AdTech is an abbreviation of “advertising technology”. AdTech comprises the systems and software applications used to create, deliver, manage, and optimize digital advertising campaigns. AdTech is an evolving space and is particularly relevant in the business sphere given the growing ubiquity of the internet and virtual media.
One notable trend in this area is the application of blockchains to advertising technologies. Blockchains make it possible, for example, for buyers and sellers to exchange digital ad space without any intermediaries, secure and verify audience data, and execute smart contracts based on ad performance. The ad industry is particularly vulnerable to fraud, and blockchains are increasingly being used to overcome common risks.
In simple terms, an algorithm is a set of instructions a computer can process. An algorithm takes an input, usually in the form of data, and then modifies, changes, or interprets this data to issue an output.
Algorithms are central to the functioning of blockchains (and consequently cryptocurrencies) and are responsible for the issuing of currency and the updating of transaction ledgers.
Blockchains rely on “consensus algorithms”, of which “Proof of Work” and “Proof of Stake” are the most common. These algorithms are used for hashing, signing, verification, and mining.
Blockchains reward users willing to dedicate the hardware resources necessary to run consensus algorithms and thus ensure the ongoing functionality of blockchains, cryptocurrencies, and associated digital assets.
An altcoin – “alternative coin” – is any type of digital currency that is not Bitcoin. Since the launch of Bitcoin, the world’s first-ever digital currency, numerous altcoins (and supporting blockchains) have been created.
Altcoin digital currencies share many similarities to Bitcoin, but invariably also have important differences. There are nearly 10,000 altcoins, and this number is expected to grow substantially in the coming years.
Altcoins often improve on Bitcoin’s features. Ethereum, currently the most widely-used blockchain, supports digital contracts and decentralized applications where Bitcoin does not.
Altcoins are also usually created to cater to the preferences of different users. The Litecoin blockchain, for example, can process payments in a quarter of the time it takes Bitcoin.
Anti-money laundering regulations are procedures, policies, and laws enacted by governing bodies to stop financial crime. These regulations include “Know Your Customer” rules.
International institutions mandate that financial organizations apply the required safety measures so that these organizations can recognize and eliminate profit from illegal activities. Illegal activities include tax evasion, scams, market manipulation, fraud, money laundering, and more.
In the crypto domain, governing bodies can enact AML regulations to varying levels. Currently, most centralized exchanges operate under former rules or have had new regulations enforced. However, the majority of criminal activity in crypto is found on decentralized exchanges which are still relatively unregulated and rely upon self-checking.
Arbitrage trading is the legal act of profiting from disparate buy and sell prices of assets. Traders usually exploit market discrepancies by buying an asset on one exchange and selling it on another.
Exchanges price assets in different ways and often have varying liquidity levels. This variance causes market inefficiencies, and the same currencies become available at different prices, making arbitrage trading feasible.
There are various types of arbitrage in the crypto sphere. These include simultaneously buying and selling assets on different exchanges, utilizing cryptocurrency pairs for triangular arbitrage, and using decentralized exchanges.
An atomic swap is a streamlined, trustless exchange of different cryptocurrencies. Atomic swaps allow users to trade directly from their crypto wallets without centralized exchanges such as Coinbase and Gemini.
Atomic swaps use time-bound, automated smart contracts known as Hash Time-Locked Contracts to ensure the security of the transaction. These agreements demand that the contractors confirm the successful acquisition of funds within a set time limit. If the transaction isn’t acknowledged, the exchange cannot be verified. Coins from unverified atomic swaps remain with their initial owners.
An automated liquidity protocol is a method used by decentralized exchanges to improve asset liquidity.
Small, decentralized exchanges can’t effectively implement an order book model for transactions because doing so requires a large number of users on the exchange to match buy and sell orders. If there aren’t enough traders available for an asset, it will have low liquidity.
Decentralized exchanges run on an automated market maker system that utilizes mathematical formulae and smart contracts. These automated protocols employ liquidity pools that allow exchange users to lock in their funds to create a constantly available cryptocurrency supply.
Automated market makers are decentralized exchanges that utilize liquidity pools and complex mathematical formulae to maintain asset liquidity and reduce price slippage.
AMMs don’t use a traditional “order book” model that requires buyers and sellers to be available and agree on an asset price to complete trades. This approach is unreliable for small, decentralized exchanges with a small number of users.
Instead, AMMs allow their users to “donate” their funds to liquidity pools. The combined users’ currencies are then made available to buyers, thus creating high levels of liquidity.
Liquidity pools eliminate the need for exchanges to use complex matching engines to price assets. Instead, they rely on a constant product formula and smart contract technology to regulate assets’ values.
Brave is an open-source, decentralized project that aims to offer more equitable and targeted digital advertising through its private browser. Advertisers pay for their ads to be published and are rewarded with BATs based on engagement. Brave browser users can earn BATs by watching customized adverts and reward others with the tokens.
The bid-ask spread is the difference between an asset’s lowest asking price and its highest bidding price. The “bid” refers to the buying price, while the “ask” is the selling price.
When trading assets like stocks or cryptocurrencies, there are no set asset prices. Instead, prices fluctuate depending on an array of market factors. As a result, bid and ask values are unstable.
Bid-ask spreads are indicative of an asset’s liquidity. A smaller difference between bid and ask values typically signifies high asset liquidity and large trading volume. A larger difference points to the opposite.
Binance is an exchange platform for cryptocurrencies and tokens. It is one of the leading exchanges by market volume and offers a wide range of trading pairs and altcoins.
In 2019, Binance launched a blockchain called Binance Chain, with the Binance Coin (BNB) as its native currency.
Binance created a second blockchain called Binance Smart Chain that runs parallel to the Binance Chain, creating a “dual-chain” system of two interacting blockchains. This dual-chain supports smart contracts and is compatible with the Ethereum Virtual Machine.
Binance’s main exchange is centralized. However, Binance has also released a decentralized exchange, Binance DEX, that runs as a dApp on the Binance Chain.
Bitcoin is the world’s most popular cryptocurrency. Created in 2008, it was the first digital currency to leverage a peer-to-peer network powered by its users that did not rely on a central authority or single administrator. Despite its popularity, Bitcoin is not recognized as legal tender by the majority of national governments and central banks.
Bitcoin halving is the regular halving of miner rewards on the Bitcoin blockchain.
On Bitcoin’s network, nodes are responsible for storing data and completing the complex computational workloads required by the Proof of Work consensus mechanism.
Only twenty-one million bitcoins can be mined (approximately two million remain unmined). Every time approximately 200,000 extra coins are mined, the quantity of Bitcoin rewarded to miners is halved to control inflation.
Bitcoin halving events correlate with extreme price volatility, often leaving the price higher than it was. This price surge incentivizes miners to continue servicing the network, despite earning fewer Bitcoins.
Block explorers are online search tools that can be used to find specific pieces of blockchain data. Users can search for block contents, transaction addresses, the network hash rate of a blockchain, and so on. There are various block explorers available for Bitcoin and other altcoins.
Users can leverage block explorers to observe blockchain activity in real-time. Miners, for example, can confirm that they have successfully mined a block. In addition, block explorers show how much a miner has earned, what addresses rewards have been sent to, and the number of confirmations associated with a block. Cryptocurrency traders use block explorers to check transaction statuses, track blockchain activity, and obtain market data.
A blockchain is a very specific type of distributed database. The technology was first prototyped by the creators of Bitcoin in 2008. This newer type of database consists of individual blocks linked together in a chronological chain.
Blockchains can be used to store a variety of information types. To date, it has most commonly been used as a public ledger for cryptocurrency transactions. A peer-to-peer network made up of individual nodes utilizes a consensus mechanism to maintain the security and validity of the blockchain. Each node on the network stores a copy of the data publicly and immutably.
Blockchain technology can be applied to remedy many of the issues associated with managing complex supply chains. Large companies, particularly those that require multiple manufacturing parts and rely on advanced, international logistics networks, face challenges when it comes to dealing with large numbers of transactions and maintaining extensive databases of items.
Because blockchains are decentralized and offer more security than traditional software systems, several companies, including Walmart and IBM, have trialed the use of blockchains to streamline the process of supply chain management. And while it is a relatively new trend, blockchain for supply management holds the potential to increase accessibility to supply chain databases, allow for greater tracking of products, and reduce fees associated with cross-border payments.
A blockchain consultant is a non-associated individual or corporate entity that assists companies in implementing blockchain-based solutions.
Blockchain consultants actualize companies’ goals through decentralized systems. They research, analyze, strategize, and execute blockchain technologies. In addition, consultancies make blockchain benefits such as tokenization, smart contracts, decentralized finance, and distributed ledger technology available to businesses.
Scalac offers blockchain consultancy as part of its portfolio of development and information technology (IT) services.
Blockchain programming is the discipline of creating and managing blockchains and the second-layer services that run on them. Blockchains are composed of nodes, and a node is essentially a program that carries out algorithmic tasks to verify transactions.
Blockchain programming encompasses elements of traditional programming, cryptography, and complex information technology (IT) systems.
A “protocol” is a set of rules and systems which govern the operation of a blockchain. A protocol is essentially a framework in which nodes on a network communicate and add new blocks to a distributed ledger.
There are three main foundational blockchain protocols (or consensus mechanisms): Proof of Work (Pow), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS).
It’s possible to introduce new protocols onto existing blockchains. The term “protocol” may refer to the underlying parameters that determine how nodes communicate. Alternatively, it may describe the specific mechanisms that work on top of existing blockchains, such as smart contracts on the Ethereum network.
Competing blockchains have different protocols, each with their benefits and drawbacks.
Verification is the process by which new transactions are added to blockchains. Transactions are added as blocks, which represent discrete units of transaction data.
The authentication process involves the use of public and private encrypted digital signatures, which link transactions and corresponding digital assets to particular individuals or parties.
Transactions are verified and added to blockchains through consensus mechanisms. A consensus mechanism is a complex algorithm that authenticates the validity of a transaction and renders fraudulent activity financially untenable. Miners are responsible for this process and are usually rewarded with digital currency for expending the resources necessary for verification.
In simple terms, blockchain voting is the use of blockchains to record, verify, and store votes as part of democratic processes like elections.
It is a very controversial area. Supporters argue that blockchain voting holds the potential to prevent fraud. Detractors say that such systems are open to manipulation and cybersecurity attacks. Nonetheless, a number of small-scale trials have gone ahead around the world.
The process of voting on a blockchain happens in much the same way as a digital currency transaction. Individuals use private keys to make votes which are then stored as discrete pieces of data on a blockchain’s digital ledger. These votes can subsequently be verified and counted by the relevant authority.
Blocks are files containing data that are linked together in a chain to create a blockchain. Used to record information, a block is like a page of a ledger. On Bitcoin’s blockchain, each block contains a cryptographic hash code, the hash from the block before it, a timestamp, signature, and some additional data.
New blocks are connected to previous blocks chronologically. Whether or not each new block is verified is decided by an algorithm, most commonly the Proof of Work or Proof of Stake algorithms. These consensus mechanisms rely on a peer-to-peer network to verify the content of a block before publishing.
Bots are automated applications designed to complete specific functions. Developers utilize application processing interfaces (APIs) to program bots to communicate with exchanges. In the crypto domain, bots have a variety of uses.
Traders leverage trading bots to analyze data, create investment strategies, arbitrage trade, automize transactions, and more. Bots can also be used for the illegal practice of front running, in which a trader uses insider information to get ahead of a shift in an asset’s value.
Overall, bots are a cost-effective, time-saving, round-the-clock option for traders. That said, they often have associated fees and large computing requirements, forcing traders to keep their funds on an exchange.
When an asset’s value drops, it can be said to “dip.” The term is used across a range of financial markets and is often used to describe the price fluctuations of cryptocurrencies.
“Buying the dip” is a technique in which investors take advantage of drops in an asset’s value. By purchasing at a lower price, investors “average down” their asset purchase price or maximize profits on undervalued assets.
Many markets, however, are highly speculative. And this is particularly the case with the cryptocurrency market. A dip in the value of an asset may signify the start of a longer downward trend. A future bounce back isn’t a given. Waiting for price settling, undertaking due diligence, and utilizing incremental buying protects buyers against poor investments.
Cardano is an open-source blockchain platform based on the Proof of Work consensus mechanism. Its native cryptocurrency is ADA.
Ethereum co-founder Charles Hoskinson launched Cardano in 2017. Cardano is written in Haskell, which utilizes pure functions.
Cardano is a third-generation platform developed using an evidence-based model. Two layers form the core of its blockchain: the Cardano settlement layer that tracks balances and transactions and the Cardano computational layer for smart contracts and applications.
In addition, a central part of Cardano’s protocol is its Proof of Stake consensus algorithm, Ouroboros, which is designed for sustainability and scalability. At the time of writing, Cardano is due to release further upgrades, such as the layer-2 solution Hydra, in the near future.
Centralized finance (CeFi) is a system in which a single governing body controls a financial institution. Most banks and exchanges are CeFi institutions. CeFi institutions are intermediaries that customers trust to undertake financial activities and secure assets. CeFi organizations must also adhere to Know-Your-Customer and Anti-Money-Laundering regulations.
Despite cryptocurrencies running on decentralized blockchains, many crypto exchanges are CeFi. They require users to provide identification and surrender custody of their private keys. CeFi crypto exchanges offer individuals a more manageable trading experience compared to decentralized exchanges. However, they are more likely to be subject to government regulations and can be more susceptible to certain cyberattacks and market manipulations.
Centralized cryptocurrency exchanges are platforms run by companies as intermediaries for cryptocurrency transactions and storage.
On a centralized exchange, customers don’t have access to their private keys and surrender custody of their funds.
The exchange keeps a record of all buy and sell orders and tracks users’ orders internally, only transforming them into actual currency when withdrawn.
Centralized exchanges are currently responsible for the vast majority of cryptocurrency transactions due to their convenience, speed, and cost for users. However, some view these exchanges as the antithesis of the ideals of cryptocurrencies such as Bitcoin.
What’s more, there are risks due to the amount of funds exchanges store. These concerns include wash trading, price manipulation by exchanges, hacking theft, and government censorship.
Examples of centralized exchanges include Binance and Gemini.
Coinbase is the largest cryptocurrency exchange platform in the United States. As with any other cryptocurrency exchange, Coinbase allows users to buy and trade cryptocurrencies, including Bitcoin, Ethereum, and Litecoin.
Coinbase, and sites like it, have proven instrumental in opening up cryptocurrency investment opportunities to new markets. Its user-friendly interface and variety of digital currencies have made it popular with everyday users. And the size of the platform ensures high levels of liquidity.
However, it tends to be less popular with professional traders and larger investors because of the high fees levied on transactions and the comparatively smaller variety of currencies on offer compared to other exchanges.
Cold wallets – also referred to as offline wallets – are cryptocurrency wallets that are not connected to the internet. Cold wallets enable users to store their private keys offline in the form of either a paper wallet, hardware wallet, or offline software wallet. Most cold wallets are hardware wallets and take the form of a USB stick.
Cold wallets attract long-term cryptocurrency traders because they are less likely to fall victim to cyberattacks than hot wallets. To increase security, digital cold wallets are often open source. This allows users to check their code for malicious activity. Security is crucial when managing cryptocurrency because exchanges and wallets are less regulated than traditional financial institutions. Often, they will refuse to reimburse customers’ cryptocurrency when it is stolen during security breaches.
In the crypto domain, cold storage is the offline storage of cryptocurrencies. The term refers to the utilization of cold wallets that are not connected to the internet.
Cold storage is the safest way to store cryptocurrency because offline currency is less likely to be hacked and stolen.
Cold storage can refer to paper wallets, printed versions of private keys, as well as offline hardware and software wallets.
Decentralized networks create verified, authentic, and unified databases using consensus mechanisms, which are also called consensus algorithms or protocols.
Individual nodes on a peer-to-peer network undertake sets of tasks to authorize data. These tasks are determined by the nature of the mechanism being used. Cryptocurrency blockchains reward certain nodes – also called validators or miners – with native cryptocurrency for completing consensus tasks. These algorithms rely on nodes to prove ownership of expensive resources, such as computational power or high stakes in a cryptocurrency.
The two dominant types of consensus mechanisms are the Proof of Work and Proof of Stake algorithms. Other mechanisms include the Delegated Proof of Stake mechanism, Proof of Authority, and Proof of Activity.
Consensus mechanisms provide protection against some types of economic attacks, such as 51% attacks.
Cryptocurrencies, or “crypto”, are digital assets that are used as mediums of exchange. The secure storage and transfer of cryptocurrencies is ensured by various layers of cryptographic technology.
Typically, cryptocurrencies rely on decentralized networks and aren’t issued or maintained by central authorities or banking systems. These decentralized systems utilize publicly available distributed ledgers, also known as blockchains, to ensure that cryptocurrencies are not double-spent.
Cryptocurrency pairs – also referred to as trading pairs – are a type of currency pair. A pair is two tokens or coins that can be traded. Cryptocurrency pairs can include fiat currencies and cryptocurrencies.
Cryptocurrency pairs allow traders to compare currencies against one another. In a pair, two currency names or abbreviations are presented, separated by a slash or dash, for example, BTC/USD. The first currency in the pair is the base currency with the quote currency listed second. The quote currency is compared against the base currency, showing how much one coin or token of the base currency is equal to in the quote currency.
Knowledge of cryptocurrency pairs is valuable to traders because some altcoins can only be bought with specific currencies. What’s more, awareness of pairs allows investors to explore arbitrage trading and high liquidity trading opportunities.
Unlike a physical wallet that holds paper currency, a cryptocurrency wallet stores public and private keys. These keys are required for cryptocurrency transactions to take place.
In a simple “crypto wallet”, keys are used to spend, receive, and track the ownership of cryptocurrencies. A private key grants the user ownership over funds and is used to approve outgoing transactions. A public key allows anybody other than the owner to make payments to the wallet.
Wallets come in a range of types, and each type provides a different level of security. More complex wallets, for example, offer features like multi-key verification. There are also hardware, software, and in-browser options, which can be offline (cold storage) or online (hot storage). What’s more, users can opt for either custodial and non-custodial wallets, which offer third-party key control and individual key control respectively.
Custodial cryptocurrency wallets are secured with private keys that users do not own. Financial institutions and businesses, like cryptocurrency exchanges, offer custodial wallets that both control and ensure the safety of users’ private keys.
Custodial wallets are appealing because of their ease of use. Because they offer accounts with password recovery methods, custodial wallets reduce the chances that users will be negligent and lose access to their cryptocurrencies.
However, using a custodial wallet does carry risks. They are not immune from cyberattacks and funds can be detained. Consequently, users must pick a trustworthy wallet provider with robust security measures.
Daedalus is a cryptocurrency wallet for the native token of the Cardano blockchain, ADA. Users download it to their desktops. It is compatible with Windows, macOS, and Linux.
Daedalus is open source and runs on the proof-of-stake blockchain platform, Cardano. It’s a full-node wallet that stores a complete, independently validated copy of the blockchain. This full-node functionality, which doesn’t rely on third-party servers for data, makes the wallet trustless and secure.
The Daedalus wallet is non-custodial and lets users maintain control of their private keys. What’s more, it’s a hierarchical deterministic wallet that supports multiple key pairs derived from one seed phrase.
Day trading, or intraday trading, is a short-term investment strategy. It refers to the speedy trading of assets over a day. The term is used across financial markets and originated in the stock market.
Day traders analyze factors such as volume, price fluctuations, and chart patterns to identify strong trades. Day traders may also follow daily news and short-term fundamentals to make decisions.
Crypto day traders take advantage of daily swings in various cryptocurrencies. Day trading strategies include arbitrage trading, scalping, high-frequency trading, and range trading.
Decentralized applications are computer programs that have backend code running on a distributed blockchain system.
dApps fulfill many uses, and range from financial tools to games. dApps are usually open-source and interoperable, allowing creators a high level of autonomy. Using smart contracts to control their logic, dApps are deterministic, and their functions are performed identically in all environments.
Developers are attracted to dApps for many reasons, including the security and privacy of using cryptography, avoiding censorship, and using a market with no downtime.
Like conventional applications, dApps utilize front-end code written in a common programming language. dApps also offer changeable interfaces that can be self-built or modified with a third-party interface.
A Decentralized Autonomous Organization (DAO) is a peer-to-peer organization that functions without a corporate hierarchy. DAOs are built on blockchains to protect corporations against forgery, allow trustless distribution, and enhance security. Additionally, DAOs allow for the creation of collaborative, self-governing environments amongst peers. DAOs leverage crypto tokens to designate stakes and democratic rights on a network.
Automated smart contracts sit at the core of the DAO model. These smart contracts communicate autonomously through “if-then” coding statements and thereby enforce the organization’s rules. Theoretically, these automated contracts could eliminate the need for human employees by triggering whenever buyers make orders, items become low in stock, or any other response based on measurable inputs is required.
The term “decentralized finance” refers to an existing global financial system that doesn’t rely on centralized financial intermediaries. Rather than using banks, exchanges, or brokerages to provide financial products and services, DeFi uses non-human smart contracts that consist of code to form agreements between users.
DeFi applications use open-source code, blockchain technology, and cryptography, enabling anyone with an internet connection and device to transfer funds.
Currently, the Ethereum blockchain is the most prominent DeFi application platform. This type of financial dApp has a selection of core components, including stablecoin, exchanges (dex), money markets, insurance, and Synthetix.
Decentralized exchanges allow peer-to-peer exchanges to take place without a centralized intermediary.
Decentralized exchanges leverage smart contracts and blockchain technologies to provide the opportunity and security necessary to exchange coins and tokens.
This type of exchange allows cryptocurrency owners to maintain custody of their funds and private keys.
Decentralized exchanges can be a safer option than using centralized intermediaries because it decreases the risk of theft through hacking. However, DEXs are more complex for users to employ, and there is more risk of price slippage and front-running.
Exchanges can be partially decentralized and still utilized centralized elements.
Airswap is an example of a decentralized exchange.
The Delegated Proof of Stake consensus algorithm allows nodes to stake an amount of a specific cryptocurrency to vote on a blockchain.
DPoS is similar to the traditional Proof of Stake model in which crypto owners stake a quantity of their currency to compete to validate blocks. In the DPos protocol, however, individual nodes don’t stake their currency to validate blocks themselves. Instead, a node’s stake determines its democratic power to select other nodes to validate blocks.
In turn, blockchains working on the DPoS algorithm schedule delegated nodes to verify blocks. These elected nodes must perform well and maintain their reputation on the network to avoid replacement. Both delegates and voters share network rewards.
This democratic protocol maintains the Proof of Stake model’s increased environmental sustainability and scalability, unlike the Proof of Work mechanism.
A denial-of-service attack (DoS attack) is a type of cyber-attack that aims to disrupt a server or network’s functionality.
On more traditional server-based systems, this type of attack is often initiated by a malicious computer flooding a server with false traffic to cause it to function poorly or go offline. An attack that stems from multiple computers simultaneously is a “Distributed Denial-of-Service attack” (DDoS attack). DDoS attacks rely on the spread of malicious software, which is uploaded to the servers of unsuspecting individuals. These servers are then utilized to continue the attack.
On a cryptocurrency blockchain, this style of DoS attack can be effective. On a blockchain, there is a limit to the number of times nodes can register transactions. This allows attackers to overload networks with small transactions that take the same amount of time to process as more significant and authentic transactions. This slows the blockchain down and can allow perpetrators to make other types of attacks. However, this approach is usually costly for malicious users in the long term due to transaction fees.
A digital signature is a cryptographic value created by a hash function. Digital signatures are used to authenticate and maintain the integrity of messages, transactions, documents, and pieces of digital data.
Digital data is more vulnerable to attacks and security violations than physical data. The outputted, hashed values used as digital signatures are difficult to forge and prove an item hasn’t been created fraudulently or tampered with. Some digital signatures are legally binding.
Asymmetric cryptography (also called public-key cryptography), which uses a pair of keys, underlies digital signatures on blockchains. Traders use a secret private key to sign and decrypt transactions securely and a public key to receive and encrypt transactions.
Distributed ledgers make up a fundamental part of blockchain technology.
Distributed ledgers are databases of transactions stored on peer-to-peer servers and updated whenever a new set of data, also called a “block”, is added.
Unlike a centralized ledger, which is controlled by a single entity and carries much greater cybersecurity risks, distributed ledgers are maintained on multiple servers (or nodes) across a decentralized network. If one ledger is compromised, other ledgers in the network will automatically correct any incongruencies. As such, blockchains are much more resistant to tampering compared to traditional ledger systems.
Blockchains rely on consensus algorithms to ensure the validity of new entries
Dogecoin is a satirical cryptocurrency that takes its name from the famous Doge meme (which is featured in Dogecoin’s logo). It was invented by Billy Markus and Jackson Palmer. Although its creation was originally meant as a joke, it has become a serious digital currency with a large online following.
Dogecoin operates in much the same way as most other cryptocurrencies, relying on a blockchain of distributed ledgers, an active community of miners, and consensus mechanisms to ensure the validity of transactions.
It has several notable backers, including Elon Musk, and has skyrocketed in value since it was first released. The big downside of Dogecoin is that there is no cap on the total number of coins that can enter circulation. As a result, billions of new coins are created every single day, making it highly inflationary and a volatile store of value.
Double-spending represents a particular risk for digital currencies. It is the fraudulent spending of the same digital currency or token multiple times. Digital currencies are susceptible to this type of theft due to the vulnerability of digital information and delays when processing transactions.
There are a variety of techniques that malicious individuals utilize, including the sending of multiple transactions concurrently and so-called “51% attacks”, where a malicious entity aims to control a network by setting up a node that is most likely to be responsible for verifying transactions. Blockchains prevent attacks through consensus mechanisms.
Dual-chain systems are made up of two separate blockchains that work collectively.
Traditionally, blockchains utilize a single chain as their foundational architecture. However, dual chains, such as the Binance Chain and Binance Smart Chain, aim to improve functionality with two chains that are optimized to manage separate operations and can function independently of each other.
A dual system facilitates efficient processing that can handle large traffic influxes, enhance scalability, and streamline data processing.
Due diligence is the process of consideration expected of individuals or businesses prior to entering into an agreement or contract.
The term is commonly used in finance to describe the investigation of potential opportunities and risks, particularly in relation to investments and mergers, preceding purchases and transfer of assets.
There is a considerable risk in the cryptocurrency sphere due to the proliferation of new currencies, most of which are created without a governing authority to prevent scamming. In addition, legitimate cryptocurrencies are often unpredictable and can fluctuate significantly in price over short timespans.
Taking this into account, due diligence is recommended before investment. Investigations can involve chart analysis, forecasts, business-model and white paper analysis, consideration of the legitimacy of partnerships, research into team members, and more.
“Dust” is the term used for very small amounts of cryptocurrency.
Blockchains like Bitcoin rely on the concept of “unspent transaction outputs” (UTXO) to organize transactions. Traders on a blockchain using the UTXO model may receive small amounts of “change” from a transaction. Sometimes, these minute quantities of currency are unusable.
Users cannot send the “dust” of a currency if doing so would cost more than the quoted transaction fees. However, it is worth noting transaction fees fluctuate due to transaction volume, meaning that users that own defunct “dust” may be able to trade it at a later point.
In a dusting attack, an attacker sends minute amounts of currency, known as “dust,” to many crypto wallets. Attackers trace and analyze the information from the transactions to identify individuals and businesses behind wallet addresses. Some blockchains, such as Bitcoin, are pseudonymous, meaning that once a user’s identity has been linked to their pseudonym, all blockchain activity through that pseudonym can be tied to them.
In a malicious dusting attack, a scammer will often use the revealed transaction information to target an individual or organization through phishing, extortion, or intimidation.
Government authorities may also initiate dusting attacks to track suspicious transactions from criminal groups. Analytics and advertising agencies can also utilize dust attacks. After a dusting attack, compromised user information is available on the particular blockchain’s public ledger, and anyone can view it.
First proposed in 2015, the ERC-20 is a standard for fungible token creation on the Ethereum blockchain. There are hundreds of thousands of ERC-20 compatible tokens.
On the Ethereum blockchain, many tokens operated differently from one another. ERC-20 solved this problem by creating rules for token functionality and providing a template for token creation using an API and smart contract technology. The ERC-20 standard simplified the exchange of tokens across the Ethereum blockchain and impacted the whole cryptocurrency market.
Alternative standards, such as the ERC-223, have been proposed to solve perceived downfalls in the ERC-20 model.
Often referred to by the misnomer of the blockchain platform it runs on, Ethereum, Ether is a cryptocurrency native to the actively-used Ethereum blockchain.
It currently has the second-largest market capitalization of any cryptocurrency, behind Bitcoin. On the Ethereum platform, Ether is used to pay for transactions and is rewarded to miners that support the blockchain’s growth. It is sometimes referred to using the Greek Xi character (Ξ).
Ethereum is one of the world’s most actively used blockchain systems. Initially released in 2015, it is a decentralized ecosystem that uses open-source, distributed, blockchain technology.
Thousands of computers running Ethereum clients maintain its virtual machine (EVM), allowing the platform to run continuously, uninterrupted, and immutably. Ethereum’s native cryptocurrency is Ether (ETH), which trades alongside many other currencies and tokens on the platform.
Building upon Bitcoin’s blockchain, Ethereum offers a programmable platform that hosts thousands of decentralized applications. Smart contracts are central to the platform and are primarily written in the coding language Solidity.
Ethereum currently uses the proof of work algorithm as its blockchain consensus method, but it is being phased out in favor of the less energy-intensive Proof of Stake (PoF) model.
A Fear and Greed Index is a type of market sentiment analysis. Fear and Greed indexes take multiple factors into account to gauge the general feeling of traders in a market.
First created for stock markets, Fear and Greed Indexes work on the premise that fear and greed are the key emotions that influence market unpredictability and cause volatility. When fear is running high in a market, assets may become undervalued. On the other hand, in periods of high greed, assets can be overvalued.
Crypto Fear and Greed Indexes use market volatility, volume, social media content, and trends to analyze market sentiment.
Fear, uncertainty, and doubt (FUD) are considered the core underlying emotions that influence traders. Influencing parties use FUD to manipulate behavior in sales, politics, financial markets, and more.
Anybody can take advantage of cognitive biases by exaggerating the benefits, questioning the knowledge, or focusing on negative aspects of specific trade options to create FUD.
In the crypto domain, people leverage FUD to depreciate specific cryptocurrencies or the whole crypto market. It is crucial for professional traders to distinguish genuine analysis from FUD.
The term fiat currency refers to any government-issued currency that can be used as legal tender. This type of currency isn’t backed by a commodity and enables centralized financial institutions, such as banks and governments, to control how much money is printed. Because of governmental regulation, fiat currency does not have intrinsic value and can suffer from hyperinflation. Fiat currencies are stores of value, mediums of exchange, and units of account.
Processing transactions with fiat currencies requires more time than cryptocurrency transactions, and there can be higher charges associated with trading. Most modern-day paper currencies, such as the U.S. Dollar and Euro, are fiat currencies.
The term FinTech is an abbreviation of “financial technology.” It refers to the technological transformation in the financial sector. It is a growing field and a wide range of businesses, from start-ups to established companies, are adopting FinTech.
FinTech is innovative and aims to streamline both businesses’ and customers’ financial activities through technological automation. A few examples of financial technologies are data science, machine learning algorithms, cryptocurrencies, and blockchains. These advancements can enhance the speed, safety, value, and inclusivity of financial processes.
A fork is an update to a blockchain’s rules that causes a split in the network.
Cryptocurrency blockchains are usually decentralized, with hundreds or even thousands of nodes on a network. When a developer or community member initiates a blockchain update, some nodes will update their machine, creating a “new” forked-off chain. Updates may relate to modifications to block size, mining rewards, and more.
There are two categories of forks: hard forks and soft forks. A hard fork occurs as a result of a significant change to a blockchain. All nodes must decide if they want to join the new protocol or remain as part of the old chain. Conversely, a soft fork is a backward-compatible update to a protocol that only requires the majority of nodes to update to avoid a split.
It is important to note that some forks can be used maliciously to short a cryptocurrency or as scams. What’s more, the price of a blockchain’s native currency may become volatile during a fork.
Front running is the often illegal process of making trades using insider information. Front runners use pending or future transaction data to get ahead of shifts in an asset’s value.
Front running is an issue across all financial markets. However, cryptocurrencies are susceptible to specific types of front running. On blockchains, miners that gain access to pending transaction data in the mempool can use the information to place a trade. The front runner can use insertion, displacement, or suppression to get ahead of the initial transaction. Front runners can also target initial coin offerings and usernames.
Networks can implement techniques such as transaction-ordering and improving confidentiality to prevent front running.
Full node wallets download complete copies of the blockchains they run on.
A node is a machine that participates in a blockchain network. They run as full nodes on their respective blockchains.
The upshot of this system is that wallets don’t have to rely on third parties to acquire blockchain data. As a result, full node wallets are trustless and more secure than light wallets, which only store partial blockchain data.
Fungibility is the ability for an asset of an equivalent denomination to be interchangeable. Examples of fungible currencies include most fiat currencies such as the US Dollar and some cryptocurrencies, including Bitcoin.
Like fiat currencies, fungible cryptocurrency tokens can be divided into smaller parts and easily exchanged. Individual tokens don’t have unique value and should be worth an identical amount.
The ERC-20 on the Ethereum blockchain set a technical standard for creating fungible tokens to simplify trading.
Gas refers to the cost of completing operations on the Ethereum blockchain. Gas represents an abstract unit of computation on the network and is paid for in fractions of Etheruem’s native cryptocurrency, Ether, called gwei.
Like car fuel, gas allows the Ethereum Virtual Machine to continue operating. Every transaction on the Ethereum blockchain uses up computational power, and gas fees fund miners’ computational output. Users can set a “gas limit” on transactions, thus restricting the amount of gas used.
Gas is decoupled from the value of Ether. However, its price is affected by network activity. Gas fees help maintain network security by reducing the risk of denial of service attacks and infinite loops on smart contracts (among other things).
A genesis block is the first block in a blockchain. It is usually considered “Block 0” on a blockchain because of 0-based indexing in computer science. However, some blockchains refer to the genesis block as “Block 1.”
The genesis block is the only block that does not contain a hash pointer to a previous block. Genesis blocks are often hard-coded.
Bitcoin’s genesis block doesn’t contain any transaction data. It holds the message, “Chancellor on brink of second bailout for banks.” The mining reward of Bitcoin’s initial block can never be spent.
A gossip protocol (also referred to as an “epidemic protocol”) is a procedure used to disseminate information through decentralized networks. It mirrors the way gossip spreads through a human social network. First, only a handful of people are privy to a certain piece of information. Then they spread the information to other people, creating a chain reaction that culminates in the whole group knowing. On a decentralized network, nodes pass transaction data to a small group of close nodes. This action repeats until the entire network of “full nodes” has stored the identical data.
The gossip protocol is generally more scalable and fault-tolerant than a single node broadcasting data to the whole system. However, because nodes have to receive the same data multiple times, the process can be slow and inefficient.
A hard fork is a significant update to a blockchain’s protocol that is not backward-compatible. Hard forks create blockchain protocols that branch off from original chains. Nodes must “decide” whether or not to join the new protocol.
This process produces two incompatible parallel chains, in which the new chain has a duplicate record of the older chain, including data about all users’ assets.
Miners usually react to hard forks in one of two ways. In one scenario, nodes voluntarily update their software to comply with the new protocol of a planned hard fork. Often, however, community disagreement arises, which causes a split in the blockchain. Nodes that agree with the changes join the new forked-off chain, creating a new version of the currency, while nodes that disagree remain on the original chain.
Bitcoin hard forks have created alternative Bitcoin currencies such as Bitcoin Private and Bitcoin Cash. The price of a blockchain’s native currency may become volatile during a hard fork.
Hashes are created when a hash function receives data and outputs a fixed-length code. Cryptographic hashes, used on blockchains, operate like a data fingerprint. Hash functions are deterministic. Identical data inputs should create matching codes, while different pieces of data should create unique codes. Even small changes in inputted data should change the whole hash to prevent the input from being guessed.
Hashes are used for security and are usually preimage resistant, making them practically impossible to reverse engineer. Good cryptographic hash functions produce a high avalanche effect, reducing any correlation between input and output. Hashes are also usually computationally efficient, which prevents them from slowing down the network.
A variety of algorithms are available for creating hashes. Bitcoin uses the SHA-256 algorithm.
Hash Time-Locked Contracts are smart contracts utilized to increase the safety of trustless over-the-counter transactions across blockchains. Used on atomic swaps and Bitcoin’s lightning network, HTLCs reduce risk by ensuring that transactions are time-bound. These contracts state that both parties must recognize the stated payment within a specific timeframe for the transaction to be valid. If either party does not verify the payment within the set time, the exchange is canceled.
Central to HTLCs are hashlocks and timelocks. The hashlock is created by the transaction initiator generating a key and passing it through a hash function. The connected private key is used to unlock the hash and validate the transaction. On completion, the preimage stored hash is publicly disclosed. If the trade is not completed within the allocated time limit, the payment is void, and the timelock returns cryptocurrency to its initial owner.
Hash pointers are a valuable part of blockchain security. The first block in a chain is called a “genesis block.” After this primary block, the blocks in succession refer back to past blocks using hash pointers. These hash pointers create connections between individual blocks. Hash pointers contain the hash of all the data in the block before it.
If there is an attempt to alter past data, the modified data’s hash will no longer be correctly matched to the pointers in subsequent blocks. This improves security on the blockchain and makes historical data immutable and tamper-evident.
HealthTech stands for “health technology”. It refers to any health service or product that is administered using digital technology, and has applications both inside and outside of a traditional healthcare context. Wearable gadgets and home diagnosis tools are common examples of healthtech.
The widespread adoption of healthtech solutions, which offer faster and more efficient health-related outcomes, has caused healtech to become one of the fastest-growing verticals in the healthcare space.
Blockchains have numerous potential applications to healthtech. In particular, blockchains allow for the decentralized storage of large quantities of personal medical data and medical records, which can be made available to providers much more quickly and securely when compared to traditional systems.
Helium is a technology company responsible for launching “the People’s Network”, a fully decentralized wireless 5G network based on its own proprietary blockchain technology.
The Helium blockchain rewards individuals with a cryptocurrency called HNT for setting up hotspots that provide coverage for wireless devices. This mining process uses an innovative and low-energy proof-of-work mechanism called “Proof of Coverage” that relies on radio technology to measure the activity of hotspots.
Helium is notable because it has quickly garnered a large number of users – 50,000 at the time of writing – and offers an array of exciting opportunities for expanding internet coverage in developing countries.
Hosted wallets are digital cryptocurrency wallets provided by trusted third parties that keep users’ private keys and funds safe. These third parties are usually cryptocurrency exchanges. Coinbase and Binance are two well-known examples.
Hosted wallets share similarities with centralized banking applications because they leverage two-factor authentication and password recovery. They are also custodial, meaning that users don’t retain control of their private keys.
Less experienced traders often choose them as they are easy to set up and use. In addition, traders who regularly operate on centralized exchanges may opt for hosted wallets.
Hot wallets are cryptocurrency wallets that are connected to the internet. Various types are available to cryptocurrency owners. They are accessible via the web and on mobile and desktop applications.
Hot wallets attract less experienced traders because of their ease of use. In addition, regular traders may opt to utilize hot wallets to make faster transactions. However, they are more vulnerable to cyberattacks than cold storage alternatives. To prevent hacking, safety features such as two-factor authentication are often employed.
Huobi Global is a centralized cryptocurrency exchange. It offers various features such as margin reading, trading bots, derivatives, futures, loans, a wallet, and more. It is currently one of the top exchanges by market volume.
Huobi has a blockchain (based on Ethereum) called the Huobi ECO Chain. Its native cryptocurrency is the Huobi Token (HT).
Founded in China in 2013, Huobi has faced challenges because of the Chinese government’s actions against cryptocurrencies. In 2017 Huboi temporarily halted Bitcoin trades after the Chinese government banned Bitcoin exchanges. Since then, Huobi has branched out internationally and is now publicly listed in Hong Kong.
Hybrid blockchains combine features of public and private blockchains.
This model offers structural flexibility, aiming to maximize the benefits of both styles of blockchain.
Hybrid blockchains can have both private and public nodes on the same network. On a hybrid network, members’ authorization and responsibilities can be controlled and data can be stored publically or privately.
Hybrid blockchains can also leverage democratic processes to manage the blockchain.
This type of blockchain can protect against some types of economic attack, provide privacy, and reduce transaction fees.
Ripple is an example of a hybrid blockchain.
Equivalent to an initial public offering (IPO) on the stock market, an initial coin offering (ICO) is a process in which companies or individuals raise funds to produce new blockchain applications, cryptocurrencies, or financial services. It is a form of crowdsourcing through which investors can buy tokens issued by a company. These tokens function as representations of a stake in a company or a future product or service.
Typically, IPOs use “white papers,” which detail what is on offer and how the ICO will function. If fund requirements are not met, and the ICO is unsuccessful, investors’ money is returned. However, ICOs are often unregulated, and investors should undertake due diligence before investing.
“Know your customer” is a widespread practice that helps financial organizations reduce the occurrence of illicit financial actions, such as money laundering and fraud.
The “know your customer” process validates customer identities using photo identification, proof of address, and other verification methods. Regulations vary depending on institution types but often include Customer Identification Programs, customer due diligence, and monitoring.
“Know your customer” is one component of a more comprehensive set of anti-money laundering regulations. Most financial institutions across the globe are expected to comply with these standards.
As the industry is not fully regulated, centralized cryptocurrency exchanges apply “know your customer” protocols to varying degrees. Nevertheless, users often have to upload photo identification to begin trading.
The term “layer-1” refers to the foundational architecture of blockchains, on which other “layer-2” structures can be built. Improving the efficiency of layer-1 technology makes both the base blockchain itself and all the systems it supports more scalable. Ethereum is an example of a layer-1 Blockchain.
However, executing efficiency-driving changes can be difficult and developers often run into the “scalability trilemma.” The trilemma stipulates that improvements in scalability cause drawbacks for decentralization and security.
Two examples of layer-1 solutions are consensus mechanisms and sharding. The modification of consensus protocols can improve efficiency and security. Developers use sharding to break up transactions into smaller datasets to distribute them across multiple nodes.
Layer-2 is a secondary structure built upon a base, layer-1 blockchain. Developers leverage layer-2 solutions to increase throughput by remote-sourcing operations from the layer-1 blockchain.
Layer-2 solutions are often created by third parties and complete processes independently of the layer-1 blockchain. Because of this separation, developers often refer to layer-2 solutions as “off-chain.” However, layer-2 systems are reliant on the layer-1 blockchain’s security and decentralization.
Layer-2 solutions solve the “scalability trilemma”, which stipulates that increased layer-1 scalability reduces security and decentralization. State channels and nested blockchains are two common layer-2 solutions.
Light wallets – also referred to as lightweight wallets – are crypto wallets that run on light nodes.
Nodes represent discrete units of a blockchain. Every node operates on its own machine. Full nodes download the entire blockchain of which they are part and validate transactions, while light nodes only download partial blockchain data.
Light wallets provide functionality that is equivalent to full nodes by communicating with the blockchain. Consequently, light wallets are not trustless and provide lower levels of privacy and security than their full node counterparts.
Light wallets take up less space on users’ machines as they download a comparatively small amount of blockchain data. In addition, they are easier to set up and are often the preferred wallet type for mobile and desktop devices.
The Lightning Network is a protocol for speeding up blockchain transactions. Lightning networks are secondary, off-chain layers built on top of main chains. Bitcoin’s current lightning network was first proposed in 2015.
The Lightning Network layer-2 protocol facilitates faster peer-to-peer payments by opening a system of bidirectional channels on a separate network of nodes that communicates with the main chain.
Lightning networks maintain funds by creating multi-signature addresses with signed balance sheets that store users’ funds. Two parties place funds in the specified addresses and execute transactions between one another, details of which are stored and signed on the applicable balance sheet. These transactions remain off-chain until the channel is closed, at which point the main chain processes the remaining funds as one transaction. The funds are then released from the address based on the current balance sheet. This process turns multiple small transactions into a single transaction on the blockchain.
A liquidity pool is a supply of a cryptocurrency that a decentralized exchange leverages to maintain its liquidity and asset prices.
Conventionally, exchanges enact each crypto trade using peer-to-peer transactions. This sequential “order book” system can lead to price slippage. What’s more, a small, decentralized exchange with few users will have low liquidity due to a lack of peers. This renders trading unreliable.
Decentralized exchanges combat these issues by creating liquidity pools. Currency stores allow exchange users to lock their funds to construct a reliable supply of assets. Traders can then transact with the pool at any time, enhancing liquidity. Liquidity pools are automated using smart contracts.
Users that offer their currency to the liquidity pool are known as liquidity providers. The blockchain rewards them with transaction fees for their service.
Liquidity providers are decentralized exchange users that deposit their cryptocurrency into liquidity pools. Liquidity pools are supplies of cryptocurrencies managed by decentralized exchanges to improve transaction efficiency.
Exchanges compensate liquidity providers with transaction fees from activities that use a liquidity pool and distribute rewards according to how much currency a user has pooled. Liquidity providers’ funds are locked into the pool using smart contracts. Pools are permissionless, allowing anyone to contribute to the pool.
There is one major downside of liquidity pools. Providers are at risk of permanent loss if their locked-in funds change value and they are unable to trade them.
Litecoin is a popular cryptocurrency. Released in 2011, its developers wanted to create an innovative, fair, and safe currency that could act as the “silver to Bitcoin’s gold”. Like Bitcoin, Litecoin uses the Proof of Work consensus mechanism. However, Litecoin offers quicker transactions and higher coin production than Bitcoin.
Litecoin has the most extensive Scrypt-based blockchain worldwide and is currently one of the top twenty largest cryptocurrencies by market capitalization.
A mainnet is a functioning, live blockchain. Mainnet blockchains validate transactions effectively and comprise immutable, distributed ledgers that anyone can view publicly.
Mainnets are live and trade “real” cryptocurrencies with value, unlike testnets that trade symbolic, valueless coins. Developers deploy their projects and updates on mainnets after test-driving and modifying them on testnets. Ethereum and Bitcoin’s primary blockchains are both examples of mainnets.
Market volume – or trading volume – is the amount of an asset, security, or specific market that has been traded. It can be calculated over any time period and recorded through both primary and secondary sources.
Market volume is a valuable analytic tool because it demonstrates the activity and liquidity of an asset.
Trading volume also allows investors and traders to analyze how much an individual trade will affect the market and whether or not a change in asset value was significant.
A masternode is a type of node that has a specific set of capabilities on a blockchain. Masternodes verify transactions and store complete copies of the blockchain they operate on, acting like a consolidated storage space for the network. Blockchains use masternodes along with the Proof of Stake or Proof of Work consensus protocol to secure their networks.
The concept of a masternode was first used in conjunction with the cryptocurrency Dash and its associated blockchain. Dash requires that participants have a certain amount of currency before they can run masternodes. In addition, masternodes on the Dash network perform specialized tasks, such as authorizing instant transactions. However, requirements and responsibilities vary across blockchains.
Anyone’s machine can become a masternode if it meets the network’s computational requirements. What’s more, users with masternodes can earn passive income from transaction fees.
A mempool is a group of blockchain transactions. Each transaction is “waiting” to be added to a block.
After a trader initiates a transaction, it is propagated through a network of nodes, where it is validated and checked. Once validated, it is stored on the nodes’ mempools, pending its addition to the blockchain via a consensus mechanism. The word “mempool” is a shortening of “memory pool.” Individual nodes have their own mempools, which can vary in size. A transaction exits the mempool when it has been added to a block.
A Merkle root is the root hash of a Merkle tree. A Merkle tree consists of a root that connects to branches of data, which in turn link to leaves containing further data. Each section of a Merkle tree has its own hash. Combining all the hashes produces the root hash, and any change in the data linked to the root creates a different root hash.
Merkle trees form the structure of individual block’s data on a blockchain. Peers on a network can utilize Merkle roots to confirm that data has not been tampered with and is complete and intact when dealing with anonymous peers.
When receiving a dataset and a root hash, peers can compare the root hash they receive with the root hash that the dataset produces. Nodes do not need to hold the complete dataset for this to be a viable verification model, as partial verification can also be effective. Merkle roots also link blocks together in hash pointers, which contain the Merkle root and hash pointer of the block before them.
A Merkle tree is a type of binary tree that represents datasets. Like an upside-down tree, its structure consists of a single Merkle root at the top that connects down to multiple branches, which then link to individual leaves. Merkle trees increase efficiency and data integrity on peer-to-peer networks by reducing the risk of historical data tampering.
The data from multiple transactions are stored within a block and recorded in a Merkle tree structure on a blockchain. Separate transaction data is stored on a non-leaf node at the base of the tree. Each piece of transaction data is put through a cryptographic hash function to create a hash for each leaf node. Subsequently, two leaves’ hash labels are inputted into the hash function to create the connected branches’ hash. This process continues until there is only one hash code in the top row, the root hash, containing all of the block’s data.
Mining is the process of earning new cryptocurrency coins by supporting a currency’s blockchain. On a blockchain, each node of a decentralized network holds a record of each verified transaction that has taken place.
For currencies that use the Proof of Work consensus model, miners take on the computational expenses of complex machine calculations required to verify a new block for the blockchain. The miner with the machine that successfully confirms the block first is then rewarded with coins from the blockchain’s native cryptocurrency.
The newer Proof of Stake model removes the element of competition. It instead chooses a node to verify the new block, based on its stake in the currency. Transaction fees are awarded to Proof of Stake miners. The measurement for mining power is known as a “Hashrate.”
Mining pools are groups of miners that collaborate to increase their financial gain.
Miners undertake the substantial computational work required to run consensus mechanisms on blockchains. Networks reward miners with native cryptocurrency.
Mining pools use block difficulty ratings and “shares” to judge how much work miners have completed. Miners will join different pools depending on their hashrate. The combined resources of pools increase the odds of individual miners profiting from mining.
Joining a mining pool reduces a miner’s autonomy, however. Mining pools have set terms and take fees. They also manage and coordinate miners and store performance records. Mining pools most commonly pay miners based on the amount of work they complete.
There are many mining pool payment systems, including pay-per-last-N-share, pay-per-share, and proportional mining pools.
Multisig is a type of private key storage technology that increases a cryptocurrency trader’s asset security. It requires a user to provide multiple private keys instead of a conventional single key. Users can specify the number of keys needed to validate a transaction. This improves asset security while maintaining users’ custody of their keys.
Some wallets and other key managers leverage multisig to protect their users by removing single points of failure.
Multisig enables individuals to deposit their keys in different formats. In addition, it allows for two-factor authentication. For example, a trader might store one key with a third party, a second in cold storage, and a third on their smartphone. Each trade would require two of the three keys for authentication. In this type of distribution, the third party wouldn’t possess enough keys to remove sovereignty from the trader.
Groups also utilize multisig technology when multiple members are required to come together to sign transactions.
Nodes are individual computers that collectively comprise peer-to-peer networks. Unlike a blockchain’s end-users, each node is a separate processor that provides intermediary services, such as transaction verification and blockchain storage, for the decentralized network.
On public blockchains, participation in the network is open to all. And to maintain security, nodes remain pseudo-anonymous. Blockchains utilize nodes to store a unified and valid chain of records across the network and reward some nodes with native cryptocurrency for mining and validation services. On private blockchains, nodes are known to one another.
“Light nodes” have a significantly reduced capacity and do not store the entire blockchain. These more basic computing devices are used primarily for transactions.
“Full nodes” are responsible for validating transactions and storing the entirety of a blockchain’s data. The rights for reading and writing data are equal across all “full nodes.”
“Master nodes” have all the tasks of “full nodes” but can also oversee voting events and complete protocol operations. To be designated a “master node,” the node must own a large quantity of the blockchain’s native cryptocurrency. This collateral-based system deters fraudulent activity. Networks incentivize nodes to become “master nodes” by offering more reliable rewards for their service to the network.
Non-custodial wallets give users complete control over their private keys and cryptocurrency. Traders who use non-custodial wallets must take extra care not to lose their private keys. That said, non-custodial wallets do have some cybersecurity protections, such as password recovery in the form of a “seed phrase.” Exodus and Ledger Nano X are both examples of non-custodial wallets.
Non-custodial wallets, which are available in both online and offline forms, usually appeal to traders with significant amounts of cryptocurrency or lots of trading experience. They are typically open source so wallet users can check the codebase for malicious activity.
Non-fungible tokens are discrete modules of data, stored on a blockchain, that verify ownership of a digital asset. A non-fungible token essentially acts as a virtual fingerprint or signature, tying a specific digital asset to an owner or set of owners.
NFTs represent digital assets. They are not, as is commonly thought, the digital assets themselves. Instead an NFT can be used to verify the authenticity of the original digital asset, which may be stored on the token’s blockchain, a different blockchain, or a third-party server, and prove ownership.
“Fungibility” is a property of an item that means it can be interchanged with other items that are exactly the same. Non-fungible tokens are “non fungible” because they are entirely unique. Cryptocurrency coins such as Bitcoins, on the other hand, are all alike and can be interchanged.
A nonce is a single-use number required for certain cryptographic processes. The word is a shortening of the phrase “number only used once.” On blockchains, the Proof of Work (PoW) consensus mechanism utilizes nonces.
To create a block on a blockchain, a nonce is inputted into a hash function, along with any new transaction data and the previous block’s hash. A new hash code, called a “header hash,” is outputted.
Nodes, working as miners, expend computing power to find a nonce that creates a hash that is numerically lower than or equal to a target hash. A “golden nonce” is a number that creates a hash output with a low enough value, thus allowing the block to be mined and added to the network.
Cryptographic hash puzzles are tough to solve, and identical inputs create the same hash. The avalanche effect in hashing means that even slight changes to input data can create very different hash outputs.
Miners on a blockchain must find the nonce value to prove they have expended enough power to validate the block. Blockchains reward miners with native cryptocurrency.
Peer-to-peer is a type of network that consists of multiple nodes that form a distributed architecture. Tasks are divided between peers, all of whom have equal standing on the network.
Peer-to-peer networks of nodes distribute requirements, such as processing power and storage, thus removing the need for centralized coordination. Unlike more traditional client-server models, peers function as both suppliers and consumers of resources. Peer-to-peer networks can be unstructured, structured, or hybrid.
Peer-to-peer lending utilizes a distributed network model to allow individuals to secure loans from other individuals or businesses.
Sometimes referred to as “social lending” or “crowdlending,” the peer-to-peer lending concept was first initialized in 2005. Lenders are often individual investors looking to create more significant returns on savings, while borrowers tend to seek lower rates than are traditionally available through other intermediaries.
P2P lending can be unsecured, in which a loan is supported solely by the creditworthiness of the borrower, or secured, in which an issued loan has collateral as backing. Most P2P lending is unsecured.
Penetration testing is the process of launching a cyber attack against your own network to understand its vulnerabilities. Penetration testers use the same skills and technology as hackers to accurately simulate cyber attacks.
Developers undertake penetration testing on blockchains to increase security. Tests can include consensus mechanism tests, tests on wallet security, denial-of-service-attack tests, and more.
FumbleChain is a purposefully flawed blockchain that is designed for users to hack. It invites users to complete challenges that illustrate common blockchain security lapses.
Phishing is a scam in which a schemer fraudulently adopts the identity of a reputable business or individual to access sensitive information, such as banking details and passwords, to steal digital assets. Phishers often target individuals by sending emails or texts that appear legitimate.
Phishing is best described as a social engineering attack rather than a cyberattack because scammers exploit human psychology, not technology.
In the crypto sphere, phishers attempt to take cryptocurrency from individuals by posing as genuine crypto exchanges or wallets. One example involves exchange lookalikes. A phisher sends a fake link to a website that closely resembles a legitimate exchange web address. The recipient is then prompted to input their private key or exchange log-in details, which the scammer then uses to steal funds.
To prevent phishing, individuals should read emails and texts with skepticism and enable two-factor authentication on their accounts.
Private blockchains are closer to conventional shared databases than public blockchains. However, like public blockchains, private blockchains store records on peer-to-peer nodes as append-only ledgers.
Private blockchains often rely on third parties to complete tasks and are more centralized, with groups or individuals managing the network. Private blockchains aren’t viewable publicly, and nodes are usually non-anonymous groups known to one another, for example, manufacturers and suppliers. Groups or individuals are designated powers by an operator or defined protocol.
Proof of Stake is a type of consensus mechanism used for blockchains. It selects validators in the network at random using a probability algorithm proportional to the validators’ stakes in the blockchain’s native cryptocurrency. The validating node is rewarded with transaction fees after the computation is completed.
The Proof of Stake concept was created as an alternative to the Proof of Work mechanism, which lacks scalability due to its energy-intensiveness and the need for miners to have elite hardware to compete to verify blocks.
Some perceive Proof of Stake as a more secure model because it limits the incentives for miners to attack networks. If a validator verifies false transactions, they lose part of their stake.
First conceptualized in 1993, the Proof of Work consensus model was designed to reduce the threat of denial-of-service attacks and other malicious computing.
Used in the cryptocurrency sphere, the Proof of Work mechanism leverages a blockchain’s decentralized nodes to complete complex hash-based computations that are necessary to solve a puzzle for a new block to be verified. This process is known as “mining,” and the prover node is rewarded with some of the blockchain’s native cryptocurrency.
The Proof of Work mechanism provides transactional security without the requirement of a centralized authority. However, it is incredibly energy-intensive. Both Bitcoin and Ethereum currently use the Proof of Work model.
Public blockchains are permissionless databases often used for cryptocurrencies. On this type of blockchain, networks are often extensive because anyone can set up a node. Data is open for viewing by the public. To protect people’s identities, nodes and users remain anonymous.
Consensus mechanisms are necessary on public blockchains to ensure all data added to a network is unified and valid. Nodes function as miners and validators, and many nodes store append-only copies of data.
Ethereum and Bitcoin are examples of public blockchains.
A public ledger is an open record of account information and transactions. These digital ledgers maintain users’ anonymity while publicly showing balances and verified cryptocurrency transactions. The databases are often maintained on a blockchain that doesn’t rely on a central authority. Data is stored securely and immutably across a network consisting of various nodes.
A “pump and dump” scheme is a scam that causes an asset to rise in value then sharply fall. Pump and dump schemes are usually illegal. However, the decentralized crypto market lacks regulation. Crypto “pump and dumpers” are usually found on social media sites and often work in groups to create the illusion of mass interest in a coin or token.
“Pump and dump” scammers mislead their audience by hyping up financial assets, prompting other investors to buy in. When the price has risen sufficiently, the perpetrators exit the investment with a profit while leaving others with a loss. Schemers often buy a significant quantity of the asset to set the “pump” in motion.
Pump and dump schemes are more common in small and micro-cap assets with low liquidity, where significant value shifts are easier to achieve. Due diligence, skepticism towards unsubstantiated price surges, and awareness of affinity fraud can protect investors from falling victim to a “pump and dump.”
Randomized block selection is a method of selecting nodes for block validation that is used on Proof of Stake blockchains.
The Proof of Stake consensus mechanism considers nodes’ stakes in a specific cryptocurrency when deciding which node will authorize a block. Nodes with higher stakes are assumed to be more committed to the blockchain and, as a result, unlikely to perform malicious actions, such as falsely verifying transactions.
Blockchains use different methods to implement the Proof of Stake consensus mechanism. Blockchains that rely on the randomized block selection method pick nodes based on a mathematical formula that considers each node’s stake and the lowest hash value.
Satoshi Nakamoto is the pseudonymous creator of Bitcoin. Despite hoaxes and theories that claim to know who is behind the pseudonym, it is still unknown whether Bitcoin’s founder is an individual or group.
Nakamoto released Bitcoin’s white paper in 2008. Nakamoto was also the first person to execute a fully functioning blockchain and solve the problem of digital currency double-spending.
A trilemma is a dilemma made up of three different distinct components. The “scalability trilemma” refers to inevitable tradeoffs that developers make when maximizing certain blockchain features. Ethereum creator Vitalik Buterin first coined the term.
The trilemma is often depicted as a triangle with three positive blockchain attributes at each point – scalability, decentralization, and security. The trilemma posits that the improvement of any two of these qualities holds back the third. This tradeoff usually limits blockchains and results in slower transaction processing times.
To solve the trilemma, developers leverage layer-2 solutions. These solutions outsource some of a main chain’s processes to other protocols and connected chains.
Secure multi-party computation (SMPC) enables a network to compute data confidentially. SMPC is a trustless method for encrypted data distribution in which inputs remain highly usable despite their secrecy. The input data is split into chunks. Coded functions can later combine and analyze these chunks without decryption. SMPC has “no single point of trust”, which prevents one computing party from achieving unilateral control over input data.
Peers on a network can use SMPC for various tasks, including secure data model creation and voting. What’s more, SMPC has a range of uses in the crypto sphere. Crypto wallets and exchanges use a type of SMPC known as a Threshold Signature Scheme (TSS) to divide private keys into pieces and distribute them across multiple nodes, thereby increasing security.
A security token is a representation of a digital contract for a portion of a tradable asset. Security tokens symbolize partial ownership of financial assets like stocks and bonds and constitute a promise of profit.
Security tokens are traded on blockchains and issued through security token offerings (STOs). STOs are comparatively more regulated than initial coin offerings, thus reducing the risk of scams. Fundraisers that tokenize financial assets can also reach a broad audience on open markets with STOs.
Securities traded as tokens benefit from transparency due to the public nature of blockchains. Security tokens also enable the divisibility of illiquid assets.
Security tokens are subject to governmental regulations and penalties can be incurred if rules are broken. However, tokens often take advantage of exemptions to get around laws. The Howey Test governs securities in the USA. The test requires that securities be an investment of capital into a common enterprise with the expectation of profit due to third-party initiatives.
SegWit – a shortening of “Segregated Witness” – is a Bitcoin soft fork created by developer Dr. Pieter Wuille. Its primary purpose is to increase Bitcoin’s scalability and reduce transaction malleability. Its name, “Segregated Witness,” means to separate signatures.
Bitcoin has limited transaction processing capacity due to its computationally complex Proof of Work consensus mechanism. SegWit speeds up transaction processing and thereby increases scalability by creating more space in blocks. It achieves this by moving transaction signatures, which take up more than half of a typical block’s space, from the base transaction of a block to a connected, extended block.
SegWit reduces malleability issues by disconnecting digital signatures, which can be manipulated, from transaction IDs.
Shilling is the excessive promotion of securities or assets. In the cryptocurrency domain, shillers promote coins and tokens to maximize the value of their investments. Invariably, they sell their assets when they peak in value. Shilling can be undertaken with either real or fake assets.
Shillers use platforms like social media and news sites to create hype around assets. Individuals with vast audiences, like celebrities and influencers, raise an asset’s price and profile by publicizing it.
Shilling is mainly an issue with small-cap DeFi (decentralized finance) tokens and altcoins because external forces quickly impact their value.
A sidechain is a secondary blockchain that connects to a main chain. Two-way pegs connect the blockchains and allow bidirectional coin and token transfers. Any coins or tokens sent to the sidechain are locked on the connected parent chain. The sidechain then unlocks the same amount of the asset.
Developers utilize sidechains to implement scaling solutions and add functionality to layer-1 blockchains. Sidechains sit somewhere between a layer-1 and layer-2 solution. Despite being an additional protocol to a main chain like layer-2 solutions, sidechains often have separate security protocols.
Moreover, sidechains can also implement distinct consensus mechanisms, which may differ from those of the main chain.
Slippage is the variance between a quoted trade price and the price when the order fulfills. A price rise that occurs prior to executing an order is negative slippage, and a price reduction is positive for buy orders. For sell orders, the negative and positive are inverse.
Slippage is a problem across all financial markets, including forex and the stock market, to varying degrees.
In the cryptocurrency sphere, the market’s high volatility in combination with delayed order processing on blockchains makes slippage a concern.
Slippage can also occur due to a lack of order book depth to sustain large orders in illiquid assets, causing a “split order” divided into different price points.
Traders can conduct market analysis before ordering and utilize limit orders to reduce the risk of slippage.
Conceptualized in 1997, a smart contract is a program stored on a distributed ledger. It contains the terms of an agreement between a buyer and seller along with a balance.
Smart digital contracts are written in code and self-execute based on prior stipulations, functioning as an automated, non-human intermediary between users. Due to their functionality, smart contracts were described by their creator, Nick Szabo, as “digital vending machines.”
Smart contracts are stored on blockchains and are often immutable once deployed. They are faster to execute, more cost-effective, and reusable when compared to traditional contracts. These contracts are often utilized as the building blocks of decentralized applications.
A soft fork is an update to a blockchain’s protocol that allows non-updated nodes to remain functioning on the network. These backward-compatible updates maintain communication between non-updated and updated nodes.
As long as the majority of nodes update to the new protocol, the blockchain will not split. If a non-updated node attempts an action that is no longer valid in the amended protocol, updated nodes will reject the action. This rejection process renders non-updated nodes less efficient than updated ones, encouraging uptake of the new fork.
Initially proposed in 2014, Solidity is a Turing-complete programming language used in the creation of smart contracts. It is a statically typed, object-oriented, curly-bracket language that supports inheritance, libraries, user-defined types, and more.
Ethereum’s Solidity team developed the language to be used on the Ethereum Virtual Machine.
Stablecoin is a type of cryptocurrency that is resistant to extreme value fluctuations. It shares elements of both a fiat currency and traditional cryptocurrency.
To maintain value stability, stablecoins can be either fiat-collateralized, crypto-collateralized, or non-collateralized.
Fiat-collateralized stablecoins utilize fiat currency or assets like gold and silver as collateral. An example of a fiat-collateralized stablecoin is Tether (USDT) which is tied to the US Dollar as its reserve asset.
Non-collateralized stablecoins use an algorithm to control their price. Crypto-collateralized stablecoins are linked to other cryptocurrencies and are often “over-collateralized” to prevent price fluctuation.
Staking is the act of participating in a blockchain that uses a stake-based consensus mechanism. Stakers lock a portion of their balance of a specific cryptocurrency to prove their investment in a blockchain. Stakers must meet the balance requirement of the blockchain and this has the effect of deterring malicious actors. A high enough stake will permit users to verify blocks or vote on the network.
Within the Proof of Stake consensus model, stakers compete to forge blocks. The blockchain apportions transactions to stakers based on their stake and other factors such as randomization and the length of time they have been staking. Thus, the greater the stake, the more likely a staker will be picked to validate blocks and the higher value transactions they can authorize.
Blockchains reward stakers with transaction fees for their service to the network. However, stackers can lose some of their locked currency if they attempt any malicious activity.
Stealth addresses are single-use addresses used for crypto transactions. Traders use stealth addresses to increase their privacy.
Most blockchains are pseudo-anonymous and offer a type of anonymity that hides an individual’s identity behind a public key. However, if a user is linked to a public key, it would be possible to track all of their previous trades through that address.
Stealth addresses combat the issue of pseudo-anonymity using one-time addresses that can’t be connected to a trader’s historical transactions.
There are various stealth address systems. These include the Basic Stealth Address Protocol, The Improved Stealth Address Protocol, and The Dual-Key Stealth Address Protocol.
A target hash is the highest numeric value that a blockchain will accept as a block’s header hash.
When mining blocks under the Proof of Work consensus mechanism, nodes must find a nonce (a number that can only be used once) that produces an acceptable hash for the block’s header when combined with the other inputs. A block’s header hash must be less than or equal to the target hash to be successful.
Target hashes tend to be very low numbers starting with multiple zeros. Blockchains challenge miners to meet the requirements of target hashes to ensure that nodes have expended enough computing power to validate a block. The lower a target hash, the higher the block difficulty.
A testnet is a type of blockchain that is similar to a genuine blockchain but is utilized solely for testing. It is a sandbox where developers can run experiments without the risk of causing disruptions or spending authentic cryptocurrency.
Developers usually test blockchain programs, such as dApps, before releases and updates. Unlike real-value coins and tokens on a mainnet, testnet currency doesn’t have value, and users cannot trade coins between networks.
Testnets have some important differences from their mainnet counterparts. For example, Bitcoin’s testnet is smaller than the mainnet and uses a different genesis block.
Tether is a platform that leverages blockchain technology to transfer fiat-collateralized digital currencies. Tether tokens are established on various blockchains, including the Bitcoin blockchain and Ethereum.
The crypto market is extremely volatile, which prohibits some types of transactions. Tether was released in 2014 as a way of making digital currency transactions easier and more predictable.
Tether’s USDT, EURT, and CNHT tokens are anchored to their respective fiat currencies, allowing traders to convert fiat currencies into cryptocurrency for secure, decentralized exchange while maintaining value. Tether’s tokens are fiat-collateralized stablecoins. Tether backs its tokens with reserves of fiat currency. However, there has been controversy surrounding its holdings.
Tezos is an open-source blockchain platform for dApps and smart contracts that launched in 2014. It was created to address barriers to blockchain adoption, such as the future of long-term updates, the safety of smart contracts, and open participation.
Unlike the Bitcoin and Ethereum blockchains which currently use an inefficient Proof of Work consensus model, Tezos leverages a Proof of Stake model, which leverages on-chain processes to update chain protocol autonomously once proposals have been community-approved.
The native token for the Tezos blockchain is the “tez” (XTZ).
A Threshold Signature Scheme (TSS) is a protocol used to create and distribute cryptographic keys and govern the signing process.
Crypto wallets and other key managers use TSSs to increase the security of users’ private keys by dividing them and storing them across multiple nodes on a network. This protects users because no single compromised node will give a hacker access to the user’s funds.
A TSS is a type of multi-party computation that requires multiple nodes to sign a transaction with pieces of the private key. A TSS requires that certain thresholds (such as the requirement for a specific amount of a key’s “parts”) are met for a signature to be valid. In addition, a TSS does not reveal that a signature has come from multiple sources.
Tokenization is a process that transforms both tangible and intangible tradable assets (or “abilities”) into digital tokens.
Unlike cryptocurrency coins, tokens are utilized for more than simple buy/sell transactions and storage.
A few examples of these utilities are investment, value storage, purchasing, and crowdfunding. Tokenization opens up a broader market of potential investors, speeds up trade times, and increases liquidity compared to more traditional financial and trading methods.
Art tokens, also called “art shares”, are digital shares of art pieces. The process of tokenization involves splitting the ownership of a work of art into multiple separate parts, thus allowing numerous investors to each purchase a portion. The sale of tokens is recorded on their respective blockchains.
As with other industries where tokenization has proved disruptive, the art space has traditionally been characterized by high levels of illiquidity of assets, cliquey markets, and issues on the part of artists and galleries in raising capital. Art tokenization remedies all three of these problems.
The first multi-million dollar artwork to be sold via this method was Andy Warhol’s painting 14 Electric Chairs. The auction raised $1.7 million for 31.5% of ownership.
As with other tokenized assets, a gold token is a digital representation of a specified quantity of gold. Traders and investors can purchase gold tokens via smart contracts on the blockchain, which can be held, retraded, or redeemed for physical gold.
In a similar vein to other illiquid assets like art and real estate, tokenization increases the liquidity of gold (especially considering high processing fees charged by traditional traders), opens the market to investors that might not typically trade in precious metals, and reduces issues around fraud.
The tokenization of gold is significant because it involves a highly-valued and stable asset. Gold is viewed by many as a “safe” investment that’s largely immune to economic downturns.
Gold asset tokens should not be confused with other types of gold-backed cryptocurrencies, which are cryptocurrencies whose value is tied to the value of gold but that do not represent physical assets.
Tokenization of real estate constitutes the creation of crypto tokens that are linked to physical properties. The process of tokenization in this context splits the value of a property into numerous smaller parts, somewhat like shares in a company, which buyers can then purchase. Transactions are recorded on an associated blockchain.
Real estate tokenization opens up the market to disparate buyers, increases the liquidity of what are traditionally highly illiquid assets, and enables real estate owners to raise capital quickly.
Property owners issue tokens through an Initial Coin Offering (ICO). Once the property has been “converted” into smaller constituent parts, representative tokens can be traded on the open market.
Ongoing issues include legal ambiguities around smart contracts on blockchains, cybersecurity concerns, and possible avoidance of taxes on the part of sellers.
Tokenomics is a portmanteau of “token” and “economics” and refers to the study of digital assets, particularly cryptocurrencies, and their value.
Tokenomics is a large field. It includes the study of creators of tokens, allocation and distribution methods, market capitalization, business models, legality, and the ways in which tokens function in the broader economic ecosystem.
Tokenomics forms part of the due diligence process completed by investors and traders before buying crypto tokens or participating in initial coin offerings.
Unlike cryptocurrency coins, which are used for storing and exchanging value, cryptocurrency tokens are digital representations of both fungible and tradable assets, utilities, and the denominations of cryptocurrencies. Tokens are created, distributed, circulated, and sold within the framework of the standard initial coin offering (ICO) process.
Two-way pegs are the mechanisms by which main chains connect to sidechains. Blockchains leverage sidechains to improve scalability and efficiency.
A 2WP locks the currency on the main chain and opens up the same amount on the sidechain, creating the illusion of a transfer. When the trader relocks the currency on the sidechain, it is available again on the main chain.
Uniswap is an open-source, decentralized trading exchange for cryptocurrencies. It was created in 2018 and is one of the most popular decentralized exchanges.
Uniswap operates on the Ethereum blockchain and is compatible with ERC-20 tokens and Ethereum-based wallets. The exchange is a platform for trustless transactions that prioritizes decentralization, resistance to censorship, and security.
Uniswap utilizes non-upgradable smart contracts at its core and is based on an automated liquidity protocol. This protocol creates pools of tokens, consisting of Uniswap user’s funds, to help traders execute transactions at low liquidity times.
Arbitrage trading, in which traders search for an asset’s best buy and sell price, is prevalent on the Uniswap platform. Uniswap’s decentralization also allows users to attempt front-running, often using automated bots.
An Unspent Transaction Output is the amount of unspent digital currency received by a trader after fees have been deducted. The balance an individual has in their crypto wallet is the combined value of their UTXOs.
On blockchains that utilize the UTXO method, traders must send whole UTXOs to make new payments. Any change the initial trader receives back from a transaction is a new UTXO. The combined amount of UTXOs in a particular currency is the total supply of that currency in circulation.
The UTXO model helps blockchains maintain transaction validity by confirming that the total inputs of each transaction equal the outputs. This method helps prevent double-spending attacks and ensures balance and security. What’s more, knowledge of UTXOS can help traders avoid unnecessary transaction fees. Bitcoin uses the UTXO model.
A utility token is a contract for a portion of a tradable asset. They are created through initial coin offerings (ICOs) on blockchains.
Utility tokens often act as gateways to products or services. For example, utility tokens can give holders entry to a network, allow prepayment for a product, or provide democratic powers on a network. Unlike security tokens, utility tokens don’t pass the Howey Test and are unregulated, increasing the risk of scams and attacks. However, some utility tokens can face regulations if they are essentially security tokens.
Utility tokens tend to have availability caps, which causes value fluctuations as the quantity available diminishes. Funfair and the Basic Attention Token are examples of utility tokens.
Vaporware – also spelled “vapourware” – is undelivered hardware or software scheduled for a future release. The term “vaporware” is a combination of “vapor” and “software” or “hardware”.
Cryptocurrency projects that haven’t yet materialized are often considered vaporware. Because of the crypto market’s lack of regulation, developers make promises about products to trigger currency value rises or sell scam tokens. In addition, some organizations delay announcements of project cancellations, leaving interested parties in the dark.
Crypto commentators often incorrectly use the term vaporware in its negative sense to criticize projects with legitimately extended development times. A notable example of this is Ethereum, which some considered vaporware before its release.
Wash trading refers to artificial and illegal activity in a marketplace to manipulate the perceived liquidity of assets and market volume. It is a problem in most financial markets and can occur in many ways.
In the cryptocurrency domain, centralized exchanges fall victim to wash trading when traders exchange assets among themselves to create false market volume. Wash traders can also create “pump and dumps,” causing an asset’s value to rise and fall sharply.
Due to the lack of regulation of cryptocurrency exchanges, market volume is an unreliable indicator of liquidity. Exchanges often keep users’ identities confidential, making it easier to wash trade. It is estimated that a significant quantity of Bitcoin trades are impacted by wash trading.
In business, a white paper – or whitepaper – is a report designed to inform and influence potential customers, partners, and investors.
Most professional cryptocurrency startups present white papers alongside initial coin offerings (ICOs) to explain the features of new projects.
This long-form document presents the token or coin’s concept, technical details, tokenomics, values, strategies, and more.
White papers are considered a valuable part of an ICO. However, there is no certainty that the information provided on a white paper is valid or reliable.
A litepaper is a shorter, summarized version of a white paper.
Zcash (ZEC) is a fungible cryptocurrency that provides a high level of privacy and security for its users. Scientists from various academic institutions such as MIT (Massachusetts Institute of Technology) and John Hopkins University developed Zcash by building on Bitcoin’s codebase. There are currently around twenty-one million Zcash coins in circulation.
Most blockchains publicly display transaction details like the sender and receiver’s public key and the transaction amount. Zcash offers shielded transactions which allow users to conceal some of their details to maintain privacy.
Zcash maintains users’ security and privacy using a type of zero-knowledge proof known as a “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge” (zk-SNARK) that makes it possible for data, such as private keys, to remain encrypted while being verified.
A zero-knowledge proof (ZKP) – also referred to as a zero-knowledge protocol – is a cryptographic method for maintaining privacy and security. A ZKP enables the demonstration of knowledge of a specific value without revealing the value itself.
The ZKP method relies on two parties: a prover who illustrates knowledge of a piece of data without revealing any details directly, and a verifier who checks the probability of the prover’s claim being true.
Cryptocurrencies utilize ZKPs to increase privacy by facilitating verifiable transactions that selectively conceal some transaction data, such as the sender identity, receiver identity, or amount traded. Some digital currencies, such as Zcash, leverage a type of ZKP known as the Zero-Knowledge Succinct Non-Interactive Argument of Knowledge to verify encrypted transaction data.
A “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge” is a type of zero-knowledge protocol used to maintain data encryption and usability.
Zero-knowledge proofs allow individuals to demonstrate ownership of specific information such as a private key. The prover shows this without disclosing the data itself to the verifier.
Zk-SNARKs are a novel type of zero-knowledge proof that allows quick verification of shielded information non-interactively. Non-interaction refers to a protocol where the proof is established through a single message from the prover to the verifier, rather than multiple messages. Because consensus is required across an extensive network, non-interaction maintains good blockchain performance.