Crypto Glossary

This glossary briefly explains frequently used technical terms. Either the English spelling (Crypto Wallet) or the German spelling (Krypto-Geldboerse) may be used.

In this context, the term definitions of the European Union are also helpful. See Art. 3, Regulation (EU) 2023/1114, MiCA - Markets in Crypto-Assets Regulation.

Altcoin

Altcoin is a portmanteau of Alternative and Coin. It refers to all cryptocurrencies except Bitcoin, i.e., alternatives to Bitcoin.

Asset

Asset is the English word for a valuable possession.

Bitcoin (BTC)

Bitcoin is both the name of a blockchain implementation and the name of the associated digital currency.

Blind Signing

Blind signing in the context of cryptocurrencies means that a transaction or a smart contract is approved without the full content or details of the transaction being visible. This often happens due to the complexity of smart contracts and the limitations of crypto wallets, which cannot display all information in an easily understandable format.

See also

• Episode 33 - Blind Signing: The crypto attack vector you must be aware of!
• Ledger: Compensation paid out of pocket and the end of blind signing

Blockchain

A blockchain is a special form of distributed ledger technology. It is a tamper-resistant chain of data blocks. The entire chain is stored decentrally across countless computer systems. The concrete implementation of a blockchain is therefore also called a network. Each block is linked with a timestamp and a cryptographic hash of the previous block, which creates a chronological and immutable record.

The blockchain is the actual storage location of a cryptocurrency. It is not the crypto wallet.

Blockchain Explorer

A blockchain explorer displays data stored in a blockchain. This allows you to publicly view all associated transactions and also the balance for a wallet address. There are different blockchain explorers for different cryptocurrencies, for example:

• Etherscan.io for Ethereum
• Polygonscan.com for Polygon

Block Finality

Block finality is an essential blockchain concept that ensures a transaction or block recorded in the blockchain can no longer be changed or reversed. There are different mechanisms to achieve this finality, depending on the consensus mechanism (such as Proof of Work or Proof of Stake) of the respective blockchain. Block finality is crucial for the security and integrity of a blockchain network. A transaction is considered final when it has been validated and irreversibly accepted by the consensus mechanism. Once finality is reached, it is fully completed and can no longer be changed.

Minting

Minting refers to creating new tokens or NFTs on a blockchain. A new entry is created in the network that uniquely represents the newly created digital asset.

On-Chain

On-chain refers to all data, transactions, and actions that are stored directly on a blockchain and remain permanently traceable there.

Proxy

In the smart contract context, a proxy is an upstream contract that forwards calls to implementation logic. This makes it possible to update contract logic without changing the contract address in use.

Coin

Coin is a synonym for one unit of a crypto asset, for example one POL, similar to one euro or one U.S. dollar.

Meme-Coin

A meme is, at its core, a cultural idea, a trend, or a joke that spreads quickly over the internet. In today’s internet context, meme usually means an image with a funny caption or scene, often shared in slightly modified form.

Meme coins are crypto tokens that represent such a meme. Meme coins often emerge from fun, community ideas, or viral trends. A classic example is Dogecoin, which was created in 2013 based on the “Doge” meme (a Shiba Inu dog).

Many meme coins have no real technological added value or use case apart from speculation.

Crypto Wallet / Wallet

A crypto wallet grants exclusive access to the crypto assets owned by the wallet owner. Therefore, keychain would be a more accurate term. The wallet does not contain the cryptocurrencies; the blockchain on the internet does. The wallet only contains the keys to the crypto assets stored on the blockchain. The name wallet is therefore misleading.

As an analogy, think of a key ring with keys for bank safety deposit boxes. Assets in various currencies are stored in these boxes. Whoever has the key has access to the assets. This also applies to copied or forged keys.

In this example, the wallet is the key ring. The blockchain is comparable to the room that contains all safety deposit boxes.

DeFi

DeFi stands for Decentralized Finance and refers to financial applications on the blockchain that work without traditional intermediaries such as banks. Typical DeFi services include decentralized exchanges, lending, staking, and trading via liquidity pools.

DEX

A decentralized exchange, called a Decentralized Exchange (DEX), is an exchange that runs fully automatically by means of Smart Contracts and Token pools on the Ethereum Virtual Machine.

Decentralized Organization

A decentralized organization, called a Decentralized Autonomous Organization (DAO) or Decentralized Autonomous Corporation (DAC), is an organization without central leadership or administration. Instead, smart contracts are used for voting and decision-making. You can find a detailed explanation of DAOs on Ethereum.org.

Distributed Ledger Technology

Distributed Ledger Technology (DLT) is an umbrella term for all technologies that allow data to be distributed across multiple nodes in a network and managed jointly. Unlike a blockchain, DLTs do not necessarily have to be organized as a chain of blocks. A blockchain is therefore a specific type of DLT.

The key characteristics are:

1. Distributed database: DLTs allow multiple parties to store data in a distributed way without requiring a central authority.
2. No chain structure required: DLTs can organize data in different ways - not all DLTs use the block structure of a blockchain.
3. Consensus mechanisms: DLTs use different consensus mechanisms to ensure the integrity and consistency of stored data. In blockchain systems, the consensus mechanism is often Proof-of-Work or Proof-of-Stake, but other DLT systems may also use mechanisms such as BFT (Byzantine Fault Tolerance).

Ethereum

Ethereum is also the name of a blockchain implementation. The functionality of the Ethereum blockchain differs from that of Bitcoin. Comparable to Android and iOS smartphones, which differ in functionality and operating concept, but still share the basic principle of mobile phones with apps. Official website: Ethereum.org

ERC-20

“ERC-20 (Ethereum Request for Comments 20), proposed by Fabian Vogelsteller in November 2015, is a token standard that implements an API for tokens within smart contracts.” See ERC-20

Ether (ETH)

Cryptocurrency of the Ethereum network.

Ethereum Virtual Machine (EVM)

Ethereum is a kind of gigantic, worldwide computer that stores its state in a tamper-resistant data chain and writes forward all changes.

The Ethereum Virtual Machine (EVM) is a decentralized virtual environment that executes code consistently and securely across all Ethereum nodes. Nodes run the EVM to execute smart contracts, while “gas” is used to measure the computational effort required for operation, ensuring efficient resource allocation and network security.

~ ethereum.org

Gas

Gas is the unit of computational effort for a transaction, task, or operation on the Ethereum blockchain. Just as fuel can be treated as a unit for the distance traveled by a car: If the task were to deliver a parcel from Vienna to Munich, approximately 28 l of fuel would be needed for 400 km. Fuel is paid in euros in Germany. Gas, or the gas fee, is paid in Ether (ETH).

Gas Fee

Gas fees are compensation payments made to validators for executing transactions or operations on the Ethereum blockchain. These fees are paid in Ether (ETH). The amount of the fee depends on the gas price and the required amount of gas. The fee is always due before execution, even if the transaction fails.

Gwei

Giga Wei - Gwei is a common subunit of Ether and is often used to calculate gas prices. 1 Ether equals 1*10⁹ Gwei. Gwei is often used because it is a more convenient unit for specifying gas prices than Wei.

See also

• Ether, Gwei, Wei unit converter

Node

Computers that store and update the EVM state.

Network

The structure of all participating nodes of a blockchain that exchange data with one another.

Smart Contract

Digital contract with programmed logic. Reactions to events and functions can be programmed, similar to a vending machine.

Solidity

Solidity is the leading programming language for smart contracts in the Ethereum ecosystem. Since both Ethereum and Polygon are based on the Ethereum Virtual Machine (EVM), smart contracts written in Solidity generally run on both networks (possibly with network-specific adjustments).

Wei

Wei is the smallest unit of Ether, analogous to one cent in one euro. 1 Ether equals 1*10¹⁸ Wei. This means Wei is used as the base unit for calculating Ether transactions.

Consensus Mechanisms

A consensus mechanism validates transactions and adds new blocks to the blockchain. If certain prerequisites are met, you can participate in the consensus mechanism with appropriately configured computers and a fast internet connection. All consensus procedures have in common that they require high availability and reliability.

Proof of Stake

Validators must provide a certain amount of the network’s cryptocurrency as collateral - this is the stake. A validator is selected at random to validate the transaction and add the new block to the blockchain. As a reward, the winner receives part of the transaction fee. If someone is unreliable or even acts fraudulently, a penalty is deducted from the stake.

Proof of Work

Validators race to solve a mathematical procedure. Whichever computer solves the puzzle first has validated the transaction and adds the new block to the blockchain. As a reward, the winner receives part of the transaction fee.

Validator

People or companies that run the consensus mechanism with their computers are called validators.

Crypto Exchanges

Crypto exchanges are online trading platforms where users can trade cryptocurrencies. Examples of well-known exchanges include Bitstamp, Binance, Coinbase, Kraken.

Among the first crypto exchanges, which no longer exist, were TradeHill, BTC-e, and MT.Gox.

Layer-2 Network

Layer-2 networks refer to blockchains that do not function autonomously but depend on the Layer-1 network. They represent an extension of the first layer.

Market Capitalization

The market capitalization of a cryptocurrency is an important indicator of its market valuation and indirectly provides information about its popularity and investor interest. Market capitalization can also be compared across different asset classes to gain a rough impression of their relative size or market value. However, it should be noted that the differing characteristics, functions, and risk profiles of assets can limit direct comparability and should be considered in any assessment.

The market capitalization of a cryptocurrency can be calculated as follows: Market capitalization = Circulating supply × current price per coin

Polygon

Blockchain, also called the Polygon network. Polygon is based on Ethereum. It is a Layer-2, i.e., chain-on-chain, of the Ethereum blockchain. Official website: https://polygon.technology/

Matic

Until September 2024, the name of the cryptocurrency of the Polygon network. The current name is POL.

PIP

PIP stands for Polygon Improvement Proposal. It is used to document and discuss proposals for technical changes or extensions in the Polygon ecosystem.

POL

Name of the cryptocurrency of the Polygon network.

WPOL

WPOL stands for Wrapped POL. It is the wrapped version of POL in a token standard format expected by many smart contracts. This allows POL to be used in a technically compatible way in DeFi applications and smart contract functions.

Recovery Phrase

Your 12-word recovery phrase, also called recovery phrase or sometimes mnemonic phrase, BIP-39 phrase, or seed phrase, is the master key to all your crypto accounts. It is specified by the Bitcoin Improvement Proposal BIP-39.

Sidechain

A sidechain is an independent blockchain that is connected to the mainchain via a bridge. It runs in parallel but usually has its own consensus mechanics.

Slippage

In cryptocurrency trading, slippage refers to the difference between the expected price of a transaction and the actual price at which the transaction is executed. This deviation can be either positive or negative:

• Positive slippage: The transaction is executed at a better price than expected.
• Negative slippage: The transaction is executed at a worse price than expected.

Minimizing Slippage

• Use limit orders: These make it possible to define a maximum or minimum price at which you are willing to trade.
• Set slippage tolerance: Traders can specify the maximum acceptable amount of slippage.

Causes of Slippage

• Market volatility: Rapid price fluctuations can cause the price to change between order placement and execution.
• Low liquidity: If there is not enough trading volume, delays and price changes can occur.

Token

“Token” generally represents the digital certification of assets. However, tokens can represent many different things. For example, a token can stand for ownership of multiple cryptocurrencies in different quantities. Or a token can contain the abilities of a character in an online game. A token can also certify ownership of one ounce of gold.

Synonyms:

• Crypto token
• Crypto asset
• Digital investment asset

Common token types are:

• Utility Token: grants access to functions or services of a protocol.
• Governance Token: grants voting rights in decisions of a DAO or protocol.
• Payment Token: primarily serves as a digital medium of exchange or payment.
• Stablecoin: is pegged to a reference value such as euro, U.S. dollar, or gold to reduce price fluctuations.
• Security Token: digitally represents regulated asset or participation rights.
• NFT (Non-Fungible Token): represents a unique, non-interchangeable digital object.

Cryptocurrency

A cryptocurrency is a digital asset in the form of a token. Its market value results from supply and demand as well as acceptance and trust.

In the narrower constitutional law sense, a currency is a type of money recognized by a state and at the same time legal tender, see Currency on Wikipedia. Therefore, the term cryptocurrency is not always legally unambiguous. In practice, many crypto tokens are more accurately considered crypto assets or digital assets.

Real-World Asset (RWA)

RWA stands for Real-World Asset and refers to real tradable goods such as art, commodities, real estate, or machinery. Digital tokens on the blockchain can represent these goods. For example, a token could certify ownership of a specific amount of gold.

Scam-Token

Scam tokens are fraudulent digital assets that are often used to deceive investors and steal their money.

Wrapped Token

A wrapped token is a tokenized representation of another asset on a different blockchain. The original asset is usually locked, while the wrapped token represents its value 1:1.

The core purpose is technical compatibility with smart contracts and DeFi applications. Many smart contracts only accept tokens in the respective standard format. A typical example is Polygon: in many smart contracts, you can use WPOL, not POL directly.

Tokenomics

Tokenomics is a portmanteau of token and economics. The term refers to the economic properties and mechanisms of a token that influence its supply, demand, and long-term value development. These include token distribution, the emission and inflation plan, intended use cases (utility), governance rights, and incentive mechanisms for users and validators.

Web3 Service / Web 3.0 / Web3

Web 3.0 refers to services on the World Wide Web (www) that are based on blockchain technology. These services simplify the use of applications in the crypto world. For example, they make the use of smart contracts easier for users through graphical web interfaces.