Education on Cryptocurrencies: Fundamental concepts (Part 4)

PART 1 – PART 2 – PART 3

We’re excited to bring you the latest edition of our crypto dictionary, created to simplify those abstract and tricky concepts. Some definitions have already been discussed in previous articles, while others will be explored more in-depth in future posts. If there’s a specific topic you’d like us to cover, feel free to contact us using this form.

Airdrop: The free distribution of cryptocurrencies by companies to boost project visibility and grow their user base. In return, recipients typically need to complete simple tasks, such as registering on a platform or following a social media account.

Atomic Swap: A technology that uses smart contracts to allow peer-to-peer cryptocurrency transactions. These swaps ensure privacy between participants, though individual transactions can still be traced on their respective blockchains.

BIP (Bitcoin Improvement Proposal): A technical document shared with the community for proposing and discussing network improvements. The community reviews these proposals and decides whether to implement them.

Blockchain Oracle: An external data source that feeds information to smart contracts, allowing them to execute based on real-world events such as sports results, weather conditions, and asset prices.

DYOR (Do Your Own Research): It might seem like common sense, but in the crypto world, it’s crucial. Always do your own research instead of relying on others’ opinions before investing.

Governance Token: A cryptocurrency that lets holders vote on decisions for a blockchain project. This allows them to influence changes within a DAO or DeFi project.

Layer 2 Solutions: Protocols built on top of a main blockchain (Layer 1) to enhance its scalability and efficiency. They enable the main chain to process more transactions faster. Notable examples include the Lightning Network and Rollups.

Hard Fork: A major upgrade to a Blockchain’s protocol that creates a split into two separate chains. This type of fork introduces new rules that are incompatible with the old ones, resulting in the creation of a new cryptocurrency or a significant update to the original one. Hard forks often arise from disagreements within the community or the need for substantial changes to the network.

Merkle Tree: A data structure in blockchains that helps organize and verify large amounts of data. It improves scalability and data integrity by making blockchain verification both secure and efficient.

Proof of Burn: A consensus mechanism where participants “burn” (destroy) cryptocurrency to show their commitment and earn the right to validate transactions. The more tokens burned, the greater the chance of mining the next block.

Tokenomics: The economic framework surrounding a token within a crypto ecosystem. Tokenomics supports the development of self-sustaining projects with unique features. For these projects to succeed and grow, they need a strong community.

Whale: A term for individuals or groups with a large amount of crypto assets. These “bitcoin whales” can impact the market by making substantial trades, either buying or selling cryptocurrencies.

Yield Farming: A method for earning profits in DeFi markets. Users provide crypto assets to a decentralized liquidity pool and earn rewards (APY), usually paid in real-time and often in additional tokens from the same protocol.

Zero-Knowledge Proof: A cryptographic method that lets one party prove information to another without disclosing any extra details.

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