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Digital assets 101: staying up to date with industry lingo

The digital assets ecosystem is rapidly changing. It is shaping the way we conduct business, bank and gain personal wealth. With evolving uses for digital assets and the increasing prevalence in our day-to-day lives, new terms keep popping up – NFTs, cryptocurrency, DeFi, smart contracts.

Here is a list of common digital assets terms that we will regularly update:

When any cryptocurrency "drops" crypto into the wallets of crypto traders/enthusiasts. Air drops are essentially marketing stunts used to bring awareness to a (usually) new cryptocurrency.

A set of functions and procedures allowing the creation of applications that access the features or data of an operating system, application or other service.

A system in which a record of transactions or “blocks” are stored on a digital ledger and maintained across a global network of computers that are linked together via nodes, thus forming a “chain.”

A technology that creates digital records that can be shared, amended and, most importantly, stored. Blockchain technology is typically associated with cryptocurrency like bitcoin, but it is much more than that. Every record (transaction) is validated, documented and then encrypted for security. The security piece is critical because it removes the need for a third-party validator. This peer-to-peer arrangement increases speed of transactions and lowers costs of typical transactions like stock or bond trading.

CBDCs allow central banks to retain control of a digital currency. CBDCs can even allow entities to "program" the currency to only work on certain items.

Coins are digital representations of currency. They do not exist in physical form. The SEC and CFTC are still figuring out how to treat them, but currently are treating them similar to securities treated as assets.

A tradeable digital asset/digital form of money built on blockchain that exists only online, with nothing physical. They are designed to work as a medium of exchange. Cryptocurrencies use encryption to validate and protect transactions, hence the name. There are currently more than 1,000 cryptocurrencies in existence with bitcoin far and away the most popular and widely used.

The transfer of control and decision-making from a centralized entity (individual, organization or group) to a distributed network.

An organization or platform without a single person or institution controlling it. DAO has an open-source code and is run through automation and crowdsourcing using governance tokens. A consensus (usually a majority) of token holders must agree in order to change/improve code or alter network payments.

The term for decentralized finance where financial instruments are offered without the need for intermediaries like banks or exchanges. DeFi relies on smart contracts and blockchain to remove the need for a third party.

Any type of content that is stored digitally and can be bought, sold or stored online. Types of digital assets range from photos and animations to websites and tokens.

A decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, Ether is second only to bitcoin in market capitalization.

A digital representation that is unique and stored on a blockchain. NFTs are usually associated with easily reproducible items such as videos, audio clips, etc. Blockchain technology is used to provide proof of ownership. Their lack of fungibility distinguishes them from other crypto assets like bitcoin.

Payments made by users to compensate for the computing energy required to process and validate transactions on the Ethereum blockchain.

The ability for a blockchain ledger to remain a permanent, indelible and unalterable history of transactions.

See “Coins” above. An ICO is the first opportunity to purchase that type of coin.

Describes the network of physical objects — “things”— that are embedded with sensors, software and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.

Passcodes that give access to digital wallets or other digital asset storage systems. Keeping of keys and privacy is essential in the digital asset space. Unlike a house or car, there is no backup "locksmith" if you lose your keys.

A hypothesized version of the internet. Mostly supporting online environments including 3D. It is a more social version of the internet where people can interact using avatars or similar objects. Very similar to a live video game using headsets.

Digital asset miners (think Bitcoin) are rewarded via new coins and sometimes additional fees, for solving complex equations, allowing new blocks of work to be added to a blockchain.

A decentralized digital ledger that records all cryptocurrency transactions and makes the information available to everyone with access to the ledger via a connected device. A blockchain node's main purpose is to verify each batch of network transactions, called blocks.

An entity that connects blockchains to external systems, thereby enabling smart contracts to execute based upon inputs and outputs from the real world. This is not referring to the software company.

A type of insurance contract that insures a policyholder against the occurrence of a specific event. This is done by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses as in a traditional indemnity policy.

Proof of stake was developed as an alternative to proof of work (POW). Block validation in POS is awarded to the miner with the most coins on the platform. The more coins, the higher the chance of being rewarded. Proof of stake consumes less energy thus many new platforms are utilizing POS.

A type of mining that requires huge amounts of energy consumption. Bitcoin is a POW platform. Computers solve complex problems, and a block is added to the chain. The fastest solver gets paid a reward, usually in bitcoin.

Usually pegged to a "stable" fiat currency, like the U.S. dollar (USD). Most popular are Tether and US Dollar Coin (USDC). Stable coins give less volatile access to crypto.

When a person deposits their crypto in an exchange or network, allowing them to earn interest or other rewards (more crypto) on the deposit. This is available with platforms that utilize "proof of stake."

Digital contracts stored on a blockchain that are automatically executed when predetermined terms and conditions are met. First proposed in the 1990's by Nick Szabo, they are described as " a set of promises, specified in digital form, including protocols within which the parties perform on these promises." Essentially, when certain pre-determined parameters are met, the smart contract executes the agreement and both parties are notified.

A wallet is a digital storage facility for digital assets.

  • Hot wallets are connected directly to the internet so face the risk of hacking, but transactions are much faster.
  • Cold wallets are not connected to the internet so they are safer from hacking, but less convenient for trading.
  • A warm wallet is a digital asset storage system that functions like a hot wallet. The main difference is it uses downloadable software. They also require a 12 digit passcode for access for authentication.
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