Crypto Glossary - Common Terms & Acronyms

A form of blockchain sharding that combines aspects of network, transaction, and state sharding into one system to enable parallel processing, improve inter-shard communication, and enhance blockchain performance and scalability.

Stablecoins that are not generally collateralized. Instead, their peg is maintained with algorithms, which are used in two main ways:
First, as a rebase algorithmic stablecoin, in which the supply of the stablecoin is manipulated in proportion to the coin's difference in price from its peg: if the price is higher than its peg, coins are "burned", or removed from coin holders' wallets; if the price is lower, coins are "minted", or added into them;
Second, as a seigniorage algorithmic stablecoin, in which multiple coins are used to maintain a peg. One coin's price is designed to be stable, while the others are designed to maintain that coin's stability, generally through a combination of rebase algorithms and through incentivizing market participants to buy or sell the non-stablecoin(s) to adjust the stablecoin's price towards its peg.
A notable example is TerraUSD (UST), which lost its tether to the US Dollar in May 2022 and fell to less than 10 cents.

Any cryptocurrency that isn't Bitcoin. Notable examples include Ethereum, the second largest cryptocurrency after Bitcoin by market cap.

A set of regulations and laws intended to prevent the illegal movement of money, such as through money laundering. In the context of cryptocurrency, this usually involves the monitoring of individuals who buy or sell cryptocurrency to ensure they don't launder money from a cryptocurrencyinto a fiat currency.

A cryptocurrency and global payment system that operates on a peer-to-peer distributed network without a central bank, and as such is the first decentralized digital currency. Bitcoin was invented in late 2008 by an unknown person or group under the pseudonym Satoshi Nakamoto, and was publicly released in 2009.

A set of records of transactions grouped together on a blockchain, containing a timestamp for transactions occurring within the block, transaction data, and a cryptographic hash of the block preceding it.

A type of distributed ledger that contains records of transactions, grouped together into what are commonly referred to as blocks, that are securely linked together using cryptography. Each block in a blockchain contains information from the previous block, including a cryptographic hash of the previous block, and timestamps for transactions occurring within the block itself. As a result, blockchain transactions are effectively irreversible, as the data in any given block is also stored in the rest of the blocks that follow it; in other words, to change the information in any given block, all of the blocks that follow it would also need to be changed.
Blockchains are decentralized, and are managed by a peer-to-peer computer network as a public distributed ledger, in which there is a particular consensus algorithm used to add and validate new blocks.

The process of splitting data on a blockchain into smaller pieces (or "shards") that can be stored on different nodes to allow for horizontal scaling, an increase in the number of nodes on a network. There are three main types of blockchain sharding:
- Network sharding groups nodes into shards, which can be used to optimize communication between these nodes, as communication within a shard can occur faster than communication between the entire network;
- Transaction sharding: groups transactions into shards, the way in which this is done depending on the type of system. For example, in an account-based system, transactions could be grouped based on the sender's address;
- State sharding: groups the state of the blockchain into shards, allowing for more transactions to be processed at the same time.
However, sharding a network also leaves it vulnerable to single-shard takeover attacks. In a blockchain that hasn't been sharded, an attack would need 51% of the hash-power in order to attack the network (see 51% attack). In a sharded blockchain, however, a much smaller percentage is needed. For example, if a sharded blockchain has been split into 100 shards, each shard will contain 1% of the network; if an attacker gets just 1% of the total hash-power, they will be able to attack the network, even if that means only 1% of the network will be affected.
The likelihood of attacks, however, can be addressed, such as by reshuffling a portion of the shards from time to time or by using a Proof-of-Stake consensus algorithm instead of a Proof-of-Work algorithm.
For more information on blockchain sharding, see adaptive state sharding.

Tokenized incentives utilized by blockchains to reward users for performing certain actions. One of the main focuses of bounties is bug fixes, in which users receive rewards for searching for and identifying bugs in a blockchain's protocol.

Mispelling of "Build"; a cryptocurrency investment strategy that involves "building" and otherwise contributing to the blockchain instead of holding (a.k.a. HODLing). Can also involve simply using the cryptocurrency for its intended purposes or any other use of it that could help expand or evolve the blockchain.

The ability of a system to act as a solution to the Byzantine Generals' Problem, meaning it is able to continue operating even if some of its nodes are malicious or otherwise unreliable.

A game theory problem that describes the difficulty faced by decentralized systems in achieving consensus. In the analogy, several generals have surrounded the city of Byzantium and must decide when to attack; they will win if they attack together, but will lose if they attack separately. Furthermore, secure communication between generals is not possible due to the risk of intereception and deception by the city's defenders, and some of the generals may be facetious themselves. While this issue is not possible for centralized systems due to these systems having an authority that can publish true and verified information and prevent false information from being distributed, decentralized systems such as the blockchain face this risk.

An institution of a country (or nation / state) or group of countries that provides financial and banking services for and manages the currency of its government.

A type of digital currency that is issued by a Central Bank. Since a CBDC is generally tethered to the fiat currency of the country that issues it, it can also be considered a digital version of a country's fiat currency. CBDCs are centralized, meaning that the Central Bank in question would have full control over of the amount of money in any particular account.

A type of blockchain fork that can occur due to a block conflict, in which two (or more) blocks are published at about or at the same time, causing a fork. The current solution to this is having the longer of the two blocks (and the subsequent chain on its side of the fork) treated as valid, after which subsequent blocks on the other side of the fork are restructured into new blocks; this is what is referred to as chain reorganization.

Occurs when a single cryptocurrency coin splits into two or more independently-managed projects. An example of this is Litecoin (LTC), which split off of Bitcoin (BTC) to lower Litecoin's block generation time. Litecoin itself also experienced a chain split, as Dogecoin (DOGE), a coin inspired by an internet meme, split off of Litecoin.

The total amount of cryptourrency coins or token that are publicly usable and being used in the market / general public. Generally significantly less than the amount of the coin or token's total supply.

A physical device that stores a person's cryptocurrency public and private keys completely offline. Commonly resemble USB drives. Since this type of wallet is a physical device, misplacing or losing one would mean losing access to the data stored within it.

A type of stablecoin that is mostly or entirely backed by some form of collateral (such as USD, other fiat currencies, and commodities) held in reserve. This way, tokens can be redeemed for the collateral as desired. This, however, means that a collateralized stablecoin requires a large amount of the asset backing it in order to remain collateralized and trustworthy among investors. Additionally, the stability of the stablecoin itself would also be dependent on the stability of its underlying collateral; the more instability a particular asset experiences, the more over-collateralized a stablecoin backed by that asset would have to be.

In the context of computer science, a consensus algorithm is a mechanism that proves distributed entities agree upon the correctness of one or more data values. In the context of cryptocurrency, a consensus algorithm is a procedure through which all of the nodes of a blockchain network reach a common agreement about its current state. The two most common consensus algorithms are Proof-of-Work (PoW) and Proof-of-Stake (PoS), though others, such as distributed Proof-of-Security (dPoSec) and Proof-of-Authority (PoA) exist as well.

A decentralized form of digital currency that uses cryptography (e.g. blockchains with cryptographic hash functions) and distributed peer-to-peer networks to securely regulate currency generation and transactions without the need for a Central Bank.

An approach to the study of digital economies that integrates concepts and principles from cryptography, computer science, and game theory, as well as traditional economics.

Essentially the cryptocurrency version of a bear market, in which prices follow a general downward trend over an extended period of time.

Money in any form that is used as a medium of exchange, including banknotes and coins. Types of currencies include fiat currency based on government decree, precious-metal-based currencies, commodity-based currencies, and digital currency.

A financial system that is not built around a centralized institution (such as the Federal Reserve), meaning that transactions can be done without the involvement of any intermediaries or third parties. Generally, DeFi is done through blockchain-based smart contracts.

A digital application or program that runs on a blockchain or peer-to-peer network, meaning it runs on multiple computers (or nodes) instead of a single, centralized computer. Because of this, it is out of the control of a central authority, and generally runs on smart contracts to complete processes such as transaction validation (in the case of DeFi dApps). Because dApps are decentralized, users do not need to provide their personal information to use the application, meaning there is more user privacy associated with dApps compared to centralized apps. However, due to their decentralization, dApps are potentially difficult to scale and update (in the case of bug fixes or other changes to the application’s code).

Common uses of dApps include social media, gaming, and decentralized finance.

A company that is governed by algorithms or blockchain-based smart contracts and is therefore decentralized, allowing large groups of people to be able to participate in governing the company. Just as cryptocurrency blockchains need a certain percentage of participants to be in consensus for transactions to be accepted, a certain percentage of participants in a DAO needs to be in consensus for decisions to be accepted.

A type of cryptocurrency exchange system that is peer-to-peer, meaning that crypto trades are done directly between two parties and no third party is involved.

The inverse process of encryption, in which encoded messages are decoded into plaintext (i.e. the original message), so that their original, unencrypted content can be read.

A good or product with the same aspects of a commodity, except that it exists in a digital form. Notable examples of a digital commodity are Bitcoin, and, arguably, Ethereum.

A form of currency that has the same aspects as a physical currency, but only exists in digital form. They can generally operate in a decentralized manner without intermediaries, but there are forms of digital currencies, including Central Bank Digital Currencies (CBDCs), that are centralized regardless.

A directed graph in which none of the arcs form a closed loop. DAG models have diverse scientific and computational applications as data modeling and structuring tools; for cryptocurrencies, transactions are recorded as vertices (rather than blocks, as in blockchains) and recorded on top of one another. Seen as a possible solution for crypto's decentralization issue, as it eliminates competition between miners to add new blocks to the chain.

An umbrella term for the collection of digital data representing financial records (also known as "ledgers") that are shared or "distributed" across multiple sites. Distributed ledgers are typically enabled by peer-to-peer networks or consensus algorithms, in which there is no centralized point-of-failure. Transactions on a network using a distributed ledger technology (or DLT) do not require validation by a centralized system administrator. Examples of a distributed ledger include blockchains and directed acyclic graphs (DAGs).

A consensus algorithm designed to ensure that the blockchain it runs on will continue to function even if a third of its nodes are unreliable.
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In the context of cryptocurrency, a wallet that contains a moderate amount of a particular cryptocurrency coin or token.

An attack on a blockchain in which the same single cryptocurrency coin or token is spent more than once, after modifying the block in which the coin(s) was first spent and reclaiming it for reuse.

An aspect of cryptocurrency investing popularized due to the amount of scamcoins and pump-and-dump schemes (among other scams) in the cryptocurrency market. It is often used as a disclaimer or advice to buyers of cryptocurrency to properly investigate any potential investment before buying into it.

The inverse process of decryption, in which a message (referred to as "plaintext") is encoded into "ciphertext" so that only the encoder and authorized parties can convert the ciphertext back into the original plaintext.

A communication system in which only the sender (or the origin end) and the receiver (or the destination end) of a message can read the content of the message, as, theoretically, only the sender and receiver possess the cryptographic keys needed to decrypt the message.

In the context of cryptocurrency, refers to a psychological state in which one feels pressured to buy into an already-high-priced market because many others have benefitted and they believe prices will continue to increase. Also commonly used outside of the context of cryptocurrency.

In the context of cryptocurrency, refers to a psychological method of manipulating others into buying less of or even selling a particular cryptocurrency through inspiring a negative sentiment (i.e. fear, uncertainty, and doubt) about that cryptocurrency.

A currency that has no intrinsic value on its own and is backed by a Central Bank instead of by some sort of asset or commodity.

In the context of cryptocurrency, refers to a wallet with a small or negligible amount of a particular cryptocurrency coin or token. Also sometimes referred to as a crypto "minnow".

A portmanteau of "foreign currency" and "exchange"; a process that converts one currency into another.

Originally referred to two-person zero-sum games with balanced gains and losses between participants; now refers to the science of strategical and logical decision-making in humans, other animals, and computers. The blockchain circumvents issues with decentralization (especially cheating) by keeping miners honest using a self-enforcing Nash equilibrium, a component of game theory. As a recursive punishment system, invalid blocks (which have lower scores than valid blocks) will not be mined on top of, as these new blocks will also be deemed invalid.

In the context of cryptocurrency, refers to the maximum number of tokens that a developer team makes available for sale during an Initial Coin Offering for a project. It is essentially a fundraising goal for that ICO; once it is reached, the developer team will no longer receive additional fundraising funds and instead begin work on their project. Also sometimes used to refer to the maximum supply of a particular token or coin, but this generally referred to as the "maximum supply" rather than a "hard cap".

Refers to a radical change to a blockchain protocol that invalidates previously-valid blocks, or vice versa. Unlike a soft fork, which is backwards-compatible, a hard fork requires all nodes to upgrade to the latest version of the protocol software.

A one-way mathematical function that maps an input of arbitrary length into an encrypted output (or hash) of a fixed size, which cannot be "reverse-engineered" to obtain the original input from the output. However, the same input will always produce the same output, and the same output hash cannot occur from two different inputs. Hash functions are used in cryptocurrency blockchains to, for example, encrypt transaction information. Also known as a cryptographic hash function.

Mispelling of "Hold", retrofitted to stand for "Hold On for Dear Life"; An investment strategy that involves passively holding onto cryptocurrency instead of trading it (or "building" the blockchain, also known as "BUIDL").

Derived from the 1946 U.S. Supreme Court case SEC v. W. J. Howey Co., which established that a transaction could be considered a security, and therefore subject to U.S. security laws, if it qualified as an "investment contract". An investment contract exists if there is 1) an investment of money 2) in a common enterprise 3) with a reasonable expectation of profits 4) to be derived from the effort of others (all four criteria must be met). Whether a cryptocurrency is to be subject to security regulations or not is dependent on whether it passes or fails the Howey Test; tokens such as Bitcoin do not pass the test, whereas tokens used in an ICO do.

Essentially the cryptocurrency version of an Initial Public Offering (IPO), which a company or developer team aiming to create a new coin, app, or service can use as a fundraising method. Investors in an ICO purchase tokens as their investment, which generally has some utility in the context of the project in question, or may represent some amount of stake in the project or the company itself.