Fundamental Concepts

Blockchain

A decentralized, digital ledger that records transactions across a network of computers. Each record (block) is cryptographically linked to previous records, forming a chain of information that cannot be altered without changing all subsequent blocks.

Cryptocurrency

Digital or virtual currency that uses cryptography for security. Unlike traditional currencies, cryptocurrencies typically operate on decentralized networks based on blockchain technology.

Decentralization

The distribution of power, control, and decision-making across a network rather than concentrating it in a single entity or authority.

Technical Terms

Block

A collection of transaction data that includes:

• Transaction records
• Timestamp
• Reference to the previous block (hash)
• Other technical information

Hash

A unique fixed-length string of characters that represents data. In blockchain, hashing is used to:

• Create block identifiers
• Secure transactions
• Link blocks together
• Verify data integrity

Node

A computer or device that participates in the blockchain network by:

• Maintaining a copy of the blockchain
• Validating transactions
• Relaying information to other nodes
• (Optional) Mining new blocks

Mining

The process of:

• Validating new transactions
• Creating new blocks
• Securing the network
• Earning cryptocurrency rewards

Consensus Mechanisms

Proof of Work (PoW)

A consensus mechanism where miners compete to solve complex mathematical puzzles to validate transactions and create new blocks. Used by Bitcoin and (formerly) Ethereum.

Proof of Stake (PoS)

A consensus mechanism where validators stake cryptocurrency to participate in transaction validation. More energy-efficient than PoW. Used by Ethereum 2.0 and many other blockchains.

Delegated Proof of Stake (DPoS)

A variation of PoS where token holders vote for delegates who validate transactions and maintain the network.

Smart Contracts and DApps

Smart Contract

Self-executing contracts with terms directly written into code. Features include:

• Automatic execution
• Immutable once deployed
• Transparent rules
• Reduced intermediaries

DApp (Decentralized Application)

Applications that run on a decentralized network. Characteristics:

• Backend code runs on a decentralized network
• Frontend can be hosted anywhere
• Uses smart contracts
• No single point of failure

Gas

The computational fee required to:

• Execute smart contracts
• Process transactions
• Perform network operations Typically paid in the network’s native cryptocurrency.

Token Standards

ERC-20

The standard interface for fungible tokens on Ethereum. Used for:

• Cryptocurrencies
• Utility tokens
• Governance tokens

ERC-721

The standard for non-fungible tokens (NFTs) on Ethereum. Each token is unique and:

• Has distinct metadata
• Cannot be divided
• Represents ownership of unique assets

ERC-1155

A multi-token standard that allows:

• Both fungible and non-fungible tokens
• Batch transfers
• Mixed token operations

Wallet Types

Hot Wallet

Digital wallets that are:

• Connected to the internet
• Convenient for frequent trading
• Less secure than cold wallets Examples: MetaMask, Trust Wallet

Cold Wallet

Offline storage solutions that:

• Store private keys offline
• Provide maximum security
• Are ideal for long-term storage Examples: Ledger, Trezor

Hardware Wallet

Physical devices that:

• Store private keys offline
• Require physical confirmation for transactions
• Offer enhanced security

DeFi (Decentralized Finance)

Liquidity Pool

A collection of crypto assets locked in a smart contract that:

• Enables decentralized trading
• Provides liquidity to markets
• Generates yields for contributors

Yield Farming

The practice of:

• Staking or lending crypto assets
• Earning additional tokens as rewards
• Maximizing returns through different protocols

AMM (Automated Market Maker)

A decentralized exchange protocol that:

• Uses liquidity pools instead of order books
• Enables automatic price determination
• Allows constant trading availability

Security Terms

Private Key

A secure cryptographic code that:

• Proves ownership of crypto assets
• Signs transactions
• Must be kept secret

Public Key

A cryptographic code derived from the private key that:

• Creates wallet addresses
• Receives transactions
• Can be shared safely

Seed Phrase

A series of words that:

• Backs up private keys
• Recovers wallets
• Must be stored securely Usually 12 or 24 words long.

Network Types

Mainnet

The main blockchain network where:

• Real transactions occur
• Actual value is transferred
• Production applications run

Testnet

A testing environment that:

• Mimics the mainnet
• Uses test tokens with no value
• Allows safe development and testing

Layer 2

Scaling solutions built on top of existing blockchains that:

• Increase transaction speed
• Reduce fees
• Maintain security Examples: Optimism, Arbitrum

Advanced Concepts

Fork

A split in the blockchain that can be:

• Soft Fork: Backward-compatible upgrade
• Hard Fork: Non-backward-compatible change
• Chain Split: Creation of two separate chains

Oracle

Systems that:

• Connect blockchains to external data
• Enable smart contracts to access real-world information
• Bridge the on-chain and off-chain worlds

Zero-Knowledge Proof

Cryptographic method that:

• Proves knowledge without revealing it
• Enhances privacy
• Enables scaling solutions

Conclusion

This glossary covers essential blockchain terminology, but the field continues to evolve with new terms and concepts emerging regularly. Understanding these fundamentals provides a strong foundation for deeper blockchain exploration and development.

Note: Some terms may have slightly different meanings or implementations across different blockchain platforms and contexts.