Digital Currency Glossary This glossary below provides definitions for the most common and important terms used in the digital currency, blockchain, and cryptocurrency ecosystems. The terms are listed alphabetically for easy navigation.AA

A

Address: A unique string of alphanumeric characters that represents a destination for digital currency transactions. Similar to a bank account number, it's where you send or receive cryptocurrencies.

Airdrop: A distribution of a cryptocurrency token or coin to multiple wallet addresses, usually for free. Airdrops are often used by projects to raise awareness, reward early adopters, or decentralize token ownership.

Algorithm: A set of rules or a formula used for calculations or problem-solving. In digital currencies, algorithms are fundamental to hashing, mining, and consensus mechanisms.

Altcoin: Any cryptocurrency other than Bitcoin. The term is a portmanteau of "alternative coin."

AML (Anti-Money Laundering): A set of regulations and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. Cryptocurrency exchanges and financial institutions often implement AML policies.

API (Application Programming Interface): A set of definitions and protocols that allows different software applications to communicate with each other. Many crypto exchanges and data services offer APIs for developers to build applications.

Arbitrage: The simultaneous purchase and sale of an asset to profit from a difference in the asset's price on different markets or exchanges. In crypto, this often involves buying a coin on one exchange and immediately selling it on another where the price is higher.

ASIC (Application-Specific Integrated Circuit): A microchip designed for a specific application. In cryptocurrency, ASICs are specialized hardware used for mining specific cryptocurrencies (e.g., Bitcoin) due to their high efficiency.

Atomic Swap: A technology that allows for the direct exchange of one cryptocurrency for another without the need for a centralized intermediary like an exchange. This is done via smart contracts.

B

Bear Market: A market condition in which prices are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. Often characterized by a decline of 20% or more from recent highs.

Block: A file in a blockchain that contains a set of validated and confirmed transactions. Once a block is filled, it is added to the chain, and a new block is created.

Blockchain: A distributed, decentralized, and immutable ledger technology that records transactions across a network of computers. Each "block" contains a timestamped batch of valid transactions, and once recorded, cannot be altered.

Block Explorer: An online tool that allows users to view information about blocks, transactions, and addresses on a specific blockchain.

Block Reward: The amount of new cryptocurrency awarded to a miner for successfully adding a new block to the blockchain. This reward incentivizes miners to secure the network.

Block Time: The average time it takes for a new block to be generated and added to a blockchain. For Bitcoin, it's approximately 10 minutes; for Ethereum, it's about 12-15 seconds.

Bridge: A protocol that connects two disparate blockchains, allowing for the transfer of assets and data between them. This helps improve interoperability within the crypto ecosystem.

Bull Market: A market condition in which prices are rising, and widespread optimism causes the positive sentiment to be self-sustaining.

C

Centralized Exchange (CEX): A platform that facilitates the buying and selling of cryptocurrencies, where the exchange acts as a third-party custodian of user funds. Examples include Coinbase, Binance, and Kraken.

CBDC (Central Bank Digital Currency): A digital form of a country's fiat currency, issued and backed by its central bank. Unlike cryptocurrencies, CBDCs are centralized and controlled by the government.

Circulating Supply: The number of coins or tokens that are publicly available and circulating in the market.

Cold Storage (Cold Wallet): A method of storing cryptocurrency offline, disconnected from the internet. This is considered the most secure way to store crypto assets as it minimizes the risk of hacking. Examples include hardware wallets or paper wallets.

Consensus Mechanism: A protocol or algorithm used by a distributed network to agree on a single state of the ledger. Examples include Proof of Work (PoW) and Proof of Stake (PoS).

Cryptocurrency: A digital or virtual currency that uses cryptography for security and operates on a decentralized network, typically a blockchain. Bitcoin was the first cryptocurrency.

Cryptography: The practice and study of techniques for secure communication in the presence of adversarial behavior. It's fundamental to the security of digital currencies.

D

DAO (Decentralized Autonomous Organization): An organization represented by rules encoded as a computer program, transparent, controlled by the organization's members, and not influenced by a central government.

DApp (Decentralized Application): An application that runs on a decentralized peer-to-peer network, typically a blockchain, rather than on a single server.

DeFi (Decentralized Finance): An umbrella term for financial applications built on blockchain technology, aiming to disintermediate traditional financial services like lending, borrowing, and trading.

Decentralization: The principle of distributing power and control away from a central authority. In digital currencies, this refers to the absence of a central bank or government control.

Decentralized Exchange (DEX): A peer-to-peer cryptocurrency exchange that allows users to trade directly with each other without the need for a centralized intermediary. Users retain control of their private keys.

Delegated Proof of Stake (DPoS): A variation of Proof of Stake where token holders vote for "delegates" or "witnesses" who are responsible for validating transactions and maintaining the network.

Derivatives: Financial contracts that derive their value from an underlying asset. In crypto, this includes futures, options, and perpetual swaps based on cryptocurrency prices.

Difficulty: A measure of how difficult it is to find a hash below a given target. It adjusts periodically to ensure a consistent block time, regardless of the total mining power on the network.

Digital Signature: A cryptographic technique used to verify the authenticity and integrity of a digital message or document. It ensures that a transaction originated from the sender and hasn't been tampered with.

Distributed Ledger Technology (DLT): A decentralized database shared and synchronized across multiple sites, institutions, or geographies. A blockchain is a type of DLT.

DogeCoin: A cryptocurrency created as a joke, featuring the Shiba Inu dog from the "Doge" meme. It gained significant popularity and market capitalization.

E

ERC-20: A technical standard used for smart contracts on the Ethereum blockchain for implementing fungible tokens. Most tokens launched on Ethereum adhere to this standard.

Ethereum: A decentralized, open-source blockchain with smart contract functionality. Ether (ETH) is the native cryptocurrency of the Ethereum platform.

Ether (ETH): The native cryptocurrency of the Ethereum blockchain, used to pay for transaction fees (gas) and as a store of value.

F

Fiat Currency: Government-issued currency that is not backed by a physical commodity like gold or silver, but rather by the government's full faith and credit. Examples include USD, EUR, JPY.

Fifty-One Percent (51%) Attack: A theoretical attack on a blockchain network where a single entity or group gains control of more than 50% of the network's mining or staking power, allowing them to manipulate transactions.

Fork: A change to the protocol of a blockchain, resulting in a split in the network.

• Soft Fork: A backward-compatible change, meaning older nodes can still recognize new blocks.

• Hard Fork: A non-backward-compatible change, requiring all nodes to upgrade to the new protocol. This can result in two separate blockchains.

Fungible Token: A token that is interchangeable with another token of the same type, meaning each unit has the same value and properties. Cryptocurrencies like Bitcoin and Ether are fungible.

Futures Contract: A standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future. Crypto futures allow traders to speculate on future price movements.

G

Gas: A unit of computational effort required to execute operations on the Ethereum blockchain. Users pay gas fees in Ether to compensate miners for processing their transactions.

Gas Limit: The maximum amount of gas a user is willing to spend on a particular transaction.

Gas Price: The amount of Ether a user is willing to pay per unit of gas.

H

Halving (Halvening): A pre-programmed event in some cryptocurrencies (like Bitcoin) where the block reward for miners is cut in half. This reduces the rate at which new coins are created, increasing scarcity.

Hard Cap: The maximum amount of funds a cryptocurrency project aims to raise during an Initial Coin Offering (ICO) or token sale.

Hash: A fixed-length string of characters generated from an input of any size. Hashing is a one-way cryptographic function central to blockchain security, used to link blocks and verify data integrity.

Hash Rate (Hash Power): The total combined computational power being used to mine and process transactions on a Proof of Work blockchain. A higher hash rate generally indicates a more secure network.

Hot Storage (Hot Wallet): A method of storing cryptocurrency online, connected to the internet. While convenient for frequent transactions, it carries a higher risk of security breaches compared to cold storage. Examples include exchange wallets or mobile wallets.

I

ICO (Initial Coin Offering): A fundraising method used by blockchain projects to raise capital by selling new cryptocurrency tokens to early investors.

Immutability: The characteristic of data on a blockchain that means it cannot be altered or deleted once recorded. This provides a high level of security and transparency.

Interoperability: The ability of different blockchain networks to communicate and exchange data or assets with each other.

K

KYC (Know Your Customer): A process by which businesses verify the identity of their clients. It's a regulatory requirement for many cryptocurrency exchanges to prevent fraud and money laundering.

L

Layer 1 (L1) Blockchain: The base blockchain layer, such as Bitcoin or Ethereum, where transactions are processed and secured.

Layer 2 (L2) Solution: A secondary framework or protocol built on top of an existing blockchain (Layer 1) to improve its scalability and efficiency. Examples include Lightning Network for Bitcoin or Optimism for Ethereum.

Ledger: A record of financial transactions. In blockchain, it refers to the distributed, immutable record of all transactions.

Lending (Crypto): The act of providing cryptocurrency to borrowers in exchange for interest payments. This is a common DeFi activity.

Liquidity: The ease with which an asset can be converted into cash without affecting its market price. In crypto, high liquidity means a token can be bought or sold quickly without significant price impact.

Liquidity Pool: A pool of cryptocurrency tokens locked in a smart contract, used to facilitate decentralized trading, lending, and other DeFi activities.

M

Mainnet: The live, operational blockchain network where actual transactions take place and real cryptocurrency is exchanged.

Market Cap (Market Capitalization): The total value of a cryptocurrency, calculated by multiplying its current price by its circulating supply.

Mempool: A waiting area for unconfirmed transactions on a blockchain network. Transactions remain in the mempool until they are picked up by a miner and included in a block.

Merkle Tree: A data structure used in cryptography and computer science that allows for efficient and secure verification of large data sets. It's used in blockchains to summarize all transactions in a block.

Metaverse: A virtual, persistent, and interactive digital world, often incorporating elements of augmented reality (AR), virtual reality (VR), and blockchain technology, including NFTs.

Mining: The process of validating and adding new transactions to a blockchain, typically in Proof of Work systems. Miners use powerful computers to solve complex cryptographic puzzles to earn block rewards.

Minting (NFT): The process of creating a new Non-Fungible Token (NFT) on a blockchain. This involves publishing a unique digital asset onto the blockchain as an NFT.

Multi-signature (Multisig) Wallet: A type of cryptocurrency wallet that requires multiple private keys to authorize a transaction. This enhances security by requiring approval from several parties.

N

Node: A computer that participates in a blockchain network by maintaining a copy of the ledger, validating transactions, and relaying information.

Non-Fungible Token (NFT): A unique and non-interchangeable unit of data stored on a blockchain. NFTs can represent digital assets like art, music, collectibles, or even real-world assets.

O

Off-chain: Refers to transactions or activities that occur outside of the main blockchain network. These transactions are typically processed faster and with lower fees but may rely on centralized intermediaries.

On-chain: Refers to transactions or activities that occur directly on the blockchain network, recorded and verified by all participants.

Oracle: A third-party service that provides external, real-world data to smart contracts on a blockchain. Oracles bridge the gap between the blockchain and the outside world.

P

Peer-to-Peer (P2P): A decentralized network architecture where participants interact directly with each other without the need for a central server or intermediary.

Phishing: A type of cyberattack where attackers attempt to trick individuals into revealing sensitive information (like private keys or login credentials) by impersonating a trustworthy entity.

Private Key: A secret, alphanumeric code that allows access to and control over a cryptocurrency wallet and its contents. It's crucial to keep your private key secure as anyone with access can spend your funds.

Proof of Authority (PoA): A consensus mechanism where transactions are validated by approved accounts, known as "authorities." It offers high transaction speeds but is more centralized than PoW or PoS.

Proof of History (PoH): A consensus mechanism used by Solana that creates a historical record of events on the blockchain, allowing for high transaction throughput.

Proof of Stake (PoS): A consensus mechanism where participants "stake" their cryptocurrency as collateral to validate transactions and create new blocks. The probability of being chosen to validate a block is proportional to the amount staked.

Proof of Work (PoW): A consensus mechanism where participants (miners) compete to solve complex cryptographic puzzles to validate transactions and add new blocks to the blockchain. The first to solve the puzzle earns a reward. Bitcoin uses PoW.

Protocol: A set of rules that govern how data is formatted and transmitted between devices or systems. Blockchain protocols define how the network operates.

Public Key: A cryptographic key that can be shared publicly and is used to receive cryptocurrency. It's derived from your private key but cannot be used to spend funds.

R

Ransomware: Malicious software that encrypts a victim's files and demands a ransom payment (often in cryptocurrency) for their decryption.

Rollup (Optimistic/ZK): Layer 2 scaling solutions that bundle multiple transactions off-chain and then submit a single proof of those transactions to the main blockchain, significantly increasing throughput.

Royalty (NFT): A percentage of the sale price that an NFT creator receives each time their NFT is resold on a secondary marketplace.

Rug Pull: A malicious maneuver in the cryptocurrency industry where developers abandon a project and run away with investors' funds, often by draining liquidity from a decentralized exchange.

S

Satoshi: The smallest unit of Bitcoin, equivalent to 0.00000001 BTC. Named after Satoshi Nakamoto, the pseudonymous creator of Bitcoin.

Satoshi Nakamoto: The pseudonymous entity or individual(s) credited with creating Bitcoin and authoring its whitepaper.

Scalability: The ability of a blockchain network to handle a growing number of transactions and users without compromising performance or security.

Seed Phrase (Recovery Phrase/Mnemonic Phrase): A sequence of 12 or 24 words that serves as a backup for your cryptocurrency wallet. It can be used to recover access to your funds if you lose your private key or device.

Sharding: A database partitioning technique used to improve the scalability of blockchains by dividing the network into smaller, more manageable segments called "shards," each processing a portion of the transactions.

Sidechain: A separate blockchain that runs parallel to a main blockchain (parent chain) and is interoperable with it. Sidechains are used to improve scalability and add new functionalities without burdening the main chain.

Smart Contract: A self-executing contract with the terms of the agreement directly written into lines of code. They run on a blockchain and automatically execute when predefined conditions are met.

Soft Cap: The minimum amount of funds a cryptocurrency project aims to raise during an ICO or token sale to proceed with development.

Solidity: A high-level programming language used to write smart contracts on the Ethereum blockchain.

Stablecoin: A type of cryptocurrency designed to maintain a stable value relative to a specific asset, such as a fiat currency (e.g., USD Coin, Tether), a commodity (e.g., gold), or another cryptocurrency.

Staking: The act of locking up cryptocurrency holdings to support the operations of a Proof of Stake blockchain network. Stakers earn rewards for validating transactions and securing the network.

Supply (Max/Total):

• Max Supply: The maximum number of coins or tokens that will ever exist for a particular cryptocurrency.

• Total Supply: The total number of coins or tokens that have been created, minus any that have been verifiably burned.

Sybil Attack: A type of attack on a peer-to-peer network where a single entity creates multiple fake identities or nodes to gain disproportionate influence over the network.

T

Testnet: A development blockchain network used for testing new features, applications, or smart contracts without using real cryptocurrency.

Token: A digital asset built on an existing blockchain (e.g., Ethereum's ERC-20 tokens). Tokens can represent a wide range of assets or utilities, from currency to ownership of a digital item.

Tokenomics: The economics of a cryptocurrency token, including its supply, distribution, utility, and how it's designed to incentivize network participants.

Total Value Locked (TVL): A metric used in DeFi to represent the total amount of assets currently staked or locked in a particular DeFi protocol or application.

Transaction Fee: A small fee paid by the sender of a cryptocurrency transaction to compensate miners or validators for processing and securing the transaction on the blockchain.

Turing Complete: A property of a programming language or system that means it can simulate any Turing machine, implying it can perform any computation that a computer can. Ethereum's smart contract language, Solidity, is Turing complete.

V

Validator: A participant in a Proof of Stake network responsible for verifying transactions and creating new blocks. Validators stake their cryptocurrency as collateral and earn rewards for their service.

W

Wallet (Cryptocurrency Wallet): A software application or physical device that stores the public and private keys used to send and receive cryptocurrencies. It doesn't actually hold the crypto itself, but rather the keys that prove ownership.

Web3: An idea for a new iteration of the World Wide Web based on decentralized technologies like blockchain, aiming to give users more control over their data and online experiences.

Whale: An individual or entity that holds a very large amount of a particular cryptocurrency, capable of significantly influencing its market price.

Whitepaper: A detailed document published by a blockchain project that outlines its vision, technology, use cases, tokenomics, and roadmap.

Y

Yield Farming: A DeFi strategy where users leverage various protocols to maximize returns on their cryptocurrency holdings, often by providing liquidity, lending, or staking.

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Crypto & Digital Currency Terms