Glossary

AMM

Automated market maker: a smart contract that prices and trades assets from a pooled reserve instead of an order book.

Bitcoin

The first and largest cryptocurrency: a decentralized digital money secured by a global network of computers, with no central issuer.

Blockchain

A shared, append-only ledger of transactions kept in sync across many computers, with no single operator in charge.

Bridge

A tool that moves assets between blockchains. Bridges are frequent targets for exploits.

Cold wallet

A wallet kept offline, such as a hardware device. Safer for holding crypto long term.

DeFi

Decentralized finance: lending, trading and other financial services run by smart contracts instead of banks.

Exchange

A platform for buying, selling and trading crypto. A centralized exchange holds your keys, so you are trusting it.

Gas fee

The fee paid to have a transaction processed on a blockchain such as Ethereum. It rises when the network is busy.

Halving

The roughly four-year event that cuts Bitcoin’s block reward in half, slowing the rate of new supply.

Hot wallet

A wallet connected to the internet. Convenient for spending, but more exposed to remote attackers.

Layer 2

A network built on top of a base blockchain to make transactions faster and cheaper, settling back to the main chain.

Liquidation

The forced closing of a leveraged position when its collateral can no longer cover the loan.

Liquidity pool

A pot of two or more tokens supplied by users that an automated market maker trades against.

Market cap

A token’s price times its circulating supply. A rough measure of size, not the money invested in it.

Mempool

The waiting area of unconfirmed transactions that miners choose from, usually taking the highest-fee ones first.

Mining

Using computers to add new blocks to a proof-of-work blockchain and earn the block reward.

Oracle

A service that feeds outside data, such as prices, into smart contracts.

Private key

The secret number that controls a crypto address. Anyone who has it can move the funds.

Proof of reserves

A snapshot showing an exchange holds certain assets. It does not show what the exchange owes, so it is not an audit.

Proof of stake

A system where validators are chosen by the tokens they lock up, not by computing power. Ethereum uses it.

Proof of work

A system where computers spend energy solving puzzles to add new blocks. Bitcoin uses it.

Rollup

A layer-2 that bundles many transactions into one and posts a proof, or the data, back to the base chain.

Seed phrase

A list of 12 or 24 words that backs up a wallet. Lose it and the funds are gone; leak it and they can be stolen.

Self-custody

Holding your own private keys instead of trusting an exchange or other third party to hold them for you.

Smart contract

Code deployed on a blockchain that runs automatically when its conditions are met.

Spot ETF

An exchange-traded fund that holds the actual asset, such as bitcoin, giving exposure through a normal brokerage account.

Stablecoin

A crypto token designed to hold a steady value, usually pegged to a currency like the US dollar.

Staking

Locking up tokens to help secure a proof-of-stake network, in exchange for rewards.

TVL

Total value locked: the value of the assets deposited in a DeFi protocol.

Wallet

Software or hardware that stores the keys used to control crypto. It holds your keys, not the coins themselves.