Week 1 — Crypto Buzzwords

Prologue

This is a space to consolidate my research on cryptocurrencies and any topics (mostly cryptos) that I find interesting. I have two goals. First, this serves as a formal log for my research and an audit of my research materials. Second, it is my hope that I can reach out to people that share my passion in this regard and we could learn more together.

This is the first article. First, we need to lay some groundwork on what cryptocurrencies are about. To understand a thing we must first understand its name. We have heard many things about cryptocurrencies. We have heard a lot of words. But what do they mean? This article is here to explain them as simply as possible. Today we will talk about Cryptocurrency, Web3, TradFi, DeFi, CEX, DEX, Smart Contract, Stablecoin, and Altcoin.

Cryptocurrency

Cryptocurrency (crypto) is any form of currency that works as a medium of exchange through a computer network and uses cryptography to secure transactions. It does not rely on a central authority to verify the transactions nor rely on a regulating authority to issue them. Some of the best-known cryptos include Bitcoin — the first cryptocurrency and Ethereum — a blockchain platform that leverages smart contracts for creating decentralized applications. Their market cap totaled to be slightly over 1 trillion dollars as of current writing.

Web3

Web3 refers to a decentralized online ecosystem based on blockchain. Its decentralization nature allows users to participate in the network without compromising their personal data. Web3 is the collective ownership of the network by the users. Web1 is characterized by its static and read-only nature. Web2 has evolved to be interactive in which users can read from and write on the network. Web3 is about verifiability, in which users can read from, write on, and own (hence trust) the network. Web3 inherent the characteristic of decentralization and transparent characteristics through the usage of blockchain.

TradFi

Traditional finance. They are our familiar retail, commercial, and investment banks. It is the finance world we are familiar with. Think of examples like central banks and FinTechs companies. TradFi is centralized and is governed by well-established rules and regulations.

DeFi

Decentralized finance. As opposed to TradFi is governed by centralized authority, DeFi is governed by computer algorithms. DeFi lacks intermediate bodies and carries out transactions through the implementation of smart contracts.

CEX

Centralized exchange. They are the third parties that act as brokers between buyers and sellers of cryptos and operate under an order book model. They have more stringent KYC standards and generally offer supplementary services like crypto asset custody. Some of the best-known CEXs are Binance, FTX, Huobi, Coinbase, etc.

DEX

Decentralized exchange. DEX allows users to execute peer-to-peer (P2P) transactions without the need for an intermediary. It operates under an automated market maker (AMM) model in which transactions are handled by smart contracts. Asset prices in DEX are determined by these smart contracts and liquidity pools rather than buyers and sellers. Some of the top DEXs are Uniswap, SushiSwap, Raydium, etc.

Smart Contract

Smart contracts are programs stored on blockchains that are self-executing once the predefined conditions are satisfied. It can be programmed to execute trades of any kind of crypto assets and remove all intermediaries from the process. All trades are trackable, transparent, and immutable. It is widely used to automate workflow and trigger the next action when predetermined conditions are met.

Stablecoin

A class of cryptocurrency that has its price pegged to another class of asset, such as gold, fiat money, etc. The most common stable coins are USDT and USDC, they are backed by dollar-denominated assets of at least equal fair value to the respective coins in circulation.

This means that you can always redeem 1 USD for each USDT or USDC from the issuer. This also means stablecoins are free from volatility, unlike other cryptocurrencies.

Altcoin

Altcoin is short for alternative coins. It refers to other cryptocurrencies other than Bitcoin. There are many types of altcoins. Stablecoins mentioned are one of them. Other examples include Governance Token (allow owners to vote on decisions that influence the specific blockchain ecosystem, eg. Luna), Utility Tokens (tokens that serve some use within a specific ecosystem, eg. Filecoin), Security Tokens (a record of ownership of a real asset with value), etc.