Crypto FAQ | DragonFi

DragonFi is a complex solution for operations with decentralized protocols. We offer easy and convenient tools for interaction with DeFi assets and the Web3 ecosystem for experienced users and beginners. If you are just getting familiar with decentralized services, making sense of different terms might be difficult. Therefore, we have complied an FAQ of the main terms in Web3 and DeFi.

1. What is a cryptocurrency?

A cryptocurrency is a type of digital currency based on cryptography, a science dealing with methods of information encryption. One major feature of cryptocurrencies is decentralization — the absence of internal or external authority. Cryptocurrency emission is executed by means of mining. The three biggest cryptocurrencies by capitalization are Bitcoin, Ethereum and Tether.

2. Are a cryptocurrency and a token the same or different concepts?

A token is a digital asset created on the blockchain. In simple words, this is a digital unit for interaction with a system for which it was created. A token can be bought, sold, exchanged or used — for instance, it could be exchanged for a service or a product of the company, which issued it. It could also be used as a payment unit or entitle the holder to a portion of the issuing company’s income. The main difference between a token and a cryptocurrency is that the former has an issuer but doesn’t have its own blockchain.

3. What is an NFT?

An NFT (non-fungible token) is a unique token on a network that cannot be divided into several parts or replaced with an equivalent token. Just like any other tokens, a user can store NFTs in a crypto wallet and do transactions with them, such as buying, selling or sending them to other users.

4. What token is called native?

In simple terms, a native token is an ecosystem’s governance token, or a token in which all fees, rewards and other ecosystem payments are paid.

5. What is a stablecoin?

A stablecoin is an umbrella term for cryptocurrencies pegged to an asset with a stable price, such as fiat currencies, precious metals, real estate or other crypto. As a result, a stablecoin’s exchange rate is less volatile than that of a typical cryptocurrency. Stablecoins are discussed in more detail in the article Stablecoins: different types and where to buy them on our blog.

6. What is DeFi?

DeFi — or decentralized finance — is a term describing various financial services and applications built on the blockchain. DeFi’s main goal is to become an alternative to traditional banking and provide access to decentralized lending to a wide range of users, enabling them to collect passive income from crypto assets, as well as to save remittance fees, loans and deposits. DragonFi is an example of a DeFi service.

7. What is a dApp?

A dApp (decentralized application) is an app that functions without backend in a decentralized network. From an end user’s viewpoint, dApps are not different from regular apps. The biggest difference is that dApp data and backend are not stored on a server in a centralized way, facilitating full independence and autonomy.

8. What is Web3?

Web3 (Web 3.0) is a stage in the internet’s development that is characterized by data decentralization, the active use of artificial intelligence, machine learning and semantic web tech, a high degree of openness (most of the software code will be open-source) and the absence of censorship. The earliest version, Web 1.0, only allowed users to view pages and interact with content. The current version, Web 2.0, enables users to take part in content generation.

9. How do smart contracts work?

A smart contract is a computer protocol that facilitates checking and executing the conditions of an agreement between two or more parties. Smart contracts aim to enable secure exchange of assets without an intermediary. Smart contracts are part of blockchain programming code and operate within a blockchain. In simple words, a smart contract works like a deterministic program: it executes specific actions when certain conditions are met.

10. What is an atomic swap?

An atomic swap is a method of exchange between two cryptocurrencies operating on different blockchains without intermediaries. This process is based on smart contracts and facilitates coin conversions directly from a user’s wallet. For instance, thanks to this technology, users can exchange Bitcoin for Litecoin or other coins without using an exchange or another third party. The term “atomic” means that a transaction is either executed in full or not executed at all.

11. How can you earn on crypto in DeFi?

DeFi opens up significant opportunities for passive income, such as yield farming, staking, liquidity provision and investment in DeFi tokens.

12. What is yield farming in DeFi?

Yield farming is a way of earning cryptocurrency by using the coins you already have. The idea of yield farming is based on receiving rewards in a protocol’s native tokens for providing or taking loans, as well as for providing liquidity to decentralized exchanges.

13. What are liquidity pools?

A liquidity pool is an amount of tokens locked in a smart contract. They ensure sufficient liquidity on decentralized exchanges to avoid issues caused of insufficient liquidity in some tokens that are typical of such systems. In simple words, liquidity pools are crypto assets that are stored to facilitate trading in specific pairs on decentralized exchanges.

14. What is staking?

Staking is a type of passive income whereby users deposit coins to the Proof-of-Stake algorithm, supporting the blockchain’s operability. In exchange, users receive rewards.

15. How to use WalletConnect and why do you need it?

WalletConnect is an open-source protocol supported by many crypto wallets. It facilitates connection to various dApps. To do that, you need to click the connecting wallet button and select WalletConnect from the connection option list. You will see a QR code, by scanning which you will get connected to the dApp.

16. How to create an Ethereum wallet?

On the Ethereum network, all coins are stored in accounts that have addresses. To access them, crypto wallets are used. Among many wallets, you can select that which best suits your needs. One of the most popular wallets is MetaMask. To sign up, download and the extension MetaMask in Chrome Web Store and install it. Click “Get started,” then “Create.” Create a password. Subsequently, a secret phrase will be created. You’ll need to write it down and store in a secure place: if you lose it, you can lose access to your wallet. Then, MetaMask will ask you to verify your secret phrase by selecting the previously generated phrase in order. You are all set now.

17. What is a private key?

A private key is a string of letters and numbers that give you access to and full control of your cryptocurrency. A private key is used to sign transactions and helps you to protect your wallet from unauthorized access or stealing funds.

This page contains the main concepts from the areas of DeFi and Web3 and will be constantly updated. On our blog, we will explain various concepts in DeFi and crypto, as well as share ideas related to operating with DeFi assets. Subscribe to the blog and you won’t miss new entries.

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