web3 Terms Flashcards
Blockchain
A blockchain is a type of distributed ledger technology (DLT) that consists of growing list of records, called blocks, that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. The timestamp proves that the transaction data existed when the block was created. Since each block contains information about the previous block, they effectively form a chain (compare linked list data structure), with each additional block linking to the ones before it. Consequently, blockchain transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.
Metaverse
Originally coined in a 1992 sci-fi novel (Snow Crash), now colloquially used as a network of 3D virtual worlds focused on social connection.
Cryptocurrencies
A cryptocurrency, or crypto, is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It is a decentralized system for verifying that the parties to a transaction have the money they claim to have, eliminating the need for traditional intermediaries, such as banks, when funds are being transferred between two entities.
Individual coin ownership records are stored in a digital ledger, which is a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.
Crypto Wallet
A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often also offers the functionality of encrypting and/or signing information. Signing can, for example, result in executing a smart contract, a cryptocurrency transaction, identification or legally signing a ‘document’.
Decentralized Exchange
Decentralized exchanges (DEX) are a type of cryptocurrency exchange which allows for direct P2P cryptocurrency transactions to take place online securely and without the need for an intermediary.
In transactions made through decentralized exchanges, the typical third party entities which would normally oversee the security and transfer of assets (e.g. banks, online payment gateways, gov’t institutions, etc.) are substituted by a blockchain or distributed ledger.
DeFi/CeFi
DeFi: Decentralized finance offers financial instruments without relying on intermediaries such as brokerages, exchanges, or banks by using smart contracts on a blockchain. DeFi platforms allow people to lend or borrow funds from others, speculate on price movements on assets using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts.
CeFi (Centralized Finance, also known as “TradFi”): the “traditional” banking system, using brokerages, banks, etc.
Ethereum
Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market cap.
Ethereum was conceived in 2013 by programmer Vitalik Buterin. In 2014, development work began and was crowdfunded, and the network went live on 30 July 2015. Ethereum allows anyone to deploy permanent and immutable decentralized applications onto it, with which users can interact.
ERC-20 Token
ERC-20 - (Ethereum Request-for-Comments #20) Token Standard allows for fungible tokens on the Ethereum blockchain. The standard, proposed by Fabian Vogelsteller in November 2015, implements an API for tokens within smart contracts.
The standard provides functions that include the transfer of tokens from one account to another, getting the current token balance of an account, and getting the total supply of the token available on the network. Numerous cryptocurrencies have launched as ERC-20 tokens and have been distributed through initial coin offerings.
ERC-721 Token
ERC-721 (Ethereum Request-for-Comments #721) Token Standard allows for the creation of unique and indivisible tokens (or Non-Fungible Tokens - NFTs).
Since tokens of this type are unique, they have been used to represent such things as collectibles, digital art, sports memorabilia, virtual real estate, and items within games. The first NFT project, Etheria, a 3D map of tradable and customizable hexagonal tiles, was deployed to the network in October 2015 and demonstrated live at DEVCON1 in November of that year. In 2021, Christie’s sold a digital image with an NFT by Beeple for US$69.3 million, making him the third-most valuable living artist in terms of auction prices at the time, although observers have noted that both the buyer and seller had a vested interest in driving demand for the artist’s work.
“The Merge”
On September 15th 2022, Ethereum transitioned its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS) in an upgrade process known as “the Merge.”
This was the first of several planned “updates” for the Ethereum network.
Mining
On a blockchain, “mining” is the validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network.
Nodes
A node is a computer that connects to a cryptocurrency network. The node supports the cryptocurrency’s network through either: relaying transactions, validation, or hosting a copy of the blockchain. In terms of relaying transactions each network computer (node) has a copy of the blockchain of the cryptocurrency it supports. When a transaction is made the node creating the transaction broadcasts details of the transaction using encryption to other nodes throughout the node network so that the transaction (and every other transaction) is known.
Node owners are either volunteers, those hosted by the organization or body responsible for developing the cryptocurrency blockchain network technology, or those who are enticed to host a node to receive rewards from hosting the node network.
Stablecoins
Stablecoins are cryptocurrencies designed to maintain a stable level of purchasing power. Notably, these designs are not foolproof, as a number of stablecoins have crashed or lost their “peg.” For example, on 11 May 2022, Terra’s stablecoin UST fell from $1 to 26 cents. The subsequent failure of Terraform Labs resulted in the loss of nearly $40B invested in the Terra and Luna coins.
Other popular stablecoins are: USDT: United States Dollar Tether & USDC: United States Dollar Coin. While both of these coins sound like they were created by the US government, they are both the creation of different private crypto companies - USDC was created by Centre/Circle and USDT was created by Tether Inc.
Artificial Intelligence
The term “artificial intelligence” had previously been used to describe machines that mimic and display “human” cognitive skills that are associated with the human mind, such as “learning” and “problem-solving”. This definition has since been rejected by major AI researchers who now describe AI in terms of rationality and acting rationally, which does not limit how intelligence can be articulated.
DAOs: Decentralized Autonomous Organizations
An organization constructed by rules encoded as a computer program that is often transparent, controlled by the organization’s members, and not influenced by a central government. In general terms, DAOs are member-owned communities without centralized leadership. A DAO’s financial transaction records and program rules are maintained on a blockchain.
The precise legal status of this type of business organization is unclear.
