Core Concepts
Blockchain Trilemma
Fundamental challenge in blockchain design stating that networks must sacrifice one of three properties: decentralization, security, or scalability
Example:
Ethereum prioritizing security and decentralization with high node requirements, while Solana prioritizes scalability with more centralized validation
CeFi (Centralized Finance)
Traditional financial services adapted to crypto assets but operated by centralized companies that maintain custody and control
Example:
Earning 5% interest on Bitcoin deposited with Nexo or Celsius, where the company manages your assets and determines rates
Censorship Resistance
Property of decentralized networks that prevents any entity from blocking, altering, or removing valid transactions once submitted
Example:
Bitcoin transactions continuing to process globally despite being banned in certain countries, as no central authority can shut down the network
Composability
Ability for blockchain applications to seamlessly integrate with each other, creating an ecosystem where protocols can be combined like building blocks
Example:
A DApp that combines Uniswap for trading, Aave for lending, and Chainlink for price data without requiring permission from any of these protocols
Consensus Mechanism
Protocol by which blockchain networks reach agreement on the valid state of the ledger and transactions, ensuring all nodes have the same data
Example:
Ethereum's transition from Proof of Work to Proof of Stake in 2022, reducing energy consumption by over 99% while maintaining security
DAO (Decentralized Autonomous Organization)
Member-owned community governed through blockchain-based voting systems where decisions are executed via smart contracts without central leadership
Example:
MakerDAO token holders voting on risk parameters for the DAI stablecoin system
DeFi (Decentralized Finance)
Financial services built on blockchain networks that eliminate traditional intermediaries like banks, enabling permissionless lending, borrowing, trading, and investing
Example:
Using Aave to borrow stablecoins without credit checks or bank approval, with your crypto assets as collateral
Gas Fee
Payment made to validators/miners for processing transactions and executing smart contracts, with costs varying based on network congestion
Example:
Paying 50 gwei per gas unit for a Uniswap swap that uses 150,000 gas, costing 0.0075 ETH during moderate network activity
Governance Token
Cryptocurrency that grants holders voting rights on protocol changes, treasury management, and other governance decisions in DeFi projects
Example:
Using COMP tokens to vote on interest rate models, supported assets, and protocol upgrades in the Compound lending protocol
Interoperability
Ability for different blockchain networks to communicate, share data, and transfer assets seamlessly across protocol boundaries
Example:
Using Polkadot to connect specialized parachains like Moonbeam (smart contracts) and Acala (DeFi) through its shared security relay chain
Liquidity Pool
Reserves of token pairs locked in smart contracts to enable decentralized trading, lending, or other DeFi activities without traditional counterparties
Example:
An ETH/USDC pool on Uniswap with $50M total value allowing traders to swap between the two assets at any time
NFT (Non-Fungible Token)
Unique blockchain-based digital asset with provable scarcity and ownership that cannot be exchanged on a like-for-like basis
Example:
CryptoPunk #7804 selling for 4200 ETH ($7.5M at the time) as a rare digital collectible with verifiable provenance
Permissionless
Property of blockchain systems that allows anyone to participate, build, or transact without requiring approval from a central authority
Example:
Launching a token or DeFi protocol on Ethereum without needing licenses or permission from any regulatory body or company
Self-Custody
Practice of personally controlling the private keys to cryptocurrency assets rather than relying on third-party custodians like exchanges or banks
Example:
Moving Bitcoin from Coinbase to a hardware wallet where you alone control the recovery seed phrase, following the principle 'not your keys, not your coins'
Smart Contract
Self-executing code deployed on a blockchain that automatically enforces and executes agreement terms when predefined conditions are met
Example:
An Ethereum-based loan contract that automatically releases collateral when debt is repaid or liquidates it if value falls below threshold
Staking
Locking crypto assets to support network security and operations in return for rewards, often in proof-of-stake blockchains
Example:
Staking 32 ETH to become an Ethereum validator and earning approximately 4% annual yield for processing transactions
Token Standard
Technical specification that defines how tokens function on a blockchain, including transfer methods, approvals, and metadata requirements
Example:
ERC-20 enabling fungible tokens like USDC, ERC-721 for unique NFTs like CryptoPunks, and ERC-1155 for semi-fungible gaming assets
Tokenization
Process of converting rights to real-world assets into digital tokens on a blockchain, enabling fractional ownership and programmable transfers
Example:
Converting a $10M apartment building into 10 million tokens worth $1 each, allowing investors to purchase partial ownership with minimal capital
Trustless
Property of blockchain systems that eliminates the need to trust third parties by using cryptographic verification and consensus mechanisms
Example:
Trading Bitcoin peer-to-peer without requiring trust in the counterparty because the blockchain enforces and verifies the transaction
Web3
Next generation of internet services built on decentralized blockchains, emphasizing user ownership of data and digital assets without central authorities
Example:
Using MetaMask to log into dApps with your wallet address instead of creating accounts with email and password on company servers
Yield Farming
Strategy of moving crypto assets between different DeFi protocols to maximize returns through token rewards, interest, and fee sharing
Example:
Providing liquidity to Curve Finance's stablecoin pools to earn trading fees, CRV tokens, and additional incentives from protocols like Convex
Advanced Concepts
Account Abstraction
Blockchain architecture that unifies user accounts and smart contracts, enabling features like social recovery, batched transactions, and sponsored gas
Example:
Using ERC-4337 to create a smart contract wallet that can be recovered through trusted friends rather than a seed phrase
Atomic Swap
Trustless peer-to-peer exchange of cryptocurrencies from different blockchains using hash time-locked contracts that either complete fully or cancel entirely
Example:
Trading 1 BTC for 15 ETH directly between wallets without an exchange, where neither party can take funds without completing their side of the trade
Composability
Property of DeFi protocols that allows them to be seamlessly integrated and built upon each other like 'money legos' to create complex financial products
Example:
Yearn Finance automatically moving user funds between Curve, Compound, and Aave to optimize yields while using Chainlink oracles for pricing data
Cryptographic Primitive
Fundamental building block of security in blockchain systems, including hash functions, digital signatures, and encryption algorithms
Example:
SHA-256 hash function securing Bitcoin's blockchain, or Ed25519 elliptic curve signatures used to authorize Solana transactions
EVM (Ethereum Virtual Machine)
Runtime environment that executes smart contracts on Ethereum and compatible blockchains, providing a standardized computation layer
Example:
Deploying the same DeFi protocol on Ethereum, Avalanche, and BSC without code changes due to their shared EVM compatibility
Flash Loan
Uncollateralized loan that must be borrowed and repaid within a single blockchain transaction, enabling capital-efficient arbitrage and restructuring
Example:
Borrowing 10 million DAI from Aave to exploit price differences between exchanges, taking the profit, and repaying the loan all in one transaction
Governance Attack
Malicious exploitation of on-chain governance systems to manipulate protocol decisions, often by temporarily acquiring large voting power
Example:
Using a flash loan to borrow $20M in governance tokens, voting to drain a protocol's treasury, and returning the borrowed tokens in a single transaction
Impermanent Loss
Value reduction in AMM liquidity pools compared to holding assets, occurring when asset prices change from the ratio at which they were deposited
Example:
Providing ETH/USDC at $2000/ETH and experiencing a 5.7% loss when ETH rises to $3000, compared to simply holding the assets
Layer 2
Scaling solution built on top of existing blockchains that processes transactions off the main chain while inheriting its security guarantees
Example:
Using Arbitrum to trade on Ethereum-based dApps with 10-100x lower fees and faster confirmations while maintaining ETH as the native asset
Liquidation
Forced sale of collateral in DeFi lending protocols when loan-to-value ratios fall below required thresholds to protect lenders
Example:
When ETH price drops 30%, a Maker vault with 150% collateralization ratio gets liquidated, with collateral sold at a discount to cover the debt
Merkle Tree
Cryptographic data structure used in blockchains to efficiently verify the integrity of large datasets by organizing data into a hierarchical tree of hashes
Example:
Bitcoin's block header containing a single Merkle root that allows light clients to verify transactions without downloading the entire 400+ GB blockchain
MEV (Miner Extractable Value)
Profit that miners or validators can extract by manipulating transaction order, including front-running, back-running, and sandwich attacks
Example:
A validator seeing a large pending DEX swap and inserting their own transactions before and after to profit from the price impact
Optimistic Rollups
Layer 2 scaling solution that processes transactions off-chain and posts only transaction data to Ethereum, assuming validity unless challenged
Example:
Using Optimism to trade on Uniswap with 10x lower fees, with a 7-day challenge period before withdrawals can be processed to mainnet
Oracles
Services that securely bring external data onto blockchains, creating a trusted connection between smart contracts and real-world information
Example:
Chainlink's decentralized oracle network providing accurate ETH/USD price feeds to Aave's lending protocol for calculating loan health
Privacy Coin
Cryptocurrency specifically designed to enhance transaction privacy through technologies like zero-knowledge proofs, ring signatures, or stealth addresses
Example:
Using Monero to make untraceable payments where the sender, receiver, and amount are all hidden from public view through cryptographic techniques
Proof of Stake (PoS)
Consensus mechanism where validators are selected to create blocks based on the amount of cryptocurrency they've staked, with economic penalties for malicious behavior
Example:
Ethereum validators staking 32 ETH to earn the right to propose blocks and validate transactions, earning rewards of 3-5% APR
Proof of Work (PoW)
Consensus mechanism where miners compete to solve computationally intensive puzzles to validate transactions and create new blocks, requiring significant energy
Example:
Bitcoin miners collectively consuming more electricity than entire countries to secure the network through specialized ASIC hardware
Quadratic Voting
Collective decision-making system where voting power scales with the square root of resources spent, giving diminishing returns to large stakeholders
Example:
Gitcoin Grants using quadratic funding where 100 $1 donations have more matching impact than a single $100 donation, encouraging broad community support
Recursive Zero-Knowledge Proofs
Advanced cryptographic technique where zero-knowledge proofs verify the correctness of other zero-knowledge proofs, enabling exponential scaling
Example:
Mina Protocol maintaining a fixed 22kb blockchain size regardless of transaction history by using recursive zk-SNARKs
Regenerative Finance (ReFi)
Economic system using blockchain to align financial incentives with positive environmental and social outcomes through transparent impact tracking
Example:
Toucan Protocol tokenizing carbon credits on-chain, enabling automated climate impact for DeFi activities through KlimaDAO
Sidechain
Independent blockchain that runs parallel to a main blockchain with a two-way peg, allowing assets to move between chains while maintaining separate consensus rules
Example:
Polygon PoS chain processing thousands of transactions per second at low cost while periodically anchoring to Ethereum for security
Slashing
Penalty mechanism in proof-of-stake networks that destroys a portion of a validator's stake for malicious behavior or protocol violations
Example:
An Ethereum validator losing 1-32 ETH for going offline for extended periods or attempting to validate conflicting blocks
Sybil Attack
Security threat where an attacker creates multiple fake identities to gain disproportionate influence in a decentralized network
Example:
Creating thousands of wallets with small token amounts to manipulate a DAO vote that counts by address rather than token weight
Threshold Signature
Cryptographic technique where multiple parties must collaborate to create a valid signature, without any single party knowing the complete private key
Example:
Bitcoin's Taproot upgrade enabling multi-signature transactions that appear identical to single-signature ones for enhanced privacy
Timelock
Smart contract security mechanism that enforces a mandatory delay between proposing and executing protocol changes, allowing users to exit if needed
Example:
Compound's 48-hour timelock giving users two days to withdraw funds if they disagree with a pending governance change
Tokenomics
Economic design of cryptocurrency systems including supply schedules, distribution methods, utility, and incentive mechanisms
Example:
Bitcoin's fixed supply cap of 21 million coins with halving rewards every 4 years to create predictable scarcity and increasing value
Validator Economics
Economic incentive structures designed to ensure validators in proof-of-stake networks act honestly and maintain network security
Example:
Ethereum's combination of ETH rewards for honest validation and slashing penalties for malicious behavior, creating a Nash equilibrium favoring honesty
Verifiable Random Function
Cryptographic primitive that generates provably fair random numbers on-chain, essential for secure lotteries, NFT distributions, and games
Example:
Chainlink VRF providing tamper-proof randomness for NFT minting to ensure fair distribution of rare traits without possibility of manipulation
ZK-Rollups
Layer 2 scaling solution that bundles hundreds of transactions into a single proof, verified on Ethereum mainnet, dramatically reducing fees while inheriting security
Example:
zkSync processing thousands of transfers for less than $0.10 each while Ethereum mainnet fees might be $10+ per transaction
Tools & Protocols
AMM (Automated Market Maker)
Algorithmic trading system using liquidity pools and mathematical formulas to price assets, enabling decentralized trading without order books
Example:
Uniswap's constant product formula (x*y=k) automatically raising ETH price as more is purchased from the pool
Blockchain Explorer
Web application that allows users to search, view, and analyze blockchain data including transactions, addresses, blocks, and smart contract interactions
Example:
Using Etherscan to verify a transaction hash, check contract source code, or monitor gas prices on the Ethereum network in real-time
Bridge (Blockchain)
Protocol that enables the transfer of tokens and data between different blockchain networks through locking, minting, and burning mechanisms
Example:
Using the Polygon Bridge to lock ETH on Ethereum mainnet and receive an equivalent amount of WETH on Polygon for lower-cost transactions
CEX (Centralized Exchange)
Traditional cryptocurrency exchange where a company maintains custody of user funds and facilitates trading through a centralized order book
Example:
Depositing fiat currency to Coinbase or Binance to purchase Bitcoin, with the exchange holding your assets until withdrawal
DApp (Decentralized Application)
Application with frontend interfaces and backend logic running on decentralized blockchain networks rather than centralized servers
Example:
Using Uniswap's interface to interact with its smart contracts on Ethereum, with no company able to censor trades or freeze assets
Decentralized Autonomous Trust
Smart contract-based structure that manages assets according to predefined rules, similar to traditional trusts but without human trustees
Example:
Creating a blockchain trust that automatically distributes ETH to your children on their 18th birthdays without requiring a bank or lawyer
Decentralized Compute
Networks that distribute computational tasks across many nodes, allowing users to rent processing power for AI, rendering, or scientific calculations
Example:
Using Render Network to process 3D animations by leveraging idle GPU capacity from thousands of computers worldwide
Decentralized Derivatives
Blockchain-based financial contracts deriving value from underlying assets, enabling permissionless futures, options, and synthetic assets
Example:
Trading perpetual futures on dYdX with up to 20x leverage without KYC, or creating synthetic exposure to Tesla stock on Synthetix
Decentralized Identity
Self-sovereign identity systems built on blockchain that allow users to control their personal data and credentials without central authorities
Example:
Using ENS domains like 'alice.eth' instead of '0x1234...' for wallet addresses and as a universal Web3 username across multiple platforms
Decentralized Identity Verification
Protocols that enable privacy-preserving credential verification without revealing personal data, using zero-knowledge proofs
Example:
Using Polygon ID to prove you're over 21 to a DApp without revealing your actual birthdate or sharing copies of identification documents
Decentralized Insurance
Blockchain-based risk-sharing protocols that provide coverage against smart contract failures, hacks, or other crypto-specific risks without traditional insurers
Example:
Purchasing Nexus Mutual coverage for $10M in assets deposited in Aave, paying a 2.5% annual premium that goes to the risk-sharing pool of NXM stakers
Decentralized Naming Service
Protocol that maps human-readable names to blockchain addresses and content hashes, improving usability and discovery in Web3
Example:
Using ENS to register 'myname.eth' instead of using a complex hexadecimal address, making it easier to receive crypto and connect to services
Decentralized Storage
Distributed systems that store files across multiple nodes using blockchain incentives, providing censorship resistance and permanent data availability
Example:
Storing NFT artwork on IPFS with Filecoin incentives or paying once for permanent storage on Arweave's 'blockweave'
DEX (Decentralized Exchange)
Non-custodial trading platform where users maintain control of their assets and trades execute through smart contracts without intermediaries
Example:
Trading ETH for USDC on Uniswap where the swap happens directly between your wallet and a liquidity pool without account registration
DEX Aggregator
Service that routes cryptocurrency trades across multiple decentralized exchanges to find the best prices and lowest slippage for large orders
Example:
1inch splitting a $500,000 ETH to USDC swap across Uniswap, SushiSwap, and Curve to save $3,000 compared to using a single exchange
Fiat On-ramp
Service allowing users to convert traditional government-issued currency into cryptocurrency through bank transfers, credit cards, or cash deposits
Example:
Using Coinbase to purchase $1,000 of ETH with a bank transfer, or buying Bitcoin at a physical BTM (Bitcoin ATM) with cash
Governance Portal
Interface where token holders can propose, discuss, and vote on protocol changes, with results automatically implemented through smart contracts
Example:
Using Snapshot.org to create a proposal for changing Uniswap's fee structure, followed by on-chain execution if approved
Hardware Wallet
Physical device that stores private keys offline, providing enhanced security by requiring physical confirmation for all transactions
Example:
Keeping large crypto holdings on a Ledger Nano X that requires button presses to authorize transactions, protecting from online attacks
Lending Protocol
DeFi platform where users can lend crypto assets to earn interest or borrow against collateral without credit checks or traditional approval
Example:
Depositing ETH on Aave to earn 2% APY while others borrow it at 3% APY, with the difference going to the protocol and its token holders
Liquid Staking
Protocol that issues tradable tokens representing staked assets, allowing users to maintain liquidity while earning staking rewards
Example:
Staking ETH with Lido to receive stETH that can be used in DeFi while the original ETH continues earning validator rewards
Metaverse
Persistent, shared virtual environments built on blockchain technology where users can interact, own digital assets, and participate in a digital economy
Example:
Purchasing a virtual plot in Decentraland for 500,000 MANA to build a gallery showcasing your NFT collection
Multisig Wallet
Cryptocurrency wallet that requires multiple private key signatures to authorize transactions, providing enhanced security and shared control
Example:
A DAO treasury requiring signatures from 3 out of 5 council members to execute any transaction over 100 ETH, preventing single-point compromise
Prediction Market
Platform where users can trade outcome shares of future events, with prices reflecting collective probability estimates and settlement based on real results
Example:
Betting on Polymarket that ETH will exceed $5,000 by year-end, with shares trading at $0.65 indicating a 65% probability according to market consensus
Real-World Asset Tokenization
Platforms that convert traditional financial assets like real estate, stocks, or commodities into blockchain tokens for fractional ownership and trading
Example:
Tokenizing a $50M commercial building on Centrifuge, allowing investors to purchase $100 fractions with automated dividend distribution
Stablecoin
Cryptocurrency designed to maintain a stable value relative to fiat currency through various mechanisms including collateralization, algorithmic controls, or centralized reserves
Example:
DAI maintaining $1 value through over-collateralized crypto positions, or USDC backed 1:1 by actual USD reserves
Wallet (Cryptocurrency)
Software or hardware that stores private keys needed to access and manage blockchain assets, allowing users to send, receive, and interact with dApps
Example:
Using MetaMask browser extension to connect to Uniswap, approve token spending, and sign transactions on Ethereum
Yield Aggregator
Protocol that automatically moves user funds between different DeFi platforms to maximize returns while minimizing gas costs and complexity
Example:
Depositing stablecoins to Yearn Finance which then allocates them across Compound, Aave, and Curve based on current yields and risks