Bitcoin is the world’s very first cryptocurrency, postulated by ‘Satoshi Nakamoto’ (which is typically presumed to be a pseudonym) in a now-famous white paper called ‘A Peer-to-Peer Electronic Cash System’ in 2008.
A ‘blockchain’ is a distributed digital ledger that’s used to record transactions. It’s an immutable database, which means that information can’t be tampered with or altered once it’s been recorded. If there’s an error in an entry, then a new, revised entry must be made, and both entries will subsequently be visible on the ledger.
The name comes from the fact that a blockchain stores data in ‘blocks,’ individual units that are linked, or ‘chained,’ together. New data is filed into blocks – and blocks are subsequently chained together – in chronological order, so a blockchain becomes longer and longer as more information is added to it. Each new piece of information is also assigned a timestamp, which makes it easy for users to find out exactly when it was linked to the database. The transparency and immutability of the blockchain makes it a very reliable and trustworthy business resource both for individuals and companies. Kadena is an example of a blockchain.
A bridge, in a web3 context, is a protocol which links blockchain systems together, allowing users from one system to send assets and information to another.
A consensus mechanism is a system that validates transactions and encodes new information on a blockchain. The most common consensus mechanisms are Proof-of-Work (PoW) and Proof-of-Stake (PoS). Kadena uses Proof-of-Work.
Cryptocurrency is a digital currency secured on a blockchain. The blockchain uses cryptographic proof to secure the currency. This prevents the double spending issue for digital currencies where a currency unit is used for multiple payments without being used up. This is where the cryptocurrency name derives from. Anyone can make a cryptocurrency and they are regulated only by their underlying protocol or DAO. KDA is an example of a cryptocurrency.
A crypto wallet is a software program or physical device that allows you to store your crypto and allow for the sending and receiving of crypto transactions. A crypto wallet consists of two key pairs: private keys and public keys.
Distributed Autonomous Organisation. Generally refers to a method of management that has rules coded in software and that has decision making which is not centralized or hierarchical.
A decentralized application, colloquially called a dapp, is an application constructed on the blockchain. Dapps function autonomously, according to the stipulations in smart contracts. Like any other application on your phone, dapps come with a user interface and are designed to provide some kind of practical utility.
Decentralized Finance. Financial services and applications that are not, or mostly not, controlled centrally, as in Centralized Finance. For example, Uniswap is a decentralized exchange, versus Coinbase which is a centralized exchange.
Direct message. When contacting someone directly and not in a public group. For example, 'I'll send you the spreadsheet link in a DM'.
Gas is a unit of measurement that represents the computational effort required to complete a transaction. How much a user spends to complete a transaction is determined by the total amount of gas multiplied by the gas price.
Interoperability refers to the ability of multiple blockchains to cooperate and exchange information with one another, enabling virtual assets (such as non-fungible tokens [NFTs]), avatars and other pieces of code to move seamlessly from one platform to another.
Keys are long strings of numbers used to access the Web3 products stored in your wallet. There are two forms of keys:
- Your public key is the string you share with others to request transactions and identify yourself in the ecosystem.
- Your private key is the string that gives you access to your personal crypto assets and to confirm any transactions – a digital signature. This should never be shared with anyone.
A public key functions like your bank account number, with the private key being your PIN code. These keys are randomly generated and so can be hard to memorize. Therefore most wallets employ a string of words known as a “seed phrase” to act as a passcode to your keys.
(L1) blockchains are the foundations of multi-level blockchain frameworks. They can facilitate transactions without support from other blockchain networks. All layer 1 blockchains – including Bitcoin and Ethereum – offer their own native cryptocurrency as a means of accessing their networks.
(L2) blockchains are built on top of layer 1 blockchains, often enhancing the latter’s performance and expanding its accessibility. Polygon, for example, is a popular layer 2 blockchain that allows users to enjoy the benefits of using the Ethereum network without having to go through that network’s relatively slow transaction speed and costly fees.
Mining is the process of validating a transaction in a proof of work blockchain. In mining, a large pool of users compete for tokens to see who can solve a cryptographic puzzle the quickest using computing power. The difficulty of the puzzle scales with the total hash power of the entire network, the hash rate.
The costs of mining are well documented, both in the exponential increase in computing power to continue mining and the detrimental environmental impact.
Nodes are the computers used to secure a blockchain network. These are the engine of the blockchain, supplying the computing power to maintain it, validating transactions, and maintaining the consensus of the blockchain that keeps it secure.
The more nodes a blockchain has, the safer it is. However, this increases the computational complexity, amount of energy used, and thus the price for making each transaction.
An oracle is any application that provides data from outside the blockchain or vice-versa. Blockchains can only access data available on their own chains, and so need oracles to add outside or off-chain data. A typical use case is smart contracts that need to incorporate real-world data or bridges that require information from another blockchain to perform an exchange.
For example, if a stablecoin needs to keep its value constantly connected to the amount of collateral available to that coin, it would need an oracle to identify how much of that collateral is available. This is because knowledge of the collateral amount is off-chain data that has to be translated to data usable by the blockchain.
Smart contracts are self-executing contracts formed using a blockchain. A smart contract is a program that can automatically execute agreements on the blockchain without external oversight, as long as the originally set parameters of the contract are fulfilled. The blockchain ensures that the contract has been considered trustworthy – the validation method and the transparent ledger of previous transactions create the necessary trust.
A token is an electronic proof of asset ownership. These are typically split into two types. Fungible tokens like Kadena are identical, exchangeable tokens; non-fungible tokens (NFTs) are unique and cannot be reproduced.
While not every blockchain has a token, most deploy a form of token to take advantage of their utility value.
Uses for tokens include:
- Cryptocurrencies are the most common form of tokens that can be exchanged for goods and services. KDA is an example of a cryptocurrency.
- Payment or utility tokens can be used to pay for services but only on the blockchain that produces the token. These could for instance be the in-game currency for a blockchain-based video game.
- Governance tokens can be seen as shares in a blockchain, giving you voting rights on major decisions regarding the future direction of that relevant blockchain.
- NFTs that prove ownership over a unique digital asset such as art or a venue ticket.
The Trilemma refers to the problem every blockchain has in having to compromise on either security, decentralization, or scalability. Coined by Vitalik Buterin, one of the Ethereum co-founders, the trilemma points to each of the issues being interconnected:
- Increasing decentralization makes the blockchain more computationally complex, slowing down transaction speed (scalability), and requires more work to keep the network secure
- Highly secure blockchains cannot handle many transactions efficiently and so compromise on scalability
- Increasing transaction speed requires reducing the computational load in some way. This compromises decentralization and security.
Kadena’s innovative PoW consensus mechanism called Chainweb makes it the only blockchain to have solved the infamous blockchain trilemma.
A portmanteau of the words 'token' and 'economics,' tokenomics refers to all the aspects of a cryptocurrency that can impact the price such as total supply, vesting, and utility.