Crypto Glossary: Terms and Definitions for Beginners

Written by: Mike Martin   |  Updated January 31, 2023

Reviewed by: Ryan Grace

Fact checked by: Laurence Willows

crypto glossary

In this glossary, we’ll review all of the important concepts and terms in both cryptocurrency and blockchain technology.

🍒 New to crypto? Master the concepts with our Learn Center.

 
51% attack crypto

Definition:  A 51% attack occurs when a miner or group of miners controls more than 50% of a network’s hashing, or computational, power.  

What This Means:  When a blockchain participant controls more than 50% of a network’s computing power, that participant could change the way a network operates. This bad actor may prevent the issuance of new coins as well as reverse previous transactions. The 51% attack is less of a threat to established coins (bitcoin and ether) than smaller coins with fewer participants. The more participants a coin has in its network, the harder it is to gain control over the network

Additional Reading: Bitcoin Gold Blockchain Hit by 51% Attack

Address 

Definition: In blockchain technology, an address is an alphanumeric character identifier used to either send or receive cryptocurrencies on a specific blockchain network. 

What This Means:  In blockchain, an address is a set of 26 – 36 alphanumeric characters. This address serves as a virtual location for the sending and receiving of cryptocurrency. You can think of your wallet address as your account number. However, unlike your bank account number, cryptocurrency addresses are constantly changing. You can generate as many addresses as you’d like as often as you’d like for different coin networks. To better understand addresses, it may help to have an understanding of both private keys and public keys.

Definition:  In cryptocurrencies, “airdropping” refers to a marketing campaign in which free tokens or cryptocurrencies are distributed. This is often done in an unsolicited fashion. 

What This Means:  An “airdrop” is simply a distribution of tokens from one wallet address to another. Choosing who gets these free tokens and why is left to the party who is gifting the token. Sometimes, airdrops require the receiver to first promote a coin via social media. Other times, tokens are simply handed out to the largest holders of a certain cryptocurrency.  Since they are promotional in nature, airdrops are typically done near a token’s initial coin offering (ICO). 

Note: ICOs typically involve tokens, not coins.

Additional Reading:  PulseChain Airdrop – The Biggest Blockchain Airdrop in History 

Definition:  In cryptocurrency, altcoins refer to all cryptocurrency coins and tokens that are not bitcoin (BTC). 

What This Means:  There are over hundreds of blockchain networks in existence today and tens of thousands of tokens. Every single one of these digital assets aside from bitcoin falls under the “altcoin” category. Even Ethereum (ETH), with a market cap well above 100B, is considered an altcoin.

Additional Reading:  10 Important Cryptocurrencies Other Than Bitcoin – Investopedia

Definition:  Algorithmic (Algo) Stablecoins are backed solely by manipulating algorithms.

What This Means: Unlike most stablecoins, algorithmic stablecoins are NOT backed by a fiat currency, cryptocurrency, or anything for that matter. These coins are “backed” by math. In theory, this math keeps the coin’s value close to its peg price by manipulating supply. Some stablecoins are “fractional-algorithmic”, meaning their backing is divided between math and fiat currency or another crypto coin 

So, do algo coins work? The dramatic de-pegging of the TerraUSD (UST) algo coin in May of 2022 showed us the great vulnerabilities inherent in algo coins.

Additional Reading:  How $60 Billion in Terra Coins Went Up in Algorithmic Smoke

Definition:  Cryptocurrencies are said to be in a bear market when prices fall 20% from their highs for a prolonged period.

What This Means: Like all securities, cryptocurrencies have and will continue to experience bear markets. The last crypto winter lasted for about 3 years, from January 2018 to December 2020. In 2023, the crypto market is currently bearish. 

So why are they called bear markets? When bears attack, they “pull down” their prey with their claws. Bulls, on the other hand, attack by thrusting their horns upward.

DefinitionBitcoin is a decentralized digital currency that operates independently of a central authority.

What This Means: On the tail of the financial crisis of 2008, Satoshi Nakamoto wanted to create a currency that would operate independently of a centralized financial system. He called his creation Bitcoin. Bitcoin succeeded because it solved the double spending problem in crypto. Bitcoin is both the oldest and largest cryptocurrency in existence. Unlike traditional banks, bitcoin is governed via a peer-to-peer system. To replace the trust of traditional banks, Bitcoin uses cryptographic proof to verify transactions. The Bitcoin ecosystem creates its own monetary policy independent of any government or institution.

The coin associated with Bitcoin is also called bitcoin, but with a lowercase “b”. Bitcoin miners are rewarded in bitcoin for verifying transactions. To accomplish this, intense computations must be performed.

Read! Bitcoin is a Legit Store of Value. Here’s Why.

blockchain block

Definition:  In cryptocurrency, a block is a digital location that contains a recent quantity of transactions made across a protocol.

What This Means: Whenever you buy, sell, or transfer crypto, these transactions are first recorded in a network mempool, which acts as a waiting area. For the transactions in this waiting pool to get verified, miners place them into a coin’s block. Once all the transactions in a particular block are verified, this block will then get “chained” to the previous block – hence the phrase blockchain. A block also contains other information, such as the previous block’s hash and a timestamp. 

Additional Reading:  What Is a Block in the Blockchain?

Definition:  A block explorer is an online tool that displays the transactional history of a particular protocol. 

What This Means: Blockchain is built on a peer-to-peer system. This means that all information is public. Whenever someone sends or receives crypto, this transaction is ultimately put into a block. Block explorers pull this information into a database. Among other uses, block explorers allow everyone to view the transactional history of a specific crypto wallet address and discover what miner mined what coin at what time.

Want to see how an Ethereum block explorer works? Check it out below.

Additional Reading:  Etherscan Block Explorer

Definition:  Block height represents the current total number of blocks that have been mined in the history of a network.

What This Means: The very first block mined for network is called the genesis block. Block height simply represents the total number of coins that have been mined in a protocol since the genesis block. The current block height for bitcoin is 740791.

Definition:  The block reward is the number of coins distributed to a miner after having successfully mined a block. 

What This Means: In proof-of-work networks like Bitcoin, miners are constantly using computational power to find the golden nonce”. Once found, this nonce chains the current block to the previous one, verifying all of the transactions within the block in the process. As a reward for their work, the miner who finds this nonce will receive a certain number of coins. In the Bitcoin protocol, this number halves about every four years. Currently, the Bitcoin reward is 6.25 bitcoin (BTC).

DefinitionBlockchain is a permissionless, digital ledger shared via a peer-to-peer system that uses cryptography to secure transactions within a coin’s network.

What This Means: A blockchain is a series of digital blocks containing data. Simply put, a blockchain is a ledger. What makes blockchain unique is that this ledger is shared and controlled via a peer-to-peer system. This is unlike traditional ledgers, which are stored and controlled by a central authority. Additionally, blockchain is “immutable”, which means all the past transactions in a coin’s block are written in stone – they cannot be altered.

Definition:  Blockchain 1.0 is the first and simplest blockchain version. 

What This Means: Blockchain 1.0 was the first itineration of blockchain and is concerned widely with Bitcoin. The founder of Bitcoin, Satoshi Nakamoto, had a narrow goal for his cryptocurrency, “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

Definition:  Blockchain 2.0 expanded upon the foundation of blockchain 1.0 to include smart contracts.

What This Means: While blockchain 1.0 is credited to Nakamoto, Vitalik Buterin paved the way for blockchain’s next iteration: blockchain 2.0. Buterin, who invented Ethereum, saw blockchain’s utility far beyond a store of value. He envisioned a world where, through functions and logic, blockchain could automate the execution of agreements and contracts without the need for an intermediary.  

Definition:  Cryptocurrencies are said to be in a bull market when market prices continuously rise over an extended period. 

What This Means: Bull markets are defined by strong demand and weak supply. In cryptocurrencies, bull markets tend to be fast and furious. The natural state for many coins such as Bitcoin and Ethereum is bearish. Historically, investors who buy before the market reaches a strong demand/low supply cycle perform the best. The term “bull” or “bullish” comes from the way in which a bull attacks, which is an upward thrusting of its horns.

Definition:  Cardano is a proof-of-stake decentralized blockchain protocol.

What This Means: Cardano has a lot in common with Ethereum – both protocols can be used to run smart contracts and build programs. Though Cardano has some great features in comparison to Ethereum, it is not as widely adopted, and therefore it is currently less attractive to both investors and blockchain developers.

Definition:  Central ledgers are physical or digital records of an organization maintained by a central, controlling authority.

What This Means: In a centralized ledger, one entity maintains complete control over all transactions within the ledger. If this central authority, e.g. a bank or government, is compromised, the records within a ledger may be compromised as well.

For example, if a new regime takes control of a government, that regime could, in theory, transfer property deeds out of citizens’ hands into their own. Blockchain, instead, uses a decentralized ledger. This immutable system gives control to not one authority, but every party participating in the network.

how crypto is created

Definition:  In blockchain, a “coin” is a cryptocurrency derived from a particular blockchain’s protocols consensus mechanism (proof-of-work and proof-of-stake).

What This Means: There are a lot of different cryptocurrencies in existence, but there aren’t as many true “coins” in existence. For example, the Ethereum protocol uses “ether” as its coin while Bitcoin uses “bitcoin” (lowercase b) as its coin. Tokens (smart contracts) are not actually coins, but digital assets created by applications that are built on a native coin. For example, the Tether (USDT) token is built on the Ethereum platform, and therefore uses ether as its native currency.

Definition:  A cold wallet is an offline wallet where cryptocurrency data is stored.  

What This Means: Cryptocurrency wallets can be either stored online or offline. When stored online, wallets are said to be “hot”. With hot wallets, there is always the risk of being hacked. For those crypto participants worried about security, “cold” wallets are a great alternative. These wallets, sometimes called hardware wallets, typically store private keys on USB flash drives offline. Of course, there are risks here as well. What if you misplace the hard drive? For a real horror story on cold wallets, check out the below article!

Here’s how hot and cold wallets differ

Definition: In blockchain, a consensus protocol guarantees the stability of a network (coin) by helping the various nodes in a network come to an agreement on the validity of new blocks added

What This Means: Four generals want to attack a castle. If most of these generals act together, they will win. If they act independently of each other, they will likely fail. How can they trust each other? How do they now know whether one party is a spy for the castle, aka a bad actor? In this scenario, there can still be a bad actor and the majority can still win – if they have a consensus. 

This model, known as the “Byzantine Fault Tolerance”, is at the heart of Bitcoin’s proof-of-work consensus. As long as the majority of the nodes (participants) agree that a new block is added to the chain is not malicious, the block will be added. Some bad actors may try to say a malicious block is indeed not malicious. But this does not matter – if ⅔ of the nodes agree (or disagree) on the validity of a new block, the network will remain secure. This creates a trustless system. You don’t have to trust other people in the network if the majority of the nodes want it to succeed.

Additional Reading: A (Short) Guide to Blockchain Consensus Protocols 

Definition: A cryptocurrency is a digitalized and encrypted medium of exchange.

What This Means: When one hears “cryptocurrency”, bitcoin or perhaps ether comes to mind. However, cryptocurrencies encompass a sweeping variety of digital products. Most cryptocurrency ecosystems grow from under a native protocol, particularly Ethereum. NFTs and utility tokens are examples of the different sub-sectors of cryptocurrency. Although these currencies are traded independently of a protocol, these coins still rely on a native coin’s technology. 

Definition:  In blockchain, cryptography refers to the enciphering and deciphering of data to secure information.  

What This Means: Cryptography is the backbone of blockchain. For a peer-to-peer system to be trustless, security is of utmost importance. To ensure all transactions on a coin’s ledger are secure, blockchain employs cryptography. Some of these cryptographic methods include symmetric encryption cryptography, asymmetric encryption cryptography, and hashing.

Additional Reading: Explaining the Crypto in Cryptocurrency 

Definition: A platform that facilitates the buying and selling of various cryptocurrencies.   

What This Means: Traditional cryptocurrency exchanges, such as the ones offered by Binance, Coinbase, and Kraken, allow investors to purchase, sell and exchange cryptocurrency. There are also decentralized exchanges (DEXs), such as Uniswap, which self-custody wallets interact with.

Definition:  DAOs (decentralized autonomous organizations) are organizations run on smart contracts that automate decision-making.

What This Means: DAOs are organizations that are built on smart contracts made to run devoid of a central authority.

Chances are, you work at an organization that follows a set of protocols. For example, payroll will review your hours worked during a period before they mail you a paycheck. Couldn’t these simple processes be automated via blockchain technology?

DAOs take this idea and apply it to a larger level. What if a DAO was created to replace Uber with automated cars? If these cars could drive themselves, fill up their own tanks, and perform their own maintenance, what need would there be for a central authority?

DAOs are members-owned communities that can operate without any governance at all. 

DefinitionDApps (decentralized applications) are applications built with smart contracts designed to run autonomously.

What This Means: DApps take smart contracts and combine them with an interface. This interface allows participants to interact with a DApp. 

On traditional applications (like Twitter), users must interact with a central server via an API. The DApp “Steemit” is a potential blockchain replacement for Twitter. In this decentralized app, information is not loaded from a server, but from a blockchain. The data on Steemit is stored on the Steemit blockchain, which is controlled by its participants.

Definition:  Defi, short for decentralized finance, is an umbrella term used to describe all DApps that aim to replace current, centralized financial institutions.

What This Means: In the future, blockchain will most certainly have an influence on the way the world interacts with money. DeFi is the broad term used to describe all the current initiatives aimed to move finance away from central authorities and into a peer-to-peer managed ledger. How could this work?

Let’s say you’re getting 1% interest in your bank account today. Your bank lends this money, your money, to someone else for a higher rate – say 3%. They pocket the 2% difference. With Defi, you would loan your money directly to the third party, keeping the majority of the 3% yield.

Additional Reading: DeFi Self-Custody Wallet FAQs

dex vs cex

Definition: A DEXs (decentralized trading protocol) is a decentralized exchange that runs completely on a blockchain. 

What This Means: A centralized exchange (CEX) is a trading platform that acts as an intermediary between buyers and sellers of digital assets. CEXs hold the assets of their users in a central location. On CEXs, users must trust that an exchange is holding their assets 1×1.

Decentralized exchanges (DEXs) are being created on blockchains to replace these institutions. Self-custody wallets connect to DEXs only when transacting. A DEX, therefore, doesn’t have custody over crypto. DEXs use automated market makers (AMMs) and liquidity pools instead of traditional market makers.

Definition: Digital currency refers to any currency that exists in a purely digital state.

What This Means: All cryptocurrencies are digital currencies. These purely digital currencies can be created through both the proof-of-work and proof-of-stake systems. Tokens, also digital currencies, are created using the blockchain network of a specific coin. For example, ether is the coin behind Ethereum, and Chainlink (LINK) is a token built upon the Ethereum protocol. Ether is a coin; Chainlink is a token, but they are both digital currencies.

Definition: In a distributed ledger, data is stored and secured across a network of computers, or “nodes”.

What This Means: Unlike a traditional central ledger, the data within a distributed ledger is stored in many places. In blockchain, these places are the computers of those who participate in a blockchain. Distributed ledgers allow for the peer-to-peer interaction that makes blockchain so secure and unique.

Definition: Dogecoin is a peer-to-peer open-sourced meme coin. 

What This Means: When Billy Markus and Jackson Palmer created Dogecoin in 2013, it was supposed to be a joke. In the crypto crazy of 2021, however, that joke was taken very seriously. Dogecoin, invented in imitation of Litecoin and considered a meme coin, skyrocketed in value. Why? Not because of its utility, but because of its loyal community of followers. 

Definition: Ether is the native currency of the Ethereum blockchain. 

What This Means: Blockchains need a native currency for participants in that blockchain to interact and make transactions. Ether is the native currency of the Ethereum protocol. Following bitcoin, ether is the second most popular cryptocurrency in the world.

Definition: Ethereum is a distributed, open-source blockchain protocol that relies upon the proof-of-stake consensus mechanism.

What This Means: Ethereum, invented by Vitalik Buterin in 2013, expanded upon the technology behind Bitcoin to allow developers in its ecosystem to build applications and write smart contracts. While Bitcoin is mainly used as a secure store of value, Ethereum provides far-reaching utility. Most tokens are created on the Ethereum network. Ethereum’s ERC20 standard token allows for interoperability in the Ethereum ecosystem.    

Definition: A government-issued currency that is not backed by a commodity.

What This Means: So if a fiat currency is not backed by a commodity, what is it backed by? Nothing! Nothing tangible, anyway. In the US, fiat currency means all bills and coins. All those dollars in your wallet and bank account (as well as all those dollars you owe people) are backed solely by the good faith of the US government. In Latin, the term fiat means, “it shall be”. Fiat currency exists because governments said, “it shall be”, and we believe them.

Fiat currencies must be issued by a government. Therefore, bitcoin and other cryptocurrencies are not fiat currencies.   

Definition: A blockchain fork occurs when disagreement in a blockchain community results in the need for a fundamental change in the foundational protocol.

What This Means: Sometimes, the participants of a blockchain disagree on how a coin should be run. One example of this would be technology. As time passes, new technologies are invented. This technology can offer opportunities not present when a coin was invented.

To update a protocol, a “fork” must occur. After this fork, an old version remains on a network while a new version forks off. Forks can be either “hard” or “soft”. Hard forks create brand-new coins (as a hard fork created bitcoin gold) while soft forks do not. Both outcomes are covered in this glossary.

Definition: On the Ethereum protocol, gas fees are the fees nodes (participants) pay miners to validate transactions.   

What This Means: Verifying transactions on a blockchain requires computing power. Computing power is not free. To compensate miners on the Ethereum blockchain for verifying your transaction, you must pay them a fee. The higher the fee you pay, the faster your transaction will be settled. The recommended gas fees (calculated in gwei’s) are in constant flux with the market – the faster the market, the higher the fees.

Read: What are gas fees and how do they work?

Definition: The first block of data mined and validated on any blockchain is called the genesis block. 

What This Means: For all blockchains, there is a first block – the genesis block. The genesis block, called block 0, is unique in that there is no previous block (previous hash) linked to it. The creator of a blockchain usually mines the first coin themself. Satoshi Nakamoto, Bitcoin’s inventor, mined the first coin on the Bitcoin protocol. 

Definition: Governance tokens allow the participants of a protocol to influence a coin’s future.   

What This Means: In blockchain, governance tokens give the participants of a protocol the power to shape the future direction of a coin by allowing nodes to vote on future events. New products, innovations, and integrations are all voted on using governance tokens. For example, UNI tokens allow participants to vote on changes in the Uniswap decentralized exchange. A current proposal is, “Should the Uniswap community participate in the Protocol Guild Pilot?”

Additional Reading: Uniswap Governance 

Definition: In blockchain, halving refers to the rate of reduction in which new coins are created.

What This Means: Halfling pertains to the supply side of a coin. Some coins, like the Ethereum protocol, have no defined monetary supply which dictates the rate at which new coins are minted. Bitcoin does indeed have a supply monetary system. Under this protocol, the number of bitcoins released is halved every 4 years or every 210,000 blocks. The current bitcoin reward for mining a new block is 6.25 bitcoins. In 2024, this number will fall to 3.125.

Definition: In cryptocurrency, a hash function allows transactions to be conducted anonymously.

What This Means: In blockchain, a hash is like a fingerprint. Blocks within a blockchain all have their own unique hash and (except for the genesis block) the hash of the previously mined coin within them. You cannot change a previous hash without affecting the entire protocol. Hash’s help to secure a network.

Definition: In cryptocurrency, the hash rate is the number of calculations that are performed every second. 

What This Means: For proof or work networks, hash rate is a good measure of a coin’s security. The more computational power that is utilized to solve a chain’s cryptographic puzzle, the more secure that network will be. When there are a small number of participants mining in a protocol, the odds of malicious participants taking control increase. This could potentially lead to a 51% attack.

Definition: Hashing power represents the computational power of a miner(s) mining in a protocol.

What This Means: The goal for miners in a proof of work protocol is to find the nonce, which is below the current target of the network. Discovering this golden nonce takes a whole lot of guesses. Computers or hard drives with the greatest computing power have the highest hashing power and therefore are at an advantage of finding the golden nonce. This discovery will earn them the fees within the block and the blockchain reward.

Definition: A hard fork occurs in a blockchain when disagreement causes a protocol to be split, creating two separate coins

What This Means: Two kinds of forks can occur in blockchain: hard forks and soft forks. The latter does not result in the creation of a new coin; the former (hard fork) does. Let’s look at a hard fork that happened with Bitcoin.

In 2017, there was disagreement in the Bitcoin community regarding whether to increase the size of the blocks mined to increase transaction speed. Some bitcoiners were on board; others were not. This resulted in the forking of Bitcoin. Bitcoin cash (BCH) miners followed the updated protocol, while Bitcoin Standard (BTC) did not. All nodes in the network received the new coin while also keeping the old coin.

Additional Reading: A History of Bitcoin Hard Forks

Definition:  HD (hierarchically deterministic) wallets generate new keys from a master key for each transaction.

What This Means: In blockchain, security is of utmost importance. Bad actors can sometimes spot patterns in a wallets transactions and use this information to act maliciously. One way to heighten security is to create new private keys for every transaction. But this becomes tedious.

HD wallets enable another layer of security by constantly generating new keys from a master key. Generating these new keys is accomplished by the hash system. HD wallets are also ideal for companies utilizing blockchains, as they can make keys for all employees accessing the blockchain. 

Definition: In cryptocurrency, a hot wallet is any wallet that is connected to the internet. 

What This Means: Unlike a “cold” wallet (a USB drive), a “hot” wallet is a digital currency wallet that is always connected to the internet. This connectivity implies that hot wallets are constantly vulnerable to attack. Most cryptocurrency traders, however, prefer hot wallets because they make transacting easier.

Definition: An ICO (initial coin offering) represents the first issuance of a coin or token to a marketplace.

What This Means: In the stock market, they are called IPOs (initial public offerings). In cryptocurrency, they are called ICOs. Both IPOs and ICOs have one goal: to raise capital. However, there are some key differences.

Stock market participants who buy into a company’s IPO get things such as  shares, control, and dividends. Participants in ICOs get none of these benefits. They simply are hopeful the tokens they purchase will increase in value. 

Tokens and not coins? Yes. The term “ICO” can be a bit misleading – though technically this term stands for “initial coin offering” tokens are usually the cryptos released under this acronym.

Definition: In cryptocurrency, liquidity refers to the ease at which digital assets can be bought, sold, or transferred.

What This Means: For any market to operate efficiently, liquidity must be present. Liquidity, which means how easily an asset can be transferred to cash, is highest in markets with numerous participants. In addition to market participants, market makers are often employed to boost liquidity. Market makers buy the bid and sell the ask to satisfy the market, pocketing the difference, or the spread, as their profit. In DeFi, DEXs (decentralized exchanges) use smart contracts and liquidity pools to replace traditional market makers. 

Liquid staking allows users access to their staked cryptocurrency through liquidity tokens. Lido is an example of a liquid staking protocol in DeFi. 

Definition: Market cap (market capitalization) refers to the total current value of a digital asset(s).

What This Means: The current market cap of a coin o