Twenty Important Blockchain Terms to Know
Understanding the vocabulary of blockchain and cryptocurrency is not always easy. There are many places online to look up vocabulary for cryptocurrency and blockchain enthusiasts. Here are 20 important terms to know and understand. As you understand and increase your knowledge, you will be more equipped to share the exciting things happening with blockchain and the projects curated by our blockchain community. With blockchain technology evolving at a rapid pace, learning the terms and vocabulary gives you knowledge which gives you power. Here are 20 important blockchain terms to know and understand:
Bitcoin – Bitcoin is the world’s first widely adopted cryptocurrency. With Bitcoin, people can securely and directly send each other digital money on the internet. BTC is the abbreviation.
Bitcoin Halving – the amount of bitcoin awarded to miners is reduced by half, until all 21 million Bitcoin have been virtually mined. The halving mechanism helps make Bitcoin a scarce, inflation -resistant resource. Halving makes it more likely that Bitcoin’s value will rise (assuming consistent levels of demand). This is in sharp contrast to fiat currencies, which typically decline in value over time due to inflation.
Blockchain – A blockchain is a sophisticated database that publishes and saves a transparent, immutable public ledger that confirms and validates specific actions which meet the requirements of a contract or agreement.
Cryptocurrency – Cryptocurrency is typically decentralized digital assets designed to be used over the internet. The transfer of value online can be done without the need for a middleman (a bank or a payment processor). Cryptocurrencies are usually not issued or controlled by any government or other central authority.
Cryptography – The study and practice of sending secure, encrypted messages between two or more parties. Cryptography allows digital currency transactions to be pseudonymous, secure and with no bank or other intermediary required.
DeFi – This is the abbreviation for “decentralized finance” which is a term used for financial services on public blockchains, primarily Ethereum. With DeFi, you can do most of the things that banks support such as earn interest, borrow, lend, trade, and more. But with DeFi it is faster and doesn’t require the paperwork or a third party. DeFi is global, peer-to-peer, and open to all.
Ethereum – After Bitcoin, Ethereum is the second-largest cryptocurrency in the market. It is also a decentralized computing platform that can run a wide variety of applications. Another question often asked about Ethereum is “How does Ethereum have value?” As people buy Ethereum with Bitcoin, dollars, euros, yen, and other currencies 24 hours a day, the price fluctuates day to day depending on demand. As an emergency technology, its value tends to be more volatile compared to currencies such as the US dollar.
Fiat Currency – This is a type of currency that is declared legal tender by a government but has no intrinsic or fixed value, nor is it backed by any tangible asset.
Fork – Cryptocurrencies are powered by decentralized blockchains. And a “fork” is what happens whenever a community makes a change to the blockchain’s protocol, or basic set of rules. When this happens, the chain splits, producing a second blockchain that shares all its history with the original, but is headed off in a new direction.
Hashing – Hashing refers to the process of having an input item of whatever length reflecting an output item of a fixed length. For example, a transaction in a blockchain runs through a given “hashing” algorithm, and all give an output that is of a fixed length.
Hodl -Hodl is a term used in the context of buying and holding cryptocurrencies that is derived from the misspelling of the word “hold.”
Mining – Mining is the process by which networks of specialized computers generate and release new cryptocurrencies and verify new transactions. It involves decentralized networks of computers around the world that verify and secure blockchains.
NFT – This is an abbreviation for “non-fungible token” which is a special kind of digital asset in which each token is unique (as opposed to “fungible” assets which are all worth the same amount). Because every NF is unique, they can be used to authenticate ownership of digital assets like artworks, recordings, and virtual real estate (or even pets). NFTs are sold on a specialized marketplace.
Private Key – A private key is like a password – but it is a string of letters and numbers – that allows you to access and manage your crypto funds. When you first buy cryptocurrencies, you are issued two keys: a public key (like an email that you can safely share with others to send and receive funds), and a private key, which is not to be shared with anyone that unlocks your “virtual” vault that holds your digital assets. If you, and only you, have access to your private key, your funds are safe and can be managed anywhere in the world with an internet connection.
Proof of Work – First pioneered by Bitcoin, this uses mining to achieve the goals of consensus to verify new transactions, adding them to the blockchain, and create new tokens.
Proof of Stake – Like Proof of work, Proof of Stake blockchains employ a network of validators who contribute – or stake – their own crypto in exchange for a chance of getting to validate new transactions, update the blockchain, and earn a reward. Unlike Proof of work, proof of stake blockchains allow networks to operate with substantially lower resource consumption.
Smart Contract – A smart contract, like any contract, establishes the terms of an agreement. But unlike a traditional contract, a smart contract’s terms are executed as code running on a blockchain. These smart contracts allow blockchain developers to build apps that can employ blockchain security, reliability, and accessibility while offering sophisticated peer-to-peer functionality. This technology can be used with loans, logistics, and even gaming.
Stablecoin – A stablecoin is a digital currency that is pegged to a “stable” reserve asset like the U.S. dollar or gold. Stablecoins are designed to reduce volatility and bridge the worlds of cryptocurrency and everyday fiat currency.
Token – Token is technically just another word for cryptocurrency or crypto asset. But it has taken on a couple of more specific meanings, depending on the context. For example, it is used to describe all cryptocurrencies except for Bitcoin and Ethereum (even though they are both technically tokens). It is also used to describe certain digital assets.
Volatility – Volatility is a measure of how much the price of an asset has moved up or down over time. Generally, the more volatile an asset is, the riskier it is as an investment. As a newer asset class, cryptocurrencies are volatile with steep rises and subsequent falls. High volatility is part of the appeal for some investors – it creates the possibility for high return. There are strategies that can be used to limit the downside impact of volatility, such as using stablecoins.
