In an age where cryptocurrencies seem to have become a permanent hot topic, it might be a good idea to brush up on the terms or keywords relating to cryptocurrency, lest you get left behind.
You might engage in spirited debates with friends every now and then on topics relating to cryptocurrency, but might not fully understand certain terms used. Those initially excited to get a head start in the world of blockchains and NFTs might find themselves lost and confused without a proper guide.
Our glossary of 25 terms for cryptocurrency kills two birds with one stone. Catching up on the essential terminology surrounding cryptocurrency won’t just help you understand that one manic friend with two Bitcoins in their virtual pocket, but it’ll help you get started in this ever-expanding world on your own.
Atomic swap is a method of trading cryptocurrency between separate blockchains known as an atomic exchange. The method is called atomic because there are only two possible outcomes: either each user obtains their desired cryptocurrency or they do not. This means that in order for an atomic swap to be successful, both sides must have met all of the trade’s requirements.
According to its whitepaper, Bitcoin is the first cryptocurrency for “electronic transfers.” Bitcoin is a cryptocurrency that was created as a digital replacement for fiat currency as a means of exchange for goods and services.
Blockchains help to keep track of any data loaded and locked into it. It acts as a digital ‘spreadsheet’, where electoral votes, types of financial transactions to sales and even recordings are tracked. Immutability, which means that any information stored in the blockchain cannot be altered, security, and transparency are among its advantages as a system.
‘The Byzantine Generals’ Problem’ provides a solution to the difficulty of achieving of obtaining consensus in distributed systems. When applied to the distributed ledger technology, allows users to rely on a set of rules that assures all participants will agree on the same plan of action, and any bad actors cannot have the ability to influence the final decision. The algorithm must guarantee the first condition regardless of any outside attempts to alter it.
Brokerage is an online service where brokers operate as a middleman between cryptocurrency markets, facilitating the purchase and sale of cryptocurrencies. Users are allowed to purchase or sell assets such as stocks, shares or cryptocurrencies with their local currency through the online service.
The rules by which a network operates are known as consensus protocols. In the case of a blockchain network, the consensus protocol establishes the rules for determining whether a transaction is legal or fraudulent.
Chainlink is a decentralised network of data providers for cryptocurrency networks that require information for their smart contracts. Chainlink’s native cryptocurrency, LINK, is constructed on Ethereum utilising a smart contract and is utilised to incentivise network action. As a result, Chainlink enables Ethereum to incorporate real-world data into its numerous smart contracts.
DeFi, which stands for decentralised finance, is a term for financial services which include financial activities such as borrowing and lending, payments, money transfers, and everything in between that occurs on a daily basis. DeFi makes use of blockchain technology to essentially automate the role of the third party, who is often only present to confirm that both parties follow the contract’s conditions.
Decentralised applications (Dapps) are similar to the apps you use on your smartphone every day. Instead of a mobile phone, these Dapps run on a blockchain network in a public, open-source, and decentralised environment in the context of cryptocurrencies. The capacity of Dapps is to preserve your privacy and ensure that your personal data is not necessary to use constructively.
Digital asset refers to anything you own that exists digitally that has economic value. They’re utilised as a method to invest in all of the huge applications for the technology cryptocurrency uses— whether it’s digital currency, smart contract platforms, or apps built on top of smart contract platforms.
Ethereum is a blockchain platform that allows developers to create decentralised applications (dapps) and services using smart contracts and works similar to a collaborative relationship. For example, a smart contract was made on Ethereum to form Chainlink’s native token which is used to boost network action.
Exchanges were made for high-frequency trading, in which a trader could profit from price movements by predicting an asset’s price direction and buying and selling at shorter time intervals.
A fork is a software update to a cryptocurrency built on the blockchain that is agreed upon by everyone. A proposed update to any cryptocurrency, such as Bitcoin, must gain consensus among members of the Bitcoin community, which includes Bitcoin developers, miners, and nodes, in order to be implemented.
A multi-signature wallet allows two or more users to sign documents together and requires several signatures to gain access to a cryptocurrency wallet and sign and send a cryptocurrency transaction. As a result, using a multi-sig wallet allows users to add an extra layer of security to their cash.
A mining pool is a group of miners who pool their resources and distribute their processing power over a network in order to split the reward equally based on how much effort they contributed to the likelihood of finding a block.
Mainnet is a blockchain that has been thoroughly tested and deployed and is currently operating on its own network using its own technology and protocol. A digital public ledger is used to record, validate and broadcast all transactions actively.
A node refers to computers that make up the Bitcoin network and are used to validate transactions on the blockchain. There are many different types of nodes, like the full nodes which are computers that hold records of the entire blockchain or light nodes which focus primarily on processing transactions.
NFTs are unique digital assets that launched into popularity in 2017 through the Ethereum blockchain. NFTs feature unique identification codes which make it distinguishable from other NFTs with its own digital non-transferable identity. An NFT is considered unique and cannot be replaced.
Proof of History is a concept introduced to provide a historic record of events taking place at any given time by encoding the passing of time into the blockchain ledger.
Proof-of stake acts as a consensus mechanism operated by blockchain networks to attain a distributed consensus. To become a validator in the network, individuals must stake their Ether (ETH).
Access to a public blockchain is completely unrestricted. Anyone with an Internet connection can send transactions and serve as a validator for it (i.e., participate in the execution of a consensus protocol). Typically, such networks provide monetary rewards to individuals that protect them and use a Proof of Stake or Proof of Work technique.
Proof of Elapsed Time (PoET) is a private blockchain-focused consensus method that was built from the ground up to be highly scalable. It works by picking a participating node at random and allowing those who were not chosen to focus on other tasks while they wait for their turn. When compared to other consensus procedures, this one requires less energy.
A testnet acts as an alternate blockchain where users can conduct tests and also design without having to use valuable coins or risk affecting the blockchain. Testnet coins do not hold any monetary value.
Uniswap is the largest peer-to-peer cryptocurrency exchange worldwide. Uniswap is commonly referred to as decentralised because it lets anyone with an Ethereum wallet swap tokens directly.
USD Coin (USDC) is a fully leveraged, US dollar-backed stablecoin that was released by the Centre consortium in 2018. What makes it compatible with most major wallet and custody services is that it is based on Ethereum’s ERC-20 standard, which is used for creating and issuing smart contracts on the Ethereum blockchain.
Unspent transaction output (UTXO) refers to the amount of unspent digital currency left over after a cryptocurrency transaction. UTXO acts as a bookend for an entire transaction in the Bitcoin network, acting as both the amount sent to a Bitcoin address and the new inputs or records produced for both parties once the transaction is complete.
XRP is a digital asset intended primarily for usage in the Ripple network, which is a global payment settlement system that aspires to be a faster and less expensive alternative to payment platforms like SWIFT. Ripple basically acts as a trusted agent for all parties involved in a transaction, confirming when a transaction has gone through smoothly – whether it’s a money exchange or a cryptocurrency exchange like Bitcoin.
Learn more about cryptocurrencies here.
