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Blockchain (in General)
Source - https://consensys.net/knowledge-base/a-blockchain-glossary-for-beginners/
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). See also ‘keystore file’.
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
A method for securing computers in which the device does not connect to the internet or any other open networks.
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.
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 one another. APIs define methods of communication between various components.
ASIC (Application Specific Integrated Circuit)
ASICs are silicon chips designed to do a specific task. In ASIC use for mining cryptocurrencies, the ASIC will perform a calculation to find values that provide a desired solution when placed into a hashing algorithm.
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’.
The Beacon Chain (always capitalized) is one element in the infrastructure being built to scale Ethereum, and is the foundation for a transition from a Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS). For more information, see this guide.
Bitcoin / bitcoin (BTC)
The first cryptocurrency based on a Proof of Work (PoW) blockchain. Bitcoin was 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.
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.
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.
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.
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’.
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 into a block. For more on blockchain technology, see here. See also ‘block’.
bounty / bug bounty
A reward offered for exposing vulnerabilities and issues in computer code.
A blockchain account generated from a seed phrase or password or passphrase of your choosing. Humans are not capable of generating enough entropy, or randomness, and therefore the wallets derived from these phrases are insecure; brain wallets can be brute forced by super fast computers. For this reason, brain wallet are insecure and should not be used. See also ‘Seed phrase / Secret Recovery Phrase’.
Ostensibly coined (see what we did there) by Gitcoin’s Kevin Owocki. It reflects the Ethereum-focused mindset of not just investing in a cryptocurrency as a store of value, but rather investing in it as an ecosystem and a platform for public goods and software; it complements, in this sense, the now-infamous HODL.
Bytecode is a “low-level” computer language, that is, meant to be processed by a computer, rather than a “high-level”, more human-readable, language. In Ethereum, higher-level Solidity is compiled into Ethereum bytecode, which is read by the Ethereum Virtual Machine (EVM).
A “hard fork” in the Ethereum network that occurred in October of 2017. For detailled information, see here; see also “hard fork”.
An Ethereum client is software that accesses the Ethereum blockchain via a local computer and helps to process transactions. A client usually includes a cryptocurrency software wallet. See an up-to-date list of clients here.
A coin, in cryptocurrency, is a representation of digital asset value that is generated via its own independent blockchain.
cold wallet / cold storage
An offline wallet that is never connected to the internet. These wallets protect cryptocurrencies from getting hacked online.
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.
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).
Short for Consensus Systems, ConsenSys is the software engineering leader of the blockchain space. But you’re here, so you already knew that.
See ‘smart contract’.
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 to or shortened.
Bounties paid for in cryptocurrency. See also “bug bounties”.
A blanket term used to refer to ensuring crypto projects conform with applicable regulations and laws.
A useful blanket term that covers on-chain assets: cryptocurrencies, NFTs, and other, still emerging, products.
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.
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.
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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. The DAO served as a form of investor-directed venture capital fund, which sought to provide enterprises with new decentralized business models. Ethereum-based, The DAO’s code was open source. The organization set the record for the most crowdfunded project in 2016. Those funds were partially stolen by hackers. The hack caused an Ethereum hard-fork which lead to the creation of Ethereum Classic.
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 property put into a contract involving a different party such that if certain conditions are not satisfied that property is automatically forfeited to the identified counterparty.
derive / derivation
To derive something is to obtain it from an original source. In the context of crypto-technology, we often discuss “deriving” wallets and accounts from seed phrases / Secret Recovery Phrases.
The concept outlining how hard it is to verify blocks in a blockchain network during Proof of Work mining. In the Bitcoin network, the difficulty of mining adjusts every 2016 blocks. This is to keep block verification time at ten minutes.
The difficulty bomb, along with the Beacon Chain and others, is an element of Ethereum’s upgrade to Ethereum 2.0 and a Proof of Stake (PoS) consensus mechanism. As the name indicates, the difficulty bomb is a mechanism that will increase the block verification difficulty, making it more expensive and difficult–eventually, prohibitively so–to mine a new block. The intention is to force the shift to PoS consensus. See also ‘Proof of Stake’.
A digital commodity that is scarce, electronically transferable, and intangible with a market value.
An online or networked identity adopted by an individual, organization, or electronic device.
A code generated by public key encryption and attached to an electronically transmitted document in order to verify the contents of the document.
Distributed Denial of Service (DDoS) Attack
A type of cyber-attack in which the perpetrator continuously overwhelms the system with requests in order to prevent service of legitimate requests.
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.
An event during which someone on the Bitcoin network tries to send a specific bitcoin transaction to two different recipients at once. However, as each bitcoin transaction is confirmed, double spending becomes almost impossible. The more confirmations that a particular transaction has, the decreased likelihood of double spending successfully.
EIP (Ethereum Improvement Proposal)
EIPs describe standards for the Ethereum platform, including core protocol specifications, client APIs, and contract standards. They are, precisely, proposals for modifications to the network and the way it functions; the official repository is here.
encrypted vs unencrypted keys
As discussed elsewhere, public and private crypographic key pairs are one of the technologies that underpins cryptocurrencies and “crypto” tech in general. In MetaMask, an unencrypted private key is 64 characters long, and it is used to unlock or restore wallets. An encrypted key is also 64 letters long and is a regular private key that has gone through the process of encryption.
For example, if the world ‘Apple’ was your private key, then it was encrypted three letters down the alphabet, your new shortened encrypted key would be ‘Dssoh’. Since you know the way to encrypt this key, you could derive the original private key from it by reversing the method of encryption. Usually encrypted private keys are kept within the extension or device they are encrypted by, and they remain out of sight from the user. This is meant to add another layer of security to keep a user’s wallet information safe.
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.
Enterprise Ethereum Alliance (EEA)
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.
An epoch, in general, is a measure of time, or of blockchain progression, on a given blockchain. For the Ethereum Beacon Chain, an epoch consists of 32 slots, each lasting 12 seconds, for a total of 6.4 minutes per epoch. There is additional functionality built upon the epoch measure in the Beacon Chain to help ensure security and proper operation of the Chain.
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 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.
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.
The Ethereum Name Service is a protocol to assign human-readable and easy-to-remember addresses to Ethereum addresses and assets, homologous to the traditional internet’s DNS.
Ethereum Request for Comment, or ERC, is a bit of a misnomer, as it is used to refer to suggestions for modifications that have already made it through the Ethereum Improvement Protocol (EIP) process and have been made standard on Ethereum. An ERC is, essentially, a set of standards for a given operation or topic on the Ethereum network. The authoritative list can be found here.
EVM (Ethereum Virtual Machine)
The EVM is a virtual machine that operates on the Ethereum network. It is Turing complete and allows anyone, anywhere to execute arbitrary EVM bytecode. All Ethereum nodes run on the EVM. It is home for smart contracts based on the Ethereum blockchain.
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.
A faucet is an application, sometimes a very simple website, other times more complex, that dispenses cryptocurrency for use on test networks only. These faucets are used by developers to test out dapps or smart contracts before deploying them on Ethereum Mainnet, or users who want to practice an action on the blockchain with no risk. Tokens dispensed by a test faucet stay on the test networks and cannot be exchanged for mainnet equivalents.
Government-issued currency. For example, US Dollars (USD), Euros (EUR), Yuan (CNY), and Yen (JPY).
A transaction is considered “final” once it can no longer be changed. In a sense, this happens once there are sufficient confirmations of the transaction, but for all intents and purposes, a transaction is final once the block that contains it is mined or validated. Keep in mind that this reflects a fundamental rule of blockchains: unlike traditional financial systems where charges can be “reversed”, there is no “undoing” a transaction on the blockchain. Once finality is reached, the transaction is immutable.
A denomination of ether. See ether (denomination).
A fork creates an alternative version of a blockchain, and are 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”.
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.
The gas limit is the maximum amount you’re willing to pay for any given transaction to go through the Ethereum network. Another way of looking at it is as a “rough estimate” of how much computing power your transaction will take.
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.
The initial block of data computed in the history of a blockchain network.
A minuscule and common denomination of ETH, and the unit in which gas prices are often specified. See ‘ether (denominations)’ entry for more information.
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 is decreased 50% every four years. This is called “halving.” The final halving will take place in the year 2140.
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. See also “fork”.
A physical device that can be connected to the web and interact with online exchanges, but can also be used as cold storage (not connected to the internet).
A programmatic function that takes an input, and then outputs an alphanumeric string known as the “hash value” or “digital fingerprint.” Each block in the blockchain contains the hash value that validated the transaction before it followed by its own hash value. Hashes confirm transactions on the blockchain.
Hierarchical Deterministic wallets were first created for Bitcoin, and enable the creation of a very large number of accounts based on an initial seed phrase. This technology was later adopted in Ethereum wallets; when restoring a MetaMask wallet from the Secret Recovery Phrase, for example, if you “create” accounts, they will be the same accounts as previously created from that same phrase; they are derived from it.
Hexadecimal is a base 16, rather than base 10, counting system. Used all over Ethereum for a variety of things, a hexadecimal string is comprised of the numbers 0 1 2 3 4 5 6 7 8 9 and letters A B C D E F.
hot wallet / hot storage
A wallet that is directly connected to the internet at all times, for example one that is held on a centralized exchange. Hot wallets are considered to have lower security than cold storage systems or hardware wallets.
Hyperledger is an ecosystem of open-system tools, libraries, and products designed to enable and support enterprise-grade blockchain technology. In general, the products focus on creating solutions for permissioned blockchains–that is, non-public blockchains, with alternative consensus mechanisms other than Proof of Work (PoW) or Proof of Stake (PoS).
That said, there are use cases where such institutions would want to integrate with public blockchains, and for that reason Hyperledger Besu and Hyperledger Burrow are actively developed projects, the former being a Java-based Ethereum client, the latter being a smart contract platform which supports EVM bytecode.
Identicon / AddressIdenticon / AddressIcon
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.
Part of ConsenSys, Infura offers backend access to the Ethereum network over established HTTP and WebSockets technology. This enables developers of dapps and websites seeking to interact with the Ethereum blockchain to do so, and at scale.
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 and scams, and as such are subject to ever-evolving regulation and legislation.
An internal transaction on the Ethereum network is one that occurs between smart contracts, rather than between addresses. Notably, they are not included on the blockchain, and therefore do not incur gas fees, but they are often crucial to carrying out the action in question, and can be viewed on Etherscan.
InterPlanetary File System (IPFS)
A decentralized file storage and referencing system for the Ethereum blockchain. IFPS is an open source protocol that enables storing and sharing hypermedia (text, audio, visual) in a distributed manner without relying on a single point of failure. This distributed file system enables applications to run faster, safer and more transparently.
A keystore file is a special, encrypted version of a private key in JSON format. See also ‘private key’.
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 and report customers’ personal information and transactions.
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.
Liquid Democracy (Delegative Democracy)
A government system where votes can be delegated or proxied to other individuals such as friends, politicians, or subject matter experts. For example, in a liquid democracy, Bernadette could give Ahmad her vote and Ahmad would then vote for both himself and Bernadette. A liquid democracy has been explored as a governance mechanism for Decentralized Autonomous Organizations where every participant is able to vote or delegate their vote to another individual.
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.
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.
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.
Merkle Patricia trie
Often referred to simply as a “Merkle trie” (pronounced “tree”), a Merkle Patricia trie is a data structure in which a single hash code function (a type of cryptographic code) splits into smaller branches. In a similar way to a family tree, where a parent branch splits into child branches, which are then extrapolated into grandchild branches, a Merkle Patricia trie keeps a record of the filiation and history of each element. This type of data structure enables for faster verification on a blockchain network.
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.
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.
See ‘seed phrase / secret recovery phrase’.
Multi Signature (MultiSig)
A crypto-asset wallet that requires multiple keys to access. Typically, a specified number of individuals are required to approve or “sign” a transaction before they are able to access the wallet. This is different from most wallets which only require one signature to approve a transaction.
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.
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.
The word ‘nonce’ has a few different meanings, and in different contexts, it ends up getting used a lot of different ways. Originally formed from a contraction of a phrase meaning “not more than once”, on the Ethereum mainnet, “nonce” refers to a unique transaction identification number that increases in value with each successive transaction in order to ensure various safety features (such as preventing a double-spend). Note that due to its broader use in cryptography, you may encounter ‘nonce’ being used differently on other sidechains or decentralized projects.
Under the Proof of Work (PoW) consensus mechanism, miners received rewards for being the first to mine a new block. However, at times a block would be mined just after, and in competition with, the last block; this block, known as an ommer and previously as an uncle, could get rolled into subsequent blocks and the miner of the original ommer would get a partial block reward. All of this functionality is deprecated as of the Beacon Chain.
A rollup that assumes the validity and good faith of transactions, and only runs a fraud proof in the case of fraud being alleged. See also ‘rollup’.
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 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.
Parity Technologies is the name of a blockchain technology company that is developing a number of significant projects in the Ethereum space; however, one of its first projects was an Ethereum client, now known as Parity Ethereum; often this client is simply referred to as ‘Parity’. See also ‘client’.
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.
Plasma is a term that is used to refer to one of the scaling solutions being deployed to create Layer 2 of the Ethereum network. A Plasma network functions similarly to an Optimistic rollup, inasmuch as it relies on Layer 1 Ethereum mainnet to maintain the record of transactions, and as the source for arbitration or fraud resolution. However, a Plasma network differs in other important technical ways from rollups, and is currently limited to simple operations, such as swaps and token transfers.
PoA, PoS, PoW
Acronyms standing for Proof of X consensus mechanisms: Assignment, Stake, Work. The “o” is lowercase since you wouldn’t capitalize “of” when writing out the phrase. See also ‘consensus’, ‘Proof of Authority’, ‘Proof of Stake’, ‘Proof of Work’.
A hybrid consensus model that utilizes a combination of Proof of Stake (PoS) and Proof of Work (PoW) consensus. Using this Hybrid consensus mechanism, blocks are validated from not only miners, but also voters (stakeholders) to form a balanced network governance.
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’.
A currency or token issued by a private individual or firm. Typically, the token or currency is limited to use within the network of that particular firm or individual. This is not to be confused with a “privacy cryptocurrency” which are cryptocurrency with specific privacy features, such as hidden user identities.
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. Never reveal your private key to anyone, as whoever controls the private key controls the account funds. If you lose your private key, then you lose access to that 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 singificantly more energy-intensive than other consensus mechanisms, such as Proof of Stake.
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.
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.
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 matching private 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.
Any party or entity which hosts an off-chain orderbook. Relayers help traders discover counter-parties and cryptographically move orders between them. 0x is an example of a popular Ethereum relayer protocol.
Rollups (pronounced “roll ups”) are one element in the set of tools and infrastructure being built as Layer 2, the scaling solutions for the Ethereum network. They consist, in general, of solutions in which the transaction data is still kept on Layer 1, the original Ethereum network, while transaction computation occurs on a side network, freeing up computational power on Layer. There are different ways of approaching this problem from a technical point of view, namely Zero Knowledge, or ZK, rollups, and Optimistic rollups. See the entries on both of these types of rollup for more, and more in-depth discussion here.
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.
A pseudonymous individual or entity who created the Bitcoin protocol, solving the digital currency issue of the “double spend.” Nakamoto first published their white paper describing the project in 2008 and the first Bitcoin software was released one year later.
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.
Functioning by itself, not controlled by any other party other than itself. Self-executing smart contracts cut costs/overhead by removing the need for an arbitrator and trust toward a third party.
The process of converting a data structure into a sequence of bytes. Ethereum internally uses an encoding format called recursive-length prefix encoding (RLP).
Sharding refers to splitting the entire network into multiple portions called “shards.” Each shard would contain its own independent state, meaning a unique set of account balances and smart contracts. Usually, shards must be tightly coupled and side-chains must be loosely coupled.
A sidechain is what it sounds like — it is a separate blockchain that is Ethereum-compatible. While a sidechain is a sort of scaling tool, as a class they aren’t part of Layer 2; they simply represent a way in which developers can build and enable cheaper transactions for the user (on the sidechain, in sidechain-native tokens or currencies) while maintaining compatibility with the Ethereum network. This often requires routing tokens through a special portal or bridge, as sending tokens from a sidechain to Ethereum mainnet or vice versa would result in token loss.
Under a Proof of Stake (PoS) consensus mechanism, a slashing condition is one that causes the validator’s deposit to be destroyed when they trigger it. See also ‘Proof of Stake’.
A slot, on the Ethereum Beacon Chain, is a 12-second period of time during which a new block may (or may not) be proposed. Every 32 slots composes an epoch. See also ‘epoch’.
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.
A change to the software protocol where only previously valid blocks/transactions are made invalid. Since old nodes will recognize the new blocks as valid, a soft fork is backward-compatible. However, this can result in a potential divide in the blockchain, as the old software generates blocks that read as invalid according to the new rules.
Any cryptocurrency pegged to a stable asset, like fiat currency or gold. It theoretically remains stable in price as it is measured against a known amount of an asset less subject to fluctuation. Always spelled as one word.
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.
On the Beacon Chain and Ethereum 2.0, ‘staking’ means something a bit different: 32 ETH may be staked at a determined smart contract address in order to operate a validator on the Beacon Chain; in this way, you help ensure the good functioning and safety of the network, and are rewarded for your staking.
The set of data that a blockchain network strictly needs to keep track of, and that represents data currently relevant to applications on the chain.
State channels are part of the set of tools and platforms involved in scaling Ethereum and enabling Layer 2. While a complex topic, state channels are essentially methods through which the current ‘state’ of the blockchain can be exported, and based on that any given number of transactions can take place off-chain, and then be moved back onto the main Ethereum chain.
A denomination of ETH. See also ‘ether (denominations)’.
An alternative blockchain developers use to test applications in a near-live environment.
Ethereum testnet that uses Proof of Authority consensus, available through MetaMask.
Ethereum testnet that uses Proof of Authority consensus, available through MetaMask.
Ethereum testnet that uses Proof of Work consensus and is available through MetaMask.
A token represents an asset built on an existing blockchain. There are many types; see also ‘ERC-20’ and ‘ERC-721’ entries.
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.
A small fee imposed on some transactions sent across a blockchain network. The transaction fee is awarded to the miner that successfully hashes the block containing the relevant transaction.
‘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.
Any machine that can calculate on a level equal to a programmable computer is Turing Complete, or computationally universal. The EVM, despite not existing on a single physical computer, is Turing Complete.
A participant in Proof of Stake (PoS) consensus. On the Beacon Chain, validators need to stake 32 ETH, that is to submit a sort of security deposit, in order to get included in the validator set. See also ‘staking’.
The proof submitted along with certain types of rollups to prove that the transactions are valid. See also ‘rollups’.
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.
Zero-Knowledge Succinct Non-interactive ARguments of Knowledge are an incredible technology, and vital to the scaling of blockchain technology and the decentralized web. They are mathematically complex and can be daunting; this explanation from the Ethereum Foundation is a good primer.
If more than half the computer power or mining hash rate on a network is run by a single person or a single group of people, then a 51% attack is in operation. This means that this entity has full control of the network and can negatively affect a cryptocurrency by taking over mining operations, stopping or changing transactions, and double-spending coins.