What Does It Mean? Easy A-Z Definitions Of Blockchain And Cryptocurrency Terms
Plain English explanations of everything from accounts and actors to Zero-Knowledge SNARK. Also taking in airdrops, consensus, hash, keys, wallets, Web3 and more…
Don’t know your hot wallet from cold – or why you need one in the first place? You’ve come to the right place.
We’re big fans of blockchain games here, but we also know that the way they work and the words used to talk about them can be hard to understand. Whether you’ve been catching airdrops for years or you have yet to buy your first NFT, we’ve compiled a glossary of the most commonly used – and most important – blockchain terms and explained each one in plain English.
This glossary is by no means exhaustive and we could write entire articles about some of the entries, but we hope that you’ll find these bite-sized explanations easy to understand and helpful in getting you playing and making games on the blockchain.
This is a long page and we don’t expect anyone to read the whole thing – if you do, thank you! Instead, why not bookmark it as a handy reference tool and check back when you encounter a new bit of terminology that you need to understand…
Account: A pair of public and private keys that are unique to you and identify your funds that are stored on the blockchain. Functionally, think of them like say, your public username and private password on social media.
Actor: Any entity – person, machine or software – that can initiate or participate in an action.
Address: Serves as an actor or account’s identity, used to send and receive transactions. Addresses comprise a set of letters and numbers – usually in hexadecimal. Also known as a public key.
Air gap: A security measure where the computing device is not connected to the internet or open network.
Airdrop: A way to distribute tokens or cryptocurrency to wallet addresses. Often used by developers and publishers for marketing campaigns to reward users for sharing content, links etc.
Altcoin: An abbreviation of ‘Alternative coin’ meaning any digital currency that isn’t Bitcoin.
AML: Anti-Money Laundering. International laws intended to reduce or prevent criminals from accessing money gained by illegal means. These vary by geographical location.
API: Application Programming Interface. Software that enables distinct apps to communicate.
ASIC: Application Specific Integrated Circuit. A computer processing chip designed to perform one function more efficiently. Used for mining cryptocurrency.
Bitcoin: The most famous of all the cryptocurrencies, BTC was created in 2009 by Satoshi Nakomoto, an unknown person or persons.
Block: The individual chunks of data that combine into a chain once a number of nodes have reached consensus on the recorded actions or transactions. Block is also a composite of however many transactions the block is designed to contain
Block height: Simply the number of blocks in the chain, starting with Height 0 – also called the Genesis Block.
Block reward: Coins/tokens and/or fees paid to a miner after it has hashed a transaction block. Varies by currency/network and time in a blockchain’s lifespan (reward reduces for Bitcoin over time). See Halving.
Block time: How long it takes the network to confirm a block of actions or transactions.
Blockchain: A series of blocks of data stored in a chain and connected by cryptography. This forms a digital ledger of immutable data that has been agreed upon by participating nodes or actors. Rather than being held in a conventional central location (server), instances of this information are stored across the chain and its actors and users, hence the term ‘decentralised‘.
Brain wallet: The practice of memorising seed phrases, rather than relying on external software. Less resilient to hacking due to lower complexity and more vulnerable to simple human failure and forgetfulness compared with conventional wallets.
Byzantine fault tolerance: A system or network’s ability to continue operating despite nodes failing or acting maliciously.
Canonical block: A block in the primary blockchain referenced by future blocks that supercedes previously valid blocks that were later in conflict.
Chain of custody: The documentation of ownership from creation to the end user.
Chaincode: More commonly called a smart contract.
Client: Locally stored software that accesses the blockchain to process transactions.
Codefi: A suite of commerce and finance apps, part of ConsenSys. The name derives from ‘COmmerce and DEcentralised FInance’
Coin: A representation of digital asset value generated by a particular blockchain.
Cold wallet: An offline wallet that is never connected to the internet, thereby protecting cryptocurrencies from being hacked. Also known as cold storage.
Confirmation: This happens when the network has verified a blockchain transaction and theoretically can’t be reversed. More confirmations make the transaction more secure. Also referred to as validation.
Consensus: This is where the peer network of nodes on a blockchain agrees the validity of transactions. There are different types of consensus mechanisms, with the most popular being Proof of Work (PoW) and Proof of Stake (PoS).
CPU: Central Processing Unit. The brain of your PC is able to mine blocks.
Crypto: Abbreviation for cryptography. Now becoming more familiar as a prefix to all things blockchain.
Cryptocurrency: Digital currency using encryption to regulate both the creation of units to verify the transfer of funds. Fully decentralised, cryptocurrencies use distributed ledger technology with no need for a central bank.
Cryptography: The centuries-old study of using codes for secure communications.
DAO: Decentralised Autonomous Organization. An informal group of peers or a company that observes the rules of a smart contract. They translate business or social conventions into software-based logic.
Dapp: Decentralised application. Software that shares information amongst its users without relying on a single system or database. Often seen with a variety of capital letters, but they all mean the same thing.
Decentralised: The use of a network to establish authority, avoiding the need for a single ruling party such as a business or government.
Deposit: Just like in the real world, used as a downpayment on a pending transaction between users; the outcome can be automated.
DEX: Decentralized EXchange. A peer-to-peer (P2P) platform for exchanging cryptocurrencies based on programmed functionality such as smart contracts.
Digital asset: An item that exists electronically/online. These should have some market value due to scarcity and be electronically transferable. These can range from digital currency (ERC20) to non-fungible tokens (NFTs/ERC721).
Digital signature: A code to verify digital messages or documents have authenticity and integrity to confirm that they come from a known sender and have not been altered.
DDoS attack: A Distributed Denial of Service attack is where a bad actor attempts to overwhelm the system with lots of spurious requests, hoping to prevent legitimate requests being completed.
Distributed ledger: Entries – or records – are stored sequentially across multiple locations owned and operated by individuals, sites, organisations or countries (and more). Transactions are simultaneously recorded in multiple identical copies with no central database or administration.
Double-spending: The risk that a token can be used more than once, allowing modified blocks to enter the blockchain. This problem could mean that a perpetrator may reclaim spent coins.
Entropy: The state of disorder or uncertainty that the name suggests here adds a more random element to blockchain cryptography – it makes your currency more secure.
Epoch: A unit of time or chain progression.
ERC: An abbreviation for Ethereum Request for Comment. Usually followed by a number such as ERC-20 for smart contracts or ERC-721 for non-fungible tokens.
ETH: Pronounced ‘Eeth’, Ether is the base cryptocurrency for the Ethereum blockchain network.
Ethereum: One of the most popular public blockchains that supports smart contracts. The underlying blockchain behind ERC20 (fungible digital currency) and ERC721 (NFTs).
Faucet: An application that dispenses cryptocurrency on test networks to trial dapps or smart contracts. These tokens should never make it into circulation.
Fiat currency: Legal tender assured by a government such as US dollars, Euros or GB pound sterling.
51% attack: When more than half the mining hash rate on a network is run by one individual or group, they could stop or change transactions and double-spend coins.
Final: The state of a transaction once it can no longer be changed after its block has been validated.
Fork: Like a fork in the road, these create alternate versions of a blockchain, usually with a view to applying upgrades to a network. Soft forks retain some compatibility, while hard forks create a distinct version. Examples include Bitcoin Cash, Litecoin, and Ethereum Classic.
Fungible: Items that are exchangeable with other like items, such as USD and Euros. ERC20 tokens are an example of this on blockchain.
Gas: The computational difficulty of processing a smart contract on the Ethereum network. Typically measured in ‘Gwei’.
Gas limit: How much you’re willing to pay for an Ethereum transaction.
Gas price: Ethereum’s fee for the computational work in a transaction; varies with network congestion.
Genesis block: The initial block of data computed in the history of a blockchain.
Gossip protocol: A process that enables actors in a network to exchange information with all other members.
GPU: Graphics Processing Unit. Your graphics card can be used to mine blocks in parallel far more effectively than any CPU.
Gwei: A denomination of ETH and a common unit for gas prices.
Halving: Every time 210,000 blocks have been mined, the reward given to Bitcoin miners for processing transactions is cut in half and also halves the rate at which new bitcoins are released into circulation. This should happen every four years or so until the proposed limit of 21 million tokens is reached in the year 2140.
Hard fork: A change in the blockchain that is not backward compatible with older versions.
Hardware wallet: 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). See Cold Wallet.
Hash: A programmatic function that takes an input, and then outputs an alphanumeric string known as the hash value. Every block contains not only its own hash value, but also that of the preceding transaction in the chain.
HD wallet: Originally developed for created for Bitcoin, Hierarchical Deterministic wallets enable the creation of a large number of accounts based on an initial seed phrase.
Hexadecimal: A base 16 counting system, as opposed to base 10 that we are all more familiar with. The added complexity brings improved security, comprised of the numbers 0 1 2 3 4 5 6 7 8 9 and letters A B C D E F.
Hot wallet: A wallet that is continuously connected to the internet, such as you might find on a centralised exchange. Usually considered less secure than offline wallets due to the increased risk of hacking, but useful for quick trading compared to cold wallets.
Hyperledger: IBM’s suite of tools is hosted by The Linux Foundation to help create and support enterprise consortium chains. Hyperledger is also an example of a ‘Private Chain’ solution.
ICO: An Initial Coin Offering (ICO) occurs when a new cryptocurrency sells advance tokens in exchange for upfront capital. Once popular as a way to avoid the traditional startup fundraising process, a series of very public disappointments has led to cynicism about ICOs.
Immutable: The premise that data can’t be altered once written onto a blockchain ledger is fundamental to the way networks operate.
Internal transaction: A transaction on Ethereum that takes place between smart contracts, rather than between addresses.
IPFS: An InterPlanetary File System is a decentralised file storage and sharing system for hypermedia.
KYC: Know Your Customer is 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.
Light client: A client that downloads only a small part of the blockchain. This gives users of low-spec hardware like smartphones similar levels of security to more robust systems.
Light node: A node that has enough data to validate the chain but lacks the block’s complete state data.
Liquid democracy: A government system where votes can be delegated to appointed other individuals. This is also called delegative democracy.
Liquidity: The availability of liquid assets to a company or market, or how easily it can be converted into cash. This affects an asset’s risk potential and market price. The more liquidity a market has, the lower the volatility.
Mainnet: The primary network where transactions take place on a given distributed ledger. This can be defined as either the largest or most valuable chain on a network.
Merkle proof: The process of traversing a Merkle tree from a leaf to the root, hashing each level with the previous to produce a unique hash for the structure of the tree. Providing the final hash allows other actors to determine if the data in a Merkle tree is the same as their own.
Merkle tree: A data tree where the leaves (transactions) at the end of every branch (block) are assigned a unique identifier for the branch it is on.
Merkle root: A hash of all transaction hashes in the chain.
MetaMask: A popular tool to access blockchains as a combined wallet and dapp manager.
Miner: A miner is an actor in a blockchain network that has the ability to create and submit new blocks to the chain. Typically in one that uses a Proof-of-Work consensus mechanism, as they validate transactions
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 to be ‘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. Mining can be done by a CPU, a GPU or an ASIC.
Mnemonic phrase: Random words that can be memorised and used to restore a lost wallet. More commonly referred to as a seed phrase.
MultiSig: Multi-signature wallets accessed using multiple keys, typically requiring more than one individual to operate.
Node: Any computer on the blockchain network that can validate transactions and download a complete copy of the blockchain ledger.
NFT: Non-Fungible Tokens can’t be easily exchanged with other like items. Currency such as US dollars are typically considered fungible – easily exchanged – whereas digital assets such as artwork or land are non-fungible.
Off-chain: Data held outside of the blockchain.
On-chain: Data held within the blockchain.
Opcode: Operation code is machine-level instruction for a processor to execute basic commands that aren’t considered readable by humans.
Optimistic rollup: A collection of Ethereum transactions later submitted to the blockchain, based on the assumption that transactions are valid.
Oracle: Third-party services that provide smart contracts with external information, forming a bridge between the blockchain and the real world.
P2P: Peer-to-peer interactions take place between two individuals (or organisations), without a central intermediary.
Permissioned ledger: A blockchain network where the user needs permission from an individual or group to access. Their datasets are considered highly-verifiable. Also known as a private blockchain.
Permissionless ledger: Open decentralised networks available to everyone to take part in the consensus process. Also known as trustless or public blockchains.
Private currency: A token issued by an individual or organisation for use within its own network.
Private key: One half of the pair of keys identifying your funds on the blockchain, required for any transaction. Think of this alphanumeric string of data as the password to access your account. Don’t share this with anyone. The clue’s in the name – keep it private!
Proof of: A range of consensus mechanisms start with ‘Proof of…’. They work differently, but share the same objective of validating data and information stored on the blockchain.
Proof of Authority: PoA is a consensus mechanism giving a private key the authority to generate all of the blocks or validate transactions. This relies on the user sharing their identity in exchange for the right to validate blocks with any malicious actions immediately traceable back to you.
Proof of Burn: PoB is a consensus mechanism that allows miners to burn (destroy) cryptocurrency with the right to add a proportionate amount of blocks.
Proof of Capacity: PoC is a consensus mechanism where mining rights are decided based on available hard drive space for the mining devices in the network.
Proof of Stake: PoS is a consensus mechanism where users can create blocks in line with how much of the blockchain’s native cryptocurrency they hold. More tokens means more block action. DPoS – or Delegated Proof of Stake – is similar, but stakeholders can nominate block producers.
Proof of Work: PoW is a consensus mechanism where each block is hashed (mined) by a group of individuals or nodes. In essence, the probability of solving this random process is related to the actor’s processing speed and acceptance criteria and can be seen as a competition. The ‘work’ refers to the time and computational effort, which is requires more energy than other mechanisms. On chains like Bitcoin and Ethereum – the more blocks that are hashed, the greater the difficulty – requiring more time and computational power.
Protocol: A set of rules for how data is exchanged and actions are carried out on a given network.
Public blockchain: A network that is open for anyone to take part in transactions and help validate blocks.
Public key: One half of the pair of keys identifying your funds on the blockchain. This alphanumeric string of data encrypts a message into an unreadable format, made readable again by the intended recipient with the matching private key.
Relayer: Any party or entity which hosts an off-chain orderbook. Relayers help traders discover counter-parties and cryptographically move orders between them.
Rollups: Multiple transactions are combined into a single piece of data before submitting it to the Ethereum blockchain.
RPC: The Remote Procedure Call is a protocol to transfer data between endpoints. Also known as JSON-RPC.
Rug pull: A kind of scam where unscrupulous token creators build hype to attract investors, then cash out. Also known as pump and dump.
Satoshi Nakamoto: The original creator of Bitcoin in 2008. Shrouded in mystery, they could be an individual or a group.
Scalability: A network’s ability to continue operating as demand and audience grows.
SHA: The Secure Hash Algorithm is a cryptographic hashing function designed by the United States National Security Agency.
Security Token: These tokens help ensure that any transfer of ownership complies with regulations and usually represent a share of a company.
Seed phrase: These random words can be used to restore a lost wallet, by representing an easy to remember set of values. Also known as a mnemonic or secret recovery phrase, the clue’s in the name – keep it secret and never share it.
Self-executing: Able to operate without external input, this usually refers to smart contracts.
Sharding: When a network is divided, each shard retains an independent but tightly coupled state, with its own unique account balances and smart contracts.
Sidechains: A standalone blockchain linked to a main blockchain so assets can still be exchanged between the two. They can improve scaling and keep transaction speeds up by only performing essential transactions on the mainnet.
Slashing condition: When a validator’s deposit can be destroyed under a Proof of Stake (PoS) consensus mechanism.
Smart contracts: This self-executing computer code is usually used for automated transactions between a buyer and seller. The terms of the transactions are defined in advance and completed without user input.
Soft fork: A change in the blockchain that is backward compatible with older versions.
Stablecoin: A cryptocurrency linked to a stable asset such as fiat currency or a commodity such as gold. This is intended to reduce volatility as resources are measurable against a known asset. Also known as a stable token. Examples include Gemini, Tether, and USDC.
Staking: Same word with slightly different meanings dependent upon context, but the principle remains broadly to set currency aside for a given purpose. On decentralised exchanges, this usually refers to tokens that are ‘staked’ into a liquidity pool, usually for a promised rate of return in exchange. The higher the stake, the higher the Return On Investment, and more power a stakeholder has for validation.
State: The set of data relevant to applications on the chain that any network needs to track.
STO: A Security Token Offering is a type of public offering/fundraising method where security tokens are sold to investors.
Testnet: A development blockchain to test applications before they reach the mainnet.
Token: The base unit of any cryptocurrency can’t be subdivided.
Tokenomics: The research, design and use of digital currency and distribution via the blockchain. Can also refer to the way in which a blockchain-based application operates.
Tokenisation: The concept of translating business strategies, goods, or services into discrete, tradeable units that are recorded on a blockchain or other system. Physical goods can be tokenized by associating their unique identifiers with on-chain references.
TPS: The speed of a blockchain measured in transactions per second.
Transaction block: A collection of transactions gathered together so they can be hashed and added to the chain.
Transaction pool: A set of network transactions that have yet to be included in a block.
Trustless: The basis of the blockchain is that two entities entering into a transaction don’t need to know – or trust – one another because of the way the network processes data. With no central authority, anyone on the network can verify transactions, so users are empowered to proceed on a ‘trustless’ basis.
Utility token: A cryptocurrency that performs actions beyond transferring value.
UTXO: An unspent transaction output is how much digital currency is left over after a cryptocurrency transaction. This can happen based on changes in transaction fees or valuation, with the remainder being returned to the sender.
Validator: Someone that takes part in a Proof of Stake (PoS) consensus.
Validity proof: The evidence submitted during some rollups as proof that transactions are valid.
Wallet: A storage location for an owner’s coins and tokens that has a blockchain address to send and receive transactions. This file or software contains the user’s private keys and can be either hot or cold. Wallets typically enable users to also sign messages.
Web3: The next generation of the internet, created with the advent of the decentralised web and made possible by blockchain technology. Also known as Web 3.0.
ZK: Zero-Knowledge Succinct Non-interactive ARguments of Knowledge (ZK-SNARK) allow an entity to prove it has information without revealing it. Also known as Zero-Knowledge (ZK) Proof.
For more information about how the blockchain works, please see our earlier article: Blockchain 101.
All information correct at time of writing. If you are in any doubt about a transaction, please seek advice before investing.
Lead image: Photo by Icons8 Team on Unsplash.
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