Jargon Buster: Digital Asset and DeFi Terms

by Qredo Team,

Published Jan 6, 2021 12:42:53 PM

To get you orientated in the digital asset market, here’s a short list of words and terms you’ll need to know — with no buzzwords or technical jargon.

Qredo


 

  • Qredo is a cross-chain liquidity protocol that powers institutional traders to securely move digital assets. Sometimes misspelled as Kreedo, Credo, Creedo, and Creedoh.

Trading


 
  • Cross-margin. Trading margin backed by your wallet balance that is shared between different positions.
  • Trade credit. A short-term loan typically extended by a prime broker that lets traders take positions on credit.
 

DeFi


 
  • Composability. A quality of decentralized finance protocols that means multiple applications can plug into each other in a way often described as "money legos."
  • Superfluid collateral. The idea that crypto collateral can be leveraged by multiple applications at the same time, in a new and transparent form of rehypothecation enabled by composability. Coined by Dan Elitzer.

Digital Assets


 

  • Bitcoin (BTC). The first peer-to-peer online currency — cash that can be sent directly from one user to another over the internet, without any trusted intermediaries like banks or payment processors. The term ‘Bitcoin’ is variously used to describe the Bitcoin network, the software run by users, and the currency (ticker symbol: BTC). Bitcoin was the first implementation of a blockchain.
  • Blockchain. The shared ledger technology, or community-maintained database, on which Bitcoin and other cryptocurrencies are based. (There are many blockchains and the term ‘the blockchain’ is used in much the same way as ‘the cloud’.)
  • DLT (Distributed Ledger Technology). A broad term for shared database technology, of which blockchain is one example.
  • Layer 2 network. A framework that operates on top of an existing blockchain network, and that depends on its underlying technology, but offers additional functionality such as faster transaction speeds and greater scalability. For example, the Lightning Network is a Layer 2 solution that enables low-fee, fast transactions, and Qredo is a Layer 2 network for the transfer of portable ownership rights.
  • Cryptoassets. Cryptographic currency or digital currency – cash or value managed using a blockchain. Bitcoin is the first and best-known cryptocurrency.
  • Wallet. The software used to send and receive bitcoin and other cryptocurrencies.
  • Smart contract. A digital script or software that runs on the blockchain, without a trusted server or intermediary.
  • Ethereum, Ether (ETH). Ethereum is a popular smart contract platform: a blockchain that allows users to run software on a global computer. Users pay for transactions using Ether (ETH), the native currency of the network.

Storing and Sending


Cryptocurrency is sent and received using wallets: software that manages the complex mathematical operations required to create transactions and submit them to the blockchain network.

  • Address. A long, unique string of characters that serves as an account number for cryptocurrency transactions. Addresses are derived from private keys.
  • Private key. This serves as a kind of password to access the funds in a cryptocurrency address. A private key is essentially a very long random number that is so complex it cannot be guessed by even the most powerful computers. They are typically generated and managed by wallet software.
  • Public key. Drawing on public key cryptography, a public key is generated from its corresponding private key but the private key cannot be recreated from the public key. In turn, cryptocurrency addresses are created using public keys – meaning they can be shared publicly without risk of funds being accessed by anyone who does not have the private key.
  • Cold storage. The process of creating private keys and addresses on a computer that is not connected to the internet to increase security.

Mining and blockchain operations


Blockchains are maintained by miners, which collectively secure the network by reaching consensus with each other about the balance of addresses, and process new transactions.

  • Miner. A computer that secures a blockchain network and processes transactions, receiving block rewards and transaction fees in return.
  • Block. A batch of transactions, bundled together and cryptographically linked or ‘chained’ to the previous block, forming a blockchain. Miners add blocks to the blockchain at regular intervals (on average, every 10 minutes for Bitcoin).
  • Block rewards. New coins created every time a block is added to the blockchain. These are paid to miners to incentivise them to secure the network.
  • Confirmation. The number of blocks that have been added to the blockchain since a transaction was submitted to the network (including the block in which the transaction was included). Confirmations indicate how permanent a transaction is; after 3-6 confirmations on the Bitcoin network, a transaction is typically considered irreversible.
  • Transaction. Any operation (including a transfer of value) that is recorded on the blockchain.
  • Consensus. The process by which miners collectively establish agreement about the contents of the shared database of balances they maintain.
  • Proof of Stake. A method of consensus whereby the next miner to add a block to the blockchain is decided by a kind of lottery, with each miner’s balance representing their share of the entry tickets.
  • Proof of Work. A method of consensus (used by Bitcoin and many other cryptocurrencies) whereby miners compete to add the next block to the blockchain by searching for a cryptographic hash that meets specific criteria.
  • Hashrate. The number of cryptographic hashes that miners generate every second. In a Proof of Work (PoW) cryptocurrency like Bitcoin, total hashrate is a measure of the security of the network.
  • Transaction fee. The fees paid by users to miners to process transactions. Miners may also receive additional payments in the form of block rewards.

Cryptography and security


In addition to the public key cryptography that allows the creation and use of private keys and addresses, various other cryptographic operations are used to enable different blockchain features and functionality.

 

  • Hash, cryptographic hash. A complex, one-way mathematical operation that can be used to create a unique digital ‘fingerprint’ of a file or string of characters. Altering a single character in the original data (known as a ‘pre-image’) results in a completely different hash. The original text cannot be recovered from the hash and a hash cannot be predicted from its pre-image: it has to be calculated. When miners look for a hash that meets certain (very limited) criteria, this is therefore an energy-intensive process – the mathematical equivalent of searching for a needle in a haystack.
  • Signature. A string of characters that proves ownership of a private key, but that does not reveal the key. Signatures are used to verify the authenticity of digital messages and make transactions on the blockchain.
  • Multi-signature (address, transaction). Some addresses need signatures by two (or more) different users or private keys to make a transaction, similar to a joint bank account that requires multiple signatories to a check.
  • Threshold signature. A digital signature (used to sign a transaction, for example) made using a key jointly created by two or more parties from a group of authorised participants. For example, any two out of three, three out of five, or four out of nine parties can jointly create the same private key to sign a message. Unlike a multi-signature transaction, the signatories of a threshold signature scheme are not revealed in this process, only that the required number of participants have signed the message – thereby preserving anonymity.
  • MPC (Multi-Party Computation). A cryptographic process whereby a group of devices jointly computes a function (such as signing a transaction), while ensuring that any input data used by each of them remains private from the other parties. MPC enables a network or group of participants to collectively reach a desired outcome, even when not all of the parties can be trusted. The use of HSMs allows the keys to be generated and used to sign the transaction within the chips and then immediately destroyed, ensuring the process cannot be observed by an attacker.
  • Atomic swaps. The process of exchanging cryptocurrency funds on one blockchain with funds on another blockchain, instantly and automatically, when a cryptographic hash or secret is revealed. This makes trading digital assets secure and trustless.
  • Secure messaging. A system of communicating information between users that does not rely on a trusted platform or intermediary. Secure messaging typically uses public/private key pairs to enable sender and recipient to interact without first exchanging information that might be intercepted or compromised. While cryptocurrency users can encrypt and decrypt messages with the same keys used to create and manage their blockchain addresses, and the messages may be sent over the same blockchain network, they will not typically be recorded to the blockchain itself as a permanent transaction.
  • Quantum computing. A means of carrying out computation using principles of quantum theory to store and manipulate bits (units of data). Quantum computers are able to carry out certain operations dramatically faster than even the most powerful conventional computers. The field is still in its infancy, and only a handful of experimental quantum computers have been developed, but it is expected that a fully-functional quantum computer could break many of the most secure forms of encryption currently in use.
  • Quantum secure. A means of encryption designed to be resistant to attack by a quantum computer.
  • HSM (Hardware Security Module). A tamper-protected physical computing device designed to perform various cryptographic operations, thereby providing additional security for sensitive data.