Glossary.md

GLOSSARY

A

• Address: A unique identifier used to send and receive cryptocurrency. Typically represented as a string of alphanumeric characters (e.g., a Bitcoin address).
• Airdrop: A distribution of a cryptocurrency token or coin, usually for free, to numerous wallet addresses as a promotional strategy or to distribute a new token.
• AMM: Automated Market Maker, algorithm used in Decentralized Exchanges to perform trading through different mathematical formulas instead of bids and orders like in Centralized Order Books.
• ASIC (Application-Specific Integrated Circuit): A type of hardware specifically designed to perform a single task. In crypto, ASICs are specialized for mining.
• AVM: Algorand Virtual Machine, execution environment for transactions and logic processed on the Algorand Blockchain

B

• Block: A unit of data that contains transactions. Blocks are linked together to form a blockchain.
• Blockchain: A distributed ledger technology that records transactions in a secure, transparent, and immutable way, using cryptographic techniques.
• Block Explorer: A tool or website used to view and analyze details of blocks, addresses, and transactions on a specific blockchain.
• Block Reward: The incentive that miners receive for successfully solving a cryptographic puzzle and validating a block of transactions.
• Bridge: A technology that connects two separate blockchains, allowing for the transfer of tokens or data between them.
• Burn: permanently removing tokens from circulation

C

• Consensus Mechanism: The algorithm used by a blockchain network to agree on the validity of transactions. Common types include Proof of Work (PoW) and Proof of Stake (PoS).
• Cryptography: The practice of secure communication through encoding information. In blockchain, cryptographic techniques secure data and control the creation of new units of cryptocurrency.
• Custodial Wallet: A type of wallet where a third party holds and manages the private keys on behalf of the user.

D

• DAO (Decentralized Autonomous Organization): An organization represented by rules encoded as a computer program that is transparent and controlled by shareholders or token holders, rather than a central authority.
• dApp (Decentralized Application): An application that operates on a blockchain or peer-to-peer network, without a central authority.
• Decentralization: The distribution of authority, information, or infrastructure across a network, rather than being concentrated in one central entity.
• DeFi (Decentralized Finance): A movement that leverages blockchain technology to recreate and improve traditional financial systems (e.g., lending, borrowing) without intermediaries like banks.
• DEX: Decentralized Exchange, a kind of DeFi protocol for trading.
• Double Spend: A flaw in digital currencies where the same cryptocurrency is spent more than once. Blockchain technology aims to prevent this through consensus mechanisms.

E

• Encryption: The process of encoding information so that only authorized parties can read it.
• ERC-20: A technical standard for smart contracts on the Ethereum blockchain. ERC-20 tokens are fungible and follow specific rules.
• ERC-721: A technical standard for non-fungible tokens (NFTs) on the Ethereum blockchain, used to create unique or distinct digital assets.
• EVM: Ethereum Virtual Machine, execution environment for transactions and logic processed on the Ethereum Blockchain

F

• FIAT: traditional government-issued currency
• Fork: A change in the blockchain protocol. A "hard fork" creates a new chain that is not compatible with the old one, while a "soft fork" is backward-compatible.
• Full Node: A participant in the blockchain network that keeps a full copy of the blockchain's history and validates transactions.

G

• Gas: A unit that measures the computational effort required to execute operations on the Ethereum network. Users pay gas fees to miners for processing their transactions.
• Genesis Block: The first block in a blockchain, from which all subsequent blocks follow.

H

• Hash: A function that takes an input and generates a fixed-length output (a hash). In blockchain, hashes are used to secure transaction data.
• Hash Rate: The number of hashes (cryptographic computations) a miner can process per second. It is often used to measure the performance and security of a Proof-of-Work blockchain.

I

• ICO (Initial Coin Offering): A fundraising mechanism where new cryptocurrency projects sell tokens to investors, similar to an IPO in the stock market.
• Interoperability: The ability of different blockchain networks to communicate and share information with each other.

L

• Layer 1: The base protocol of a blockchain (like Bitcoin or Ethereum), responsible for security, consensus, and transaction processing.
• Layer 2: A secondary framework built on top of a Layer 1 blockchain to increase efficiency and scalability, often through off-chain solutions like payment channels.
• Ledger: A record-keeping system for transactions. In blockchain, the ledger is distributed and immutable.
• Liquidity: The ease with which an asset can be converted into cash or another asset without affecting its price. In DeFi, liquidity pools are often used to ensure sufficient liquidity.

M

• Mempool: waiting data structure where transactions are stored before being included in a block for consensus.
• Merkle Tree: A data structure used in blockchain to efficiently and securely verify the integrity of large sets of data by storing them in a hierarchical, hash-based structure.
• Mining: The process of validating blockchain transactions and adding them to the blockchain by solving cryptographic puzzles (typically in Proof of Work systems).
• Multi-Signature (Multisig): A type of digital signature that requires multiple keys (usually from different parties) to authorize a transaction.

N

• Node: A computer or device that participates in the blockchain network by validating transactions and maintaining a copy of the blockchain.
• Nonce: A number used once in cryptographic communications, commonly in mining, where miners adjust the nonce to find a valid hash for the next block.
• NFT (Non-Fungible Token): A type of cryptographic token that represents a unique asset. NFTs are not interchangeable and often represent digital art, collectibles, or virtual real estate.

O

• Oracles: Third-party services that provide external data to smart contracts, allowing them to interact with real-world events (e.g., price feeds, weather data).

P

• Peer-to-Peer (P2P): A decentralized interaction where two parties directly transact with each other without intermediaries.
• Private Key: A secret key used to access and control cryptocurrency in a wallet. It must be kept secure, as anyone with access to the private key can control the funds.
• Proof of Work (PoW): A consensus mechanism where participants (miners) solve computationally intensive puzzles to validate transactions and secure the blockchain.
• Proof of Stake (PoS): A consensus mechanism where participants (validators) validate transactions based on the number of tokens they hold (staked) in the network.
• Protocol: A set of rules that define interactions on a blockchain network, such as transaction processing and consensus mechanisms.
• Public Key: A cryptographic key that can be shared publicly and is used to receive cryptocurrency.

R

• Rollup: A Layer 2 scaling solution that processes transactions off-chain but posts the final result back to the main blockchain, reducing on-chain activity and costs.

S

• Scalability: The ability of a blockchain network to handle a growing number of transactions efficiently.
• Sharding: A method for increasing the scalability of blockchain networks by splitting the network into smaller parts (shards) that process transactions in parallel.
• Smart Contract: A self-executing contract with the terms written into code, which automatically enforces and executes when predefined conditions are met.
• Stablecoin: A type of cryptocurrency that is pegged to a stable asset like the US dollar to minimize price volatility.
• Staking: The act of participating in a Proof of Stake network by locking up cryptocurrency to help secure the network and earn rewards.

T

• Testnet: A parallel blockchain used for testing new features, applications, or updates without affecting the main blockchain (mainnet).
• Token: A digital asset that represents a certain value or utility within a blockchain network. Tokens can be fungible or non-fungible.
• TPS (Transactions Per Second): A measure of how many transactions a blockchain can process in a given second.

V

• Validator: A participant in a Proof of Stake blockchain who validates transactions and maintains the blockchain by staking tokens.
• Vault: A specialized smart contract in DeFi that locks cryptocurrency to earn yield, typically with a strategy for maximizing returns.

W

• Wallet: A software or hardware tool used to store, send, and receive cryptocurrencies. Wallets can be custodial (third-party controlled) or non-custodial (user-controlled).
• Wrapped Token: A token that represents another asset, typically from a different blockchain, enabling interoperability (e.g., Wrapped Bitcoin, or WBTC, represents Bitcoin on Ethereum).

Z

• Zero-Knowledge Proof (ZKP): A cryptographic method by which one party can prove to another party that they know a value, without conveying any information about the value itself.