Glossary of terms
Glossary of Blockchain Terms
3 pages summary of most important terms in blockchain
also see details below.
Altcoin – any cryptocurrency other than Bitcoin.
ASIC – Application-Specific Integrated Circuit. An ASIC is a powerful and expensive computing device used for mining cryptocurrency (see ‘mining’).
Bitcoin – the original, largest and best-known cryptocurrency.
Buy the dip – the notion of buying cryptocurrencies when prices have fallen in order to reap the benefits when they rise again.
Blockchain – the underlying technology on which cryptocurrencies operate. A blockchain is essentially a complete ledger of transactions held simultaneously by several people on a computer network. Read more about blockchain here.
Coin – a colloquial term for a cryptocurrency. See also: altcoin, memecoin.
Cold wallet – a physical storage device such as a flash drive, hard drive or solid state drive used to store cryptocurrency offline.
Cryptocurrency – a digital form of money that can be traded for goods, services or other currencies. Records of cryptocurrency transactions are validated and maintained on a decentralised ledger by ordinary people using a computer technology called cryptography, rather than by a centralised authority such as a bank.
Cryptography – a computer science method of keeping information secret and secure by scrambling it into indecipherable information. The information can only be decrypted and read with the necessary key.
dApp – a decentralised application (dApp) is one that isn’t controlled by a central authority. Twitter is an example of a centralised app, with users relying on it as an intermediary to send and receive messages. As such, users play by the rules it enforces and the algorithm it uses to control content.
A dApp is distributed on a blockchain, with users able to send and receive data directly without the need for an intermediary. Peepeth is a Twitter-like dApp. It claims that as an app it doesn’t optimise for advertising revenues, an issue it says users of centralised apps suffer from.
Defi – short for decentralised finance. Finance is traditionally centralised because it relies on intermediaries. For example, if you want to send money to a friend or relative, you rely on your bank to send it to the recipient’s bank. Defi requires no intermediaries, with participants able to send and receive assets directly. In theory, this makes transactions faster and cheaper.
DAO – decentralised autonomous organisation. A DAO is a group of people who work together towards a shared goal and abide by rules written into the project’s self-executing computer code. Bitcoin (the project, not the currency) is an example of a DAO.
Distributed ledger – in traditional finance, an organisation such as a bank holds a ledger of all its customers’ transactions. In defi, the ledger is shared and synchronised among users in different locations around the world. A blockchain is an example of a distributed ledger.
Double spend – If you handed a shopkeeper £5 for a sandwich, you would no longer own the £5 and couldn’t spend it again, and sophisticated anti-counterfeit measures prevent people from making copies of physical currency. Even with digital transactions, central authorities such as banks can secure and check their ledgers to verify the legitimacy of a payment.
However, digital information can be copied. In theory, a single Bitcoin could be copied 100 times and spent 100 times. A distributed ledger such as blockchain prevents this.
When you send a Bitcoin to someone, you destroy your version of it and create a new version for the recipient. Both destruction and creation are recorded on everyone’s copy of the ledger, preventing you from claiming you still own the spent coin and trying to spend it again.
Exchange – A website or app that allows users to buy and sell crypto assets.
Ethereum–The second biggest cryptocurrency by market capitalisation, after Bitcoin. (See market capitalisation.)
Encryption – The process of making digital information into a form that prevents unauthorised access. If you use a password to access a website, the site should be encrypting it so that it is of no use to hackers if stolen.
Fiat – refers to traditional, state-backed currencies like Sterling, euro and US Dollar.
Fork – a fork occurs when a community makes a change to its blockchain’s governing protocols. The change marks a forking-off from the previous iteration of the blockchain in a new direction.
Soft forks involve iterative changes to the blockchain’s rules that can be considered as an update only. Hard forks are when changes are so significant that the new version is incompatible with the old version and stands apart from it.
Gas – Transactions on the Ethereum network carry a fee. For every transaction, users must pay an amount of the native Ethereum currency ether (ETH). This fee is referred to as gas. Gas is used to reward Ethereum ‘miners’ (see ‘mining’) for the energy they use validating transactions. Gas also serves as a deterrent against malicious users.
Graphics card – Verifying a transaction on a blockchain involves solving a cryptographic problem. Solving these problems requires significant computing power, which in turn uses significant amounts of energy. High-end graphics cards used in PC gaming have the kinds of processing power needed to validate transactions.
Hash – A hash is the result of a piece of data being put through a special algorithm. A hashing algorithm essentially compresses data of any size down into an almost-unique alphanumeric string of text.
For example, a hash of the word ‘Forbes’ using SHA-256 (more on that later) reads: ADD913C2C3CF3F4A0628B58B505BC09C6C3797F2EE7DEE86AD9F701A191E6E93. The lyrics to Tom Jones’ 1965 hit ‘It’s Not Unusual’ are expressed as: 8E58EFDE840DF7CEC1872DE2B48222F2C3844646E0EAE4F4E6DD6CC7FE183E50.
Change just one letter in the word Forbes, or one word in the song’s lyrics and you’ll get a different hash. This can be useful for identifying when some data has been changed.
This is important in crypto because a blockchain is an immutable record of transactions. Cryptographic hashing will flag attempts to change something, even when there are huge amounts of data.
If someone tried to alter a transaction in a block on the blockchain, they’d have to alter every consecutive transaction too, since each transaction refers to its predecessors. This makes cheating practically impossible.
Different cryptocurrencies use different hashing algorithms.
HODL –This meme became the rallying cry of crypto holders who wanted to encourage others to keep the faith as prices fell. It stems from a misspelling made by a Bitcoin forum user in 2013, in which they declared: “I AM HODLING”. The term has been retrospectively turned into the acronym Holding On for Dear Life.
Hot wallet – Online storage for cryptocurrencies, provided either by an exchange or a third party. Since storage is online and accessed with passwords, hot wallets are a target for hackers. However, hot wallet operators can help users regain access to their assets if they lose their access codes.
ICO – an Initial Coin Offering (ICO) is the cryptocurrency equivalent of an Initial Public Offering (IPO). It offers investors the opportunity to back a new crypto project.
imPULSE - An imPULSE is a sudden, often strong desire or inclination to do something. imPULSEs are typically brief and may be difficult to resist. They can be triggered by various factors, such as emotions, external stimuli, or unconscious motivations.
imPULSEs can be positive or negative, depending on their consequences. Positive imPULSEs may lead to actions that are helpful or beneficial, while negative imPULSEs may lead to actions that are harmful or risky. It is important for individuals to be aware of their imPULSEs and to consider the potential consequences before acting on them.
While imPULSEs can sometimes lead to spontaneous and enjoyable experiences, they can also lead to problems if they are not properly managed. Impulsive behavior can lead to poor decision-making, financial problems, and even harm to oneself or others. It is important for individuals to learn how to manage their imPULSEs and make informed, thoughtful decisions. This may involve developing self-control and discipline, seeking support from friends or loved ones, or seeking help from a mental health professional if necessary.
Jager – the smallest denomination of the Binance cryptocurrency.
Know Your Customer (KYC) – exchanges are obliged to carry out certain identity checks on their customers under ‘Know Your Customer’ rules.
Ledger – a record of transactions, including times, dates, senders and recipients.
Market Capitalisation/Cap – the total value of a cryptocurrency. At the time of writing, all cryptocurrencies combined had a market cap of $1.3 trillion.
Mining – crypto mining is the process of verifying cryptocurrency transactions using computer hardware. Bitcoin miners are volunteers motivated by the chance to earn an amount of newly minted Bitcoin. In doing so, they collectively validate transactions on the blockchain and prevent double spending.
Mining involves guessing (as closely as possible) a 64-character hash, of which there are trillions of possible combinations. The more computing power you have, the more guesses you can make within each ten-minute timeframe and the greater your chances of earning new Bitcoin.
Mining requires graphics cards or ASICs. The amount of computing power necessary to mine crypto increases over time, and is now so immense that it’s no longer practical for home PC users. Instead, mining is now the preserve of companies dedicated to it.
Memecoin – An altcoin based on a meme, which is a kind of inside joke in the form of an image that’s repeatedly altered and shared online. Dogecoin is a memecoin based on this meme.
Node – A computer or device connected to other computers or devices that all hold a copy of a blockchain. Each node supports the network of nodes by sharing information and validating transactions.
NFT – A Non-Fungible Token is a digital collectible that uses the same underlying technology as cryptocurrencies. Read our guide to Non-Fungible Tokens.
On-chain – a transaction that is recorded on a blockchain.
On-ledger currency – a token that is both minted by and used on a blockchain, such as Bitcoin.
Orphan block – a block that has been solved but not accepted by the network and isn’t added to the blockchain.
P2P – Peer to peer. Refers to a transaction between two people without an intermediary or central authority involved.
Private key – A private key is essentially the password to your crypto holdings. It’s an impossibly long number that’s practically impossible to guess. You authorise a transaction by signing it with a hash of your private key that only you know. Your corresponding public key can be used by others to verify the authenticity of a transaction.
Public key – The public-facing address of your crypto wallet. To receive funds into your account, you have to share your public key. If a private key is like a password, a public key is like an email address or an account number.
Proof of work (PoW) – Proof that you’ve done the computational work to guess the 64-character hash necessary to add a block to the blockchain. Broadcasting your solution allows other nodes to quickly verify that your hash is correct and that you must have carried out the work required to get it.
Proof of stake (PoS) – Rather than proving you’ve done the computational legwork to guess the hash (see proof of work), proof of stake shows you’ve staked a certain amount of coins for a chance to become a validator. The more coins you stake, the better your chances of becoming a validator.
Should you spend your way into the position in order to deliberately approve a fraudulent transaction, you risk losing your stake – so there’s a disincentive to cheat.
PoS is better for the environment since it requires less computing power and uses less energy, but favours users who have more money to stake and makes them richer as they are more likely to reap the rewards of validation.
Quantum computing – a field of computer science that uses principles of quantum physics to process much larger data sets at much greater speeds than traditional, binary-based computing.
Regulated – a market in which players are obliged to follow certain rules of risk fines and/or the loss of their operating licenses. For example, financial services is regulated in the UK.
RWA - real world asset. Real world assets (RWA) refer to physical assets that exist in the real world, such as buildings, land, machinery, and equipment. These assets are tangible and can be seen and touched, unlike financial assets such as stocks and bonds, which are intangible. RWA can be bought, sold, and traded like financial assets, but they have different risk and return characteristics. They are typically used as collateral for loans and are considered to be a safer investment compared to financial assets because they have an intrinsic value and are not dependent on the performance of a company or the broader financial market. RWA can be owned by individuals, corporations, or governments, and they play an important role in the economy by providing the necessary infrastructure and resources for businesses to operate. The value of RWA is affected by factors such as supply and demand, economic conditions, and government policies.
Satoshi Nakamoto – The anonymous creator(s) of Bitcoin.
Satoshi – A Satoshi is to Bitcoin as a penny is to a pound.
Smart contract – A programme that executes itself on a blockchain when certain conditions are met, without the need for human intervention or an intermediary. Once executed, the contract cannot be changed or undone. For example, account 1 will release asset X to account 2 once it receives asset Y.
SHA-256 – a hashing algorithm that compresses data of any size into an alphanumeric string that cannot be reverse engineered, keeping the original data secret and secure while being useful for validating input data. It was developed in part with the US National Security Agency (NSA) and is used by Bitcoin.
Seed (phrase) – a random series of 12-24 words generated by your crypto wallet and used to gain access to it.
Stablecoin – a cryptocurrency such as Tether, whose value is tied to another currency, commodity or financial instrument.
Tether – a stablecoin pegged to the US Dollar
Terahash (per second) – the rate at which a computer or network can guess one trillion hashes per second when mining cryptocurrency.
Token – in crypto, a token is a unit of cryptocurrency other than Bitcoin or Ethereum – which are technically also tokens. Specifically, it’s a way to refer to a currency that runs on a particular blockchain. For example, XRP is a token on the Ripple blockchain.
Unregulated – Financial services in the UK are regulated, which means providers have to abide by strict rules designed to protect consumers’ interests. Crypto is unregulated in the UK, which means investors get no legal protection.
Volume – the total amount of currency traded in a 24-hour period
Validator – someone who pays for the chance to validate transactions and earn crypto on a proof of stake blockchain (see proof of stake).
Volatile – a market in which prices frequently and unpredictably rise and fall
Wallet – a digital storage device or location for keeping crypto assets secure. Wallets can be online (see hot wallet) or offline (see cold wallet).
Wei – a Wei is to Ether as a penny is to a pound.
Whitepaper – a technical document released alongside new crypto projects that explains how the system works.
X, Y, Z
XRP – XRP is a kind of cryptocurrency token that runs on the Ripple blockchain.
Yield – a return on investment, expressed as a percentage.
Zero confirmation – a transaction that has been confirmed but has yet to be recorded on a blockchain.