Crypto prices and NFTs are hogging the headlines, but they are just the most visible components of a rapidly growing decentralized financial system (DeFi) that has the potential to significantly challenge how we buy, sell, and trade just about everything. Blockchain and cryptocurrency may seem like a new thing, but they have been around for over 10 years. The problem is that the world of crypto can be very confusing with all the jargon, acronyms, and other unfamiliar words. Here are some useful links to the decentralized ecosystem.
Table of Contents
- Blockchain – Cryptocurrency, NFTs & Smart Contracts: An executive guide to the world of decentralized finance. 2nd Edition. (Amazon #1 Bestseller)
- Blockchain Database – Our full list of resources
- Contact us with questions or comments
- Cryptocurrency Exchanges
- Dapp & DeFi Assets
- DAOs – Decentralized Autonomous Organizations
- Engineering Resources
- Interesting Research, Whitepapers and Educational Resources
Cryptocurrencies such as ETH or BTC are created (“mined”) when a miner completes a certain amount of computations used to verify transactions that are added to a specific blockchain. (You can learn to mine crypto here.) The miner is rewarded for this effort with a small amount of cryptocurrency. In theory, every ETH or BTC is fungible. Said differently, my 10 BTC or my 50 ETH are worth exactly what your 10 BTC or 50 ETH are worth, and they are interchangeable. There are hundreds of cryptocurrencies that are actively trading on hundreds of exchanges worldwide.
crypto.com – current prices
tradingview.com – current prices
coinlib.io – crypto price widgets you can embed
NFTs are created (“minted”) when a unique, standardized token and associated smart contract are recorded on a blockchain. In theory, NFTs are non-fungible. Said differently, the NFT of Nyan Cat (which sold at auction for $510,945) is unique and not interchangeable with other versions of the same file.
If you only have time to read one thing, read Devin Finzer’s “The NFT Bible.”
In no particular order, here are some places to mint NFTs:
OpenSea – The largest NFT marketplace
Not Fungible – The world’s leading NFT luxury art gallery and NFT artist incubator
makersplace – Truly unique digital creations, by the World’s Most Creative Minds.
Nifty Gateway – Nifty Gateway is the premier marketplace for Nifties, which are digital items you can truly own.
Rarible – an NFT marketplace that wants to “evolve into a fully Decentralized Autonomous Organization (DAO), where all governance and decision rights belong to the platform users.”
Zora – a universal media registry protocol.
Mintable – Turn any creation into an item on the blockchain
Lazy – The lazy way to show off your NFTs.
NFT Art Generator – Automated NFT art generator.
Cryptocurrency exchanges act as an intermediary between a buyer and seller, making money through commissions. You can buy, sell or trade your crypto for other crypto or fiat currencies. Not all exchanges offer access to all currencies. Choose your exchange carefully to ensure it meets your risk profile, your regulatory requirements, and your trading style.
Decentralization is the key feature of cryptocurrency and its underlying technology. So it might surprise you to learn that most cryptocurrency transactions go through centralized exchanges. Centralized exchanges generally offer a higher degree of reliability and, more importantly, there is a company that you can hold accountable for the execution of your transactions. Most (not all) centralized exchanges must comply with know your customer rules and comply with at least some regulatory requirements.
Binance and Binance US – Buy, Sell, and Trade Cryptocurrencies. Trade over 50 cryptocurrencies with low trading fees.
Huobi (Not available in USA) – A Global Cryptocurrency Leader Since 2013
Coinbase and Coinbase Pro – Coinbase is the easiest place to buy and sell cryptocurrency.
Kraken – We put the power in your hands to buy, sell and trade digital currency.
Bithumb – a company that creates the future of a more convenient and more reliable digital financial platform through constant innovation.
Bitfinex – The home of digital asset trading
Bitstamp – a proven track record and a mature approach to the industry, we provide reliable trading of cryptocurrencies.
KuCoin – Find the next crypto gem on KuCoin
FTX – FTX.US is a brand new US-regulated cryptocurrency exchange, built from the ground up.
bitFlyer – Easily buy and sell Bitcoin, Ethereum, and more from the only platform in the world licensed in the US, EU, and Japan. Trusted by millions since 2014.
Gemini – Gemini is a simple, elegant, and secure platform to build your crypto portfolio. Buying, selling, and storing your cryptocurrency has never been this seamless.
Blockfi – With BlockFi, you can use cryptocurrency to earn interest at up to 8.6% APY, borrow cash, and buy or sell crypto. There are no hidden fees, no minimum balances, and no reason to wait.
eToro – Trade popular cryptocurrencies. Explore professionally managed portfolios. Connect with over 20M traders.
Bakkt – Discover money you never knew you had by using Bakkt to track, spend, and send your digital assets.
Blockchain.com – The World’s Most Popular Way to Buy, Hold, and Use Crypto
Gate – Your gateway to cryptocurrency
Decentralized cryptocurrency exchanges (DEX) allow users to execute transactions without an intermediary. They are, “decentralized.” This makes DEX transactions attractive to those who wish to keep their trading activity private. Generally speaking, DEX transactions are crypto-to-crypto. Decentralized exchanges do not facilitate transactions between crypto and fiat currencies.
Uniswap (V2) – Guaranteed liquidity for millions of users and hundreds of Ethereum applications.
Tokenlon – Smart contract-based decentralized trading. Secure, reliable and seamless mobile trading experience.
0x Protocol – 0x API is a professional grade liquidity aggregator enabling the future of DeFi applications
Venus – A Decentralized Marketplace for Lenders and Borrowers with Borderless Stablecoins.
Sushiswap – Be a DeFi Chef with Sushi.
Swap, earn, stack yields, lend, borrow, leverage all on one decentralized, community driven platform. Welcome home to DeFi.
Compound – Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.
BurgerSwap – BurgerSwap is a democratized AMM on Binance Smart Chain with four main functions: Swap, Liquidity Pool, Governance, ERC20-BEP20 token transfer [cross] Bridge, Farm, and IFO. BurgerSwap strives to provide the most decentralized and democratic user experience for DeFi believers all around the world.
Curve Finance – Curve is an exchange liquidity pool on Ethereum (like Uniswap) designed for (1) extremely efficient stablecoin trading (2) low risk, supplemental fee income for liquidity providers, without an opportunity cost.
1inch Exchange – Access the most liquidity, lowest slippage and best exchange rates across Ethereum and Binance Smart Chain.
PancakeSwap – The #1 AMM and yield farm on Binance Smart Chain.
You will need at least one crypto wallet. Do your research. Each wallet has pros and cons and no single wallet is right for everyone, or for every application. There are dozens, if not hundreds, of crypto wallets available. The following examples are popular choices.
Ledger – The world’s most popular hardware wallet.
Trezor – Invented for your digital freedom.
Coinbase – The secure app to store crypto yourself.
Coinomi – One free, simple, and secure blockchain wallet for all your devices.
Metamask – A crypto wallet & gateway to blockchain apps.
If you’re completely new to distributed ledgers, smart contracts and crypto and want to write some code, there are many wonderful free resources available online. One of the best is FreeCodeCamp.org. You can learn how to write your first smart contract here.
Solidity – Solidity is an object-oriented, high-level language for implementing smart contracts. Smart contracts are programs which govern the behavior of accounts within the Ethereum state.
Truffle Suite – The Truffle Suite gets developers from idea to dapp as comfortably as possible.
Brownie – a Python-based development and testing framework for smart contracts targeting the Ethereum Virtual Machine.
Embark – The all-in-one developer platform for building and deploying decentralized applications.
OpenZeppelin – OpenZeppelin provides security products to build, automate, and operate decentralized applications. We also protect leading organizations by performing security audits on their systems and products.
Chainlink – decentralized oracle network provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain.
Infura – The Infura API suite provides instant access over HTTPS and WebSockets to the Ethereum and IPFS networks. Infrastructure for your Web 3.0 app has never been easier.
Etherscan – a Block Explorer and Analytics Platform for Ethereum, a decentralized smart contracts platform.
IPFS – The InterPlanetary File System is a peer-to-peer hypermedia protocol designed to make the web faster, safer, and more open.
Pinata – The Easiest Way to Use IPFS.
create-eth-app – Create Ethereum-powered apps with one command.
One Click Dapp – Turn any smart contract into a dapp.
scaffold-eth – is everything you need to get started building decentralized applications powered by Ethereum.
Remix Ethereum IDE – an open source web and desktop application. It fosters a fast development cycle and has a rich set of plugins with intuitive GUIs. Remix is used for the entire journey of contract development as well as being a playground for learning and teaching Ethereum.
Epirus Explorer – provides all of the business metrics you need to support your blockchain and smart contract applications.
Dapp & DeFi Assets
DeFi platforms (Decentralized Finance) are the underlying technologies that enable financial services to be offered with no central authority. The following organizations, toolsets and frameworks each offer important component parts to the quickly-evolving DeFi ecosystem.
Ethereum.org dapps is a decentralized application (dapp) is an application built on a decentralized network that combines a smart contract and a frontend user interface. Note, in Ethereum smart-contracts are accessible and transparent – like open APIs – so your dapp can even include a smart contract that someone else has written.
Band Protocol is a cross-chain data oracle platform that aggregates and connects real-world data and APIs to smart contracts.
ChainLink’s decentralized oracle network provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain.
Kyber is a blockchain-based liquidity protocol that aggregates liquidity from a wide range of reserves, powering instant and secure token exchange in any decentralized application.
Polkadot is a scalable, interoperable & secure network protocol for the next web
Uniswap empowers developers, liquidity providers and traders to participate in a financial marketplace that is open and accessible to all.
Serum is a decentralized exchange (DEX) and ecosystem that brings unprecedented speed and low transaction costs to decentralized finance. It is built on Solana and is completely permissionless.
Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.
Yearn Finance is a suite of products in Decentralized Finance (DeFi) that provides lending aggregation, yield generation, and insurance on the Ethereum blockchain. The protocol is maintained by various independent developers and is governed by YFI holders.
UMA builds open-source infrastructure for “priceless” financial contracts on Ethereum. (Smart Contract Templates, Oracle Services)
DAOs – Decentralized Autonomous Organizations
DAOs offer a way to work with like-minded folks around the globe. Think of them like an internet-native business that’s collectively owned and managed by its members. They have built-in treasuries that no one has the authority to access without the approval of the group. Decisions are governed by proposals and voting to ensure everyone in the organisation has a voice. There’s no CEO who can authorise spending based on their own whims and no chance of a dodgy CFO manipulating the books. Everything is out in the open and the rules around spending are baked into the DAO via its code.
MakerDAO – The Maker Protocol is the platform through which anyone, anywhere can generate the Dai stablecoin against crypto collateral assets.
MolochDAO – focused on funding Ethereum projects. They require a proposal for membership so the group can assess whether you have the necessary expertise and capital to make informed judgments about potential grantees. You can’t just buy access to the DAO on the open market.
Aragon – DAO Deployment Platform. Virtual worlds, subreddits, hacker collectives, DeFi protocols, and fashion houses all use Aragon to take their communities to the next level.
Colony – Organizations, for the Internet. Colony makes it easy for people all over the world to build organizations together, online.
PleasrDAO – a collective of DeFi leaders, early NFT collectors and digital artists who have built a formidable yet benevolent reputation for acquiring culturally significant pieces with a charitable twist.
DAOstack – an open source project advancing the technology and adoption of decentralized governance.
MetaCartel – an ecosystem of creators and operators building decentralized applications (DApps)
MetaClan – A cryptonative eSports clan focused on enhanced play-to-earn mechanics that unlock value for developers, players, and spectators alike.
RaidGuild – A Decentralized Collective of Mercenaries Ready to Slay Your Web3 Product Demons.
Saint Fame – the world’s first internet-owned fashion house.
Interesting Research, Whitepapers and Educational Resources
Governments Planning Worldwide Regulation of Bitcoin [October 2021] – Downloaded from a subreddit, this well cited report explores the current state of proposed crypto regulation.
Flash Boys 2.0: Frontrunning, Transaction Reordering, and Consensus Instability in Decentralized Exchanges – This paper from 2019 clearly explains how to frontrun a crypto transaction. The practice is rampant to this day.
What Is Miner-Extractable Value (MEV)? – After August 5, 2021 (Post-EIP-1559, the London Hard Fork) MEV will play an important role in gas fees and miner compensation. This article from Chainlink is an excellent explainer.
FATF – The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
Summary of FATCA Reporting for U.S. Taxpayers – The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. The Treasury Department and the IRS continue to develop guidance concerning FATCA. For current and more in-depth information, please visit FATCA.
Tip o’ the hat to George Bernard Shaw, Campbell R. Harvey, Ashwin Ramachandran, Joey Santoro, Wikipedia, some friends, and a bunch of subject-specific websites I’ve visited over the past decade. The italicized terms in the definitions are also defined in the glossary.
Please click here if you have a new term or definition to contribute or to offer additional context or clarity for an existing entry.
Address. The address is the identifier where a transaction is sent. The address is derived from a user’s public key. The public key is derived from the private key by asymmetric key cryptography. In Ethereum, the public key is 512 bits or 128 hexadecimal characters. The public key is hashed (i.e., uniquely represented) with a Keccak-256 algorithm, which transforms it into 256 bits or 64 hexadecimal characters. The last 40 hexadecimal characters are the public key. The public key usually carries the pre-fix “0x.” Also known as public address. Note: Keccak-256 does not follow the FIPS-202 based standard (a.k.a SHA-3).
Airdrop. A free distribution of tokens into wallets.
Altcoin. Any cryptocurrency other than bitcoin (BTC).
AML (Anti-Money Laundering). A regulation designed to detect and report suspicious activity related to illegally concealing the origins of money.
AMM (Automated market maker). An automated market maker (AMM) is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets. Instead of using an order book like a traditional exchange, assets are priced according to a pricing algorithm. This formula can vary with each protocol.
Asymmetric key cryptography. is a cryptographic system that uses pairs of keys: public keys (which may be known to others), and private keys (which may never be known by any except the owner). The generation of such key pairs depends on cryptographic algorithms which are based on mathematical problems termed one-way functions. Effective security requires keeping the private key private; the public key can be openly distributed without compromising security. Also, see symmetric key cryptography.
Atomic Swap. An atomic swap is a smart contract technology that enables the exchange of one cryptocurrency for another without using centralized intermediaries, such as exchanges.
Barter. Usually, the action or system of exchanging goods or services without using money. It is a peer-to-peer exchange mechanism in which two parties agree that goods or services to be exchanged are well-matched. For example, A has two pigs and needs a cow. B has a cow and needs two pigs.
Bitcoin. Bitcoin (BTC) is a cryptocurrency invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. The currency began use in 2009 when its implementation was released as open-source software.
Blockchain. A decentralized ledger invented in 1991 by Haber and Stornetta. Every node in the ledger has a copy. The ledger can be added to through consensus protocol, but the ledger’s history is immutable. The ledger is also visible to anyone.
Bonding curve. A smart contract that allows users to buy or sell a token using a fixed mathematical model. For example, consider a simple linear function in which the token = supply. In this case, the first token would cost 1 ETH and the second token 2 ETH, thereby rewarding early participants. It is possible to have different bonding curves for buying and selling. A common functional form is a logistic curve.
Bricked funds. Funds trapped in a smart contract due to a bug in the contract.
Burn. The removal of a token from circulation, which thereby reduces the supply of the token. Burning is achieved by sending the token to an unowned Ethereum address or to a contract that is incapable of spending. Burning is an important part of many smart contracts. For example, burning occurs when someone exits a pool and redeems the underlying assets.
Collateralized currency. Paper currency backed by collateral such as gold, silver, or other assets.
Collateralized debt obligation. In traditional finance, this represents a debt instrument such as a mortgage. In DeFI, an example would be a stablecoin overcollateralized with a cryptoasset.
Consensus protocol. The mechanism whereby parties agree to add a new block to the existing blockchain. Both Ethereum and bitcoin use proof of work, but many other mechanisms exist, such as proof of stake.
Contract account. A type of account in Ethereum controlled by a smart contract.
Credit delegation. A feature whereby users can allocate collateral to potential borrowers who can use the collateral to borrow the desired asset.
Cryptocurrency. A digital token that is cryptographically secured and transferred using blockchain technology. Leading examples are bitcoin and Ethereum. Many different types of cryptocurrencies exist, such as stablecoin and tokens that represent digital and non-digital assets.
Cryptographic hash. (aka “Hash”) A one-way function that uniquely represents the input data. It can be thought of as a unique digital fingerprint. The output is a fixed size even though the input can be arbitrarily large. A hash is not encryption because it does not allow recovery of the original message. A popular hashing algorithm is the SHA-256, which returns 256 bits or 64 hexadecimal characters. The bitcoin blockchain uses the SHA-256. Ethereum uses the Keccak-256.
DAO (Decentralized autonomous organization). An algorithmic organization that has a set of rules encoded in a smart contract that stipulates who can execute what behavior or upgrade. A DAO commonly includes a governance token.
Dapp (Decentralized application). Peer-to-peer, permissionless, censorship resistant applications. Anyone can use them and no central organization controls them.
DeFi (Decentralized finance). A financial infrastructure that does not rely on a centralized institution such as a bank. Exchange, lending, borrowing, and trading are conducted on a peer to-peer basis using blockchain technology and smart contracts.
Defi Legos. The idea that combining protocols to build a new protocol is possible. Sometimes referred to as DeFi Money Legos or composability. DEX. See Decentralized exchange.
DEX (Decentralized exchange). A platform that facilitates token swaps in a noncustodial fashion. The two mechanisms for DEX liquidity are order book matching and AMM.
Digest. See Cryptographic hash. Also known as message digest.
Direct incentive. A payment or fee associated with a specific user action intended to be a reward for positive behavior. For example, suppose a collateralized debt obligation becomes undercollateralized. The condition does not automatically trigger liquidation. An externally owned account must trigger the liquidation, and a reward (direct incentive) is given for triggering the liquation.
Double spend. A problem that plagued digital currency initiatives in the 1980s and 1990s: perfect copies can be made of a digital asset, so it can be spent multiple times. The Satoshi Nakamoto white paper in 2008 solved this problem using a combination of blockchain technology and proof of work.
Equity token. A type of cryptocurrency that represents ownership of an underlying asset or a pool of assets.
EOA (Externally owned account). An Ethereum account controlled by a specific user.
ERC-20. Ethereum Request for Comments (ERC) related to defining the interface for fungible tokens. Fungible tokens are identical in utility and functionality. The US dollar is fungible currency in that all $20 bills are identical in value and 20 $1 bills are equal to the $20 bill.
ERC-721. Ethereum Request for Comments (ERC) related to defining the interface for nonfungible tokens. Nonfungible tokens are unique and are often used for collectibles or specific assets, such as a loan.
ERC-1155. Ethereum Request for Comments (ERC) related to defining a multi-token model in which a contract can hold balances of a number of tokens, either fungible or non-fungible.
Ether (ETH). Ethereum’s cryptocurrency.
Ethereum. Second-largest cryptocurrency blockchain, which has existed since 2015. The currency is known as ether (ETH). Ethereum has the ability to run computer programs known as smart contracts. Ethereum is considered a distributed computational platform.
Ethereum 2.0. A proposed improvement on the Ethereum blockchain that uses horizontal scaling and proof-of-stake consensus.
Faucet. A smart contract that mints “test ETH” (a valueless version of Ethereum’s cryptocurrency) for use on a Testnet.
Fiat currency. Uncollateralized paper currency, which is essentially an IOU by a government.
Fintech (Financial Technology). A general term that refers to technological advances in finance. It broadly includes technologies in the payments, trading, borrowing, and lending spaces. Fintech often includes big data and machine learning applications.
Flash loan. An uncollateralized loan with zero counterparty risk and zero duration. A flash loan is used to facilitate arbitrage or to refinance a loan without pledging collateral. A flash loan has no counterparty risk because, in a single transaction, the loan is created, all buying and selling using the loan funding is completed, and the loan is paid in full.
Flash swap. Feature of some DeFi protocols whereby a contract sends tokens before the user pays for them with assets on the other side of the pair. A flash swap allows for near-instantaneous arbitrage. Whereas a flash loan must be repaid with the same asset, a flash swap allows the flexibility of repaying with a different asset. A key feature is that all trades occur within a single Ethereum transaction.
Fork. In the context of open source code, an upgrade or enhancement to an existing protocol that connects to the protocol’s history. A user has the choice of using the old or the new protocol. If the new protocol is better and attracts sufficient mining power, it will win. Forking is a key mechanism to assure efficiency in DeFi.
Gas (aka Gas Prices, Gas Fees). A fee required to execute a transaction and to execute a smart contract. Gas is the mechanism that allows Ethereum to deal with the halting problem.
Geoblock. Technology that blocks users from certain countries bound by regulation that precludes the application.
Governance token. The right of an owner to vote on changes to the protocol. Examples include the MakerDAO MKR token and the Compound COMP token.
Gwei (gigawei). Is 1,000,000,000 wei. Wei, as the smallest (base) unit of ether (ETH), is what Sats (aka satoshi) are to bitcoin.
Halting problem. A computer program in an infinite loop. Ethereum solves this problem by requiring a fee for a certain amount of computing. If the gas is exhausted, the program stops.
Hash. See Cryptographic hash.
Hexadecimal. A counting system in base-16 that includes the first 10 numbers 0 through 9 plus the first six letters of the alphabet, a through f. Each hexadecimal character represents 4 bits, where 0 is 0000 and the 16th (f) is 1111.
Horizontal scaling. An approach that divides the work of the system into multiple pieces, retaining decentralization but increasing the throughput of the system through parallelization. This is also known as sharding. Ethereum 2.0 takes this approach in combination with a proof of-stake consensus algorithm.
IDO (Initial DeFi Offering). A method of setting an initial exchange rate for a new token. A user can be the first liquidity provider on a pair, such as, for example, the new token and a stablecoin such as USDC. Essentially, the user establishes an artificial floor for the price of the new token.
Impermanent loss. Applies to AMM, where a contract holds assets on both sides of a trading pair. Suppose the AMM imposes a fixed exchange ratio between the two assets, and both assets appreciate in market value. The first asset appreciates by more than the second asset. Users drain the first asset and the contract is left holding only the second asset. The impermanent loss is the value of the contract if no exchange took place (value of both tokens) minus the value of the contract after it was drained (value of second token).
Incentive. A broad term used to reward productive behavior. Examples include direct incentives and staked incentives.
Keeper. A class of externally owned accounts that is an incentive to perform an action in a DeFi protocol of a Dapp. The keeper receives a reward in the form of a flat fee or a percentage of the incented action. For example, the keeper receives a fee for liquidating a collateralized debt obligation when it becomes undercollateralized.
KYC (Know Your Customer). A provision of US regulation common to financial services regulation requiring that users must identify themselves. This regulation has led to geoblocking of US customers from certain DEX functionalities.
Layer 2. A scaling solution built on top of a blockchain that uses cryptography and economic guarantees to maintain desired levels of security. For example, small transactions can occur using a multi-signature payment channel. The blockchain is only used when funds are added to the channel or withdrawn.
Liquidity provider (LP). A user that earns a return by depositing assets into a pool or a smart contract.
Mainnet. The fully-operational, production blockchain behind a token, such as the Bitcoin blockchain or the Ethereum blockchain. Often used to contrast with testnet.
Memecoin. A cryptocurrency that is associated with or based on a meme or joke. (The most famous memecoin is Dogecoin.)
Miner. Miners cycle through various values of a nonce to try to find a rare hash value in a proof-of-work blockchain. A miner gathers candidate transactions for a new block, adds a piece of data called a nonce, and executes a cryptographic hashing function. The nonce is varied and the hashing continues. If the miner “wins” by finding a hash value that is very small, the miner receives a direct reward in newly minted cryptocurrency. A miner also earns an indirect reward, collecting fees for the transactions included in their block.
Miner extractable value. The profit derived by a miner. For example, the miner could front run a pending transaction they believe will increase the price of the cryptocurrency (e.g., a large buy).
Mint. An action that increases the supply of tokens and is the opposite of burn. Minting often occurs when a user enters a pool and acquires an ownership share. Minting and burning are essential parts of noncollateralized stablecoin models (i.e., when stablecoin gets too expensive more are minted, which increases supply and reduces prices). Minting is also a means to reward user behavior. You mint NFTs as well as cryptocurriences created in many Layer 2 solutions.
Networked liquidity. The idea that any exchange application can lever the liquidity and rates of any other exchange on the same blockchain.
Node. A computer on a network that has a full copy of a blockchain.
Nonce (Number Only Once). A counter mechanism for miners as they cycle through various values when trying to discover a rare cryptographic hash value.
NFT (Non-fungible Token). A non-fungible token as defined by ERC-721 and ERC-1155 is a unique token often used for collectibles or specific assets, such as a loan.
On chain. Slang term used to describe transactions reflected on a blockchain.
Optimistic rollup. A scaling solution whereby transactions are aggregated off-chain into a single digest that is submitted to the chain on a periodic basis. https://optimism.io/ is Ethereum’s version.
Oracle. A method whereby information is gathered outside of a blockchain. Parties must agree on the source of the information.
Order book matching. A process in which all parties must agree on the swap exchange rate. Market makers can post bids and asks to a DEX and allow takers to fill the quotes at the pre-agreed price. Until the offer is taken, the market maker has the right to withdraw the offer or update the exchange rate.
Perpetual futures contract. Similar to a traditional futures contract, but without an expiration date.
Proof of stake (PoS). An alternative consensus mechanism, and a key feature of Ethereum 2.0, in which the staking of an asset on the next block replaces the mining of blocks as in proof of work. In proof of work, miners need to spend on electricity and equipment to win a block. In proof of stake, validators commit some capital (the stake) to attest that the block is valid. Validators make themselves available by staking their cryptocurrency and then they are randomly selected to propose a block. The proposed block needs to be attested by a majority of the other validators. Validators profit by both proposing a block as well as attesting to the validity of others’ proposed blocks. If a validator acts maliciously, there is a penalty mechanism whereby their stake is slashed.
Proof of work (PoW). Originally advocated by Back in 2002, PoW is the consensus mechanism for the two leading blockchains: Bitcoin and Ethereum. Miners compete to find a hash, which is hard to find but easy to verify. Miners are rewarded for finding the cryptographic hash and using it to add a block to the blockchain. The computing difficulty of finding the hash makes it impractical to go backward to rewrite the history of a leading blockchain.
Router contracts. In the context of DEX, a contract that determines the most efficient path of swaps in order to get the lowest slippage, if no direct trading pair is available e.g., on Uniswap.
SATS – Satoshis. A Satoshi is the smallest denomination of a Bitcoin, it’s a hundreth of a millionth, or 0.00000001 BTC.
Satoshi Nakamoto. The name used by the presumed pseudonymous person or persons who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin’s original reference implementation. As part of the implementation, Nakamoto also devised the first blockchain database.
Scaling risk. The limited ability of most current blockchains to handle a larger number of transactions per second. See vertical scaling and horizontal scaling.
Schelling-point oracle. A type of oracle that relies on the owners of a fixed supply of tokens to vote on the outcome of an event or report a price of an asset.
Sharding. Sometimes called horizontal scaling, sharding divides the work of the system into multiple pieces, retaining decentralization but increasing the throughput of the system through parallelization. Ethereum 2.0 takes this approach with the goal of reducing network congestion and increasing the number of transactions per second.
Slashing. A mechanism in proof of stake blockchain protocols intended to discourage certain user misbehavior.
Slashing condition. The mechanism that triggers a slashing. An example of a slashing condition is when under-collateralization triggers a liquidation.
Smart contract. A smart contract is a computer program or a transaction protocol which automatically executes when conditions of the agreement are met. Smart contracts the key mechanism for DeFi and Dapps and are an important feature of the Ethereum blockchain.
Specie. Metallic currency such as gold or silver (or nickel and copper) that has value on its own (i.e., if melted and sold as a metal).
Stablecoin. A token tied to the value of an asset such as the US dollar. A stablecoin can be collateralized with physical assets (e.g., US dollar in USDC) or digital assets (e.g., DAI) or can be uncollateralized (e.g., AMPL and ESD).
Staking. The escrows of funds in a smart contract by a user who is subject to a penalty (slashed funds) if they deviate from expected behavior.
Staked incentive. A token balance held by a smart contract whose purpose is to influence user behavior. A staking reward is designed to encourage positive behavior by giving the user a bonus in their token balance based on the stake size. A staking penalty (slashing) is designed to discourage negative behavior by removing a portion of a user’s token balance based on the stake size.
Swap. The exchange of one token for another. In DeFi, swaps are atomic and noncustodial. Funds can be custodied in a smart contract with withdrawal rights exercisable at any time before the swap is completed. If the swap is not completed, all parties retain their custodied funds.
Symmetric key cryptography. A type of cryptography in which a common key is used to encrypt and decrypt a message.
Testnet. An identically functioning blockchain to a mainnet, whose purpose is to test software. The tokens associated with the testnet when testing Ethereum, for example, are called test ETH. Test ETH are obtained for free from a smart contract that mints the test ETH (known as a faucet).
Transparency. The ability for anyone to see the code and all transactions sent to a smart contract. A commonly used blockchain explorer is etherscan.io.
Utility token. A fungible token required to utilize some functionality of a smart contract system or that has an intrinsic value defined by its respective smart contract system. For example, a stablecoin, whether collateralized or algorithmic, is a utility token.
Vampirism. An exact or near-exact copy of a DeFi platform designed to take liquidity away from an existing platform often by offering users direct incentives.
Vault. A smart contract that escrows collateral and keeps track of the value of the collateral.
Vertical scaling. The centralization of all transaction processing to a single large machine, which reduces the communication overhead (transaction/block latency) associated with a proof of-work blockchain, such as Ethereum, but results in a centralized architecture in which one machine is responsible for a majority of the system’s processing.
Yield farming. A means to provide contract-funded rewards to users for staking capital or using a protocol.
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