Crypto has its own language. Mastering a few core terms makes everything—from buying your first coin to managing risk—much easier. This glossary keeps definitions short, practical, and linked to authoritative references where helpful.
Foundations
Blockchain
A tamper-resistant, append-only ledger maintained by a distributed network. It lets a community record transactions so that once confirmed, entries can’t be altered without redoing work or violating consensus.
Address
A public identifier you share to receive crypto. It’s derived from your public key; funds are controlled by the corresponding private key kept secret by you. (General concept; see Bitcoin developer docs for the transaction model.)
Public key / Private key
Public key is shareable and helps generate your address. Private key proves ownership and must remain secret; anyone with it can move your funds. (See secure-your-wallet guidance.)
Seed phrase (recovery phrase)
A human-readable list (often 12/24 words) that regenerates your wallet’s private keys. If you lose it, you can lose access permanently; if others learn it, they can take your funds. Back it up offline and never share it.
UTXO vs. account models
Bitcoin uses UTXOs: each transaction creates spendable outputs; later transactions consume those outputs. Ethereum uses an account/balance model. Understanding the model helps when tracking balances and fees.
Wallets and storage
Non-custodial wallet
You hold the keys (and responsibility). Good for control and censorship resistance but you must manage backups and security yourself.
Custodial wallet
A third party (exchange/app) holds keys for you, usually with account recovery features—at the cost of trusting their security and solvency.
Hot vs. cold storage
Hot wallets are connected to the internet (convenient but more exposed). Cold storage keeps keys offline (e.g., hardware wallets) and reduces online attack surface.
Hardware wallet
A dedicated device that stores keys offline and signs transactions. Often recommended for long-term holdings. Pair with a written seed-phrase backup.
Buying, selling, and trading
Centralized exchange (CEX)
A company that matches orders and holds customer assets. Offers fiat on-ramps, order types, and compliance checks (KYC/AML), but introduces counterparty risk.
Decentralized exchange (DEX)
On-chain trading via smart contracts—no central custodian. Many DEXs use automated market makers (AMMs), which price swaps via formulas and liquidity pools provided by users.
AMM (Automated Market Maker)
A DEX design that replaces order books with pools of tokens; prices move based on the pool’s ratio. Liquidity providers earn a share of fees.
Liquidity / Liquidity pool
Liquidity is how easily you can trade without moving the price. On AMMs, liquidity comes from user-funded pools of two assets, enabling 24/7 swaps.
Impermanent loss
A potential loss for liquidity providers when relative prices of the pooled tokens change; your position can be worth less than simply holding the assets separately. (Concept widely documented in AMM research.)
Slippage
The difference between the expected and executed price of a trade, often due to low liquidity or fast price moves. Limit slippage with limit orders on CEXs or slippage tolerances on DEXs.
Market order / Limit order
Market orders fill immediately at current prices; limit orders execute only at your specified price or better. Useful for controlling execution price.
Maker / Taker fees
Exchanges often charge lower fees to “makers” who add liquidity (resting orders) and higher fees to “takers” who remove liquidity (market/marketable orders).
Tokens, value, and metrics
Coin vs. token
A coin is native to its own chain (e.g., BTC on Bitcoin). A token is issued on another chain (e.g., ERC-20 tokens on Ethereum).
ERC-20 / ERC-721
Common Ethereum token standards. ERC-20 defines fungible tokens; ERC-721 defines non-fungible tokens (NFTs).
Stablecoin
A token designed to track a reference asset like the US dollar. Stability depends on reserves, governance, and convertibility; public-sector analyses highlight structural and integrity risks at system scale.
Market capitalization
Price × circulating supply. A quick size gauge, but can mislead if supply or liquidity is thin.
Circulating supply
The portion of total tokens currently available to the public; different from total or max supply.
FDV (Fully Diluted Valuation)
The hypothetical market cap if all tokens that could ever exist were already in circulation: price × total supply. High FDV relative to current market cap can signal large future emissions.
Fees and transactions (Ethereum examples)
Gas
The unit measuring computational work on Ethereum. Fees are paid in ETH and typically quoted in gwei (1 gwei = 1e-9 ETH).
EIP-1559 fees: base fee + tip
Transaction cost = gas used × (base fee + priority fee). The protocol burns the base fee; the tip incentivizes validators. Gas limits cap how much work a transaction can do.
Consensus and staking
Proof of Work (PoW)
Consensus where miners expend computational work to propose blocks, making it costly to rewrite history. Bitcoin is the canonical PoW chain.
Proof of Stake (PoS)
Validators stake coins to propose/validate blocks; misbehavior can be penalized (“slashing”). PoS reduces energy use relative to PoW and underpins modern Ethereum.
Staking / Slashing
Staking locks tokens to help secure a network and earn rewards; slashing penalizes certain attacks or downtime on PoS networks.
Scaling and data movement
Layer 1 (L1) / Layer 2 (L2)
L1 is the base chain (e.g., Ethereum mainnet). L2s (often rollups) execute transactions off-chain or in compressed batches, then post proofs/data back to L1 for security.
Rollup
A scaling approach where many transactions are bundled and proven to L1 (optimistic or zero-knowledge variants), aiming for lower fees and higher throughput while inheriting L1 security.
Compliance, audits, and safety
KYC / AML and the “Travel Rule”
Exchanges and other VASPs must screen customers and, for covered transfers, collect and transmit originator/beneficiary information (the “Travel Rule”), under FATF Recommendation 16 and related guidance adopted globally.
Proof of Reserves (PoR)
A point-in-time attestation some platforms publish about their on-chain assets. Regulators warn PoR is not a full financial audit and has important limitations, especially around off-chain liabilities.
Common crypto scams
Red flags include anyone demanding payment in crypto, urgent pressure tactics, or requests to move funds to “safe” wallets. Learn how to spot and report scams with official consumer guidance.
Basic security checklist
Use strong device hygiene, prefer hardware wallets for larger balances, keep offline seed-phrase backups, enable 2FA where available, and verify URLs and smart contracts before signing.
Quick-reference mini-glossary
Altcoin: Any cryptocurrency that isn’t Bitcoin.
Bridge: Software that moves tokens or messages across chains; introduces additional risk surfaces.
DAO: “Decentralized Autonomous Organization” coordinating decisions via tokens and smart contracts.
DApp: Application built on a blockchain using smart contracts.
FOMO/FUD: Fear of missing out / fear, uncertainty, doubt—sentiment that can sway markets.
MEV: “Maximal Extractable Value,” profit that block producers/validators can capture from transaction ordering.
Oracle: A service that relays external data (like prices) to smart contracts so they can react to real-world events.
APR vs. APY: APR is a simple annual rate; APY includes compounding and is usually higher for the same nominal rate.
FAQs
What’s the safest way to store my first crypto purchase?
For small amounts, a reputable exchange account with strong 2FA can be acceptable short term. For larger or long-term holdings, migrate to a non-custodial hardware wallet and back up your seed phrase offline in at least two locations.
Why did my Ethereum transaction fee change at the last minute?
Fees fluctuate with network demand. Under EIP-1559, you pay the base fee set by the protocol plus a priority tip to validators; when blocks are fuller, the base fee can rise.
Are stablecoins always worth $1?
They are designed to track a peg but can deviate. System-level analyses note structural limits and risks; always evaluate issuer transparency and reserves.
How do I reduce slippage on DEXs?
Trade during higher liquidity, split large orders, set a tighter slippage tolerance, or use limit-order features where available.
Is Proof of Reserves the same as an audit?
No. Investor advisories state PoR is not a PCAOB-standard audit and may omit liabilities or be otherwise limited. Treat it as one data point, not comprehensive assurance.
Final notes
Nothing here is financial advice. Treat these terms as a starting map; always verify platform security, fees, and regulations in your jurisdiction before moving funds. If you’d like, I can tailor this glossary to a specific exchange, wallet, or chain you plan to use.
