Chapter 8 - Blockchains and cryptocurrency

Blockchain

A digital ledger consisting of blocks of data that is immutable and has no centralized controlling authority.

Block Contents

A block in a blockchain contains a hash (an identifying code), a timestamp, and the unique information of the block that precedes it.

Consensus Mechanism

A protocol that verifies the validity of each block added to the chain, ensuring it is legitimate without trusting an outside entity.

Proof-of-Work (PoW)

A consensus mechanism requiring miners to solve complex math algorithms using large amounts of computing power and electricity.

Proof-of-Stake (PoS)

A consensus mechanism allowing individuals to forge new blocks by placing a certain amount of their existing coins up as collateral.

Proof-of-Authority (PoA)

A consensus mechanism requiring certification by publicly-known validators, usually found on private corporate blockchains.

Smart Contract

An immutable agreement where the terms are written directly onto a blockchain and execute automatically.

Cryptocurrency

Digital money based on a public ledger blockchain whose supply is controlled by a consensus mechanism rather than a central government.

Cryptocurrency Wallet

Software or hardware that stores a user's private alphanumeric keys, allowing them to access and manage their cryptocurrency.

Hardware Wallet

A highly secure physical device (similar to a USB drive) that stores cryptocurrency keys offline to prevent hacking.

Paper Wallet (Cold Storage)

A physical printout of public and private keys that cannot be hacked because it is not connected to the Internet.

Cryptocurrency Exchanges (CEXs)

Online platforms where individuals and corporations buy, sell, or trade cryptocurrencies.

Pump and Dump

A scam where insiders buy a crypto, create social media hype to artificially raise its price, and then sell at inflated prices before it crashes.

Rug Pull

A scam where creators make a new cryptocurrency, hype it up, and then delete the blockchain entirely, leaving investors with nothing.

Pig Butchering

A scam often using dating sites where a target is tempted by fake crypto gains, only to have their funds stolen when they attempt to withdraw.

51% Attack

A scenario where a group obtains over 50% of the blocks on a chain, potentially allowing them to stop new transactions and make other coins worthless.

Gas Fees

Transaction fees charged for conducting transactions on a blockchain, named after the term used for computational effort on the Ethereum network.

Cryptocurrency Coin

A cryptocurrency that operates on its own native blockchain, such as Bitcoin or Ethereum.

Cryptocurrency Token

A cryptocurrency asset that does not have its own blockchain and instead resides on another coin's blockchain.

Store-of-Value Cryptocurrency

An asset like Bitcoin that is expected to retain its worth rather than depreciating over time because its total quantity cannot be significantly increased.

Stablecoins

Cryptocurrencies pegged or tethered to a less volatile asset, such as the U.S. dollar or gold, to reduce price volatility.

Decentralized Finance (DeFi)

The use of smart contracts on blockchains to facilitate financial transactions without requiring traditional banks or middlemen.

Decentralized Autonomous Organization (DAO)

A blockchain-based co-op allowing anyone with an Internet connection to join together on a smart contract to raise funds and govern policies.

Decentralized Applications (DApps)

Sophisticated smart contracts that function like normal apps but operate anonymously on a blockchain without a central controlling corporation.

Non-Fungible Tokens (NFTs)

Unique, non-duplicable digital assets (often digital art) attached to a blockchain that give the owner exclusive rights to the asset.