminology can be a feat to figure out, especially if you're in the early stages of exploration. Here's a blockchain lingo guide to help you navigate the exciting frontier of Web3.
Address (Wallet Address)
Used to send and receive transactions on a blockchain network. An address is an alphanumeric character string, which can also be represented as a scannable QR code.
A token distribution method used to send cryptocurrency or tokens to wallet addresses. Sometimes airdrops are used for marketing purposes in exchange for simple tasks like reshares, referrals, or app downloads.
A method for securing computers in which the device does not connect to the internet or any other open networks.
Any digital currency alternative to Bitcoin. Many altcoins are forks [see below for definition] of Bitcoin with minor changes (e.g., Litecoin).
AML (Anti-Money Laundering)
Anti-Money Laundering. A set of international laws enacted to diminish the potential for criminal organizations or individuals to launder money through cryptocurrencies.
API (Application Programming Interface)
Application Programming Interface. A software intermediary that allows two separate applications to communicate with one another. APIs define methods of communication between various components.
ASIC (Application Specific Integrated Circuit)
Application Specific Integrated Circuit. ASICs are silicon chips designed to do a specific task. In ASIC use for mining cryptocurrencies, the ASIC will perform a calculation to find values that provide a desired solution when placed into a hashing algorithm.
The first cryptocurrency based on the Proof of Work blockchain. Bitcoin was created in 2009 by Satoshi Nakomoto — a pseudonym for an individual whose real identity is unknown — and the concept of cryptocurrency was outlined in a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.”
A consensus digital ledger comprised of unchangeable, digitally recorded data in packages called blocks. Each block is ‘chained’ to the next block using a cryptographic signature. This allows blockchains to act like a ledger, which can be shared with and accessed by anyone with the appropriate permissions. Click here to learn more about blockchain.
The number of blocks connected together in the blockchain. For example, Height 0 would be the very first block, which is also called the Genesis Block.
The reward given to a miner after it has successfully hashed a transaction block. Block rewards can be a mixture of coins and transaction fees. The composition depends on the policy used by the cryptocurrency in question, and whether all of the coins have already been successfully mined. The current block reward for the Bitcoin network is 12.5 bitcoins per block.
Bounty / Bug Bounty
A reward that’s paid for the completion of a given task. Tasks include identifying code vulnerabilities, creating content, design work, research, translations, social impact and more.
Software that accesses a blockchain via a local computer and helps to process transactions. A client usually includes a cryptocurrency software wallet.
A coin or altcoin is a representation of digital asset value that is generated via their own independent blockchain.
Cold Wallet / Cold Storage
An offline wallet that is never connected to the internet. These wallets protect cryptocurrencies from getting hacked online.
Confirmation / Block Confirmation
A confirmation means that the network has verified the blockchain transaction. This happens through a process known as mining, in a Proof of Work system (e.g., Bitcoin). Once a transaction is successfully confirmed it theoretically cannot be reversed or double spent. The more confirmations a transaction has, the harder it becomes to perform a double spend attack.
The process used by a group consisting of peers that is responsible for maintaining distributed ledger use. The way to reach consensus on the use of the ledger’s contents.
Digital currency that is based on mathematics and uses encryption techniques to regulate the creation of units of currency as well as verifying the transfer of funds. Cryptocurrencies operate independently of a central bank.
A method for secure communication using code. Symmetric-key cryptography is used by various blockchain networks for transfer of cryptocurrencies. Blockchain addresses generated for wallets are paired with private keys that allow transfer of cryptocurrency. Paired public and private keys allow funds to be unlocked.
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DAO (digital decentralized autonomous organization)
Also known as the digital decentralized autonomous organization (DAO). Alternatively, the first known example of a DAO was named The DAO. The DAO served as a form of investor-directed venture capital fund, which sought to provide enterprises with new decentralized business models. Ethereum-based, The DAO’s code was open source. The organization set the record for the most crowdfunded project in 2016, however, those funds were partially stolen by hackers. The hack caused an Ethereum hard-fork which lead to the creation of Ethereum Classic.
The transfer of authority and responsibility from a centralized organization, government, or party to a distributed network.
Decentralized Application (dapp)
An open source, software application with backend code running on a decentralized peer-to-peer network rather than a centralized server.
Decentralized Finance (DeFi)
Decentralized finance—often called DeFi or open finance—refers to the economic paradigm shift enabled by decentralized technologies, particularly blockchain networks. DeFi represents a shift from a centralized and closed financial system to a universally accessible economy that is based on open protocols that are interoperable, programmable, and composable.
Digital property put into a contract involving a different party such that if certain conditions are not satisfied that property is automatically forfeited to the identified counterparty.
A digital commodity that is scarce, electronically transferable, and intangible with a market value.
An online or networked identity adopted by an individual, organization, or electronic device.
A code generated by public key encryption and attached to an electronically transmitted document in order to verify the contents of the document.
Distributed Denial of Service (DDoS) Attack
A type of cyber-attack in which the perpetrator continuously overwhelms the system with requests in order to prevent service of legitimate requests.
A type of database which spreads across multiple sites, countries, or institutions. Records are stored sequentially in a continuous ledger. Distributed ledger data can be either “permissioned” or “unpermissioned” to control who can view it.
The concept outlining how hard it is to verify blocks in a blockchain network during Proof of Work mining. In the Bitcoin network, the difficulty of mining adjusts alters blocks every 2016 blocks. This is to keep block verification time at ten minutes.
The event during which someone in the Bitcoin network tries to send a specific bitcoin transaction to two different recipients at once. However, each bitcoin transaction is confirmed it becomes almost impossible to double spend it. The more confirmations that a particular transaction has, the decreased likelihood of double spending the bitcoin from the transaction.
Enterprise Ethereum Alliance (EEA)
A group of Ethereum core developers, startups, and large companies working together to commercialize and use Ethereum for different business applications.
EIP (Ethereum Improvement Proposals)
Ethereum Improvement Proposals (EIPs) describe standards for the Ethereum platform, including core protocol specifications, client APIs, and contract standards.
A process used to combine a document (plaintext) with a shorter string of data referred to as “a key” in order to produce an output (ciphertext). This output can be “decrypted” back into the original plaintext by someone else who has the key.
ERC20 Token Standard
ERC is the abbreviation for Ethereum Request for Comment and is followed by the assignment number of the standard. ERC20 is a technical standard for smart contracts the majority of Ethereum tokens follow. This list of rules states the requirements that a token must fulfill to be compliant and function within the Ethereum network.
ERC721 Token Standard
A non-fungible Ethereum token standard. This token standard is used to represent a unique digital asset that is not interchangeable.
Ether is the native currency of the Ethereum blockchain network. Ether—also referred to as ETH—functions as a fuel of the Ethereum ecosystem by acting as a medium of incentive and form of payment for network participants to execute essential operations.
A public blockchain network and decentralized software platform upon which developers build and run applications.
EVM (Ethereum Virtual Machine)
The Ethereum Virtual Machine (EVM) is Turing complete and allows anyone, anywhere to execute arbitrary EVM Byte Code. All Ethereum nodes run on the EVM. The project is designed to prevent denial-of-service attacks. It is home for smart contracts based on the Ethereum blockchain.
A place to trade cryptocurrency. Centralized exchanges, operated by companies like Coinbase and Gemini, function as intermediaries, whie decentralized exchanges do not have a central authority.
Government-issued currency. For example: US Dollars (USD), Euros (EUR), Yuan (CNY), and Yen (JPY)
A fork creates an alternative version of a blockchain, and are often enacted intentionally to apply upgrades to a network. Soft Forks render two chains with some compatibility, while Hard Forks create a new version of the chain that must be adopted to continue participation. In the instance of a contentious Hard Fork, this can create two versions of a blockchain network.
A measure of the computational steps required for a transaction on the Ethereum network that then equates to a fee for network users paid in small units of ETH specified as Gwei.
The initial block of data computed in the history of a blockchain network.
A minuscule and common denomination of ETH, and the unit in which gas prices are often specified.
A function that takes an input, and then outputs an alphanumeric string known as the “hash value” or “digital fingerprint.” Each block in the blockchain contains the hash value that validated the transaction before it followed by its own hash value. Hashes confirm transactions on the blockchain.
Many cryptocurrencies like Bitcoin, have a finite supply, which makes them a scarce digital commodity. The total amount of Bitcoin that will ever be issued is 21 million. The number of bitcoins generated per block is decreased 50% every four years. This is called “halving.” The final halving will take place in the year 2140.
A hard fork occurs when there is a change in the blockchain that is not backward compatible (not compatible with older versions), thus requiring all participants to upgrade to the new version in order to be able to continue participating on the network.
A physical device—like the famed Ledger Wallet—that can be connected to the web and interact with online exchanges, but can also be used as cold storage (not connected to the internet).
Hot Wallet / Hard Storage
A wallet that is directly connected to the internet at all times, for example one that is held on a centralized exchange. Hot wallets are considered to have lower security than cold storage systems or hardware wallets.
Hybrid Consensus Model: PoS / PoW
A hybrid consensus model that utilizes a combination of Proof of Stake (PoS) and Proof of Work (PoW) consensus. Using this Hybrid consensus mechanism, blocks are validated from not only miners, but also voters (stakeholders) to form a balanced network governance.
The inability to be altered or changed over time. A key element of blockchain networks, once written onto a blockchain ledger, data cannot be altered. This immutability provides the basis for commerce and trade to take place on blockchain networks.
Initial Coin Offering (ICO)
An Initial Coin Offering (also called ICO) occurs when a new cryptocurrency sells advance tokens in exchange for upfront capital.
InterPlanetary File System (IPFS)
A decentralized file storage and referencing system for the Ethereum blockchain. IFPS is an open source protocol that enables storing and sharing hypermedia (text, audio, visual) is a distributed manner without relying on a single point of failure. This distributed file system enables applications to run faster, safer and more transparently.
Know Your Customer (KYC)
A process in which a business must verify the identity and background information (address, financials, etc) of their customers. For example, current regulations and laws require banks and other financial institutions to keep and report customers’ personal information and transactions.
The availability of liquid assets to a company or market. An asset is considered more liquid if it can easily be converted into cash. The harder the ability to turn an asset into cash the more illiquid the asset. For example, stocks are considered relatively liquid assets as they can be easily converted to cash while real estate is considered an illiquid asset. The liquidity of an asset affects its risk potential and market price.
Liquid Democracy (Delegative Democracy)
A government system where votes can be delegated or proxied to other individuals such as friends, politicians, or subject matter experts. For example, in a liquid democracy, Bob could give Alice his vote and Alice would then vote for both herself and Bob. A liquid democracy has been explored as a governance mechanism for Decentralized Autonomous Organizations where every participant is able to vote or delegate their vote to another individual.
The primary network where actual transactions take place on a specific distributed ledger. For example, The Ethereum mainnet is the public blockchain where network validation and transactions take place.
Short for Market Capitalization, this term refers to the total value held in a particular industry, market, company, or asset. For a publicly traded company, the market cap is the total dollar market value of a company’s outstanding shares. For Bitcoin or Ethereum, the total market cap is a reflection of the current existing supply times the market price.
Similar to the concept of a family tree, where a parent branch splits into children branches, which then extrapolated into grandchildren branches. A merkle tree is a data structure in which a single hash code function(cryptographic code) splits into smaller branches. In the diagram Hash becomes “Hash 0” and “Hash 1,” which then splits again and is represented on the blockchain. This type of data structure enables for faster verification on a blockchain network.
The process by which “blocks” or transactions are verified and added to a blockchain. In order to verify a block a miner must use a computer to solve a cryptographic problem. Once the computer has solved the problem, the block is considered “mined” or verified. In the Bitcoin or Ethereum blockchain, the first computer to mine or verify the block receives bitcoin or ether, respectively.
Multi Signature (MultiSig)
A crypto-asset wallet that requires multiple keys to access. Typically, a specified number of individuals are required to approve or “sign” a transaction before they are able to access the wallet. This is different from most wallets which only require one signature to approve a transaction.
Node (Full Node)
Any computer connected to the blockchain network is referred to as a node. A full node is a computer that can fully validate transactions and download the entire data of a specific blockchain. In contrast a “lightweight” or “light” node does not download all pieces of a blockchain’s data and uses a different validation process.
Non-Fungible Token (NFT)
Fungibility refers to an object’s ability to be exchanged for another. For example, an individual dollar is considered fungible as we can trade dollars with one another. Artwork is usually deemed non-fungible as paintings, sculptures, or masterpieces are likely to be unequal in quality or value. A non-fungible token is a type of token that is a unique digital asset and has no equal token. This is in contrast to cryptocurrencies like ether that are fungible in nature.
Typically, an oracle is any entity or person that is relied on to report the outcome of an event. In a blockchain network an oracle (human or machine) helps communicate data to a smart contract which can then be used to verify an event or specific outcome.
Peer-to-peer (P2P) refers to interactions that happen between two parties, usually two separate individuals. A P2P network can be any number of individuals. In regards to a blockchain network, individuals are able to transact or interact with each other without relying on an intermediary or single point of failure.
A blockchain network in which access to ledger or network requires permission from an individual or group of individuals. Permissioned ledgers may have one or many owners. Consensus on a permissioned ledger is conducted by the trusted actors, such as government departments, banks, or other known entities. Permissioned blockchains or ledgers contain highly-verifiable data sets because the consensus process creates a digital signature, which can be seen by all parties. A permissioned ledger is much easier to maintain and considerably faster than a public blockchain. For example, Quorum or Hyperledger Besu are permissioned ledgers that can be more easily set up for large enterprises. In contrast, the public Ethereum blockchain is a permissionless ledger which anyone can access.
A blockchain or distributed ledger that has a closed network where participants are controlled by a single entity. A private blockchain requires a verification process for new participants. A private blockchain may also limit which individuals are able to participate in consensus of the blockchain network.
A currency or token issued by a private individual or firm. Typically, the token or currency is limited to use within the network of that particular firm or individual. This is not to be confused with a “privacy cryptocurrency” which are cryptocurrency with specific privacy features, such as hidden user identities.
A private key is an alphanumeric string of data that corresponds to a single specific wallet or “public address”. Private keys can be thought of as a password that enables an individual to access their crypto wallet/account. Never reveal your private key to anyone, as whoever controls the private key controls the account funds. If you lose your private key, then you lose access to your wallet.
Proof of Authority
A consensus mechanism used in private blockchains to grants a single private key the authority to generate all of the blocks or validate transactions.
Proof of Stake (PoS)
An alternative consensus protocol, in which an individual or “validator” uses their own cryptocurrency to validate transactions or blocks. Validators “stake” their cryptocurrency, such as ether, on whichever transactions they choose to validate. If the individual validates a block (group of transactions) correctly then the individual receives a reward. Typically, if a validator verifies an incorrect transaction then they lose the cryptocurrency that they staked. Proof of Stake requires a negligible amount of computing power compared to Proof of Work consensus (see also Hybrid ConsenSys Model).
Proof of Work (PoW)
A protocol for establishing consensus across a system that ties mining capability to computational power. Hashing a block, which is in itself an easy computational process, now requires each miner to solve for a set, difficult variable. In effect, the process of hashing each block becomes a competition. This addition of solving for a target increases the difficulty of successfully hashing each block. For each hashed block, the overall process of hashing will have taken some time and computational effort. Thus, a hashed block is considered Proof of Work (see also Hybrid ConsenSys Model).
A set of rules that dictate how data is exchanged and transmitted. This pertains to cryptocurrency in blockchain when referring to the formal rules that outline how these actions are performed across a specific network.
A globally open network where anyone can participate in transactions, execute consensus protocol to help determine which blocks get added to the chain, and maintain the shared ledger.
Obtained and used by anyone to encrypt messages before they are sent to a known recipient with a matching private key for decryption. By pairing a public key with a private key, transactions not dependent on trusting involved parties or intermediaries are possible. The public key encrypts a message into an unreadable format and the corresponding private key makes it readable again for the intended party.
Any party or entity which hosts an off-chain orderbook. Relayers help traders discover counter-parties and cryptographically move orders between them. 0x is an example of a popular Ethereum relayer protocol.
A pseudonymous individual or entity who created the Bitcoin protocol, solving the digital currency issue of the “double spend.” Nakamoto first published their white paper describing the project in 2008 and the first Bitcoin software was released one year later.
The process of converting a data structure into a sequence of bytes. Ethereum internally uses an encoding format called recursive-length prefix encoding (RLP).
A change in size or scale to handle the network’s demands. This word is used to refer to a blockchain project’s ability to handle network traffic, future growth, and capacity in its intended application.
Sharding refers to splitting the entire network into multiple portions called “shards.” Each shard would contain its own independent state, meaning a unique set of account balances and smart contracts. Usually, shards must be tightly coupled and side-chains must be loosely coupled.
A condition that causes the validator’s deposit to be destroyed when they trigger it.
Smart contracts are programs whose terms are recorded in a computer language instead of legal language. Smart contracts are automated actions that can be coded and executed once a set of conditions is met.
Functioning by itself, not controlled by any other party other than itself. Self-executing smart contracts cut costs/overhead by removing the need for an arbitrator and trust toward a third party.
A change to the software protocol where only previously valid blocks/transactions are made invalid. Since old nodes will recognize the new blocks as valid, a soft fork is backward-compatible. However, this can result in a potential divide in the blockchain, as the old software generates blocks that read as invalid according to the new rules.
The programming language developers use to write smart contracts on the Ethereum network.
Any cryptocurrency pegged to a stable asset, like fiat or gold. It theoretically remains stable in price as it is measured against a known amount of an asset not subject to fluctuation.
The set of data that a blockchain network strictly needs to keep track of, and that represents data currently relevant to applications on the chain.
An alternative blockchain developers use to test applications in a near-live environment.
Ethereum Testnet that uses Proof of Authority consensus and currently only supports Parity clients.
Ethereum Testnet that uses Proof of Authority consensus and currently only supports geth clients.
Ethereum Testnet that uses Proof of Work consensus, can use geth or Parity, and is currently the most similar to mainnet.
A Token represents an asset built on an existing blockchain (different from a coin). Tokens are designed to be unique, liquid, secure, instantly transferable, and digitally scarce.
A collection of transactions on a blockchain network, gathered into a set or a block that can then be hashed and added to the blockchain.
A small fee imposed on some transactions sent across a blockchain network. The transaction fee is awarded to the miner that successfully hashes the block containing the relevant transaction.
Any machine that can calculate on a level equal to a programmable computer is Turing Complete, or computationally universal.
A participant in Proof of Stake consensus. Validators need to submit a security deposit in order to get included in the validator set.
A designated storage location for digital assets (cryptocurrency) that has an address for sending and receiving funds. The wallet can be online, offline, or on a physical device.
zk-SNARK is an acryonym for zero-knowledge succinct non-interactive argument of knowledge, a cryptographic proof system that enables a user to verify a transaction without revealing the actual data of the transaction, and without interacting with the user who published the transaction.
If more than half the computer power or mining hash rate on a network is run by a single person or a single group of people, then a 51% attack is in operation. This means that this entity has full control of the network and can negatively affect a cryptocurrency by taking over mining operations, stopping or changing transactions, and double-spending coins.