Glossary
We have provided a glossary of terms used throughout this whitepaper and commonly used in DeFi. Many of these definitions have been provided by summary available on the Consensys website. New terms and processes are being invented almost daily in the DeFi space. In subsequent editions of this whitepaper, the DAO will update terminology.
Account A public and private keypair that “holds” your funds.
Your funds are actually stored on the blockchain, not in the wallet or account. Just like your Reddit account has a username (public) and password (private), so does your Ethereum account–the difference being that you are the custodian of your Ethereum keys, while Reddit holds your login information for their site. For additional security, you can use a password to encrypt your private key which would result in a username (public) and password (private) and password for that password (private + more secure).
Address / Public Key
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. In Ethereum, the address begins with 0x. For example: 0x06A85356DCb5b307096726FB86A78c59D38e08ee
Airdrop
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.
Altcoin
Any digital currency alternative to Bitcoin. Many altcoins are forks of Bitcoin with minor changes (e.g., Litecoin). See also ‘fork’.
AML (Anti-Money Laundering)
A set of international laws enacted to diminish the potential for criminal organizations or individuals to launder money. These rules and laws are applied to cryptocurrencies with varying effects in different jurisdictions.
API (Application Programming Interface)
A software intermediary that allows two separate applications to communicate with each other.
Attestation
Under the Proof of Stake mechanism (on the Beacon Chain), every validator other than the one proposing a new block will provide an attestation, or vote, in favor of a block with which it agrees, hereby forming consensus and confirming the block and the transactions it contains. See also “Proof of Stake”.
Bitcoin / Bitcoin (BTC)
The first cryptocurrency based on a Proof of Work (PoW) blockchain.Bitcoinwas 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.” Use “Bitcoin” for the blockchain/network; “bitcoin” for the cryptocurrency. The plural of bitcoin is just bitcoin; the abbreviation is BTC, with a space: I have 250 BTC.
Block
Think of a blockchain as consisting of a ledger that is being constantly updated, and those changes synced between any number of different nodes (indeed, “distributed ledger technology” is another phrase used to describe it). After a certain number of transactions have been added to the ledger and consensus has been reached among the nodes that the transactions are valid, then they are cryptographically locked into a “block” and officially recorded. This “block” forms the basis for the next one; in this way, they are all linked together in a chain, hence–blockchain.
Block Height
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.
Block Reward
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.
Block Time
When we talk about ‘block time’, we’re referring to how long it takes for a block of transactions (see ‘block’) to be confirmed by the network, either by miners under PoW or by validators under PoS. See also ‘Proof of Work’, ‘Proof of Stake’.
Blockchain
A digital ledger comprised of unchangeable, digitally recorded data in packages called blocks. Each block is ‘chained’ to the next block using a cryptographic signature. Ethereum is a public blockchain, open to the world; its digital ledger is distributed, or synced, between many nodes; these nodes arrive at consensus regarding whether a transaction is valid before encrypting a number of transactions
Coin
A coin, in cryptocurrency, is a representation of digital asset value that is generated via its own independent blockchain.
Cold Wallet
An offline wallet that is never connected to the internet. These wallets protect cryptocurrencies from getting hacked online.
Confirmation
A confirmation happens when the network has verified the blockchain transaction. Under a Proof of Work (PoW) consensus mechanism, this happens through a process known as mining; under Proof of Stake (PoS), the process is known as validation. 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.
Consensus
The process used by a group of peers, or nodes, on a blockchain network to agree on the validity of transactions submitted to the network. Dominant consensus mechanisms are Proof of Work (PoW) and Proof of Stake (PoS).
Crypto
Even though this prefix is originally Greek, our current usage comes from cryptography. Technologies that are referred to with the blanket term of “crypto” tech are underlain by cryptographic tools and processes (such as public/private key pairs) that enable them, and enable them to be secure. Of course, “cryptocurrency” often gets shortened to simply “crypto”, so this emerging field is full of instances where something “crypto” is being added tooor shortened.
Cryptoassets
A useful blanket term that covers on-chain assets: cryptocurrencies, NFTs, and other, still emerging, products.
Cryptocurrency
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, and are kept track of through distributed ledger technology.
Cryptography
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.
DAO
A Digital Decentralized Autonomous Organization (DAO, pronounced like the Chinese concept) is a powerful and very flexible organizational structure built on a blockchain. Alternatively, the first known example of a DAO is referred to as “The DAO”. TheDAO served as a form of investor-directed venture capital fund, which sought to provide enterprises with new decentralized business models.
Decentralization
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. You may see alternate spellings: dApps, DApps, Dapps, and Đapps.
Decentralized Exchange (DEX)
A decentralized exchange is a platform for exchanging cryptocurrencies based on functionality programmed on the blockchain (i.e., in smart contracts). The trading is peer-to-peer, or between pools of liquidity. This is in contrast with a centralized exchange, which is more akin to a bank or investment firm that specializes in cryptocurrencies. There are important technical and regulatory differences between the two which are constantly evolving.
Digital Asset
A digital commodity that is scarce, electronically transferable, and intangible with a market value.
Digital Identity
An online or networked identity adopted by an individual, organization, or electronic device.
Distributed Ledger
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.
Encryption
There are many types of encryption, but for our purposes, it is a process that combines the text to be encrypted (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.
Entropy
In the context of cryptography, ‘entropy’ refers to ‘randomness’; generally, the more random something is (the more entropy it has), the more secure it is.
ERC-20 Token Standard
ERC is the abbreviation for Ethereum Request for Comment and is followed by the assignment number of the standard. ERC-20 is a technical standard for smart contracts which is used to issue the majority of tokens (in particular, cryptocurrency tokens) extant on Ethereum. This list of rules states the requirements that a token must fulfill to be compliant and function within the Ethereum network.
ERC-721 Token Standard
As stated above, this is another standard for Ethereum smart contracts, which allows for the issuance of a non-fungible token, also known as an NFT. This token standard is used to represent a unique digital asset that is not interchangeable.
Ether (ETH)
Ether is the native currency of the Ethereum blockchain network. Ether—also referred to as ETH (pronounced with a long “e”, like “teeth” without the “t”)—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. The cryptocurrency of Ethereum has a lowercase e. The plural of ether is just ether; its abbreviation is ETH, with a space: I have 10 ETH.
Ethereum
A public blockchain network and decentralized software platform upon which developers build and run applications. As it is a proper noun, it should always be capitalized.
Exchange
A place to trade cryptocurrency. Centralized exchanges, operated by companies like Coinbase and Gemini, function as intermediaries, while decentralized exchanges do not have a central authority.
Fiat Currency
Government-issued currency. For example, US Dollars (USD), Euros (EUR), Yuan (CNY),
Fork
A fork creates an alternative version of a blockchain, and is 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. See also “hard fork”.
Gas
A measure of the computational steps required for a transaction on the Ethereum network. This then equates to a fee for network users paid in small units of ETH specified as Gwei. See also “ether (denominations)”. For more on gas, see MetaMask’s user guide here.
Gas Price
The gas price is what it sounds like: the cost the network is paid for the computational work being performed in a given transaction. It is paid in units of ETH called Gwei. Depending on network congestion, the gas price may vary significantly.
Halving
Many cryptocurrencies have a finite supply, which makes them a scarce digital commodity. For example, the total amount of Bitcoin that will ever be issued is 21 million. The number of bitcoins generated per block decreases 50% every four years. This is called “halving.” The final halving will take place in the year 2140.
Hard Fork
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
Immutability
The inability to be altered or changed. This is 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.
ICO
An Initial Coin Offering (also called ICO) occurs when a new cryptocurrency sells advance tokens in exchange for upfront capital. These have been a vehicle for fraud
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 andreport customers’ personal information and transactions.
Layer 2
Layer 2 is a set of upcoming scaling solutions for Ethereum. For the authoritative description, see here.
Light Client
A client that downloads only a small part of the blockchain, allowing users of low- power or low-storage hardware like smartphones and laptops to maintain almost the same guarantee of security by sometimes selectively downloading small parts of the state.
Liquidity
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.
Mainnet
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.
Market Cap
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.
MetaMask
MetaMask, either in its mobile app form on iOS and Android, or in its browser extension form, is a tool to access and interact with blockchains and the decentralized web. Its functions include that of a wallet, a dapp permissions manager, and token swap platform.
Mining
The process by which blocks or transactions are verified and added to a blockchain using a Proof of Work (PoW) consensus mechanism. 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 PoW blockchains, the first computer to mine or verify the block receives bitcoin or ether as a reward.
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.
NFT
When discussing Non-Fungible Tokens (NFTs), “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.
Oracle
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.
P2P (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.
Permissioned Ledger
A blockchain network in which access to ledger or network requires permission from an individual or group of individuals, as opposed to a public blockchain. 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.
Private Blockchain
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. See also ‘permissioned ledger’.
Private Key
A private key is an alphanumeric string of data that, in MetaMask, corresponds to a single specific account in a wallet. Private keys can be thought of as a password that enables an individual to access their crypto account.
Proof of Authority (PoA)
A consensus mechanism used in private blockchains, granting a single private key the authority to generate all of the blocks or validate transactions.
Proof of Stake (PoS)
A consensus mechanism in which an individual or “validator” validates 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. PoS requires a negligible amount of computing power compared to Proof of Work consensus.
Proof of Work (PoW)
A consensus mechanism in which each block is ‘mined’ by a group of individuals or nodes on the network. Hashing a block, which is in itself an easy computational process, under PoW 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, and the miner that successfully hashes the block first receives a reward, in the form of cryptocurrency. PoW is significantly more energy-intensive than other consensus mechanisms, such as Proof of Stake.
Protocol
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.
Public Blockchain
A globally open network where anyone can participate in transactions, execute the consensus protocol to help determine which blocks get added to the chain, and maintain the shared ledger.
Public Key
In cryptography, you have a keypair: the public and private key. You can derive a public key from a private key, but cannot derive a private key from a public key. The public key, therefore, is obtained and used by anyone to encrypt messages before they are sent to a known recipient with a matchingprivate key for decryption. By pairing a public key with a private key, transactions not dependent on trusting involved parties or intermediaries. The public key encrypts a message into an unreadable format and the corresponding private key makes it readable again for the intended party, and the intended party only.
Rug Pull
Similar to the traditional financial scam of a pyramid scheme, a ‘rug pull’ is a cryptocurrency or crypto-token based scam in which the creators of the token create hype, through injecting liquidity into their token, airdropping, and other schemes, and once investors pile in and boost the price of the token up to a certain point, the creators liquidate their share of the tokens, leaving their investors with next to nothing.
Satoshi Nakamoto
A pseudonymous individual or entity who created the Bitcoin protocol, solving the digital currency issue of the “double spend.” Nakamoto first published theirwhite paper describing the project in 2008 and the first Bitcoin software was released one year later.
Scalability
A change in size or scale to handle a 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.
Seed (phrase) / Secret Recovery Phrase
The seed phrase, mnemonic, or Secret Recovery Phrase is a crucial part of public blockchain technology, originally created for Bitcoin, and goes by many names. However, they all refer to a set of ordered words which correspond to determined values. These values never change, and therefore the same string of words in the same order will always produce the same number–this is the underlying functionality that allows seed phrases to back up wallets. The Secret Recovery Phrase is exactly what it sounds like: something that is secret, and should be known only to the owner of the account. If the seed phrase is given to someone else, that person has complete control over the account; they can drain it of tokens and funds, execute transactions with it, etc.
Smart Contracts
Smart contracts are programs whose terms are recorded in computer code. While they often contain agreements or sets of actions between parties that emulate a traditional legal contract, they are not, in and of themselves, legal documents. Smart contracts are automated actions that can be coded and executed once a set of conditions is met, and are the dominant form of programming on the Ethereum Virtual Machine.
Stablecoin
Any cryptocurrency pegged to a monetary asset, typically a fiat currency the US dollar. It theoretically remains stable in price as it is measured against a known amount of an asset less subject to pricing volatility.
Steadycoin
A steadycoin is a cryptocurrency backed by inflation-resistant hard assets (not fiat currency), offers the potential of yield to the owners, and provides a medium of exchange. The first steadycoin is generally attributed to the RealEx DAO.
Staking
In the Ethereum context, ‘staking’ of tokens or currency carries the traditional meaning of ‘setting aside currency for a determined purpose’; however, ‘staking’ can happen in a variety of venues with different effects. For example, on decentralized exchanges (DEXes), there is no centralized authority or bank putting up the funds to allow transfers to happen between parties; rather, the parties amongst themselves have to establish liquidity pools in order to facilitate swaps. In this context, someone might ‘stake’ tokens into a liquidity pool, often for a promised rate of return in exchange for the use of their tokens, with the option to withdraw their tokens later.
Token
A token represents an asset built on an existing blockchain. There are many types; see also ‘ERC-20’ and ‘ERC-721’ entries.
Transaction Block
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.
Trustless
‘Trustless’ is a term that gets used a lot in the decentralized web, and it deserves some explanation. Traditionally, to call something ‘trustless’ would sound like a negative thing. In the context of decentralized technology, it has a more technical meaning: since everyone has a copy of the ledger of all transactions ever executed, there is no need for a third-party repository of ‘truth’ in whom trust resides. We don’t rely on some centralized server somewhere that could be hacked or changed arbitrarily; anyone can verify the transactions themselves. In a way, the rules and assurances built into the blockchain provide the basis for greater trust, because the system works the same for everyone
Wallet
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.
Web3 / Web 3.0
Web3, or Web 3.0, are terms used synonymously with “the decentralized web” and are often used to refer, broadly, to the blockchain and decentralized technology ecosystems as a whole.
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