Blockchain Terminology Glossary for the Beginner
Blockchain terminology can be quite daunting to the beginner, so we break it down in this glossary.
Removing unnecessary parts of a transaction before adding them to the blockchain. A Merkle tree is a data structure that allows for the easy and quick verification of the integrity of any large amount of data.
Any cryptocurrency that is not Bitcoin. Altcoins can generally be defined as any cryptocurrency launched after the success of Bitcoin. Among these are Litecoin, Dogecoin, Dash, Decred, and Burstcoin.
A program that serves a decentralized purpose. Examples of applications are crypto wallets and decentralized exchanges like Binance or Bitfinex.
An ASIC is an application-specific integrated circuit designed specifically for the mining of cryptocurrencies. This application uses the latest technological processes, making it smaller and more efficient than common Graphics Processing Units (GPUs).
Someone who holds a cryptocurrency that is losing value or has no real value. For example, someone who purchased Bitcoin when it was $100, and now it’s worth $10.
Bearish is a negative trend in the market where the price takes a downward turn. If the general outlook for an asset is bearish, then this can also lead to more adopters selling their assets as they expect the currency to lose its value as time goes on.
A way of describing someone against an increase in the block size limit on Bitcoin’s blockchain. It is believed that increasing the block size limit will lead to more centralization, as larger mining pools will be able to perform calculations faster than small-scale bitcoin miners and therefore hold more control over Bitcoin’s network.
A control account is used for making large trades with other accounts. It allows you to buy and sell without depositing funds into your account.
A service provided by a centralized exchange that allows users to buy and sell cryptocurrency. Coinbase is perhaps the most well-known custodial service.
Taking an algorithm that does something relatively simple and optimizing it to do more in less time.
A wallet that generates a new public-private key pair for every transaction. It can either be a hardware device like the Trezor or a software solution like Electrum.
ERC20 Token Standard
ERC20 Token Standard is the most common standard for creating tokens on Ethereum. It makes a new token easy to transfer to other Ethereum users and smart contracts.
A website or company where digital assets can get exchanged for fiat currency or other cryptocurrencies. An example is Binance or Coinbase.
A currency issued by the government of a country and can be used in commerce within that country.
Used to exchange commodities or financial instruments at a specified price at a specified time in the future. For example, let’s say that 1 BTC was worth $10,000 today, and in one month, it will be worth $11,000. You could take out a futures contract with another buyer where you both agree to exchange 1 BTC for $11,000 in one month.
A feature of Ethereum smart contracts which determines the cost of gas per operation. The miners need to be paid to execute smart contract operations. Gas limit is also used to prevent blockchain bloat and is comparable to limited function static variable in programming languages like C or C++.
A hard fork is an upgrade that is not backward-compatible with the old protocol. After a hard fork, software running on the old protocol will no longer be valid on the new network.
An internet meme originating from a Bitcoin Talk forum post by an anonymous user named “GameKyuubi.” It has become synonymous with investors holding assets in a bear market and is used by critics to mock altcoin investors who hold their assets during a bear market.
Initial Coin Offering is the process of raising money for a project using cryptocurrency. ICOs are similar to IPOs, but participants of an ICO purchase the newly issued cryptocurrency with fiat currency instead of buying shares in the startup company.
A metric used to determine how easily a cryptocurrency can get sold by measuring its trading volume against the amount that is currently being traded. The higher the liquidity, the easier it is to sell.
LTC is a type of altcoin. It has a high USD to LTC ratio because it is the third-largest cryptocurrency in market cap.
A service provided by some exchanges allowing traders to borrow money without depositing funds into their accounts. Traders can then use this money to buy cryptocurrencies in the hopes of profiting by lending out the coins at higher rates, again taking advantage of sideways markets.
Miners who combine their resources to mine a cryptocurrency and then split the rewards proportionally.
The amount of cryptocurrency awarded as a reward for solving a specific puzzle set by the blockchain.
A method of validating transactions using a consensus among the network’s participants.
In a blockchain network, nodes are those computers that can process and verify transactions. They are often referred to as “miners.” Nodes can also be individuals who run software that can create and manage this type of network.
Transactions that do not involve the blockchain. Instead, they are processed by a third party like a bank.
The list of the current supply and demand prices for each cryptocurrency. It is updated every minute on most exchanges but frequently varies depending on the market.
A client compatible with both the Ethereum network and the Ethereum Classic network.
A ledger in which only certain parties can read or add to it.
An illegal operation where money from new participants is used to pay those who entered first, causing a cycle of red eyes and the total loss of investment for those who entered last.
Proof of Work
A consensus algorithm where a group of miners are required to solve a complex network of mathematical problems to add blocks to the blockchain.
Refreshed Order Book
A new order book that is updated with new information within a given period. It is sometimes referred to as an “updated order book” or “new order book.”
A price that compares the value of one cryptocurrency to another without considering each currency’s exchange rate. For instance, Bitcoin is trading at $5,000, whereas Litecoin is trading at $110. The relative price would be 110/5 = 16.67% more expensive for Litecoin buyers but 16% cheaper for Litecoin sellers.
Ripple is a payment system that uses XRP, the company’s cryptocurrency. It is similar to the other cryptocurrencies such as Bitcoin and Ethereum but built on a different blockchain.
The founder of Bitcoin. He published the Bitcoin whitepaper in 2008.
An altcoin that implements an Initial Coin Offering as a method of fraudulently raising funds from investors who do not receive the promised product or service.
Security Token Offering (STO)
A method of selling asset-backed tokens to the public. STOs are similar to IPOs, but with the use of blockchain technology for security.
A scalability solution that splits the blockchain into sections called shards and calculates a consensus on them. It allows transactions to be verified much faster, as the need for proof of work is drastically reduced.
Tether is a USD-backed stable coin pegged to the US dollar on a one-to-one ratio.
An online platform where individuals can buy and sell cryptocurrencies.
Transaction Fee (Tx Fee)
The fee charged by the network to process a transaction. It is usually measured in Gwei and varies with each cryptocurrency but is often in cents per transaction.
User Activated Soft Fork where a specified number of users or miners activate soft forks on a network.
A transaction that is sent to the network but has yet to be confirmed. It is shown in the “Pending” section of the wallet.
Units of Account (UOA)
A cryptocurrency standard that calculates a currency’s value based on its market cap. It is used to compare currencies’ competition with each other and with fiat currency.
A market trend in which the price of a cryptocurrency is steadily rising.
An investor who buys up assets at extremely low prices, hoping to make a large return on investment after the asset’s price rebounds.
A cycle or trend which acts as a catalyst to cause an increase in the value of a cryptocurrency as more investors enter, which then continues its climb up until holders begin selling.
A blockchain network that features cross-chain transactions between different blockchains.
The digital address used to send and receive cryptocurrencies from other individuals. It is usually a long string of letters and numbers, such as 0xFc50B08f4F4a7830D2b6A981C9af9c136870D0dB.
Zero-Knowledge Proof (ZKP)
An encryption method that proves that an individual has a particular secret without revealing what it is.
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