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A marketing stunt that involves sending coins or tokens to wallet addresses in order to promote awareness of a virtual currency. Small amounts of the virtual currency are sent to the wallets of active members of the blockchain community for free or in return for a small service, such as retweeting a post sent by the company issuing the currency.
A mash-up of ‘alternative’ and ‘coin,’ an ‘altcoin’ is any cryptocurrency or token that is not Bitcoin. The most popular altcoin is Ethereum (ETC).
Automated Market Maker (AMMs)
AMMs are smart contracts that allow cryptocurrencies to be traded seamlessly with the usage of liquidity pools which hold balances of two unique tokens and controls deposits and withdrawals from them.
Liquidity pools can be contributed by anyone who can supply equal values of the paired tokens.
In the traditional order book method, the price a buyer is willing to buy at and the price a seller is willing to sell at is matched for the transaction to happen. In the liquidity pool system, traders do not have to wait for a price match.
A block explorer lets you search for information on a blockchain, like transaction histories, and addresses. Block explorers take advantage of a blockchain’s unique property of making all transactions public. You can use a block explorer to check if a transaction is complete, look up your (and others’) transaction history, and more.
Block Explorer example:
Blockchain refers to the list of publicly available records called blocks, which store data in chronological order. Whenever a new block is filled with data, it is chained with the previous block, making the data connected chronologically. Many types of information can be stored in the blocks, but the key feature that blockchains are immutable, makes it particularly suitable as a ledger for financial transactions.
There is no centralized authority in the blockchain that controls the data. Instead, it is the network’s participants that maintain the data, and approve transactions in the blockchain.
In the case of Bitcoin, a public blockchain, any transactions are recorded and viewable for everyone.
Bridges enable different blockchains to transfer value or data with each other. This feature unlocks multiple blockchain ecosystems for users. Many bridges utilise a ‘lock and mint’ model, where tokens aren’t sent to a new blockchain. Instead, they are simply locked in a smart contract on their native chain. Then, new tokens of an equal quantity are issued on the second blockchain.
- Binance Bridge. This decentralized bridge offers one of the largest selections of tradable cryptocurrencies. It supports popular blockchains like Ethereum, Solana, TRON, among others.
CeDeFi combines the strengths of “CeFi” and “DeFi” by offering decentralized investment products through a centralized framework.
Central Bank Digital Currency (CBDC)
The term central bank digital currency (CBDC) refers to the virtual form of a fiat currency. A CBDC is an electronic record or digital token of a country’s official currency. As such, it is issued and regulated by the nation’s monetary authority or central bank.
A crypto faucet is an app or a website that distributes small amounts of cryptocurrencies as a reward for completing easy tasks such as viewing ads, watching product videos, completing quizzes etc.
Decentralized Applications (dApps)
Decentralized applications (dApps) are digital applications or programs that exist and run on a blockchain or peer-to-peer (P2P) network of computers instead of a single computer. A dApp can have frontend code and user interfaces written in any language (just like an app) to make calls to its backend.
A standard web app, such as Uber or Twitter, runs on a computer system that is owned and operated by an organization, giving it full authority over the app and its workings. In the context of cryptocurrencies, dApps run on a blockchain network in a public, open-source, decentralized environment and are free from control and interference by any single authority.
Shorthand for ‘degenerate’, it refers to people who often make risky and bad bets. In the crypto space, it can refer to people who invest in digital assets without doing due diligence.
Digital Autonomous Organizations (DAO)
A DAO records its membership on a digital ledger system (blockchain), and members do things like vote to govern the group’s decisions. They do not meet in-person and communicate through messaging platforms instead. Joining a DAO often requires a monetary buy-in of tokens, which entitles their owners to voting power within the group. The more tokens you own, the more voting power you have.
Digital Payment Token (DPT)
In Singapore context, a digital payment token refers to any cryptographically-secured digital representation of value that is used or intended to be used as a medium of exchange.
Ethereum Gas Fees
It is the reward given to miners for putting transactions in the blockchain or executing them.
Reasons for forks include security risks identified, and improvements to the blockchain’s performance.
A hard fork is a radical change in the blockchain network in which the previous protocols that make up the blocks and transactions become invalid. When the newest version of nodes (computers that form the blockchain infrastructure) no longer accepts the old versions of the blockchain, it creates a permanent divergence in the blockchain network’s codes. All nodes or users need to upgrade to the latest version of the protocol to stay relevant in the network.
A hard fork is when developers and miners no longer agree on a proposed change to the software, despite operating on the same blockchain. After a hard fork, two separate blockchains arises.
- Bitcoin Cash (BCH) is a hard fork from Bitcoin in August 2017.
Hard Forks and Soft Forks are similar in the sense that when the network’s code is changed, the old version remains alongside the new. However, with a soft fork, only one blockchain will remain valid.
This concept is related to perpetual futures in crypto trading. Detailed writeup can be found on Binance.com.
Funding rates are periodic payments either to traders that are long or short based on the difference between perpetual contract markets and spot prices. Therefore, depending on open positions, traders will either pay or receive funding.
When the funding rate is positive, the price of the perpetual contract is higher than the mark price, thus, traders who are long pay for short positions.
Conversely, a negative funding rate indicates that perpetual prices are below the mark price, which means that short positions pay for longs.
GameFi is the term for the combination of DeFi and gaming, where gamers can earn financial incentives through playing games.
A genesis block is the first batch of transactions on a blockchain.
Gold tokens are a type of digital asset attached to physical gold. The token’s price is correlated to the price of gold.
PAX Gold (PAXG) is a digital asset. Each token is backed by one fine troy ounce (t oz) of a 400 oz London Good Delivery gold bar, stored in Brink’s vaults. If you own PAXG, you own the underlying physical gold, held in custody by Paxos Trust Company.
Gwei is a base unit of Ether, the native currency of the Ethereum network. Ethereum’s transaction fees, which are known as ‘gas prices’, are typically denominated in gwei. One unit of Ether is equal to 1 billion gwei.
Ether has a variety of other base units including wei (the smallest), kwei, mwei, twei, and pwei. The word ‘gwei’ is derived from Wei Dai, a pioneering cryptographer.
Initial Coin Offering (ICO)
ICO is an acronym that means Initial Coin Offering, which is how funds are raised for a new cryptocurrency offering. It’s similar to an IPO (Initial Public Offering) which raises funds when a new company ventures onto the stock market.
It is often a form of crowdfunding. In an ICO, a quantity of cryptocurrency is sold in the form of “tokens” (“coins”) to speculators or investors, in exchange for legal tender or other (generally established and more stable) cryptocurrencies such as Bitcoin or Ether.
Initial Game Offering (IGO)
Initial Game Offering (IGO) is a method for blockchain gaming projects to raise capital. It’s similar to an Initial Coin Offering (ICO), but apart from cryptocurrency tokens, IGO participants can get early access to the in-game assets while supporting the game’s early development.
IGO offered assets often include mystery boxes, characters, skins, accessories, weapons, and other items. In most cases, these are NFTs required to access or play the game.
Provide liquidity to a decentralised exchange and receive block rewards and a share of the transaction costs directly from the blockchain in return.
See risks of Liquidity Mining.
The term ‘mainnet’ describes the version of a blockchain network that is fully functioning, developed, and deployed. It is usually only released after extensive testing and development has been carried out on test networks, or ‘testnets’.
Maker-Taker Fee Model
The maker and taker model is a way to differentiate fees between trade orders that provide liquidity (“maker orders”) and take away liquidity (“taker orders”). Maker and taker trade orders are charged different fees. Maker orders are charged a lower trading fee.
Merkle Tree Proof
Video from Cake DeFi explaining Merkle Tree Proof.
A detailed blog article by Cake DeFi: Merkle Tree Proof of Reserves and Liabilities: Raising the Bar for Enhanced Transparency
A merkle tree is a cryptographic tool that enables the consolidation of large amounts of data into a “single hash” known as a merkle root. It is useful because it enables user privacy and it allows users to verify a specific transaction without having to download the whole blockchain.
The Metaverse is an expansive virtual world focused on the social space that utilises technology like Augmented Reality (AR) and Virtual Reality (VR)devices. Players can create an avatar, buy NFT land, build unique experiences, import NFT items and trade with other users in the Metaverse.
- South Korean metaverse platform by Naver Z
- $150 million investment from Japanese investment company SoftBank, now worth more than $1 billion (Dec 2021)
- users create 3-D avatars to virtually connect with people all over the world
- 200 million users, 1.5 million studio creators and 50 million studio item sales (Dec 2021)
Network Fees (Gas Fees)
To ensure that transactions are processed on cryptocurrency networks, outgoing transactions to external cryptocurrency addresses typically incur a “mining” or “network” fee. This fee is paid to cryptocurrency miners, which are the systems that process the transactions and secure the respective network.
Non-fungible token (NFT)
NFTs are cryptographically unique tokens that can be linked to digital or physical assets such as artwork, music, or videos.
- Opensea (#1 in volume)
- Axie Infinity
A blockchain oracle is a third-party service that provides smart contracts with external information. As blockchains and smart contracts cannot access off-chain data (data from outside the network), oracles serve as bridges between the network and the outside world.
‘Inbound oracles’ gather off-chain data and delivers it onto the blockchain network for smart contract consumption.
- Band Protocol
An order book is an electronic list containing buy and sell orders of a given investment vehicle. The book’s arrangement is made according to price, detailing all the shares or assets offered at each price level.
There are two types of order books.
- level 1: shows basic market data such as prices and the best buy and sell prices.
- level 2: shows detailed information such as the market depth. Market depth indicates the ability of the market to withstand a large order without any changes in prices.
Invented in 2017 by Gavin Wood, a co-founder of the Ethereum network, Proof of Authority (PoA) is a consensus mechanism that provides a solution for blockchains, particularly private ones. Proof of Authority is a variation of the Proof of Stake consensus mechanism, in which the algorithm values the identity and reputation of the participants, not the value of their holdings.
More details on Tokenize Xchange’s blog article.
Instead of requiring energy-intensive miners, proof-of-stake networks rely on “validators” that contribute their own tokens to a “staking pool” in exchange for a chance of updating the blockchain with the latest block of verified transactions, earning newly minted tokens, and pocketing a share of transactions fees.
The original crypto “consensus mechanism,” originating with Bitcoin, that allows many computers across a decentralized network to agree on which transactions are legitimate.
It requires a huge amount of processing power, which is contributed by virtual “miners” around the world who compete to solve a time-consuming math puzzle. The winner gets to update the blockchain with the latest block of verified transactions, and is rewarded with a predetermined amount of new tokens/coins.
The satoshi is currently the smallest unit of the bitcoin currency recorded on the block chain. It is a one hundred millionth of a single bitcoin (0.00000001 BTC). The unit has been named in collective homage to the original creator of Bitcoin, Satoshi Nakamoto.
Solidity is an object-oriented programming language for writing smart contracts. It is used for implementing smart contracts on various blockchain platforms, most notably, Ethereum.
Stablecoins bridge the worlds of crypto and traditional currency because their prices are pegged to a reserve asset. This can lower the volatility of digital currencies.
An analogy to stablecoins in the real world are the game tokens at an arcade games centre. One uses fiat money to exchange for game tokens and utilises them to play various games at the arcade.
Prior to leaving, one can always return to the counter and exchange the game tokens back to fiat cash at the same rate. Alternatively, one may decide to keep the tokens and utilise them during the next visit. Of course, there is always the risk that the arcade might close down and the tokens become worthless. Since stablecoin issuers back them with collaterals, this is an unlikely scenario in the crypto space.
Stablecoins are available at practically all crypto exchanges and are frequently used as a base currency for crypto trading pairs. Holders can also loan them out to earn interests. This is a feature of many crypto platforms.
Some well known USD stablecoins include:
- MakerDAO is an Ethereum-based lending protocol that issues the DAI algorithmic stablecoin
- the first regulated stablecoin in the world. Gemini began issuing Gemini Dollars (GUSD) on September 9, 2018
- direct supervision and regulatory oversight by the New York State Department of Financial Services (NYDFS).
- reserves backing GUSD are held in accounts with State Street Bank and Trust, Signature Bank, and Goldman Sachs Asset Management in the USA.
- reserve balance is examined monthly by BPM LLP, an independent registered public accounting firm, to verify GUSD’s 1:1 backing. Their monthly attestations are available here.
- USDC (launched in 2018 by cryptocurrency companies Circle and Coinbase)
- USDC is natively supported on multiple layer 1 blockchains including Ethereum as an ERC-20 token, Algorand as an ASA token, Solana as a SPL token, TRON as an TRC-20 token, and Stellar as a native asset.
- attestation reports by Grant Thornton are published monthly regarding the reserve balances backing USDC.
- As of 30 June 2022, Circle’s $55.7 billion reserves were comprised of $42.12 billion in short-term United States Treasuries and $13.58 billion in cash held at regulated financial institutions in the country
- TerraUSD (UST) is developed by South Korea-based Terraform Labs
- UST collapsed in May 2022 along with related cryptocurrency Luna, causing massive losses in the crypto industry
For Singapore context, we have:
- StraitsX (XSGD)
- Ledger.com: Stablecoins and CBDCs
Types of stablecoins
There are 4 main types of stablecoins.
They are typically pegged to the value of fiat money in a 1:1 ratio. This means if there is an amount of $1,000 in reserves, only 1,000 stablecoins worth $1 each can be circulated. The Gemini Dollar (GUSD) is an example of a stablecoin which combines the stability of the US Dollar with blockchain technology.
These stablecoins are pegged to a cryptocurrency asset to maintain their value. For example, users can borrow DAI stablecoins by depositing Ethereum-based assets as collaterals, and smart contracts hold the collateral in escrow until the borrowed DAI has been returned.
These stablecoins depend on smart contracts to maintain their value, instead of a pegged asset.
- TerraUSD (UST), for example, uses algorithms to automatically expand or contract the number of tokens in circulation to maintain its value.
- DAI is another example of an algorithmic stablecoin. It is issued by MakerDAO, an Ethereum-based protocol.
Instead of the US dollar, these stablecoins are pegged to commodities like gold, silver, or real estate. For example, each PAX Gold (PAXG) token is pegged to one troy ounce (t oz) of a 400-ounce London Good Delivery gold bar.
What can you do with stablecoins?
- Trade: Use stablecoins to buy other digital assets.
- Earn yield: lending platforms offer higher rates than what a bank would offer.
- Transfer money cheaply.
A Sybil attack is a type of attack on a computer network service. The attacker subverts the service’s reputation system by creating a large number of pseudonymous identities and using them to gain a disproportionately large influence.
Token burning is when a cryptocurrency project permanently removes (or “burns”) tokens from circulation. Burning is common in crypto and often beneficial.
Tokens are usually burned for deflationary purposes. Cutting down the supply of a token can increase its value, as there will be fewer coins available to sell.
The most common way to burn tokens is to transfer them to a “burn address”. These special addresses have no private keys linked to them and thus, the tokens can never be retrieved back into circulation.
Token Generation Event (TGE)
A Token Generation Event (TGE) involves the technical generation of the token in a blockchain-based network, and its launch to the market, normally in the form of a public sale, private sale, or initial coin offering (ICO).
Due to regulatory concerns of Initial Coin Offering (ICO) being modeled after IPO (Initial Public Offering), some projects began coining different naming conventions. TGE is one such convention.
Video by CoinMarketCap on ‘Tokenomics’:
Transactions per second (TPS)
TPS is a measure of a blockchain’s speed. Blockchains achieving high TPS rates considered to be the most scalable.
“We’re all gonna make it.” It’s a phrase crypto fans use to show their support for one another or inspire confidence in a project.
In crypto, a whitepaper is a document that outlines a technical and theoretical vision for a project. Typically, whitepapers start by introducing a problem that the writers seek to solve with their proposed technology. The documents often include sections on the project’s technical architecture, tokenomics, and roadmap.
The first ever cryptocurrency whitepaper.
Wrapped Bitcoin (WBTC)
Wrapped Bitcoin (WBTC) is an ERC-20 token that represents Bitcoin (BTC) on the Ethereum blockchain. It allows owners of Bitcoin to use their tokens on the Ethereum blockchain without going through the process of exchanging BTC for ETH.