Top 12 Definitions In Blockchain
Becoming an expert is a journey, but here are 12 definitions that will help you understand the basics.
It’s hard to know where to start when learning something new. To a large extent, we’re all learning something new in the emerging area of Web3!
Broadly defined, Web3 refers to distributed ledger technologies, or DLTs for short. My view is that Web3 technologies fall into three buckets: a) fungible tokens (e.g., BTC and ETH), b) non-fungible tokens, and c) decentralized autonomous organizations. Each serve a different purpose.
There are many terms — and many new ones emerging too — but in my opinion, there are 12 that are helpful to start with.
Automated market maker (AMM): An algorithm that ensures that at any given point in time, a buyer can execute a transaction for a cryptocurrency and match them with a seller. The most popular AMM algorithm is x*y = k popularized by Uniswap, the largest decentralized exchange.
Centralized exchange: A platform for exchanging cryptocurrencies and involving a centralized entity that behaves as a custodian for the user’s currency and curates the set of currencies that are offered for trading.
Consensus mechanism: A cryptographic methodology for achieving and incentivizing consensus about what is recorded on the blockchain among validators, potentially across the world who do not know each other.
Cryptocurrency: A digital and fungible currency where transactions are verified and records maintained using a cryptographic process, i.e. a mechanism for generating consensus among users who largely do not know each other.
Decentralized app (dApp): Usually an open source software that uses code running on a decentralized blockchain technology, rather than a centralized entity.
Decentralized exchange (DEX): A broad class of peer-to-peer lending mechanisms that do not require going through centralized custodians and generally requiring much less know-your-customer information to preserve anonymity.
Decentralized autonomous organization (DAO): A governing system for distributed decision-making, management, and ownership and where activities are implemented through smart contracts (as much as possible) and usually requiring that participants hold a governance token that confers governing capabilities.
Distributed ledger technology (DLT): The technological infrastructure that enables users to access, validate, and record activities in an immutable way across a network among users who do not know each other. DLTs can be permissionless (i.e., anyone can access) or permissioned (i.e., access is gated). DLTs are often used interchangeably with blockchain technology.
Hash: The “digital footprint” that identifies the group of blocks that miners must find when validating transactions.
Non-fungible token (NFT): A unique digital asset that reflects specific data stored on a blockchain, largely reflecting ownership, ranging from art to property rights.
Smart contract: A self-executing contract between a buyer and a seller that is written and implemented through lines of code.
Admittedly, there are many more terms, and I recommend a comprehensive glossary of terms by Consensys!
This article was written by Christos A. Makridis, the Chief Technology Officer and Head of Research at Living Opera. He is also a research affiliate at Stanford University’s Digital Economy Lab and Columbia Business School’s Chazen Institute, and holds dual doctorates in economics and management science & engineering from Stanford University. Follow us at @living_opera!