This is a glossary of some frequently used terms in the cryptocurrency space to help those who want to have a quick overview of some of the terminology used. This is far from complete of all of the different crypto terms used as new terms are seemingly being created every day, but if this is helpful for others, I can continue expanding on the glossary over time.
Blockchain – A specific type of distributed ledger technology in which all nodes (computers) of the network hold a copy of the shared database (commonly referred to as the ledger) and information is stored in blocks of data (much of it transactions of cryptocurrency) created at certain variable time intervals (block time) using a consensus mechanism for all of the nodes in the network to come to agreement in a “decentralized” fashion without relying on a centralized authority. The resilience of the system usually relies on some amount of economic incentives for node operators that secure the network. Blockchains are one of if not the only system to solve the “double spending problem” which states the difficulty of having unique objects with scarcity like money in a digital space. It serves as the foundation for how most cryptocurrencies like Bitcoin and Ethereum work but some cryptocurrencies don’t use a blockchain.
Some like to explain a blockchain as a P2P digital ledger kept by all nodes in the network that is specifically for making financial transactions with cryptocurrency. Others will prefer to think of a blockchain as a shared / collective computer for general computation, especially if the blockchain has smart contract functionality. How shared that computer (the blockchain) is can be debated depending on factors like the transaction costs, block space availability, and other factors. While the first example of a blockchain was Bitcoin, which explicitly wanted to make a form of digital cash without a central authority to administer it, it is debatable whether that has been achieved and the potential uses for blockchains have moved beyond that original goal.
There are two main types of blockchains, public and private. Public blockchains allow for anyone to set up a node to take part in the upkeep of the network and include most cryptocurrencies that can be purchased on exchanges. To take part in a private blockchain, one needs to be invited into the network and is much more common in corporate blockchain solutions. Many believe that private blockchains are in fact not blockchain because they do not reach consensus in a decentralized manner and solutions with private blockchains are often times vaporware.
Distributed Ledger Technology– Commonly referred to as DLT, this is an umbrella term for peer-to-peer network infrastructure technologies that allow for users to reliably access and add data to a shared digital ledger. As opposed to a centralized database, DLTs do not have a central administrator. A blockchain is one type of DLT, but there are many types out there.
Crypto – Since the advent of bitcoin and cryptocurrency, the term has become the colloquial term for anything related to cryptocurrency, although previously it largely referred to the field of cryptography which also heavily influenced the creation of cryptocurrrencies. Cryptographers who dislike cryptocurrency are mad about this.
Cryptography – A study and practice of secure and private communications under the threat of attackers in which only the intended receiver can know the contents of a message largely through the use of encryption. It has become extremely important in modern warfare to protect secrets from opposing militaries and for creating secured networks over the internet. The field of study, especially when applied to the internet, leverages many advanced mathematical theories in order to hide messages.
Cryptocurrency – A digital currency that doesn’t rely on a bank or government for it to function, usually thanks to a blockchain or some other DLT. They can be used as a medium of exchange between parties, but have most commonly been used as vehicles for speculation. A cryptocurrency can refer to one that is native to a blockchain or a token created through a smart contract.
Bitcoin – The first cryptocurrency created in 2009 by an unknown person or group of people only known as Satoshi Nakamoto in online forums. The underlying technology that facilitated its function later became known as a blockchain and has been modified for new cryptocurrencies ever since.
Ethereum – A blockchain created by Vitalik Buterin at 19 years old that showed how smart contract functionality was possible to build on top of a blockchain. Many other similar blockchain-based cryptocurrencies have since been created with the functionality of smart contracts but is at the time of writing, the largest and most used blockchain with smart contract functionality.
Ether – The native cryptocurrency for the Ethereum blockchain used to pay for any transaction made on the network and the reward for adding a new block as a miner or staker.
Wallet – This refers to the “place” where your cryptocurrency would be held however it is not exactly a place at all. Using various kinds of one-way algorithms and functions, a blockchain allows someone to own cryptocurrency or anything else built on top of it through key pairs, referred to as a private and public key which are essentially a random string of numbers and letters. The public key is usually what people mean by wallet because it is something you can share with anyone without any risk. The private key gives access to your wallet because if put through the appropriate algorithms, it will create the public key. What is important is that knowing the public key, gives you no way to know the private key. Therefore, you should NEVER share your private key. It is also not exactly a place but a proof of knowing your private key to access the assets associated with the public key. Using the term wallet is largely just a way to help people understand crypto, but it is a bit limiting of a word to use since it is not a place solely to store money, but can store anything else, like NFTs, and in so in that way, it could maybe be seen more as inventory.
Web 1.0 – The beginning of the internet which was perceived to be largely decentralized but users could only visit and read static websites. This stage of the internet is believed to be long over. Examples include AOL, Netscape, GeoCities, etc. The exact time period and meaning of Web 1.0 (or any of the numbers) is generally vague and nebulous, but is used to historicize and create context for likely some form of marketing.
Web 2.0 – In this stage of the narrative, users could now interact with one another through messaging, create accounts, and has lead to the development of Big Tech which has centralized the internet through their platforms that act as “walled gardens” and which their business models depend largely on advertisement and invasive tracking methods. Examples include Facebook, Twitter, Google, etc. While originally the term was used as a way to refer to the rise of publicly accessible APIs of various platforms, in the context of crypto, that aspect of it has been largely ignored.
Web 3.0 – This refers to what is meant to be the next evolution of the internet incorporating new technologies like blockchains, artificial intelligence, and others allowing for users to maintain more control over their data among other things. Generally, this attempt at historicizing the development of the internet is largely ahistorical but it is used as a simple narrative for marketing. It largely seems to be a way to talk about crypto-enabled tools, projects, and companies without saying crypto, which some people think has a negative connotation. The term was originally coined by Gavin Wood, a co-founder of Ethereum and now focused on his own crypto project, Polkadot. The term also sometimes refers to the semantic web, a concept created by Tim Berners-Lee, in which internet data becomes machine-readable to decode the meaning behind text.
Peer-to-Peer (P2P) Network – An infrastructure or technology in which two or more computers are connected in order to share resources as opposed to a client-server network in which clients request data from centrally owned servers like most Big Tech provided services. Napster, Limewire, and BitTorrent are examples of P2P networks used for file sharing. Blockchains are P2P networks largely for tracking value of some kind or general computation. P2P networks are generally considered to be more decentralized than client-server networks. The internet was built on top of what could be considered a P2P network, leading many to believe that it would be unenclosable by corporate interests, but this has clearly been disproven.
Node– A computer on a P2P Network which takes part in keeping the network up to date. In blockchains they can actively or passively take part in consensus making. Nodes are necessary for any P2P network like blockchains, whether they use PoW, PoS, or any other consensus mechanism.
Hash – A one-directional cryptographic algorithm in which any input creates a fixed size output of random numbers and letters, but there is no feasible way to know the input when given just the output besides by guessing randomly. It is an important technique for encryption (hiding messages) over the internet as well as saving memory. While collisions are theoretically possible (when two different inputs create the same output), the chances are astronomically low and would require a very significant amount of energy to find one purposefully. There is currently no known example of a collision for many of the common hashing algorithms used in the most popular blockchains. When quantum computers become more prevalent, many hashing algorithms will likely become obsolete, but there are already many that have been created to be quantum-resistant.
Consensus Mechanism – The protocol / method in which computers that take part in a distributed database like a blockchain are able to reach to an agreement on the current state of the database. It can be seen as the pre-determined set of rules that nodes in the blockchain network follow, showing that although blockchains may use decentralized P2P infrastructure, they are logically centralized through consensus mechanism protocols. There are many different types and the decisions on which is chosen are very influential on the development of that blockchain.
Proof of Work(PoW)– A consensus mechanism in which a special subset of nodes called miners compete with one another to solve a hash equation by exerting energy in order to earn the right to add (also referred to as mining) a new block on to the blockchain and earn cryptocurrency (providing an economic incentive to mine). It is the consensus mechanism used currently for bitcoin.
Proof of Stake (PoS) – A consensus mechanism in which a special subset of nodes called stakershave the power to validate transactions and create new blocks by “staking” a certain amount of cryptocurrency as collateral for maintaining their node online and earn more cryptocurrency when selected to add a block to the blockchain. A staker can also lose their collateralized cryptocurrency if their node is not online when chosen to add a block. Using PoS is thought to be at least 99% more energy efficient than PoW as it does not rely on large amounts of computation to reach consensus. Ethereum is planning to soon be switching from PoW to PoS called the Merge, but many other blockchains have already been using PoS as their consenus mechanism for some time now like Cosmos and Tezos.
Smart Contract – A program on a blockchain that automatically executes once a predetermined condition is met, giving the functionality of cryptocurrencies or other types of tokens held on a blockchain to be programmed. Ethereum was the first blockchain network to show smart contracts were possible. A major reason for using smart contracts is to create decentralized applications (dapps) that use them as the backend but also more generally as a way to enter into automatically executable agreements between different parties. They should also be seen as social agents in themselves that can have many different types of logic embedded in them.
Token – Although it is commonly used to refer to purely financially-based cryptocurrencies, tokens can be seen more abstractly to represent many different types of values based on their designed use. While “native” cryptocurrencies like bitcoin and ether are tracked through their consensus mechanisms and blockchain network, tokens are created and tracked using smart contracts deployed on top of a blockchain with that functionality, like Ethereum. Examples include social tokens to access a community, governance tokens for voting, utility tokens to access particular functionalities in a decentralized application, etc.
Stablecoin – A cryptocurrency who’s price is pegged to a stable outside asset like the US dollar, a commodity like gold, a basket of different assets, or even to another cryptocurrency to prevent its price to being volatile. This is not only a useful thing for traders so that they can move in and out of volatile positions, but for anyone who would want to use cryptocurrency without needing to worry about big changes in price relative to the underlying asset being pegged. Most popular stablecoins try to stay pegged to the US dollar. There’s a few different ways different stablecoins are able to keep their peg including collateralization and algorithmic.
NFT – An acronym for non-fungible token, an NFT is a special type of token which represent a unique digital asset which can not be interchanged with another in the way that money, a cryptocurrency, or other token can be since they are largely fungible. Industries that have had the quickest growth in NFT use includes digital art and gaming since they already have significant use of artificial scarcity of unique assets.
NFTs should not be seen as crypto art or solely as something to buy or sell as a unique asset, but as a unique token with many different uses depending on the context encoded in their smart contracts and in the social network it exists in with inherent interoperability. For example, many of the bonus episodes I release for Patreon are also available on my website if you purchase an NFT to access the episode on its own with Unlock Protocol. In this way, the NFT is essentially a key to access digital media, similar to pay walls used by many other websites, except here you can pay with cryptocurrency instead. I also don’t need to collect any of your personal information. You can learn more about what NFTs actually are in this episode.
Decentralized Application (Dapp) – Commonly referred to as a dapp, it is an application (on phone, web, etc.) which is built on top of a blockchain using smart contracts in the backend. Dapps that are in production sometimes use non-blockchain related technologies as well to function. Depending on the design of the smart contracts, the dapp can be centralized through control of the smart contracts embedded in the code, but they can also be created to where no one controls them, making the smart contracts a type of immutable permissionless infrastructure. Many frontends could theoretically be built for any backend made of smart contracts, which is different than normal applications in which an entity normally owns both the back and frontends.
Oracle – Smart contracts can only refer to data that is recorded on the blockchain that it exists on top of. This limits the functionality for smart contracts that need inputs that are off-chain. Oracles are APIs that retrieve data from an outside data source to be used in a smart contract. Oracles can be centralized attack vectors depending on how they are designed and so need to be used and designed carefully.
Decentralized Finance (DeFi)– Commonly referred to as DeFi, it is a growing industry and ecosystem of protocols and dapps that give access to many of the same type of financial products available only to banking and investment professionals using smart contracts to anyone with a cryptocurrency wallet. Due to the composable design space allowed by smart contracts, many innovative forms of financial products have been created that were not possible before as well (for better or worse). The most active blockchain for this industry is Ethereum but others are trying to catch up.
Centralized Exchange (CEX) – The most common way for people to be first onboarded into having some amount of cryptocurrency is through centralized exchanges like Coinbase, Binance, etc. which are companies that facilitate the exchange of cryptocurrencies for nation-state money. By having cryptocurrency on a centralized exchange, you are not actually owning what you may have purchased since the CEX is acting as your custodian of your assets. They are also usually required to have your personal information in order to comply with KYC and AML regulations similar to many other financial institutions. They are centralized choke points for imposing regulation by states.
Decentralized Exchange (DEX) – An exchange completely facilitate by smart contracts that does not need to (and would likely be very difficult to enforce) collect your personal information to allow you to exchange. Instead of liquidity of exchangeable assets being provided by the exchange or its partners like in CEXs, DEXs allow for anyone to provide liquidity and be rewarded for doing so through trading fees paid by traders.
Decentralized Autonomous Organization (DAO) – Commonly referred to as a “DAO”, it is an ever changing term for an organization using smart contracts to facilitate the governance of itself. It is sometimes simply defined as an online community with a joint bank account but this is contested by many as people have different ideas about decentralization and autonomy. The original term was Decentralized Autonomous Corporation (DAC) which detailed a company the ran entirely on smart contracts, but Vitalik Buterin suggested changing the C to an O since corporations are by far not the only type of organizational structure able to be reflected with smart contracts. Lately there has been a lot of interest in cooperatives by those who first came across DAOs since they share many of the same issues. DAOs will likely have a profound effect on labor in the future in either a dystopian or post-capitalist way.
Layer 2– While a blockchain is considered to be Layer 1 and since most blockchains currently cannot scale reasonably for the world to use, this refers to scaling solutions that are built on top of Layer 1 blockchains like Ethereum. They are separate but connected networks meant to increase the total transaction output speed at lower costs for users while preserving the security and decentralization guaranteed by a Layer 1 blockchain. Examples include Optimism and Arbitrum for the Ethereum network.
