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October 14, 2022

Crypto Academy

Understanding crypto: the jargon buster

WARNING: If you still can’t tell your blockchains from your cryptocurrencies, you’re in for one heck of a ride.

The word 'crypto' with a graphic design resembling shattered glass on a red background

By Amy W

Crypto, Web3, and blockchain. The terms that fall under these three blanket categories can be the perfect recipe for a bit of a headache if offered without explanation, and unfortunately - more often than not they are.

That’s where we step in. We’ve cut the bull and put together our ultimate list of crypto terms and what they really mean - without the headache.

Technology

Learn the terms that are often used to refer to the underlying technology used to build the world of Web3.


Blockchain technology

In order to maintain decentralisation,  Web3 [link to web3] networks use ‘smart contracts’ to keep their ‘trustless’ systems running. To do this, they run on blockchain technology, which in short is much like a database formed by a sequence of entries rather than manual input from centralised individuals. Check out The Village Story for a really really brilliant breakdown of what this actually means.

Decentralised/decentralisation

To understand a simple analogy of decentralisation, think about your email address - it has no central governance. While you might use Gmail or another provider to read and send messages, if you decided not to use Gmail's platform to do this, you’d still have access to that email address and all of your historical emails.

DApps
DApps - or - decentralised apps are apps that run on a decentralised network, typically a blockchain. They run autonomously and offer a service to their users.
Governance

Much like in the offline world, governance is a system used to manage blockchains & implement change. Token holders of a certain currency will have the rights to vote when and where applicable.

Layer 0 blockchain technology

Layer 0 blockchain is the foundation layer that gives different blockchain networks a platform to function. Polkadot is a well-known layer 0.

Layer 1 blockchain technology

Layer 1 blockchains - otherwise known as ‘implementation layers’ - are where blockchain networks function. These live on top of layer 0s, and some popular ones are Bitcoin, Ethereum, and Solana.

Layer 2 blockchain technology

Layer 2 blockchain technology helps blockchains to scale. Layer 2s work with third-party software to distribute some of the underlying (layer 1) blockchain’s transactional needs. Bitcoin’s Lightning Network is one well-known layer 2 protocol.

Layer 3 blockchain technology

Known as the ‘application layer’, layer 3s enable apps and DApps to run on the blockchain. In a sense, layer 3 tech hides the complexities of the blockchain to create a simplified interface for users - similar to how a website you’ll look at works, layer 3s are the blockchain apps you’ll interact with.

Public ledger/distributed ledger

A public ledger in crypto works much like a public database. It’s a record-keeping system that enables transactions on the blockchain while maintaining decentralisation.

Mining

Mining is the process that proof-of-work-based cryptocurrencies, like Bitcoin, use to verify transactions on a network. Many computers globally work together in a decentralised way to verify & secure digital ledgers and record transactions made on a blockchain.

Nodes

A node is a computer that connects to and serves a purpose for a cryptocurrency network - typically mining.

On-chain transactions

‘On-chain’ transactions refer to crypto transactions that have been completed entirely on the blockchain, verified by a public ledger.

Off-chain transactions

Off-chain transactions occur outside of the blockchain. These depend on a third-party application for execution and require the transacting parties to enter an agreement.

Open-source

Open-source software is technology built like an open book. Anyone can view the code used to build the software - it's publicly available for inspection. This concept has been around long before crypto - with Mozilla Firefox being an earlier example.

Parachains

Relevant only to specific crypto networks (like Polkadot), parachains are layer-1 blockchains that run in parallel with the rest of their parent ecosystem. They share the entire ecosystem’s functions - like security, scalability and governance - and with the ecosystem’s cross-chain compatibility they can transfer almost any type of data between each other and connect to external networks.

Proof-of-stake

As cryptocurrencies are decentralised, they need a way to verify transactions are correct. Proof-of-stake is a process used by some blockchain technologies to verify transactions on the blockchain. It allows individuals to pledge their crypto tokens in exchange for the ability to verify transactions in return for rewards. See staking for more.

Proof-of-work

Proof-of-work is another process used by some blockchains to verify transactions on a blockchain in order to keep its network decentralised. Many computers globally work together in a decentralised way to verify & secure digital ledgers and record transactions made on a blockchain.

Protocol

Protocols in crypto are a simple set of rules that enable the sharing of information between computers & support a blockchain to function.

Software platform

Think of this like Apple’s app store providing a platform for iOS apps - it’s a space on which software can be built, across the globe.

Scalability

Think of a regular bank for a second. If more people began to use this bank for regular transactions & storing their funds, it’d likely have to increase its team size to ensure it could meet consumers’ expectations across things like processing times. Having no central governance means there’s no team to do this job, no matter how big the platform grows. This means the tech behind a platform must perform in such a way that it can scale according to adoption.

Smart Contracts

Smart contracts are contracts that work autonomously on a blockchain to execute terms of agreement in an exchange of information (or transaction) through code.

Staking

Through staking crypto tokens, users of a blockchain can verify transactions on the blockchain in exchange for rewards. See proof-of-stake for more.

Web3

Web3 is a term used to refer to the next stage of the internet that many believe will be completely decentralised. Web1 was the first version of the internet, with direct searchability available for information retrieval. Web2 is our current version of the internet, which is a more streamlined version of the internet through the availability of centralised platforms like Google.

Trading & tokens

Understand the different phrases used when discussing cryptocurrencies.


Bear market

A ‘bear market’ refers to a period of time when a market is experiencing continued price declines. A market will often be in a ‘bear’ state when buyers are selling due to economic factors.

Bull market

‘Bull market’ is the term used to refer to a market condition when said market’s prices are rising or expected to rise.

Cryptocurrency

Cryptocurrencies are digital currencies that exist on decentralised systems, like Bitcoin, Ethereum, Solana, and Polkadot.

Custodial wallet (see non-custodial wallet for further info)

A custodial wallet is a type of digital wallet where users can hold their cryptocurrency. Being custodial, the wallet is provided by a third party and has some elements of centralised governance through the ownership of the wallet’s ‘private keys’.

DeFi (Decentralised Finance)

DeFi, or decentralised finance, is a financial ecosystem built on blockchain technology with the aim to run autonomously without the need for any intermediaries, banks or middlemen.

Digital asset

Much like non-digital assets, a digital asset is something that holds value and has established ownership. In the offline world, this can be anything from a currency, to a house, to a car. In the digital world, this spans across cryptocurrencies, NFTs, and a number of different digital-based assets.

Digital currency

Digital currencies are any form of currency or money-like asset that exist primarily on digital networks. Cryptocurrencies and central bank digital currencies are both well-known types of digital currency.

Dip

A dip in crypto terms generally refers to a period in which a market value has dropped. ‘Buying the dip’ is a term often used to describe the purchasing of a cryptocurrency when the price is down, with the hopes that the price will go back up.

Fiat money

Fiat money is a form of currency that’s value isn’t determined by any commodity (such as gold). Often legal tender, many fiat currencies are typically declared as such by governing bodies, and therefore used as a form of money.

Finite supply

An asset with a finite supply means the asset has a limited supply in existence. For example, there is only a certain amount of gold in circulation, making it an asset with a finite supply. Bitcoin also has a finite supply.

Hold

To hold your funds in trading means you’re not planning to sell - regardless of price activity.

Hodl
Hodl is a term-turned-internet-meme meaning the same as hold, but used frequently among the crypto community since being coined accidentally via typo on a reddit thread.
KYC (Know-your-customer)

KYC is a verification process used across financial services to verify the identity of customers and understand their financial profiles & risk vulnerability.

Market cap

Market cap is short for market capitalisation, and refers to the total value of a market determined by the current price multiplied by the circulating supply.

Non-custodial wallet (see custodial wallet for further info)

A non-custodial wallet is a type of digital wallet where users can hold their cryptocurrency. Being non-custodial, the wallet is provided by a decentralised platform and all elements of the wallet are owned, managed, and controlled entirely by the wallet owner.

Peer-to-peer

Peer-to-peer refers to a decentralised service, software, or platform that allows individuals to exchange data or transactions directly between one another without an intermediary.

Private key

A private key works similar to a password, and is a secret number used to identify ownership over blockchain addresses. It’s an integral part of blockchain technology as it supports the decentralised function of networks.

Public key

A public key is a cryptographic code assigned to a digital wallet that allows you to receive cryptocurrency transactions - similar to a bank account number.

Stablecoin

A cryptocurrency that is designed to remain ‘stable’, often being pegged to a fiat currency or reserve assets to remain as such and avoid the typical volatility of the crypto market. USDC is a well-known stablecoin.

Stacking

‘Stacking’ is a term used when referring to accumulating more of a particular crypto token.

Satoshis

Satoshis (sats) are the fractions Bitcoin can be broken up into - kind of like the penny to the pound, except there are 100 million sats in every one Bitcoin.

Token

Tokens are units of value - or digital assets - built on a blockchain, like cryptocurrencies and NFTs.

Trading volume

Trading volume refers to the total value of trades made within a certain market spanning across a certain time frame.

Digital wallet

A digital wallet is a wallet that exists primarily on a digital network and enables users to store their crypto holdings within it.

NFT

NFTs - or ‘non-fungible tokens’ are cryptographic assets built on a blockchain. They have metadata & identification codes that can be used to verify their authenticity.

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