Cryptocurrency Terminology
Your guide to understanding the language of blockchain and cryptocurrency
The world of cryptocurrency and blockchain can seem filled with complex jargon and technical terms. Our comprehensive glossary is designed to help newcomers and experienced users alike navigate this evolving landscape with confidence.
A
Address
A unique identifier that serves as a virtual location where cryptocurrency can be sent to and from. Similar to a bank account number but for cryptocurrency transactions.
Altcoin
Any cryptocurrency other than Bitcoin. The term is an abbreviation of "alternative coin" and encompasses thousands of cryptocurrencies created after Bitcoin.
ASIC (Application-Specific Integrated Circuit)
Specialized hardware designed specifically for mining cryptocurrencies. ASICs are much more efficient at mining than general-purpose computers.
Airdrop
A distribution of a cryptocurrency token or coin, usually for free, to numerous wallet addresses. Airdrops are primarily implemented as a way of gaining attention and new followers, resulting in a larger user-base and a wider disbursement of coins.
B
Bitcoin (BTC)
The first and most well-known cryptocurrency, created by an anonymous person or group known as Satoshi Nakamoto in 2009. Bitcoin operates on a decentralized peer-to-peer network without the need for intermediaries.
Blockchain
A distributed digital ledger that records transactions across many computers in a way that ensures security, transparency, and immutability. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
Block
A collection of transaction data in a blockchain. Each block contains a reference to the previous block, creating a chain of blocks (hence, blockchain). Blocks are added to the blockchain through a process called mining.
Block Height
The number of blocks connected in the blockchain before a given block. For example, a block with height 500 means there are 500 blocks between it and the first block (genesis block).
Block Reward
The cryptocurrency awarded to a miner when they successfully add a new block to the blockchain. For Bitcoin, this reward is halved approximately every four years in an event known as "halving."
C
Consensus Mechanism
The process by which a network of nodes reaches agreement on the state of a blockchain. Common consensus mechanisms include Proof of Work (PoW) and Proof of Stake (PoS).
Cold Wallet
A cryptocurrency wallet that is not connected to the internet, making it less vulnerable to hacking. Examples include hardware wallets and paper wallets.
Cryptocurrency
A digital or virtual currency that uses cryptography for security and operates on a blockchain. Cryptocurrencies are typically decentralized and not controlled by any central authority such as a government or bank.
Cryptography
The practice and study of techniques for secure communication in the presence of third parties. In the context of cryptocurrency, cryptography is used to secure transactions and control the creation of new units.
D
DAO (Decentralized Autonomous Organization)
An organization represented by rules encoded as a computer program that is transparent, controlled by the organization members rather than a central authority. DAOs operate using smart contracts on a blockchain.
DApp (Decentralized Application)
An application that runs on a decentralized network, avoiding any single point of control or failure. DApps typically have their backend code running on a decentralized peer-to-peer network rather than a centralized server.
DeFi (Decentralized Finance)
A movement that aims to create an open-source, permissionless, and transparent financial service ecosystem that is available to everyone and operates without any central authority. Users maintain full control over their assets and interact with this ecosystem through peer-to-peer (P2P), decentralized applications (dapps).
Double Spending
A potential flaw in a digital cash scheme in which the same single digital token can be spent more than once. This is possible because a digital token consists of a digital file that can be duplicated or falsified. Blockchain technology solves this problem.
E
Ethereum (ETH)
A decentralized, open-source blockchain featuring smart contract functionality. Ether is the native cryptocurrency of the platform. It is the second-largest cryptocurrency by market capitalization after Bitcoin.
ERC-20
A technical standard used for smart contracts on the Ethereum blockchain for implementing tokens. ERC-20 defines a common list of rules that an Ethereum token has to implement.
Exchange
A platform where users can buy, sell, or trade cryptocurrencies for other digital currencies or traditional fiat money like US dollars or Euros.
F
Fiat Currency
Government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. Examples include the US Dollar, Euro, and Japanese Yen.
Fork
A change to the software of a cryptocurrency that creates two separate versions of the blockchain with a shared history. Forks can be either soft (backward-compatible) or hard (not backward-compatible).
Fungible
A property of an asset or good where individual units are essentially interchangeable and each of its parts is indistinguishable from another part. Bitcoin is fungible because each unit is equivalent to any other unit.
G
Gas
A unit that measures the amount of computational effort required to execute specific operations on the Ethereum network. Gas fees are paid in Ether and are used to allocate resources of the Ethereum Virtual Machine (EVM).
Genesis Block
The first block of a blockchain. Modern versions of Bitcoin number it as block 0, though very early versions counted it as block 1. The genesis block is almost always hardcoded into the software.
H
Halving
A feature in Bitcoin's protocol where the reward for mining new blocks is cut in half after a certain number of blocks have been mined. This happens approximately every four years and is designed to control inflation.
Hash
A function that converts an input of arbitrary length into an encrypted output of a fixed length. Hashing is used in blockchain to maintain the structure of blocks and ensure their integrity.
Hash Rate
The speed at which a computer or mining hardware is completing an operation in the cryptocurrency's code. A higher hash rate means more computing power is being used to mine a cryptocurrency.
Hot Wallet
A cryptocurrency wallet that is connected to the internet, allowing for quick transactions but with potentially higher security risks compared to cold wallets.
I
ICO (Initial Coin Offering)
A fundraising method used by cryptocurrency projects where new tokens are sold to investors in exchange for established cryptocurrencies like Bitcoin or Ethereum. Similar to an Initial Public Offering (IPO) in traditional finance.
Immutability
A property of blockchain technology where data, once written to the blockchain, cannot be altered or deleted without consensus from the network. This ensures transparency and trust in the system.
L
Ledger
A record-keeping system for tracking financial transactions. In the context of cryptocurrency, a distributed ledger is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions.
Lightning Network
A "layer 2" payment protocol that operates on top of a blockchain (like Bitcoin). It enables fast transactions between participating nodes and has been proposed as a solution to the bitcoin scalability problem.
Liquidity
The degree to which a cryptocurrency can be quickly bought or sold without affecting its price. High liquidity means there are many buyers and sellers in the market.
M
Market Capitalization
The total value of a cryptocurrency, calculated by multiplying the current price by the total supply of coins or tokens in circulation.
Mining
The process by which transactions are verified and added to a blockchain. This process involves solving complex mathematical problems using computer hardware. Successful miners are rewarded with new cryptocurrency and transaction fees.
Multisignature (Multisig)
A security feature that requires more than one key to authorize a cryptocurrency transaction. It's often used by exchanges, wallets, and other services to prevent unauthorized access and enhance security.
N
Node
Any computer that connects to a blockchain network. Nodes support the network through validation and relaying of transactions, and they also receive a copy of the blockchain that is updated as new blocks are confirmed.
NFT (Non-Fungible Token)
A type of cryptographic token that represents a unique asset. NFTs are tokenized versions of digital or real-world assets that are not interchangeable with each other due to their unique properties.
O
Oracle
A service that provides external data to a blockchain or smart contract. Oracles act as bridges between blockchains and the outside world, allowing smart contracts to execute based on real-world information.
Open Source
Software whose source code is freely available for anyone to view, modify, and distribute. Many cryptocurrencies and blockchain projects are open-source, promoting transparency and community involvement.
P
Peer-to-Peer (P2P)
A decentralized network where participants can transact directly with each other without the need for intermediaries. Bitcoin and many other cryptocurrencies operate on P2P networks.
Private Key
A secret alphanumeric code that allows a user to access their cryptocurrency. It is used to sign transactions and should be kept secure, as anyone with access to a private key can control the associated cryptocurrency.
Proof of Stake (PoS)
A consensus mechanism in which the creator of the next block is chosen via various combinations of random selection and wealth (stake) in the cryptocurrency. Unlike Proof of Work, it does not require solving complex mathematical problems and is more energy-efficient.
Proof of Work (PoW)
A consensus mechanism that requires miners to solve complex mathematical problems to validate transactions and create new blocks. This process requires significant computational power and energy. Bitcoin uses PoW.
Public Key
A cryptographic code that enables a user to receive cryptocurrency into their account. The public key is derived from the private key but is mathematically impossible to reverse engineer back into the private key.
R
Ripple (XRP)
A real-time gross settlement system, currency exchange, and remittance network created by Ripple Labs Inc. XRP is the native cryptocurrency of the Ripple network.
S
Satoshi Nakamoto
The pseudonymous person or group who created Bitcoin and authored the Bitcoin whitepaper. The true identity of Satoshi Nakamoto remains unknown.
Satoshi
The smallest unit of Bitcoin, equal to 0.00000001 BTC. Named after Bitcoin's creator, Satoshi Nakamoto.
Smart Contract
A self-executing contract with the terms directly written into code. Smart contracts automatically execute when predetermined conditions are met, operating on blockchain technology to ensure transparency and irreversibility.
Stablecoin
A type of cryptocurrency designed to minimize price volatility, often by pegging its value to a stable asset like the US dollar. Examples include Tether (USDT) and USD Coin (USDC).
T
Token
A digital asset issued by a project, often built on an existing blockchain. Tokens can represent various assets or utilities within a blockchain ecosystem.
Transaction Fee
A fee paid to miners or validators to process and include a transaction in a block. Higher fees typically result in faster transaction processing during periods of network congestion.
V
Validator
In a Proof of Stake system, validators are participants who lock up (stake) their cryptocurrency to secure the network and validate transactions. They replace miners in traditional Proof of Work systems.
Volatility
A measure of how much the price of an asset fluctuates over time. Cryptocurrencies are often characterized by high volatility, with prices potentially experiencing significant swings in short periods.
W
Wallet
A digital tool that stores the keys needed to send, receive, and monitor cryptocurrency ownership. Wallets can be hardware devices, desktop programs, mobile apps, or services offered by cryptocurrency exchanges.
Whitepaper
A document issued by a project that explains its technology, purpose, and roadmap. In the cryptocurrency space, whitepapers often serve as the primary reference for a project's technical specifications and vision.
Z
Zero-Knowledge Proof
A cryptographic method by which one party can prove to another party that they know a value, without conveying any information apart from the fact that they know the value. This technology is used in privacy-focused cryptocurrencies like Zcash.