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Blockchain & Cryptocurrency Terms

Introduction​

This glossary provides clear definitions of blockchain, cryptocurrency, and distributed ledger technology terms. Understanding these concepts is increasingly important as blockchain technology influences financial markets, digital assets, and trading infrastructure.

Educational Purpose

This glossary is designed for traders and investors seeking to understand blockchain technology and cryptocurrency markets. Terms are explained in accessible language while maintaining technical accuracy.

Core Blockchain Concepts​

Blockchain​

A distributed digital ledger that records transactions across multiple computers in a way that makes records virtually impossible to alter retroactively. Data is organized into blocks that are cryptographically linked together in a chronological chain. Each block contains a cryptographic hash of the previous block, timestamp, and transaction data.

Key Properties:

  • Decentralized (no single point of control)
  • Transparent (transactions visible to participants)
  • Immutable (extremely difficult to alter historical records)
  • Secure (cryptographically protected)

Public Blockchain (Permissionless)​

A blockchain network that anyone can join, read, and write to without requiring permission from a central authority. Examples include Bitcoin and Ethereum. Public blockchains are:

  • Open to all participants globally
  • Maintained by distributed network of nodes
  • Secured through consensus mechanisms
  • Transparent (all transactions publicly visible)
  • Censorship-resistant

Private Blockchain (Permissioned)​

A blockchain network restricted to specific participants who have been granted permission to access and transact. Typically used by enterprises and consortiums where:

  • Access is controlled by administrators
  • Participants are known and vetted
  • Transactions may be private or selectively visible
  • Often faster and more scalable than public blockchains
  • Trade-offs include reduced decentralization and censorship resistance

Distributed Ledger Technology (DLT)​

The broader category of technology encompassing blockchain and other distributed database systems. DLT refers to any system where records are stored across multiple locations simultaneously, with no central data store or administrator. Blockchain is the most well-known type of DLT, but not all DLTs use blockchain architecture.

Block​

A data structure containing a collection of transactions bundled together and added to the blockchain. Each block typically contains:

  • Transaction data
  • Timestamp
  • Cryptographic hash of previous block
  • Nonce (for proof-of-work systems)
  • Merkle tree root of transactions

Analogous to a page in a ledger book, once written, it becomes part of the permanent record.

Genesis Block​

The very first block in a blockchain, serving as the foundation for all subsequent blocks. The genesis block is unique because it has no previous block to reference. It's hardcoded into the blockchain protocol and often contains special data or messages from the creator.

Node​

A computer that participates in a blockchain network by maintaining a copy of the ledger and validating transactions according to the network's rules. Nodes can be:

  • Full Nodes: Store complete blockchain history and validate all rules
  • Light Nodes: Store only essential data, rely on full nodes for validation
  • Mining Nodes: Participate in creating new blocks (in proof-of-work systems)
  • Validator Nodes: Participate in consensus (in proof-of-stake systems)

Hash Function​

A mathematical function that takes input data of any size and produces a fixed-size output (hash) that uniquely represents the input. Cryptographic hash functions used in blockchain have special properties:

  • Deterministic (same input always produces same output)
  • Quick to compute
  • Infeasible to reverse (one-way function)
  • Small input changes produce dramatically different outputs
  • Collision-resistant (extremely difficult to find two inputs with same output)

Common hash functions: SHA-256 (used by Bitcoin), Keccak-256 (used by Ethereum)

Merkle Tree (Hash Tree)​

A tree data structure where every leaf node represents the hash of a data block, and every non-leaf node represents the cryptographic hash of its children. This structure allows:

  • Efficient verification of data integrity
  • Proof that specific transactions are included in a block
  • Scalable verification without downloading entire blockchain
  • Foundation for "light clients" that can verify transactions with minimal data

Immutability​

The property of blockchain records being extremely difficult to alter once written. While not absolutely impossible to change (see 51% Attack), the cryptographic linking of blocks and distributed consensus makes retroactive alterations impractical and immediately detectable. This creates:

  • Permanent audit trail
  • Historical data integrity
  • Trust through verifiability rather than authority
  • Foundation for trustless systems

Consensus Mechanisms​

Consensus mechanisms are protocols that ensure all nodes in a distributed network agree on the current state of the blockchain, even when some nodes may be unreliable or malicious.

Consensus Mechanism (Protocol)​

The process used to achieve agreement among distributed network participants on which transactions are valid and should be added to the blockchain. Essential for maintaining blockchain integrity without central authority. Different consensus mechanisms make different trade-offs between:

  • Security
  • Decentralization
  • Energy efficiency
  • Transaction speed
  • Scalability

Byzantine Fault Tolerance (BFT)​

The ability of a distributed system to continue functioning correctly even when some participants (nodes) fail, act maliciously, or provide contradictory information. Named after the Byzantine Generals Problem, this property ensures:

  • Network resilience against failures
  • Protection against malicious actors
  • Consensus despite imperfect information
  • Foundation for trustless systems

Most blockchain consensus mechanisms aim to achieve Byzantine Fault Tolerance.

Proof of Work (PoW)​

A consensus mechanism where miners compete to solve computationally intensive mathematical puzzles to create new blocks. The first miner to solve the puzzle gets to add the next block and receives a reward.

Process:

  1. Miners collect pending transactions
  2. Repeatedly hash block data with different nonces
  3. Search for hash meeting difficulty requirements
  4. First successful miner broadcasts solution
  5. Other nodes verify and accept valid block

Characteristics:

  • High energy consumption
  • Very secure when network hash power is high
  • Proven track record (Bitcoin since 2009)
  • Barrier to entry based on hardware and electricity costs
  • Used by: Bitcoin, Ethereum (before merge), Litecoin

Trade-offs:

  • ✓ Proven security model
  • ✓ True permissionless participation
  • ✗ High energy consumption
  • ✗ Relatively slow transaction processing
  • ✗ Hardware arms race

Proof of Stake (PoS)​

A consensus mechanism where validators are chosen to create blocks based on the amount of cryptocurrency they "stake" (lock up) as collateral. Validators risk losing their stake if they act maliciously or validate fraudulent transactions.

Process:

  1. Validators stake cryptocurrency as collateral
  2. Algorithm selects validators to propose blocks (often weighted by stake size)
  3. Other validators attest to validity
  4. Validators earn rewards for honest participation
  5. Malicious behavior results in "slashing" (losing part or all of stake)

Characteristics:

  • Energy efficient (no intensive computation)
  • Barrier to entry based on capital stake
  • Validators have "skin in the game"
  • Used by: Ethereum (post-merge), Cardano, Polkadot

Trade-offs:

  • ✓ Energy efficient
  • ✓ Faster block times possible
  • ✓ Lower hardware requirements
  • ✗ "Rich get richer" potential
  • ✗ Less proven long-term than PoW
  • ✗ Complexity in implementation

Proof of Authority (PoA)​

A consensus mechanism where validators stake their reputation and identity rather than cryptocurrency. Validators are pre-approved, vetted entities whose identities are publicly known.

Characteristics:

  • Requires thorough KYC (Know Your Customer) verification
  • Validators' real-world identities are at stake
  • High throughput and efficiency
  • More centralized than PoW or PoS
  • Suitable for enterprise and consortium blockchains
  • Malicious behavior damages validator's reputation

Trade-offs:

  • ✓ Very efficient and fast
  • ✓ Suitable for private/consortium blockchains
  • ✗ More centralized
  • ✗ Requires trust in validator identities
  • ✗ Limited by number of validators

Proof of Capacity (PoC) / Proof of Space​

A consensus mechanism that uses available hard drive storage space rather than computational power or staked cryptocurrency. Miners pre-generate and store solutions, then search their storage when mining.

Characteristics:

  • Energy efficient compared to PoW
  • Uses existing storage capacity
  • Lower barrier to entry than specialized mining hardware
  • Examples: Chia, Burst

Proof of Burn (PoB)​

A consensus mechanism where miners deliberately destroy (burn) cryptocurrency to earn the right to mine blocks. Burning is accomplished by sending coins to a provably unspendable address.

Concept:

  • Miners "burn" coins to acquire virtual mining power
  • More coins burned = more mining power
  • Represents commitment without energy waste
  • Burning can be of native currency or alternative chain currency

Use cases:

  • Bootstrap new blockchains
  • Transition from one blockchain to another
  • Reduce circulating supply

Cryptocurrency Fundamentals​

Cryptocurrency​

Digital or virtual currency that uses cryptography for security and operates on decentralized networks, typically blockchains. Key characteristics:

  • No central issuing authority (generally)
  • Cryptographically secured transactions
  • Transparent transaction history
  • Peer-to-peer transfer capability
  • Programmable (in smart contract platforms)

Unlike traditional currencies, cryptocurrencies are not issued by governments and typically operate independently of central banks.

Bitcoin​

The first and most widely recognized cryptocurrency, created in 2009 by the pseudonymous Satoshi Nakamoto. Bitcoin introduced:

  • First successful implementation of blockchain
  • Proof of Work consensus mechanism
  • Limited supply (21 million maximum)
  • Peer-to-peer digital cash system
  • Foundation for entire cryptocurrency industry

Bitcoin remains the largest cryptocurrency by market capitalization and is often called "digital gold" due to its store-of-value properties.

Altcoin​

Any cryptocurrency other than Bitcoin. The term encompasses thousands of projects with varying purposes:

  • Platform cryptocurrencies (Ethereum, Cardano)
  • Payment-focused coins (Litecoin, Bitcoin Cash)
  • Privacy coins (Monero, Zcash)
  • Stablecoins (USDT, USDC)
  • Utility tokens (Chainlink, Uniswap)
  • Meme coins (Dogecoin, Shiba Inu)

Token​

A digital asset created on an existing blockchain platform (most commonly Ethereum) through smart contracts. Tokens represent:

  • Utility Tokens: Access to services or products
  • Security Tokens: Ownership or investment rights
  • Governance Tokens: Voting rights in protocols
  • Non-Fungible Tokens (NFTs): Unique digital assets

Unlike coins which have their own blockchain, tokens leverage existing blockchain infrastructure.

Fungible​

The property of an asset being interchangeable with other identical assets. Each unit is equivalent and can be exchanged one-for-one. Examples:

  • Currencies (one dollar = one dollar)
  • Most cryptocurrencies (one Bitcoin = one Bitcoin)
  • Commodities (one barrel of oil = one barrel of oil)

Fungibility is essential for currencies and most financial instruments.

Non-Fungible (NFT)​

Assets that are unique and not directly interchangeable with others. Each non-fungible token represents a distinct item with its own properties and value. Examples:

  • Artwork and collectibles
  • Real estate
  • Domain names
  • Game items
  • Intellectual property rights

ERC-721 Standard: The most common standard for NFTs on Ethereum, defining how unique tokens are created and managed.

Stablecoin​

A cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, typically:

  • Fiat currency (USD, EUR)
  • Commodities (gold)
  • Other cryptocurrencies
  • Algorithmic mechanisms

Types:

  • Fiat-Collateralized: Backed 1:1 by fiat reserves (USDT, USDC)
  • Crypto-Collateralized: Backed by cryptocurrency reserves (DAI)
  • Algorithmic: Maintain peg through supply mechanisms (historically risky)

Purpose: Provide stability in volatile crypto markets, facilitate trading, and enable DeFi applications.

Fiat​

Government-issued legal tender not backed by physical commodities but by the government that issued it. Examples: US Dollar (USD), Euro (EUR), Japanese Yen (JPY). The term "fiat" comes from Latin meaning "let it be done," reflecting that fiat currency has value because governments declare it does.

Addresses, Keys & Wallets​

Address​

A unique identifier, similar to an email address or bank account number, that represents a destination on a blockchain where cryptocurrency can be sent. Addresses are:

  • Derived from public keys through cryptographic operations
  • Publicly shareable (safe to give to others)
  • Used to receive transactions
  • Often represented as alphanumeric strings or QR codes

Different blockchains use different address formats.

Public Key / Private Key​

A cryptographic key pair fundamental to blockchain security:

Public Key:

  • Derived mathematically from private key
  • Can be shared freely
  • Used to generate blockchain addresses
  • Allows others to send you cryptocurrency
  • Cannot decrypt data encrypted with it

Private Key:

  • Must be kept absolutely secret
  • Grants full control over associated funds
  • Used to sign transactions (prove ownership)
  • Can decrypt data encrypted with public key
  • Loss means permanent loss of access to funds

Critical Security Principle: "Not your keys, not your coins" - only the holder of private keys truly owns the cryptocurrency.

Digital Signature​

A cryptographic method to verify:

  1. Authenticity: Message comes from claimed sender
  2. Integrity: Message wasn't altered in transit
  3. Non-repudiation: Sender cannot deny sending

In blockchain, digital signatures prove ownership and authorize transactions without revealing private keys.

Multisignature (Multisig)​

A security mechanism requiring multiple private keys to authorize a transaction rather than just one. Common configurations:

  • 2-of-3: Two out of three keys required
  • 3-of-5: Three out of five keys required
  • M-of-N: Any M keys out of N total keys

Benefits:

  • Enhanced security (no single point of failure)
  • Shared control (corporate treasuries, partnerships)
  • Backup keys (in case one is lost)
  • Protection against theft (attacker needs multiple keys)

Ring Signature​

A type of digital signature where any member of a group can sign on behalf of the group, but it's cryptographically impossible to determine which specific member signed. Used in privacy-focused cryptocurrencies like Monero to obscure transaction origins while proving the transaction came from a valid group member.

Wallet​

A software application or hardware device that stores private keys and enables users to:

  • Send and receive cryptocurrency
  • View balance and transaction history
  • Sign transactions
  • Interact with blockchain applications

Important: Wallets don't actually "store" cryptocurrency (which exists on the blockchain) - they store the private keys that control access to it.

Hot Wallet​

A cryptocurrency wallet connected to the internet, offering:

Advantages:

  • Convenient for frequent transactions
  • Easy access from multiple devices
  • Integration with exchanges and DApps
  • Quick transaction execution

Disadvantages:

  • More vulnerable to hacking
  • Risk from malware/phishing
  • Dependent on service provider security

Examples: Exchange wallets, mobile apps, browser extensions (MetaMask, Trust Wallet)

Cold Wallet​

A cryptocurrency wallet not connected to the internet, providing maximum security:

Advantages:

  • Immune to online hacking attempts
  • Protected from malware
  • Best for long-term storage (HODLing)
  • User maintains complete control

Disadvantages:

  • Less convenient for frequent transactions
  • Can be lost or damaged physically
  • Requires careful backup management

Types: Hardware wallets (Ledger, Trezor), paper wallets, air-gapped computers

Seed Phrase (Recovery Phrase)​

A sequence of 12-24 random words that serves as a master backup for a cryptocurrency wallet. The seed phrase can restore access to all private keys and funds if:

  • Wallet software is deleted
  • Device is lost or damaged
  • User forgets password

Critical Security:

  • Never share your seed phrase
  • Never store digitally (no photos, cloud storage)
  • Write on paper and store securely
  • Never enter into websites or suspicious applications
  • Consider metal backup for fire/water resistance

Warning: Anyone with your seed phrase has full access to your funds.

Mining & Validation​

Mining​

In proof-of-work blockchains, the process of:

  1. Collecting pending transactions
  2. Solving computationally intensive cryptographic puzzles
  3. Creating new blocks
  4. Adding blocks to the blockchain
  5. Receiving rewards (newly created cryptocurrency + transaction fees)

Purpose:

  • Secures the network
  • Processes transactions
  • Creates new coins (in many systems)
  • Achieves distributed consensus

Requirements:

  • Specialized hardware (ASICs for Bitcoin)
  • Significant electricity consumption
  • Technical knowledge
  • Initial capital investment

Gas​

A unit measuring computational work required to execute operations on blockchain networks (primarily Ethereum). Users pay gas fees to:

  • Process transactions
  • Execute smart contracts
  • Deploy contracts
  • Interact with decentralized applications

Gas Price: Amount user willing to pay per unit of gas (in Gwei for Ethereum) Gas Limit: Maximum gas user willing to consume for operation

Formula: Total Fee = Gas Used × Gas Price

Higher gas prices incentivize faster transaction processing by miners/validators.

Smart Contracts & Development​

Smart Contract​

Self-executing computer code deployed on a blockchain that automatically enforces terms of an agreement when predetermined conditions are met. Smart contracts:

  • Execute trustlessly (no intermediary needed)
  • Are transparent (code is visible)
  • Are immutable once deployed (generally)
  • Can hold and transfer value
  • Enable complex decentralized applications

Common Uses:

  • Decentralized finance (DeFi) protocols
  • Token creation and management
  • Decentralized exchanges
  • Lending/borrowing platforms
  • Gaming and NFT marketplaces
  • Automated market makers

Limitations:

  • Cannot access external data directly (need oracles)
  • Code bugs can be catastrophic
  • Immutability means errors are permanent
  • Gas costs for complex operations

Chaincode​

Another term for smart contracts, primarily used in Hyperledger Fabric and other enterprise blockchain platforms. Functionally similar to Ethereum smart contracts but in permissioned network context.

Solidity​

The primary programming language for writing smart contracts on Ethereum and EVM-compatible blockchains. Key characteristics:

  • Object-oriented, similar to JavaScript
  • Statically typed
  • Supports inheritance and libraries
  • Compiles to EVM bytecode
  • Most widely used smart contract language

Learning Curve: Moderate for programmers, but security considerations require deep understanding.

Vyper​

An alternative smart contract language for Ethereum designed with security and auditability as primary goals. Characteristics:

  • Python-like syntax
  • Deliberately omits complex features
  • Easier to audit than Solidity
  • More readable and explicit
  • Growing adoption for security-critical contracts

Philosophy: Simplicity over flexibility to reduce attack surface.

Oracle​

A service that connects blockchain smart contracts to external real-world data and events. Oracles solve the "oracle problem" - blockchains cannot natively access external information. They provide:

  • Price feeds (for DeFi applications)
  • Weather data
  • Sports scores
  • IoT device data
  • Web API responses
  • Randomness

Leading Oracle Networks: Chainlink, Band Protocol, API3

Challenge: Maintaining decentralization while accessing centralized data sources.

DApp (Decentralized Application)​

An application that runs on a decentralized network (usually blockchain) rather than centralized servers. Characteristics:

  • Backend code runs on blockchain (smart contracts)
  • Frontend can be hosted traditionally or decentrally
  • Open source (typically)
  • Uses blockchain for data and logic
  • Incentivized through tokens (often)

Examples: Uniswap (DEX), Aave (lending), Axie Infinity (gaming), OpenSea (NFT marketplace)

User Experience: Often requires wallet connection and transaction signing for each interaction.

Ethereum-Specific Terms​

Ethereum​

The second-largest cryptocurrency platform by market cap and the first blockchain to popularize smart contracts. Features:

  • Turing-complete smart contract platform
  • EVM (Ethereum Virtual Machine)
  • Native cryptocurrency: Ether (ETH)
  • Basis for most DeFi and NFT applications
  • Transitioned from PoW to PoS in 2022 ("The Merge")

Significance: Enables decentralized applications, making it a "world computer."

ERC-20​

The most common token standard on Ethereum for fungible tokens. Defines required functions and events:

  • totalSupply() - total token supply
  • balanceOf() - account balance
  • transfer() - send tokens
  • approve() - authorize spending
  • transferFrom() - authorized transfer
  • allowance() - check approval amount

Impact: Standardization enables interoperability - all ERC-20 tokens work with same wallets, exchanges, and contracts.

Examples: USDT, LINK, UNI, AAVE

ERC-721​

The primary standard for non-fungible tokens (NFTs) on Ethereum. Each token has:

  • Unique identifier
  • Individual ownership
  • Distinct metadata
  • Non-interchangeable value

Required Functions:

  • balanceOf() - NFT count per owner
  • ownerOf() - find NFT owner
  • transferFrom() - transfer NFT
  • approve() - authorize transfer
  • safeTransferFrom() - safe transfer with verification

Use Cases: Digital art, collectibles, gaming items, real estate, identity

Network Architecture​

Mainnet​

The primary, production version of a blockchain where real value transactions occur. Characteristics:

  • Uses real cryptocurrency with market value
  • Permanent and immutable (intended)
  • Full security measures active
  • All participants use real economic value

Examples: Bitcoin mainnet, Ethereum mainnet, Binance Smart Chain mainnet

Testnet​

A separate blockchain environment for testing applications before mainnet deployment. Features:

  • Uses test cryptocurrency (no real value)
  • Allows developers to experiment safely
  • May be reset or modified
  • Free test tokens available from "faucets"
  • Similar functionality to mainnet

Purpose: Test smart contracts, dApps, and network upgrades without risking real funds.

Popular Testnets: Ethereum (Goerli, Sepolia), Bitcoin (Testnet, Signet)

Sidechain​

A separate blockchain that runs parallel to a main blockchain and is connected via two-way peg. Purpose:

  • Enable asset transfer between chains
  • Improve scalability by processing transactions off main chain
  • Experiment with different consensus mechanisms
  • Add features without changing main chain
  • Reduce congestion and costs

Example: Polygon (Ethereum sidechain), Liquid Network (Bitcoin sidechain)

Trade-off: May sacrifice some security for improved performance.

State Channel​

A scaling solution where transactions occur off-chain between participants, with only initial and final states recorded on-chain. Benefits:

  • Near-instant transactions
  • Minimal fees
  • High throughput
  • Micropayments feasible
  • Privacy (intermediate states not broadcast)

Process:

  1. Open channel with on-chain transaction
  2. Multiple off-chain transactions between parties
  3. Close channel with final state on-chain

Example: Bitcoin Lightning Network, Ethereum Raiden Network

Sharding​

A scalability technique that divides the blockchain network into smaller partitions (shards) that process transactions in parallel. Each shard:

  • Maintains its own transaction history
  • Processes subset of total transactions
  • Communicates with other shards as needed
  • Reduces burden on individual nodes

Goal: Increase transactions per second while maintaining decentralization.

Status: Planned for Ethereum 2.0, implemented in some newer blockchains (Zilliqa, Near)

Layer 2​

Scaling solutions built on top of base blockchain (Layer 1) that process transactions off-chain but inherit security from the main chain. Types:

  • State Channels: Off-chain transaction channels
  • Sidechains: Independent blockchains with bridges
  • Rollups: Bundle multiple transactions, post to Layer 1
  • Plasma: Child chains with fraud proofs

Benefits:

  • Dramatically increased throughput
  • Lower transaction costs
  • Maintains base layer security
  • Reduces main chain congestion

Examples: Arbitrum, Optimism, zkSync (Ethereum L2s)

Interoperability​

The ability of different blockchain networks to communicate and exchange data or value. Challenges:

  • Different consensus mechanisms
  • Varying security models
  • Incompatible data structures
  • Trust assumptions

Solutions:

  • Bridges: Connect two specific blockchains
  • Wrapped Tokens: Represent assets from one chain on another
  • Cross-Chain Protocols: Enable multi-chain interaction (Cosmos, Polkadot)
  • Middleware: Intermediate layers for communication

Importance: Enables ecosystem growth and reduces fragmentation.

Governance & Organizations​

DAO (Decentralized Autonomous Organization)​

An organization governed by smart contracts and community voting rather than traditional hierarchical management. Features:

  • Rules encoded in smart contracts
  • Decisions made by token holder votes
  • Transparent operations on blockchain
  • No central authority
  • Automated execution of decisions

Common Uses:

  • Protocol governance
  • Investment funds
  • Collective resource management
  • Grant allocation
  • Community projects

Challenges:

  • Legal status unclear in many jurisdictions
  • Voter apathy
  • Plutocracy (wealth-based voting power)
  • Difficulty changing rules

Notable Examples: MakerDAO, Uniswap DAO, ConstitutionDAO

Governance​

The mechanisms and processes through which blockchain protocols evolve and make decisions. Types:

  • On-Chain: Voting and execution through smart contracts
  • Off-Chain: Discussion forums, polling, social consensus
  • Token-Based: Voting power proportional to token holdings
  • Delegated: Token holders delegate voting power to representatives

Key Decisions:

  • Protocol upgrades
  • Parameter adjustments (fees, rewards, etc.)
  • Treasury fund allocation
  • Strategic direction

Security & Attacks​

51% Attack​

An attack where a single entity controls more than 50% of a blockchain network's mining power (PoW) or staking power (PoS), potentially enabling them to:

  • Double-spend coins
  • Prevent transaction confirmations
  • Reverse recent transactions
  • Prevent new transactions

Limitations of Attack:

  • Cannot steal funds from other wallets
  • Cannot change past transactions beyond recent ones
  • Extremely expensive on large networks
  • Damages network value, harming attacker's investment

Protection: Large, distributed networks are prohibitively expensive to attack.

Double Spending​

The risk that digital currency could be spent twice. Blockchain prevents this through:

  • Transaction confirmation by multiple nodes
  • Cryptographic verification
  • Consensus mechanisms
  • Immutable transaction history

How Attempted:

  1. Send transaction to merchant
  2. Simultaneously send same funds to self
  3. Try to get self-payment confirmed first
  4. Merchant never receives funds

Protection: Wait for multiple confirmations before considering payment final.

Data Storage & Privacy​

On-Chain​

Data stored directly within the blockchain itself. Characteristics:

  • Permanently recorded
  • Publicly visible (in public blockchains)
  • More expensive (uses block space)
  • Maximum security and persistence
  • Immutable

Typical On-Chain Data:

  • Transaction details
  • Account balances
  • Smart contract code
  • Small amounts of critical data

Off-Chain​

Data stored outside the blockchain, typically for:

  • Large files (images, videos)
  • Frequently changing data
  • Private information
  • Reduced costs

Storage Solutions:

  • IPFS (Interplanetary File System)
  • Traditional databases
  • Decentralized storage networks (Filecoin, Arweave)
  • User devices

Trade-off: Lower cost and better scalability vs. reduced decentralization and permanence.

IPFS (InterPlanetary File System)​

A peer-to-peer network and protocol for storing and sharing data in a distributed file system. Features:

  • Content-addressed (files identified by content hash, not location)
  • Decentralized storage
  • Deduplication (identical content stored once)
  • Permanent file availability (while pinned by nodes)
  • No central servers

Use Cases:

  • NFT metadata and images
  • DApp frontend hosting
  • Decentralized storage
  • Content distribution

How It Works:

  1. Add file to IPFS
  2. Receive unique content identifier (CID)
  3. File retrievable from any IPFS node with copy
  4. Content never changes (new version = new CID)

Identity & Verification​

Digital Identity (Self-Sovereign Identity)​

Blockchain-based digital identity systems giving individuals control over their personal information. Principles:

  • User controls own data
  • Selective disclosure (share only what's needed)
  • No central authority
  • Portable across services
  • Privacy-preserving

How It Works:

  • Identity information stored on blockchain or user-controlled storage
  • Cryptographic proofs verify attributes without revealing data
  • User grants permission for specific verifications
  • No single organization controls identity

Use Cases:

  • Age verification without revealing birthdate
  • Credential verification (diplomas, licenses)
  • Access control
  • Know Your Customer (KYC) processes

Projects: Sovrin, uPort, Microsoft ION

Know Your Customer (KYC)​

The legal and regulatory process requiring financial institutions to verify customer identities. Requirements vary by jurisdiction but typically include:

  • Government-issued ID verification
  • Proof of address
  • Source of funds documentation
  • Ongoing monitoring for suspicious activity

Purpose:

  • Prevent money laundering
  • Combat terrorism financing
  • Reduce fraud
  • Comply with regulations

In Crypto:

  • Required by centralized exchanges
  • Not required for decentralized protocols
  • Privacy concern for users
  • Compliance burden for businesses
  • Ongoing debate about balance between privacy and regulation

Economic Terms​

Liquidity​

The ease and speed of converting an asset to cash without significantly affecting its price. High liquidity means:

  • Many buyers and sellers
  • Narrow bid-ask spreads
  • Large transactions possible without price impact
  • Quick execution at fair prices

In Crypto Markets:

  • Major coins (BTC, ETH) have high liquidity
  • Small-cap altcoins often have low liquidity
  • Liquidity varies across exchanges
  • Affects trading strategies and risk

Tokenomics​

The study and design of token economics including:

  • Supply: Total, circulating, maximum supply
  • Distribution: Initial allocation, team shares, public sale
  • Inflation/Deflation: Token creation/burning mechanisms
  • Utility: What tokens are used for
  • Incentives: Rewards for participation
  • Governance: Voting rights and mechanisms

Key Metrics:

  • Market cap = Price × Circulating Supply
  • Fully diluted valuation = Price × Total Supply
  • Emission schedule
  • Burn rate

Importance: Poorly designed tokenomics can doom projects despite strong technology.

Initial Coin Offering (ICO)​

The cryptocurrency equivalent of an IPO (Initial Public Offering), where new projects sell tokens to raise capital. Process:

  1. Project publishes whitepaper
  2. Sets token price and sale terms
  3. Accepts cryptocurrency (usually ETH, BTC)
  4. Distributes tokens to investors
  5. Lists on exchanges

Historical Context:

  • Extremely popular 2017-2018
  • Many scams and failed projects
  • Increased regulatory scrutiny
  • Largely replaced by other fundraising methods

Modern Alternatives: IEO (Initial Exchange Offering), IDO (Initial DEX Offering), Fair Launch

Token Generation Event (TGE)​

The moment when a new token is created and begins distribution. May or may not involve public sale. Can include:

  • Private sales to investors
  • Public sales
  • Airdrops to community
  • Liquidity provision
  • Team and advisor allocation

More neutral term than ICO, doesn't imply fundraising purpose.

Advanced Concepts​

Fork​

A change to a blockchain's protocol that creates a divergence in the blockchain. Types:

Soft Fork:

  • Backwards-compatible upgrade
  • Non-upgraded nodes still follow chain
  • Only some rules tightened
  • Example: Bitcoin SegWit

Hard Fork:

  • Non-backwards-compatible change
  • Creates two separate blockchains
  • Requires all nodes to upgrade
  • Can be contentious or planned
  • Examples: Bitcoin Cash (from Bitcoin), Ethereum Classic (from Ethereum)

Reasons for Forks:

  • Bug fixes
  • Feature additions
  • Community disagreements
  • Reversing hacks (controversial)
  • Philosophical differences

Satoshi Nakamoto​

The pseudonymous person or group who:

  • Created Bitcoin
  • Authored the Bitcoin whitepaper (2008)
  • Mined the first Bitcoin blocks
  • Developed initial Bitcoin software
  • Disappeared from public view around 2011

Mysteries:

  • True identity unknown
  • Estimated to own 1 million BTC ($30+ billion at current prices)
  • These coins have never moved
  • Multiple people claimed to be Satoshi (none proven)

Legacy: Launched entire cryptocurrency and blockchain industry.

Provenance​

The complete documented history of an asset from origin to present, including:

  • Creation/manufacture
  • Chain of custody
  • All ownership transfers
  • Value-added services
  • Authenticity verification

Blockchain Applications:

  • Supply chain tracking
  • Art and collectibles authentication
  • Luxury goods verification
  • Food safety
  • Pharmaceutical supply chains
  • Diamond certification

Benefits:

  • Fraud prevention
  • Quality assurance
  • Regulatory compliance
  • Consumer confidence

Trustless​

A core blockchain property where transactions can be executed without needing to trust the counterparty or intermediary. Instead, trust is placed in:

  • Cryptographic algorithms
  • Mathematical proofs
  • Transparent code
  • Distributed consensus
  • Economic incentives

Example: You can send Bitcoin to a stranger without trusting them, because the blockchain ensures they can't steal or double-spend.

Distinction: "Trustless" doesn't mean "no trust" - it means trust is distributed and verifiable rather than concentrated in a central authority.

Transparency​

The property of public blockchains where all transactions and state changes are visible to all participants. Benefits:

  • Auditability
  • Accountability
  • Fraud detection
  • Open verification

Trade-offs:

  • Privacy concerns
  • Competitive information exposure
  • Transaction tracking possible
  • Need for privacy solutions (zero-knowledge proofs, privacy coins)

Note: Private/permissioned blockchains can limit transparency to authorized participants.

Chain of Custody​

Documentation tracking an asset's possession and handling throughout its lifecycle. In blockchain:

  • Every transfer recorded immutably
  • Timestamps prove sequence
  • Digital signatures prove authorization
  • Creates unbreakable audit trail

Critical Applications:

  • Legal evidence
  • High-value goods
  • Regulated industries
  • Quality control
  • Compliance documentation

Performance Metrics​

Transactions Per Second (TPS)​

A measurement of blockchain throughput - how many transactions the network can process per second. Comparison:

  • Bitcoin: ~7 TPS
  • Ethereum (pre-merge): ~15 TPS
  • Ethereum (post-merge): ~15 TPS (same, but L2s handle much more)
  • Visa (for comparison): ~24,000 TPS theoretical capacity
  • Solana: ~2,000-3,000 TPS actual
  • Binance Smart Chain: ~100 TPS

Trade-offs:

  • Higher TPS often means more centralization
  • Security vs. speed balance
  • Not the only important metric
  • Layer 2 solutions dramatically increase effective TPS

Exchanges & Trading​

Exchange (Cryptocurrency Exchange)​

A platform for buying, selling, and trading cryptocurrencies. Types:

Centralized Exchange (CEX):

  • Company-operated platform
  • Custody of user funds
  • Faster trading
  • Fiat on/off ramps
  • KYC required
  • Examples: Coinbase, Binance, Kraken

Decentralized Exchange (DEX):

  • Smart contract-based
  • Non-custodial (users control funds)
  • No KYC
  • Typically crypto-to-crypto only
  • Examples: Uniswap, SushiSwap, PancakeSwap

Attestation Ledger​

A specialized ledger designed to provide verifiable evidence that specific transactions or events occurred. Used for:

  • Compliance documentation
  • Supply chain verification
  • Audit trails
  • Certification records
  • Timestamp proof

Platform-Specific Terms​

Hyperledger Fabric​

An enterprise-grade, permissioned blockchain framework developed under the Linux Foundation's Hyperledger project. Features:

  • Modular architecture
  • Pluggable consensus
  • Private channels for confidential transactions
  • Chaincode (smart contracts) in multiple languages
  • Identity management
  • High performance

Use Cases:

  • Enterprise supply chains
  • Financial services
  • Healthcare records
  • Government systems

Key Difference from Public Blockchains: Designed for known, trusted participants rather than trustless environments.

Open Zeppelin​

A framework and community providing:

  • Secure, audited smart contract libraries
  • Development tools
  • Security best practices
  • Contract templates (tokens, access control, etc.)
  • Auditing services

Importance: Industry standard for Ethereum smart contract security, significantly reduces development risk.

Important Warnings & Considerations​

Security Reminders

Protect Your Private Keys:

  • Never share private keys or seed phrases
  • Use hardware wallets for significant holdings
  • Beware of phishing attempts
  • Verify all addresses before sending
  • No legitimate service will ever ask for your private keys

Common Scams:

  • Fake wallet apps
  • Phishing websites
  • Ponzi schemes disguised as investment opportunities
  • Fake celebrity endorsements
  • "Send crypto to get more back" scams
  • Impersonation of support staff

Transaction Irreversibility:

  • Blockchain transactions generally cannot be reversed
  • Always double-check addresses
  • Start with small test transactions
  • Understand the specific blockchain's features
Regulatory Considerations

Legal Status Varies:

  • Cryptocurrency regulations differ by country
  • Tax implications exist in most jurisdictions
  • Securities laws may apply to certain tokens
  • Compliance requirements evolving rapidly

Your Responsibility:

  • Understand your local regulations
  • Maintain records for tax purposes
  • Consult legal/tax professionals
  • Stay informed of regulatory changes

Conclusion​

Understanding blockchain and cryptocurrency terminology is essential for:

  • Navigating crypto markets safely
  • Making informed investment decisions
  • Participating in blockchain ecosystems
  • Evaluating projects and technologies
  • Managing digital assets securely

Key Takeaways:

  1. Security First: Protect private keys, use hardware wallets for significant holdings, and never share sensitive information.
  2. Do Your Own Research (DYOR): Understanding these terms is just the beginning. Always research projects thoroughly before investing.
  3. Technology Evolves: The blockchain space develops rapidly. Continue learning and stay updated on new developments.
  4. Risk Management: Only invest what you can afford to lose. The cryptocurrency space is high-risk and highly volatile.
  5. Regulatory Compliance: Understand and follow applicable laws and regulations in your jurisdiction.

Additional Learning Resources​

Educational Platforms:

Technical Documentation:

  • Bitcoin Whitepaper by Satoshi Nakamoto
  • Ethereum Whitepaper and Yellow Paper
  • Mastering Bitcoin by Andreas Antonopoulos
  • Mastering Ethereum by Andreas Antonopoulos and Gavin Wood

Security Resources:

Continuous Learning

The blockchain and cryptocurrency space evolves rapidly. This glossary provides foundational knowledge, but staying current with developments, security practices, and regulatory changes is essential for anyone participating in these markets.