There are some things you could know about cryptocurrency and some things you should know. Whether you’re new to cryptocurrencies or just want a refresher, here are 40 cryptocurrency terms you must have in your vocabulary if you want to survive web3.
Cryptocurrency Terms You Need to Know: Expand Your Blockchain-Related Vocabulary
Cryptocurrency coins are identified on the blockchain by unique addresses. You can think about the blockchain as a GPS and your cryptocurrency address as its targeted mailing address. Without an address, no coin is stored; the blockchain can’t confirm nor verify its existence. So, without a proper wallet address, you can’t own a coin.
Every time a transaction is confirmed, the value of your wallet is updated based on your address. Addresses may appear in different formats depending on the currency, but most look something like this: 17VZNX1SN5NtKa8UQFxwQbFeFc3iqRYhem (this is a fictional address, I respect your intelligence… but please do not send crypto here or use this address for any other purpose).
If you are confused by all this, the answer is yes, you shouldn’t have Cash apped hot dog stand guy to send you Bitcoin.
Altcoins = any crypto coins not named Bitcoin. Okay, don’t know much about Bitcoin? Here’s a good Bitcoin intro and refresher.
Anyway, since Bitcoin launched in 2011, thousands of altcoins have emerged. Some coins disrupt markets and shape industry trends, while some coins are hot garbage ridden with financial crime. Most of the popular altcoins serve some real-world function. Sorry, Dogecoin.
If you want to check out some other altcoins, here are some altcoins to look out for.
‘Blockchain’ is one of those buzzwords. I still don’t think half the people who use it really understand what it is. Back in 2016 when I first learned about cryptocurrency, I associated the word blockchain with some strange blackhat Russian operation. Don’t ask.
A blockchain is a digital ledger composed of all the transactions ever made in a particular cryptocurrency. These transactions are made up of ‘blocks’. When a block reaches its capacity, a new block is created and so forth. Some blockchains have a limited number of blocks by design, whereas others have an infinite market cap.
A blockchain like Bitcoin is completely public, so everyone can see every transaction. It’s funny because most folks associate Bitcoin with the early days, where it was a breeding ground for illicit drugs and firearm deals. But the more Bitcoin goes mainstream, the easier it will be to trace a transaction to a particular individual. Especially on centralized trading platforms that use KYC measures.
A blockchain like Monero, however, is completely private. It is impossible to link a transaction to any address. That is one of its core features, and attracts users interested in making completely anonymous transactions.
On a blockchain, there is no central location where the ledger is stored. Rather, it is copied repeatedly on different computers and servers around the world. Thus, it is considered to be decentralized.
4. Decentralized apps (dApps)
Speaking of decentralized, you should probably know about dApps. These are open-source applications built on a blockchain intended for real-world use. Ethereum is considered the mother of dApps. Ethereum was founded on the idea of enabling developers to create new applications on top of their blockchain.
There is no one-size-fits-all definition for dApps. But as BlockGeeks puts it, all dApps have a few things in common: they are open-source, decentralized, incentivized (validators need to be rewarded with cryptographic tokens) and have a protocol (the community agrees on a cryptographic algorithm that can be widely adopted).
Some ETH-based dApps are now worth millions in market cap, and in theory, a dApp can become as valuable as any other company or product.
5. Decentralized finance (DeFi)
DeFi is a blanket term for decentralized alternatives to traditional (centralized) finance. DeFi includes banking, money management, payment processing, insurance, etc. DeFi products and services enable democratized access to a historically exclusive industry.
Start paying attention, and you’ll see this term thrown around on Twitter. You should probably know what it stands for.
6. Digital Currency
Digital currency… so like cryptocurrency, right? Not exactly.
A digital currency can be linked to fiat currency too. In fact, most major nations have a digital currency tied to their fiat right now, including the US and China.
A digital currency depends on trust—you rely on multiple institutions to carry out a transaction. Crypto, on the other hand, is trustless, you can verify transactions and records of the address you are transacting with in real-time.
In other words, you can’t see the transaction history of your counterparty and third party payment processor when you go to sell a pair of shoes on StockX. You trust Paypal (and your bank) to safely and securely carry out that transaction.
7. Distributed Ledger Technology (DLT)
We touched on the concept behind public ledgers—that place you go to view all transactions made on a blockchain. DLT refers to a distributed ledger, another term for blockchain technology. When you see DLT, think blockchain. Take note of that.
Fiat currency is 1) government-backed and 2) not backed by any commodity (like gold). Those green US dollars in your wallet? That’s fiat currency. The value of US dollars rely solely on our collective faith in the institution of the United States government. If the US crumbles, so does your fiat.
When you make a transaction on the blockchain, you have to pay a fee. That fee is called a gas price. You are basically paying a miner to go out and receive crypto for you. You can choose to pay higher fees for faster transaction speeds, or lower fees for slower transaction fees.
Gas prices are one of the biggest challenges facing cryptocurrency markets. If we find a better way to drive down energy costs for transactions, crypto will become more ubiquitous.
10. Initial Coin Offering
Comparable to the traditional Initial Public Offering (IPO), an ICO is a new method for projects and startups to secure funding. Pretty much anyone can participate in an ICO. More importantly, it’s about finding the right fit for investors and founders, according to Jonathan Chester, Founder & President of ICO consulting firm Inwage.
11. Know Your Customer (KYC)
KYC is a compliance term. It will probably come up if you take a more mainstream approach to purchasing crypto. Major platforms like eToro and Coinbase require KYC as part of their onboarding process. KYC refers to “knowing your customer”. Regulators require identity background checks for new banking clients as a means to deter money laundering and terrorist funding. The financial regulation of crypto is here to stay, so expect to see that acronym more and more as governments scramble to tie blockchain transactions to citizens.
Mining is the process of verifying new transactions on a blockchain. When someone donates computer power to a miner to complete an encryption challenge, that donor is then awarded crypto.
13. Non-fungible tokens (NFTs)
If you’ve been following ONE37PM at all these past two months, you’ve probably heard about NFTS. Non-fungible tokens enable virtual transactions between collectibles like art, music and trading cards using smart contracts. For more info, check out this comprehensive guide on NFTs.
14. Private Key
This is the super-important string of numbers and letters you should not share with anyone. If someone is able to access your private key, you can lose your funds in a matter of seconds. This key is necessary to verify transactions when selling or withdrawing your crypto.
The following terms are a little technical but important for folks who want to understand how different blockchains function.
15. Proof of Authority (PoA)
In a blockchain operated under Proof of Authority (PoA), a few specific nodes are granted the right (or authority) to approve a miner’s ability to create a block. This is a faster alternative to the proof-of-work model, but more centralized.
16. Proof of Work (PoW)
Proof of Work is a more traditional method to award miners for their effort. It requires miners to show their effort by tying a variable to the process of hashing a transaction. A hashed block proves work was completed and awards the miner. This takes up a lot of energy.
17. Proof of Stake (PoS)
Proof of Stake allows a person to validate or mine cryptocurrency based on the number of coins he or she owns. Under this model, the idea is that a miner will be less likely to attack a network if they have a stake in the game.
18. Public Key
A public key is a string of characters used to purchase cryptocurrency. If a content creator, for example, wants to receive cryptocurrency instead of fiat for his or her content, they can list their public key. Fans can easily send cryptocurrency using the content creator’s public key.
19. Public Ledger
Each blockchain has its own ledger. Here’s a link to Bitcoin’s public ledger. This is the place where you can view every transaction ever made on a blockchain, given that it’s public. Some coins distinguish themselves by operating on an anonymous or private ledger.
20. Satoshi Nakamoto
Satoshi Nakamoto is the individual, or group of individuals, credited with founding the world’s first cryptocurrency, Bitcoin. The founder of Bitcoin remains completely anonymous.
If you see the term ‘satoshis’ thrown around, that refers to a fractional unit of Bitcoin. You can transact with satoshis. I once heard some lady on CNBC who was bearish on Bitcoin because “the average consumer doesn’t want to make a purchase with 0.0003 of something”. She clearly does not understand how Bitcoin works. Facepalm.
The seed is the foundation of your wallet’s digital existence. A recovery seed is a series of twelve, sometimes sixteen words that can be used to access your wallet if something goes wrong and you lose it.
Your recovery seed is the equivalent of asking twelve security questions for a forgotten password. But compromising these security phrases will cost you a lotta dough, a lot more than losing a Facebook account. Once your wallet is compromised, your funds are gone forever. Please don’t share this with anyone unless you enjoy losing money.
22. Segregated Witness (SEGWIT)
Another tech term, SEGWIT refers to the process that separates digital signature data from transaction data. This allows more transactions to fit on one block, increasing the speed of transactions. Put simply, it’s a good value-add for blockchains.
23. Smart Contracts
A core feature of the Ethereum blockchain and NFTs, smart contracts are just your typical boring legal contracts… only they're written in computer code.
Smart contracts hold multiple parties accountable for something, just like a normal legal contract, but it instructs each party through code rather than spoken language. Both parties can see and approve of the programming before accepting a contract’s terms, making it completely transparent.
Seems simple enough. I know what a wallet is. But a digital wallet can be a little bit trickier to understand.
A crypto wallet is the place where your coins are stored. Your wallet must contain seeds, keys, and addresses to function properly. There are several types of wallets, such as hardware and software. If you use a mobile app to store your crypto, that is an example of a software wallet. I personally use a hardware wallet to store my crypto.
Hardware wallets require a bit more knowledge but provide more protection for users than software wallets. Why? Well, if someone hacked into Coinbase (they have loopholes), then I can lose all of my crypto. Unless the recovery seed physically stored in my house is somehow compromised by strangers, it is virtually impossible for someone to hack into my hardware wallet.
A whale is the term used for the most valuable Bitcoin addresses. There are about 2000 Bitcoin whale addresses, and only three own more than 100,000 BTC, according to BitcoinPlay.
When you think of Bitcoin whales, think of folks like Tim Draper, Barry Silbert and the Winklevoss twins. These folks have been advocating for Bitcoin since the early 2010s.
There you have it, 25 cryptocurrency terms you need to know. Over the coming weeks/months, we will build on this list and add new terms.
26. Centralized Finance (CeFi)
Centralized finance is a system where financial institutions are centrally controlled by a government or a small group of private individuals. This system is in contrast to a decentralized finance system, where financial institutions are decentralized and controlled by the market.
Remember the Voyager and Celsius bankruptcy fiasco from earlier this year? Well maybe you don’t. But both companies are perfect examples of a “cefi” or “centralized” financial system. On centralized exchanges like Celsius, the company has custody over your crypto assets.
In Twitter terms, “not your keys, not your crypto”, meaning if you don’t have access to your private keys, you don’t have full control or ownership over your crypto tokens.
27. Decentralized Autonomous Organization (DAO)
A DAO is an organization that is run by code, not by people. DAOs are transparent, borderless, and decentralized. They are powered by smart contracts via blockchain and can be used to fundraise, manage projects, and vote.
Here are some examples of popular DAOs (or web3 projects governed by DAOs):
- LinksDAO: a global community of golf enthusiasts in web3 reimagining the modern golf and leisure club
- BanklessDAO: media and social organization onboarding one billion people to crypto.
- Uniswap: leading DeFi Protocol with over $5.5 billion in TVL.
- AAVE: an open source liquidity protocol with over $8 billion in TVL.
- Decentraland: one of the world’s largest metaverse platforms
28. Genesis Drop
A genesis drop is the first NFT or collection of NFTs released by a creator. For example, if a popular brand like Chick-fil-A (who recently filed a trademark for the metaverse) dropped NFTs for the first time, they would be dropping the Chick-fil-A genesis collection.
Immutable is a core tenant of blockchain technology – it means a blockchain ledger cannot be altered or manipulated. Immutability validates every transaction and allows a decentralized financial system to exist, otherwise two parties could never trust each other to make a safe transaction.
Hashing is a cryptographic technique used to secure data and ensure that it has not been tampered with. Hashing makes blockchains immutable.
In blockchain technology, hashing is used to secure the blocks of data that make up the blockchain. Each block is hashed using a cryptographic hash function, which generates a unique hash for the block.
If any data in the block is changed, the hash for the block will also change. This makes it easy to detect if any data in the blockchain has been tampered with, as the hash for the block will no longer match the hash stored in the blockchain.
31. Layer 2
Layer 2 is a protocol that runs on top of a blockchain. It is designed to help improve the scalability of a blockchain by allowing it to process more transactions off-chain.
No, not the blockchain conference hosted by Messari Capital. But they got their name from somewhere! The mainnet is an original blockchain, as opposed to a testnet (sandbox environment) or other parallel chain. A mainnet coin is one that is running on its main blockchain.
Tired of hearing about this one maybe? The metaverse is both one of the most simple and complicated terms on this list, because it is used so differently across the crypto and web3 spectrum.
There is no single answer to this question as the metaverse is still largely undefined and is still being developed. In general, the metaverse can be thought of as a virtual world that is created by the collective interactions of its users.
It is a place where people can meet, interact, and create their own experiences. The metaverse is also often seen as a way to extend the physical world into the digital world, and vice versa.
In blockchain technology, "on chain" refers to transactions that are recorded on the blockchain. These transactions are visible to everyone on the network and can be verified using the blockchain.
If I send ETH from my wallet to your wallet, that transaction would be considered on-chain.
35. Proof of Attendance Protocol (POAP)
The proof of attendance protocol (POAP) is a protocol that creates digital badges or collectibles that proves someone has attended a meeting or event. These badges are NFTs that allow event organizers to engage with their attendees in a totally new way. POAP is a community run DAO, and you must submit an application to drop a POAP dispenser machine at an event.
A popular use case of POAP? World of Women and The Fabricant issued POAP collectibles at their digital fashion event in Decentraland by placing a POAP machine in their building.
A stablecoin is a cryptocurrency that is pegged to a stable asset, like the US dollar. The stablecoin is designed to maintain a stable value, unlike other cryptocurrencies that can fluctuate in value.
Stablecoins can also be algo-based, whereas traditional stablecoins are collateralized by stable assets. TerraUSD (UST) is an example of an algorithmic stablecoin. Obviously, that situation didn’t turn out well. But not all algo-stables carry the same risk tolerance.Frax Finance is a stablecoin that is partially backed by collateral and partially stablized algorithmically, and it has proven to be pretty sturdy through tough market conditions. NFA, DYOR.
Tokenomics is the economic model associated with a cryptocurrency token. It is generally used to describe the interaction between the supply and demand of the token, as well as how the token can be used to incentivize certain behavior.
Here is an example of a tokenomics chart from Ethereum Name Service (ENS):
Ah, the all-encompassing term for everything being covered on this list. What is web3? Hm. Well, we had the first generation of the internet, where all you could do was read information as an end-user. Then we morphed into the second wave of the internet where we could read and write our own content, like blog posts and Tweets.
Now, the internet is entering its third evolution, where end-users can own their content and creations. That evolution is called Web3. We aren’t there yet – the average Internet user is still heavily reliant on third-parties to complete everyday computer tasks.
But millions of people believe one day, with the advent of web3, all humans on digital platforms will be able to retain full control and autonomy over their data. And that’s pretty neat if you ask me.
In crypto land, a whitelist is a list of approved participants for a particular ICO or NFT mint. Participants are linked to their wallet address, so you if you want to be whitelisted for an upcoming drop, you must submit or share your wallet address for the blockchain the issuer or creator is using.
When an NFT project has a “premint”, that usually means they are only allowing sales to whitelisted addresses for a given time period. “Public mints” are available to anyone with a relevant wallet address, as long as you get there in time and can afford the gas fee!
40. Zero Knowledge
You will hear a lot more about this technology in the coming years.
Zero knowledge is a type of cryptography that allows one party to prove to another party that they know a piece of information without revealing what that information is.
Imagine if you could prove your date of birth to the liquor store clerk without revealing your date of birth. Or confirmation of your medical data for one important piece of information, without revealing your entire medical history.
These are just two of the endless use cases for this type of technology, and is one of the most exciting playgrounds in crypto and the broader web3 ecosystem right now.