The Grayscale Glossary

Find simple definitions for common crypto asset investing terms, compiled by the Grayscale team. 

Crypto Terms You Need To Know

Want to know the difference between Layer 1’s and Layer 2’s? Or the difference between Web2 and Web3? You’ve come to the right place. Read up on Grayscale’s definitions of some of the most common phrases and concepts that come up in our regular research coverage of the world of crypto assets. This space is continuously evolving, so our glossary will be updated over time.

Crypto assets other than Bitcoin.

A distributed and immutable digital ledger that processes and records transactions across a network of computers.

A system or organization in which decision-making, control, and authority are concentrated in a central point or a small group of entities, often resulting in a single point of failure or authority.

Refers to all crypto assets. This includes assets in each of the following Grayscale Crypto Sectors: Currencies, Smart Contract Platforms, Financials, Consumer and Culture, and Utilities and Services.

A digital form of currency that uses cryptography for secure and decentralized transactions. Crypto assets power blockchain networks, and serve as incentives for the verification of transactions.

A system or organization that distributes decision-making, control, and authority across multiple entities or nodes, reducing reliance on a single central authority and enhancing resilience and transparency.

Software applications that run on top of blockchain networks. These applications are digital, decentralized equivalents of apps on a mobile device, and vary from financial to gaming to third-party services.

Decentralized applications (“dApps”) that enable users to trade cryptocurrencies directly with one another without the need for an intermediary, such as a bank.

Another term for a “crypto asset.” These assets are digital in form, and were created on a blockchain.

A framework in traditional finance for categorizing companies into sectors and industries for investment analysis.

Tokens that grant holders the right to participate in decision-making processes within a blockchain network, such as who to hire as a developer, future roadmap decisions, or protocol treasury purchases.

The monetary policy of Bitcoin (and similar crypto assets) is deflationary by design: roughly every four years, the reward for mining is halved, slowing the creation of new bitcoins by half. Also sometimes referred to as “the Halvening.”

The ability to copy underlying code of open-source existing blockchains and create a new blockchain with the same underlying functionality. This potentially unlocks new levels of competition and innovation.

A composite measure or benchmark(s) that track the performance of a group of assets, providing insights into market trends.

The ability of different blockchain networks to communicate and interact with each other seamlessly.

Blockchains that process and record transactions of decentralized applications (“dApps”). Some blockchains, like Ethereum, have Layer 2 blockchains built on top of them for scalability.

Secondary blockchain layers that enhance scalability and functionality of Layer 1 blockchains by processing transactions of decentralized applications off the main chain. Layer 2 blockchains rely on the underlying security of their Layer 1 chain.

Pooled funds used to facilitate trading and liquidity in decentralized exchanges (DEXs).

Protocols that enable individuals to stake their assets (lock up assets to support network security) while also being able to hold, use, and trade a derivative of that capital.

Calculated by multiplying the market price of a given crypto asset by the total number of tokens outstanding. Market cap can provide a rough snapshot of the value that investors place on the ecosystem associated with a crypto asset.

A process by which new tokens on proof of work blockchains are generated, where computers solve computationally intensive problems to earn “block rewards.”

A digital asset stored on a blockchain that represents ownership over a distinct, unique item. Dollars or Bitcoin are examples of “fungible” items as each unit is equivalent; conversely every NFT is “non-fungible” as each unit is entirely unique in its characteristics.

Software or technology whose source code is freely available for public inspection and modification.

An external data source that provides real-world information (stock prices, sports outcomes, political polling data) to smart contracts on the blockchain.

A characteristic of blockchain networks that allows anyone to participate without needing approval.

A consensus mechanism in blockchain where participants (validators) are chosen to create new blocks and validate transactions based on the amount of cryptocurrency they hold and are willing to "stake" as collateral.

A consensus mechanism in blockchain where participants (miners) solve complex mathematical puzzles to validate and add transactions to the blockchain.

A set of rules and conventions, embedded in code, that govern a blockchain network.

Physical assets (e.g., real estate, art) represented digitally on a blockchain.

Software that functions as a self-executing contract with predefined rules and conditions that automatically executes on a blockchain.

A blockchain designed primarily for executing decentralized applications (“dApps”) run on smart contracts.

The process of locking up cryptocurrency as collateral to support network security in return for earning tokens. 

A system or transaction mechanism that doesn't require trust in intermediaries or third parties.

A participant in a blockchain network responsible for verifying transactions. By ensuring the accuracy of transactions, validators earn rewards in the form of tokens (for example, BTC on the Bitcoin network and ETH on the Ethereum network).

The second generation of the internet characterized by user-generated content, interactive web applications, and social networking, in contrast to the static websites and one-way communication of Web 1.0. Also known as Web 2.0.

The next phase of the internet, powered by blockchain and decentralized technologies, aiming to create a user-centric and trustless digital environment where individuals have more control over their data, interactions, and the platforms they spend their time and money on. Also known as Web 3.0.

A cryptographic practice that uses mathematical proofs to prove the validity of a transaction without providing additional identifying information to either transacting party. ZK proofs are one of the measures employed by certain blockchains to prioritize user anonymity and privacy.