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
- Address poisoning
- A type of fraud that exploits the habit of copying addresses from transaction history. The attacker's look-alike address appears in that history, so a rushed user may send funds to the scammer instead.Ethereum.org accounts documentation
- 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
- Beneficial owner
- The individual who benefits from a business, trust or account, regardless of whose name appears on the paperwork. Checking this helps a firm see who is really in control and whether that person may be a sanctioned party.Financial Action Task Force guidance on virtual assets
C
- Capital gain
- The profit made when an asset is sold, exchanged or otherwise disposed of for more than its cost. Many tax systems tax this profit, and the rules for working out the cost and the timing differ between countries.
- Cold wallet
- A wallet whose private keys are kept offline, usually on a dedicated physical device that is not connected to the internet. Offline storage reduces exposure to online attacks.Ethereum.org: Wallets
- Cost basis
- The original cost of an asset, including the amounts paid to acquire it and certain related costs, used as the starting point when working out a gain or loss on disposal.
- 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
- 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 asset reporting
- Rules that require platforms and intermediaries to report certain digital asset sales and transfers to tax authorities. Reporting forms, thresholds and start dates are set by each country and change over time.
- Digital signature
- A cryptographic proof, created with a private key, that the key holder authorized a transaction and that the data was not changed afterwards. Anyone can check it with the matching public key.NIST Computer Security Resource Center: Glossary
- Distributed ledger
- A database that is copied and kept in sync across several participants, so no single party holds the only copy. Updates are agreed by the network before they are recorded.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
- Exchange
- An exchange is a marketplace, whether centralized or decentralized, where crypto assets are traded against one another or against fiat money. Where it is regulated, the rules depend on the country and the services offered.
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 fixed-length fingerprint computed from data by a mathematical function. Changing even one character of the input produces a completely different output. Hashes are used to detect tampering.NIST Computer Security Resource Center: Glossary
- Hot wallet
- Because it stays online, a hot wallet can sign transactions quickly, but it has more exposure to malware and phishing. Many users choose to hold only smaller amounts in this type of wallet.Ethereum.org: Wallets
K
- Know your customer (KYC)
- The process by which a regulated firm verifies a customer's identity before and during the relationship, usually by checking official documents and other reliable sources such as databases.Financial Action Task Force guidance on virtual assets
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
- Limit order
- A limit order names the most a participant will pay or the least it will accept per unit. The trade executes only if the market reaches that threshold.
- Liquidity
- Liquidity describes depth in a market: how much can be traded at close to the current level before the level shifts noticeably. Thin markets are less liquid.
M
- Market maker
- Market makers stand ready to take the other side of trades, so a seller often has a counterparty even when few other people are active. Their role is one of supplying liquidity.
- Market order
- A market order fills right away against resting orders on the book, so the final level can differ from the level seen when the order was placed. This difference is called slippage.
- Money transmission
- Accepting money or value from one person and passing it to another person or place. In some countries, doing this as a business can require a license or registration.
P
- Pig butchering
- An investment romance scam that uses weeks or months of trust-building before any money moves. Victims see fabricated profits on a fake dashboard, and withdrawals are then blocked by requests for more payments.
- Politically exposed person (PEP)
- An individual who holds, or has recently held, a prominent public function, such as a senior government or military role, or a close family member or associate of such a person. Such people carry a higher corruption risk.Financial Action Task Force guidance on virtual assets
- Pooling
- A method used in some tax systems that groups identical assets held together, so that the cost of each disposal is worked out from one combined pool rather than from individual purchases.
- 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 type of market manipulation in which insiders or coordinated groups hype a token with false or misleading claims, then exit while newcomers are left holding a token that falls sharply.
S
- Sanctions screening
- A control that stops a business from dealing with people or entities subject to government sanctions. Screening runs at onboarding and on each payment, and a positive match usually means freezing the funds and reporting.
- Securities (concept)
- A legal category that determines which investor protections and registration duties apply to an offering. Tests for crypto assets differ between countries, so one token can be treated differently in two places.
- 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
- An attack that uses a coding flaw or unexpected behavior in a smart contract to take funds or tokens it holds. Exploits can come from logic errors, weak access controls or flawed integration with other contracts.Ethereum.org smart contract security documentation
- 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
- Token
- A unit recorded on a blockchain that can represent a currency, a right of access or a claim on something. Tokens are created and transferred according to the rules of their code.Ethereum.org: Glossary
V
- Virtual asset service provider (VASP)
- The international term for a business that exchanges, transfers, safekeeps or administers virtual assets on behalf of others. Such businesses are normally expected to meet anti-money laundering rules.Financial Action Task Force guidance on virtual assets
- Virtual currency as property
- A common tax treatment under which a digital asset is taxed like other property rather than like money. Gains and losses on disposals usually count, and general property tax rules apply.
W
- Wallet
- Software or a device that holds the keys needed to access and authorize transfers of crypto assets. The assets themselves are recorded on the blockchain, not inside the wallet.Ethereum.org: Wallets