Glossary of blockchain and crypto terms
Short, plain-language explanations of common blockchain and crypto terms. The entries are general education and do not describe any particular product or service.
A
- Address
- The address is the public-facing identifier that other people copy into their wallet software to direct a transfer. Because it is derived mathematically from a key pair, it can be shared openly.Ethereum.org: Glossary
- Airdrop scam
- A fraud that uses the promise of free tokens. Victims are asked to connect a wallet, sign a request, or enter a seed phrase to claim an allocation that never arrives, and their funds are taken instead.
- Anti-money laundering (AML)
- Laws, rules and controls aimed at stopping criminal proceeds from being hidden inside the financial system. Regulated businesses must check customers, watch activity and report suspicion. Often written AML/CFT to include terrorist financing.Financial Action Task Force guidance on virtual assets
B
- Block explorer
- Users enter a transaction ID, an address or a block number into this search tool to see its details. The information comes straight from the chain itself, so anyone can check it independently.Ethereum.org: Glossary
C
- Capital gains tax
- A tax on gains realized when an asset leaves the owner's hands. Some jurisdictions use a flat rate, others add gains to a person's income. Reporting usually requires recording the date, value and cost of each transaction.Canada Revenue Agency guidance on calculating and reporting capital gains
- Cold wallet
- Also called a hardware wallet, this option stores signing keys on a device that never shares them with a computer or phone. Transactions are approved on the device itself before they leave it.Ethereum.org: Wallets
- Consensus mechanism
- The set of rules that lets the participants in a network agree on which transactions are valid and the order in which they are recorded, without a central authority.Ethereum.org: Consensus mechanisms
- Crypto-Asset Reporting Framework (CARF)
- A reporting model for exchanging tax information on crypto transactions between countries. Platforms holding customer data gather details such as identity and transaction totals, which are then shared automatically with the relevant authorities.OECD Crypto-Asset Reporting Framework and amendments to the Common Reporting Standard
- Cryptocurrency
- A digital asset that uses cryptography to secure transfers, and that usually records them on a distributed ledger. Its units are not issued by a central bank.
D
- Decentralization
- A system is decentralized when its data, validation and governance are shared among many separate computers and people. Removing one participant rarely stops the system from running.Ethereum.org: Glossary
- Derivative
- A contract whose value depends on an underlying asset, such as a futures or option contract. The holder gains or loses according to movements in that asset's value.
- Digital signature
- Signing mathematically binds a message to a particular key pair, so a valid signature shows the message came from that key and was not altered. Verification uses only public information.NIST Computer Security Resource Center: Glossary
E
- Enhanced due diligence (EDD)
- Extra checks applied to customers or relationships that present higher money laundering or terrorist financing risk. Examples include deeper source-of-funds questions, senior management approval and closer monitoring of activity.Financial Action Task Force guidance on virtual assets
F
- Fork
- When developers disagree about a protocol change, the network can split into two chains, each following different rules. Such a divergence is often described as a contentious fork.Ethereum.org: Glossary
H
- Hash
- A cryptographic hash turns an arbitrary amount of data into a short string of fixed size. The result is effectively impossible to reverse, which makes it useful for verifying data integrity.NIST Computer Security Resource Center: Glossary
L
- Layer 2
- A network built on top of a base blockchain that processes transactions off the main chain and then reports results back to it. It aims to increase throughput.Ethereum.org: Glossary
M
- Market maker
- A participant that continuously posts quotes at which it will both take and offer an asset, which helps keep a market liquid so others can trade more readily.
- Money mule
- An account holder whose account is used to pass on illicit proceeds, whether or not they knew. Money laundering laws can apply to them, which is why unexpected payments and requests to forward funds are warning signs.Financial Action Task Force guidance on virtual assets
- Money transmission
- The activity of receiving value from a sender and delivering it to a recipient, which can be a regulated service in its own right. Crypto transfers may count if a business moves value on behalf of others.
O
- Order book
- The live list of open orders on a trading venue, showing how much is waiting at each level on each side of the market for that asset.
P
- Politically exposed person (PEP)
- A label used in anti-money laundering rules for people in powerful public positions, and their relatives and close associates, because they are more exposed to bribery and misuse of public funds. Firms apply extra checks.Financial Action Task Force guidance on virtual assets
- Ponzi scheme
- A fraud named after an early twentieth-century swindler, in which returns shown to participants come from new deposits rather than real business activity. Such schemes are illegal in most countries.
- Private key
- Within a key pair this is the half kept secret; it is mathematically linked to a public key but cannot feasibly be derived from the public key. Its owner signs transactions with it.NIST Computer Security Resource Center: Glossary
- Proof of stake
- Instead of solving puzzles with computing power, validators commit their holdings as collateral. Misbehavior can lead to part of that collateral being removed, which discourages cheating.Ethereum.org: Proof-of-stake
- Proof of work
- A consensus method in which participants compete to solve computing puzzles, and the winner adds the next block to the chain. Solving the puzzle requires substantial computing work.Ethereum.org: Proof-of-work
- Pump-and-dump
- A scheme in which people artificially promote an asset to raise its value, then sell their holdings at the inflated level, leaving later arrivals with losses. Coordinated social media messages are a common tool.
R
- Recovery scam
- A targeted scam in which victims are contacted after a loss and told that a firm can trace or reclaim their assets. The request for payment or access to a wallet is the warning sign.
S
- Seed phrase
- Also called a recovery phrase, it is usually a list of several words written down during setup. It lets the owner restore access if a device is lost or damaged.Ethereum.org: Wallets
- Slippage
- The difference between the level a trader expected and the level at which the trade was actually executed. It often grows when markets move quickly or are thinly traded.
- Smart contract
- A program stored on a blockchain that runs automatically when its coded conditions are met. Its outputs are recorded on the ledger and the network executes them without a human intermediary.Ethereum.org: Smart contracts
- Smart contract exploit
- A loss event in which a contract's code does something its authors did not intend, such as allowing a withdrawal it should block. Audits reduce this risk but cannot remove it entirely, because code can be changed later.Ethereum.org smart contract security documentation
- Social engineering
- Psychological tricks used to bypass security controls. Common examples include impersonation calls, fake login pages shared by chat and requests to read out a one-time code, all aimed at a human weak point.
- Source of funds
- The origin of the money or assets used in a particular transaction, such as salary, a sale of property or an inheritance. Regulated firms ask about it to check that funds are legitimate.Financial Action Task Force guidance on virtual assets
- Spread
- The gap between the highest level a bidder will pay and the lowest level an asker will accept. In an active market the spread is usually narrow, and it widens when liquidity is thin.
- Stablecoin
- Stablecoins aim to keep a consistent value by holding reserves or using algorithms, and they are used to move funds on blockchains. Rules for them are changing in several countries.Ethereum.org: Stablecoins
- Suspicious activity report (SAR)
- An alert sent to a financial intelligence body when something looks unusual, such as structured payments or sudden movement of funds with no clear reason. The term varies by country; some call it an unusual activity report.Financial Action Task Force guidance on virtual assets
T
- Tax residency
- A test used by tax authorities to decide whether a person owes tax on worldwide income. Crypto holdings and transactions are usually included, so people who move between countries should check their status.Canada Revenue Agency guidance on crypto-asset tax obligations
- Token
- A token is an entry in a ledger that is associated with an account or address. Some tokens are fungible and interchangeable, while others are unique.Ethereum.org: Glossary
W
- Wallet
- A wallet is better understood as a manager of cryptographic keys than as a container of coins. Its main job is to sign transactions that move assets recorded on a public ledger.Ethereum.org: Wallets
- Wash trading
- Trades that do not change beneficial ownership, placed to make trading volume look higher than real demand. It is a form of market manipulation and can mislead other participants about activity.