Cryptocurrency Overview







ASIC (Application-Specific Integrated Circuit) - Specialized equipment called ASIC has been invented to make advances in cryptocurrency mining. ASIC is an integrated circuit designed to perform a single task fast and efficiently. Mining with an ASIC machine is faster than mining with a GPU or CPU. However, blockchains that allow for ASIC mining, like Bitcoin, are vulnerable to the network becoming centralized. This is because ASIC mining requires so much electricity use that only large companies and mining pools (a network of miners) can afford to mine with ASIC machines. In this scenario, the blockchain network used to verify transactions can become small and centralized.

Algorithm - A section of software code that performs a function. An example of an algorithm in cryptocurrency is the type of algorithm used to establish consensus for verifying transactions on a blockchain. In Bitcoin, the algorithm used to establish consensus on its blockchain is proof-of-work.

Block - A set of transactions that is added to a blockchain. These can be transactions of cryptocurrencies, contracts, records, or other information. Block sizes vary between blockchains.

Blockchain - Cryptocurrencies run on a software technology called blockchain. A blockchain is a public database which shows records of every transaction that has ever occured on it. The transactions can be cryptocurrencies, contracts, records, or other information.

Centralized/Centralization - Refers to a single authority administering decisions and regulations. The dollar is a centralized currency. The U.S. gov't controls its supply and interest rates. Banks verify transactions.

Consensus - The method by which the decentralized network of a blockchain uses to verify transactions. Common consensus algorithms include proof-of-work (PoW) and proof-of-stake (PoS).

CPU (Central Processing Unit) - A CPU, or central processing unit, is the main executive for the machine. It tells all parts of the computer what to do. Some blockchains only allow CPU or GPU mining, because ASIC mining requires so much electricity that it can lead to blockchain centralization.

Cryptocurrency - A digital currency that can be used as a medium of exchange or store of value. Runs on a blockchain and is secured by cryptography techniques. Can be traded on exchanges for other cryptocurrencies or fiat currencies.

dAPP (Decentralized Application) - An application that runs on a blockchain.

Decentralized/Decentralization - Refers to a large network of people known as a decentralized network administering decisions and regulations. Cryptocurrencies are decentralized. The cryptocurrency's source code controls its supply. The decentralized network can vote to change the source code and thus the supply and other attributes such as the consensus protocol. The decentralized network also verifies transactions.

DEX (Decentralized Exchange) - A cryptocurrency exchange which is decentralized, meaning it doesn’t have a central authority. Enables peer-to-peer trading of cryptocurrencies.

Exchange - Online platform that lets you exchange one cryptocurrency for another or for fiat currency (dollars, pounds, yen, etc.). There is usually a fee for each transaction.

Fiat - Fiat money is any currency that is declared legal tender by a government. Examples are dollars, pounds, yen, etc.

Fork - A modification to software code. If the source code for Bitcoin is changed, then Bitcoin has undergone a fork.

GPU (Graphics Processing Unit) - A part of the video rendering system of a computer. It assists with the rendering of 3D graphics and visual effects so the CPU doesn't have to. In blockchain mining, using a GPU is faster than using a CPU. Some blockchains only allow CPU or GPU mining, because ASIC mining requires so much electricity that it can lead to blockchain centralization.

Hard Fork - A change to software code that makes the previous code version invalid. A hard fork of a blockchain means there are now 2 seperate blockchains, an old and a new. The old blockchain will not accept blocks from the new blockchain. The old blockchain may continue to operate.

ICO (Initial Coin Offering) - A new type of crowdfunding. Used to raise funds for a cryptocurrency project. People send money in Bitcoin, Ether, or fiat form to fund the project in return for some of the project's currently valueless cryptocurrency. Investors hope this cryptocurrency will gain wide use and its value will increase.

Interoperability - Interoperability between blockchains is the ability to be share information and transact aross blockchain systems.

Market Pegged Asset (MPA) - A cryptocurrency that maintains price parity with a globally adopted currency, like the US dollar. This MPA is backed by collateral. For example 100 coins of an MPA could be backed by 200 US dollars.

Metadata - Additional information. One might include metadata with a transaction that gives information about it.

Miner - Someone who participates in verifying blockchain transactions with the incentive of earning cryptocurrency as a reward.

Mining Pool - A group of miners that share their processing power over a network in effort to find a new block. Cryptocurrency rewards for finding new blocks are split among the group according to the amount of work they contributed and that probability of finding a block.

Native - Original software. A native blockchain is an original, unique codebase.

Node - A device on a blockchain network. Can be computer, tablet, phone, and must be connected to the internet. A node supports the blockchain network by maintaining a copy of the blockchain, and, in some cases, processes transactions. Nodes that process transactions are known as miners or forgers and they can earn transaction fees and newly minted coins in the underlying cryptocurrency for their work.

Open-source - A type of source code for software. Open-source code means anyone can copy the code and modify it for free.

Proof-of-Work (PoW) - A method of consensus to verify transactions on a blockchain. In proof-of-work, miners compete for the right to add a new block of verified transactions to the blockchain. The first miner to solve a mathematical problem gets to add the new block and receives a cryptocurrency reward from the protocol.

Proof-of-Stake (PoS) - A method of consensus to verify transactions on a blockchain. In proof-of-stake, miners earn the right to add a new block of verified transactions to the blockchain based on whether they own a set amount of cryptocurrency. The protocol selects the miner, the miner adds the block, and the protocol issues a cryptocurrency reward to the miner.

Protocol - A system that arises from software code. It can be thought of as rules and limits. For example, the Bitcoin protocol requires miners to do proof-of-work to verify transactions and add them to the blockchain.

Scalability - In blockchain, scalability refers to limits on the amount of transactions a blockchain network can process. These limits involve the number of transactions per block and the frequency of adding a block to the blockchain.

Sidechain - A seperate blockchain attached to its parent blockchain. Allows tokens and other digital assets from one blockchain to be used in a seperate blockchain and then moved back to the original blockchain if needed.

Soft Fork - An update to software code where the previous remains valid. The former blockchain version continues to accept blocks from the newly modified blockchain.

Token - A token is its own special type of cryptocurrency. It exists on its own blockchain and represents an asset or utility. For ex., a token could grant access to view 20 hours of content on a video-sharing blockchain. They are usually used in dAPPS (decentralized applications). They can be used to facilitate transactions of dAPPS and smart contracts. Tokens can be traded among the various participants of the blockchain.

User-Issued Asset (UIA) - Enables users to issue their own tokens. The tokens can be anything such as a currency, promotional coupons, or shares in a company. Users can set the trading fee of the token and other attributes that control its use.

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