Digital Assets Glossary

Definition of Blockchain / Digital Assets / Financial Services / Capital Markets

A

Atomic Swap

Term used to describe the automatic exchange of crypto-assets without using centralized intermediaries such as exchanges. The “swap” happens on the protocol level through smart contracts.

Automated Market Maker (AMM)

AMMs are autonomous order matching systems from which the underlying protocol powering all decentralized exchanges (DEX) is composed. They are trading mechanisms that eliminate centralized exchanges and related market-making techniques through the use of smart contracts and by incentivizing users to deposit funds into liquidity pools for a share of the pool fees generated from trading.

B

Bitcoin

A blockchain is a distributed ledger among a network of computers (“nodes”) that store a highly immutable record of transactions. It is a decentralized end-to-end database, operated and maintained by nodes in charge of recording a “chain” of data in “blocks” that are approved and added to it. Hence the term blockchain.

Blockchain

A blockchain is a distributed ledger among a network of computers (“nodes”) that store a highly immutable record of transactions. It is a decentralized end-to-end database, operated and maintained by nodes in charge of recording a “chain” of data in “blocks” that are approved and added to it. Hence the term blockchain.

Blockchain Protocol

A blockchain protocol is the code on which a blockchain operates. It is composed of a set of rules in charge of applying a consensus mechanism among nodes securing the network from bad actors. Different protocols are designed slightly differently to achieve immutability of the ledger (e.g. Bitcoin protocol, Ethereum protocol, Stellar protocol).

C

Central Band Digital Currencies (CBDC)

CBDCs are basically a cryptocurrency issued by Central Banks. They are a virtual version of fiat currencies that leverage blockchain technology providing currency issuers with improved efficiency, control, and security. Similarly to stablecoins, CBDCs are blockchain-based financial instruments that bridge the gap between traditional cryptocurrencies (e.g. Bitcoin) and everyday fiat currencies (e.g. EUR). They do however differ in terms that stablecoins are backed 1:1 by the fiat currency it represents, whereas CBDC represents the legal tender itself.

Central Securities Depository (CSD)

CSDs are specialized financial institutions holding securities allowing the transfer of ownership to be easily achieved through a book entry rather than by a transfer of the physical security between parties. It is in charge of maintaining a record of all financial securities related exchange between parties.

Consensus Mechanism

Approving and recording transactions is achieved based on a consensus algorithm that is built in the code of the blockchain protocol itself. A mainstream example would be the Proof-of-Work mechanism (POW), which is the consensus mechanism used for validating and recording transactions on the Bitcoin blockchain.
Blockchain consensus mechanisms concentrate on how the right to add data is distributed among participants of the network. It also centers around how this data is validated by the network as an accurate log of transactions resisting unauthorized access and modification of transaction logs from bad actors.

Cryptocurrencies

In simple terms, cryptocurrencies are cryptographic, decentralized, internet-based means of exchange. Their inception began with the creation of Bitcoin by Satoshi Nakomoto that had the aim to provide an alternative to government-backed currencies. Cryptocurrencies differ from traditional fiat currencies by being issued, transacted and controlled by a peer-to-peer network, aka blockchain, rather than by a central organization.

Crypto Custodians

Just like traditional asset custodians that hold and secure assets for individual and/or institutions, Crypto custodians are providers that securely store cryptocurrency assets such as Bitcoin and other cryptocurrencies. Cryptocurrency custodians have solutions for institutions as well as individuals who want to securely store and protect their crypto assets, through safekeeping crypto private keys.

Custodian

The custodian is often referred to as the gatekeeper of assets whose function is to track assets and funds moving into and out of the account; and they are entrusted to render regular financial valuation of such assets held in custody.

D

Decentralized Autonomous Organization (DAO)

As the name implies, it’s a system of rules that are hard-coded in a system to define actions undertaken by a decentralized organization. A mainstream example of a decentralized autonomous organization would be MakerDAO network.

Decentralized Exchange

An exchange that operates on blockchain or DLT, enabling the trade of assets between parties without having to deposit funds prior to trading. It allows transactions to be carried out from wallet to wallet on a P2P network.

Decentralized Applications (Dapps)

Dapps stands for decentralized applications. They consist of applications that run on a P2P network of computers rather than one central computer. This enables software to operate on the internet without relying on a singular centralized entity.

Decentralized Finance (DeFi)

Term used to describe the environment in which decentralized financial applications are developed on top of blockchain networks and/or distributed ledger technology.

Digital Assets

In finance, digital assets are digital representations of values that are not issued or guaranteed by a central bank or public authority and do not hold a legal status of currency or money. Digital assets are created and operated on blockchain/DLT

Digital Banking

Digital banking, sometimes referred to as e-banking, emerged with technological development. It consists of digital banking portals allowing banks to provide customers with access to traditional banking services via online channels. These services save customers and the bank time and money. As the need for financial technology rises, they are becoming more popular than ever.

Digital Currency

Digital currencies are also known as e-money, until recently they lacked the security allowing the elimination of paper based currencies. However, with the rise of the internet and blockchain, electronic currencies can now be issued providing value intrinsically.

Digital Securities

Also known as tokenized securities or security tokens, are financial instruments that are digitally represented on blockchain/DLT. While operating on a decentralized network, they are still holding the legal status of traditional securities.

Digital Wallet

Also known as e-wallet, digital wallets are electronic payment systems that enable users to electronically store funds and complete purchases easily, securely and quickly by bartering digital currency units for goods and services. It is the alternative to a bank account.

Distributed Ledger Technology (DLT)

DLT is a decentralized record keeping system. It’s composed of the technological infrastructure and protocols providing simultaneous, instant access, validation and record updating in an immutable, decentralized manner across networks.

Double spending

Double-spending is the risk that the same digital currency can be spent twice. Unlike physical cash, digital currencies are composed of tokens consisting of a digital file that can be duplicated or falsified. Blockchain prevents this from happening through digital signatures and account balance checking mechanisms.

E

Equity Tokens

Equity tokens are types of security tokens/digital securities that work like a traditional stock asset, they represent ownership of shares in corporations or organizations.

 

F

FinTech

FinTech is the abbreviation of financial technology. It aims to outperform traditional financial methods in the delivery of financial services through technology and innovation. It is an emerging industry consisting of improving activities in the finance industry.

M

Miners

Just like the traditional miners term, in a blockchain network or DLT, miners are nodes in charge of solving mathematical problems to validate and record new transactions on the network in exchange for a reward.

Miner Rewards

It’s important to understand that nodes receive a reward for their mining efforts. These rewards adjust automatically depending on the network’s difficulty and value. In the case of Bitcoin, miners originally received 50 Bitcoin for their efforts. Today, this seems like fortune, but back in 2009, Bitcoin was only worth pennies. As the value of the token rises and the network goes, the mining rewards shrink. Today, Bitcoin miners receive 6.5 BTC if they add the next block to the chain.

Mining Pools

Mining pools are composed of a joint group of cryptocurrency miners who combine their computational power to increase the probability of successfully mining a cryptocurrency.

N

NFTs (Non Fungible Tokens)

NFTs Represent ownership of unique digital items, they have only one official owner at a time, they are Issued on a blockchain with an immutable record of ownership. NFTs are minted through smart contracts that assign ownership and manage the transferability of the NFT’s. Information is added on-chain. Ownership is managed through the uniqueID and metadata that no other token can replicate.

Nodes

Term used to describe devices or data points that operate on a large network (e.g computers).

P

Proof of Work (PoW)

The Proof-of-Work consensus mechanism was revolutionary to the world of cryptography when it was first introduced years prior by Adam Back in his Hashcash whitepaper. In the concept, Back describes the integration of a mathematical equation to the network’s security protocols. In this way, every computer can show “proof” of their work securing the network.

Proof of Stake (PoS)

The PoS algorithm uses a pseudo-random election process to select a node to be a validator of the next block based on factors that include:

1. Staking age
2. Randomization
3. The node’s wealth

Blocks are “forged” rather than mined. It basically requires a “forger” to be a stakeholder in the network, meaning that they own the cryptocurrency of that given blockchain. These funds are locked up into special accounts, aka staking accounts. Nodes that have these “staked” funds can then be selected to verify blocks based on the criterias mentioned above. It is achieved similarly to the PoW systems but at a much more reduced computational power. When a node gets chosen to forge the next block, it will check if the transactions in the current block are valid, sign the block and add it to the blockchain. Under the PoS mechanism, nodes that validate transactions are rewarded with transaction fees.

S

Security Tokens

Security tokens are similar to digital securities and tokenized securities, the only difference is that security tokens are the asset itself rather than the representation of the asset. They are digital representations of ownership of an asset and run natively on blockchain/DLT. They are essentially digital, liquid contracts for fractions of any asset that already has value, like real estate, a car, or corporate stock.

Security Token Offerings (STOs)

STOs are basically tokenized IPOs, they are a type of public offerings carried out on blockchain in which digital securities/security tokens are issued and sold. They have proven to be much more efficient than traditional IPOs as it enables entities to individually carry out the securitization across the whole value chain while relying on the fewest number of intermediaries.

Stablecoins

Stable coins are a type of digital assets issued on blockchain that are designed to be less volatile than cryptocurrencies such as Bitcoin or Ethereum. They maintain a stable value relative to national currencies or other reference assets by being fully backed by those assets. They are commonly to instantly settle payments while eliminating any kind of risk arising from volatile price fluctuations.

Staking

Staking happens when a user decides to lock or hold their funds in a crypto wallet to participate in maintaining the operations of a proof-of-stake (PoS) based blockchain system. The reward of staking comes from helping the network achieve consensus. It is to some extent comparable to mining on a Proof-of-Work (PoW) platform.

Smart Contracts

Smart contracts are a set of predetermined algorithmic rules that are designed to automatically execute tasks when these conditions are met. They are used in decentralized networks to perform actions between participants without relying on intermediaries.

T

Tokenization of Assets

Tokenization of assets or asset tokenization is the process of issuing a digital representation of a real tradeable asset on blockchain or DLT, in other words it consists of issuing a tokenized security (aka security token).

Tokenized Securities

Tokenized securities are end-to-end fully digital securities issued on the blockchain or so-called DLT. However, tokenized securities are different from traditional digital securities that we are familiar with. The latter ongo highly complex processes. Tokenized securities use encrypted end-to-end communication to automatically conduct processes such as payment settlement or defining ownership. Therefore, bringing significant improvements to securitization overall.

U

Utility Tokens

Different from security tokens, utility tokens are blockchain-based digital representations of rights rather than ownership. Utility tokens are promotional tools that grant holders special access or promotions for future product or service launches.

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