A Glossary of Crypto Terms for Beginners
The terms in this glossary are organized into the following groups: Blockchain, Cryptography, Operational, and Networking.
A reference list of all terms, in alphabetical order, is provided at the end.
Blockchain Terms
(B1) Block: A block of data, representing series of transactions, replicated and stored in multiple systems. After a block is verified, it is guaranteed to be exactly the same in all systems. A block is a piece of immutable history. Together with other blocks, it forms the blockchain. Blocks can be transmitted, from system to system through communication media.
(B2) Blockchain: — The concept of data organized in blocks securely connected to each other and securely replicated in multiple systems: the nodes of a crypto-network. Because of this design, the data in each blockchain replica, in each system, can be considered permanent, verifiable, and unchangeable. That is, if the blockchain replica in one system, is changed or corrupted, it can be demonstrated invalid, and the valid blockchain replica is still available in all other systems.
(B3) Fork (forking): — A different block, or sequence of blocks, prepared by a verifier or miner node during the consensus process. The existence of a fork implies the existence of another block, or sequence of blocks, prepared by a competing node in leader-based consensus mechanisms.
(B4) Soft Fork: — A temporary fork, in leader-based consensus mechanisms, prepared by a node when trying to determine the next block to be added to the blockchain.
(B5) Hard Fork: — A voluntary fork created by modifying the nodes’ client code and causing a divergence in the blockchain. A hard fork is used to create a new desired blockchain, different from the current blockchain, thus invalidating the principle of blockchain immutability. In this case a number of nodes may not agree to the change and the crypto-network splits into two, with possible loss of application data integrity.
(B6) PoW: — Proof of Work: One of the many mechanisms, used in leader-based crypto-networks, to approve a block to be added to the blockchain. This is to demonstrate that the node proposing the addition of a new block to the crypto-network’s blockchain is real (and not virtual). The node is required to perform a large amount of computations generating new hashes that contain a specific, but useless sequence of bits. This mechanism requires a continuously higher level of difficulty, as technology improves, and wastes an inordinate amount of processing power.
(B7) PoS: — Proof of Stake: One of the many mechanisms, used in leader-based crypto-networks, to approve a block to be added to the blockchain. This is to demonstrate that the node proposing the addition of a new block to the crypto-network’s blockchain is part of a selected group that has a stake in the crypto-network, and thus is presumably trustworthy and qualified in verifying transactions.
(B8) Mining (Crypto-mining): — In the PoW consensus mechanism, a miner is a node that claims to have “found” a block. Finding a block, to be added to the blockchain, consists in the successful completion of the computations described under “PoW”, for the current block. The “winning miner” is rewarded, thus mining can be lucrative, but it can also be expensive, in equipment and power requirements. Mining has led to the creation of the crypto-mining industry, providing new hardware for miners, often organized into mining pools, or mining farms.
Cryptography Terms
(C1) Cryptography: — The mathematical techniques used for the secure exchange of information, to ensure confidentiality and data integrity, and to provide for authentication, and proof of data origin. Its purpose is the prevention and detection of malicious attacks on information, including digital currency.
(C2) AES: — A standard symmetric encryption method that can encrypt and decrypt a message using the same key. The key can be shared between users in a variety of ways. Although faster and more convenient, it is less secure than other public key techniques, such as Elliptic Curve (ECC), used by crypto-networks such Bitcoin, Ethereum and others.
(C3) ECC: — Elliptic Curve Cryptography. A standard method for encrypting data based the geometric structure of elliptic curves. ECC uses public and private keys, and can provide a higher level of security with respect to other encryption methods using the same key length.
(C4) Hash function: — A function that maps a bit string of arbitrary length to a fixed length bit string. In cryptography a hash function is designed to be one-way (the original cannot be recreated from the result) and collision resistant (it is unlikely to obtain the same result from two different strings).
(C5) AML Isolation: — The segregation between currencies, preventing a currency obtained illegally to be exchanged for another, more trusted currency. Such isolation is not easily achieved.
(C6) Asset: — A property owned by an individual. An asset can be real (e.g., goods, stock certificates, properties), or digital (e.g., a digital art work, a music piece, an App, etc.). Assets may be tokenized (e.g., represented by non fungible tokens, or NFTs).
(C7) Cryptographic Asset: — (or Crypto Asset): A cryptocurrency, or a token.
(C8) Cryptographic Object: — An entity that enables or makes use of cryptography. Examples are: A cryptocurrency, a token, an electronic signature, encryption keys, an encrypted text.
(C9) Currency: — A medium of exchange; a government issued currency (fiat currency) or a digital currency. Preferably, a currency has the following properties: durability, portability, divisibility, uniformity, limited supply, counterfeit-resistance, low-volatility, acceptability and transferable without fees.
(C10) Cryptocurrency: — A digital form of currency; a native currency created in the genesis block of a crypto-network such as Bitcoin, Ethereum, or others. Cryptocurrencies depend on the uninterruptible functionality of their parent network. They do not need a smart contract to be used.
(C11) Token: — A virtual cryptographic asset created by a user application on one of the existing crypto-networks. Tokens can represent any asset. They depend on the functionality of their parent application, and the functionality of the crypto-network holding their definition (parent crypto-network). Examples are: security tokens, non fungible tokens, coins, DeFi tokens, Governance tokens.
(C12) Coin: — A fungible token. Coins may function as a second-layer means of exchange. As tokens, they depend on their parent application, and their parent crypto-network.
(C13) NFT: — Non fungible token: A token associated to a particular asset. NFTs, may be fractionated, each fraction being fungible, to represent a fraction of the asset.
(C14) Digital Currency: — A cryptocurrency, or a coin.
(C15) Digital signature: — The result of a cryptographic transformation of a message. When properly implemented, it provides a mechanism for origin authentication, data integrity and signatory non-repudiation. It ensures that the message has not been sent or altered by a third party.
(C16) Private key: — A cryptographic key that is used with an asymmetric (public key) cryptographic algorithm. The private key is used to compute a digital signature that may be verified using the corresponding public key.
(C17) Public key: — A cryptographic key that is used with an asymmetric (public key) cryptographic algorithm and is associated with a private key. The public key is associated with an owner and may be made public. In the case of digital signatures, the public key is used to verify a digital signature that was signed using the corresponding private key.
Operational Terms
(O1) Transaction (TX): — A financial, log, or other transaction carried out on behalf of a user among the nodes of a financial network or a crypto-network.
(O2) Currency Exchange Transaction: — The atomic transaction executed, on behalf of a customer, exchanging an amount of owned currency into an amount of another desired currency. The amount of the desired currency may be limited by an Exchange, and the transaction is approved by the customer.
(O3) Payment: The atomic transaction involving a payment system that guarantees the exchange of an asset for a digital currency. The transfer of the asset may occur outside of the crypto-network, while the transfer of the digital currency occurs within a crypto-network accessible by both the buyer and the seller, or is handled by an application payment system.
(O4) Token Swap: — The atomic transaction exchanging a token, with with another token. The difference between the value of the two is paid in a digital currency.
(O5) Token Trade: — The atomic transaction exchanging a token (representing an asset), with a digital currency (or possibly a fiat currency). From the point of view of the token owner, a token trade may be used to buy a token, or to sell a token.
(O6) Appreciation: — An increase in the value of a currency. Currency appreciation (or deflation) is the opposite of currency devaluation (or inflation). Appreciation occurs mainly through increased currency demand.
(O7) Devaluation: — The loss of value in a currency. Currency devaluation (or inflation) occurs when new currency is created, or with diminished currency demand. The opposite of “Appreciation”.
(O8) Smart Contract: — An object on the blockchain that executes the terms of a contract. A smart contract (e.g., in the Ethereum crypto-network) is a computer program addressable by its hash. It executes on the blockchain according to transactions issued to it by its owners. The output of a smart contract may be other transactions, or input to other smart contracts.
(O9) DApps: — DApps are distributed applications stored as Smart Contracts running on the blockchain. Because the blockchain’s processing power and memory are limited and valuable, smart contract transactions must pay fees to the crypto-network.
(O10) Bitcoin Wallet: — The historical proof of ownership of a certain amount of cryptocurrency associated to an encryption key pair. An updated replica of the blockchain.
(O11) Wallet: — A service (a software object, or an application) that maintains encryption key pairs, interacts with a crypto-network, and signs payment transactions, or other token-related functions.
(O12) Custodial Wallet: An application on an intermediary Exchange server that stores customer information, such as the passkeys used to sign cryptocurrency transactions.
(O13) Non-custodial Wallet: — An application running on a user device that interacts with with an Exchange to perform payment transactions, or other token-related functions on a crypto-network. From the security point of view, such a wallet can be hot, when connected to the internet, or cold, when it is on a device not connected or impossible to reach through the internet.
Networking Terms
(N1) Crypto-network: — A computer network that is able to maintain secure replica of the blockchain in its nodes, despite an unreliable and insecure communication environment. It can be decentralized or distributed, permissioned or unpermissioned, proprietary, or public.
(N2) Node: — Each instance of software running on a computer network device. An active node of the crypto-network identifiable by a unique node address.
(N3) Node address: — A random sequence of digits generated for the purpose of identifying a node. This is sufficiently long, and random, to be virtually unique. It can be generated, for example, by hashing of a user’s public key.
(N4) Decentralization: — A concept in computer networks describing a system where most or all aspects of network management and control are shared by multiple nodes. This is in contrast with a central host, as in star networks. The term also applies to decentralized ledgers and permissioned crypto-networks, where a set of trusted nodes perform transaction verification, and have privileges with respect to other nodes.
(N5) Distribution: — A concept in computer networks describing a system where all nodes are peers. No particular node has control of the network, or has higher privileges, or performs unique functions.
(N6) Consensus: — The process by which an agreement is reached regarding the exact composition of a Block to be stored in each node’s blockchain replica. Many types of consensus mechanism exist. Most of them are leader based, where a node sends a verified block to every other node.
(N7) Anonymity: — In public crypto-networks, such as Bitcoin or Ethereum, anonymity is the ability to hide the identification of its users. Under the guise of user privacy, anonymity may be used as an excuse for hiding money laundering or other forms of crime. See also the term Identification.
(N8) Permissioned: — A crypto-network is permissioned when a trusted entity validates transactions before these are added to the current block, thus guaranteeing the integrity of the blockchain. Although permissioned networks may have decentralized features and use blockchain technology, they are controlled by the entity that owns the crypto-network.
(N9) Unpermissioned: — A crypto-network is unpermissioned when there are no trusted entities that validate transactions before these are added to the current block and the block is added to the blockchain. Bitcoin was designed as “trustless” and had no intermediaries by design. However, with the evolution of ASIC processors and the birth of the crypto-mining industry, only mining nodes validate transactions. Thus transactions from user nodes need to go through mining nodes to be verified and added on the blockchain.
(N10) Majority attack: — A brute force attack on the network by a malicious person or group with the intent of stealing the assets on the blockchain. To mount such an attack the majority of the network nodes need to be participating, either voluntarily, or because the control of their nodes’ software has been taken over by the attacker.
(N11) Denial of Service (DoS) attack: — The disruption of a crypto-network caused by an attacker generating load (traffic) on the network, without penalty. In most public crypto-networks DoS attacks are difficult to prevent because users are anonymous.
(N12) Sybil attack: — The disruption of a crypto-network caused by an attacker generating multiple duplicate identities. This attack is used to exercise increased influence on a process or algorithm.
(N13) Network Operation Cost: — The cost of operating a crypto-network, eventually paid through currency inflation. It includes the rewards to miners, producers or validators. It also includes the fees collected by them for handling transactions and for security functions.
Alphabetical Reference
(C2) AES
(C5) AML Isolation
(N7) Anonymity
(O6) Appreciation
(C6) Asset
(O10) Bitcoin Wallet
(B1) Block
(B2) Blockchain
(C12) Coin
(N6) Consensus
(C10) Cryptocurrency
(N1) Crypto-network
(C7) Cryptographic Asset
(C8) Cryptographic Object
(C1) Cryptography
(C9) Currency
(O2) Currency Exchange Transaction
(O12) Custodial wallet
(O9) DApps
(N4) Decentralization
(N11) Denial of Service (DoS) attack
(O7) Devaluation
(C14) Digital Currency
(C15) Digital Signature
(N5) Distribution
(C3) ECC
(B3) Fork (forking)
(B5) Hard Fork
(C4) Hash function
(N10) Majority attack
(B8) Mining
(N13) Network Operation Cost
(C13) NFT
(N2) Node
(N3) Node address
(O13) Non-custodial Wallet
(O3) Payment
(N8) Permissioned
(B7) PoS
(B6) PoW
(C16) Private key
(C17) Public key
(O8) Smart contract
(B4) Soft Fork
(N12) Sybil attack
(C11) Token
(O4) Token Swap
(O5) Token Trade
(O1) Transaction (TX)
(N9) Unpermissioned
(O11) Wallet
