Crypto glossary
Short, plain-English definitions of the terms you'll meet when using wallets, networks and exchanges.
Address
A public identifier you share to receive crypto, similar to an account number. It is derived from your public key and is safe to share.
Airdrop
Free tokens distributed to wallet addresses, often to reward early users. Fake airdrops are a common way to lure people to phishing sites.
AMM (Automated Market Maker)
A DEX design where trades happen against a pool of two or more tokens, with the price set by a formula instead of an order book.
Token approval
Permission you give a smart contract to spend a specific token from your wallet. Unlimited approvals to malicious contracts can drain funds, so revoke the ones you no longer need.
Bridge
A protocol that moves assets between blockchains, usually by locking them on one chain and issuing a representation on another. Bridges have been frequent hacking targets.
CEX
Centralized exchange: a company that holds users' funds and matches trades, for example Coinbase or Kraken.
Cold wallet
A wallet whose private keys are kept offline, such as a hardware wallet or an air-gapped device.
Consensus mechanism
The method a network uses to agree on the state of the ledger. Proof of Work and Proof of Stake are the most common.
Custodial wallet
A wallet where a third party, such as an exchange, holds the private keys for you. Convenient, but you depend on that company.
DAO
Decentralized autonomous organization: a group that coordinates through token-based voting and smart contracts.
DeFi
Decentralized finance: lending, trading, saving and other financial services run by smart contracts instead of banks.
Derivation path
A technical setting that tells a wallet how to derive addresses from a seed phrase. Different wallets can use different paths, which is why a restored wallet sometimes shows empty addresses.
DEX
Decentralized exchange: smart contracts that let you swap tokens directly from your own wallet, for example Uniswap or Jupiter.
Destination tag / memo
An extra number or text that some networks (XRP, XLM, TON, ATOM) use to identify the recipient when many users share one exchange address. Forgetting it can delay or lose a deposit.
ERC-20
The standard for fungible tokens on Ethereum and EVM chains. USDT, USDC, LINK and UNI all exist as ERC-20 tokens.
EVM
Ethereum Virtual Machine: the runtime that executes smart contracts on Ethereum. EVM-compatible chains share the same address format and tools.
Finality
The point after which a transaction can't be reversed. Networks reach finality in anything from seconds to about an hour.
Gas / network fee
The fee paid to validators or miners to process a transaction, paid in the network's native coin, such as ETH, SOL or TRX.
Halving
A scheduled event, about every four years on Bitcoin, that cuts the block reward for miners in half and slows the creation of new coins.
Hardware wallet
A dedicated physical device that stores private keys and signs transactions internally, so the keys never touch your computer.
Hot wallet
A wallet whose keys are on an internet-connected device, such as a phone app or browser extension.
KYC
Know Your Customer: identity verification that regulated exchanges require before you can trade or withdraw.
Layer 1
A base blockchain with its own consensus and native coin, such as Bitcoin, Ethereum or Solana.
Layer 2
A network built on top of a layer 1 to make transactions faster and cheaper while relying on the layer 1 for security, such as Arbitrum, Base or Lightning.
Liquidity
How easily an asset can be bought or sold without moving its price. Low liquidity means large slippage.
Mempool
The waiting area for transactions that have been broadcast but not yet included in a block.
Multisig
A wallet that needs several signatures (for example 2 of 3) to approve a transaction, which removes the single point of failure.
NFT
Non-fungible token: a unique token that represents ownership of a digital item, such as art, a collectible or a game asset.
Non-custodial (self-custody)
You hold your own private keys. Nobody can freeze your funds, and nobody can recover them if you lose your keys.
Oracle
A service that brings outside data, like asset prices, onto the blockchain for smart contracts to use. Chainlink is the best-known example.
Passphrase (25th word)
An optional extra word added to a seed phrase that creates a completely different wallet. It adds protection but must be backed up separately.
Phishing
Scams that trick you into revealing your recovery phrase or signing a malicious transaction, usually through fake websites, emails, ads or DMs.
Proof of Stake (PoS)
A consensus method where validators lock (stake) coins to secure the network and earn rewards. Used by Ethereum, Solana and Cardano.
Proof of Work (PoW)
A consensus method where miners use computing power to secure the network. Used by Bitcoin, Litecoin and Dogecoin.
Private key
The secret number that controls a wallet's funds. Anyone who has it can move the funds. Never share it.
Proof of reserves
An audit-style report in which an exchange shows it holds enough assets to cover customer balances.
Rollup
A layer 2 that bundles many transactions and posts them to a layer 1. Optimistic rollups rely on fraud proofs; ZK rollups rely on validity proofs.
Seed phrase / recovery phrase
A list of 12–24 words that backs up all of a wallet's private keys. Write it down offline and never share it or type it into a website.
Slippage
The difference between the expected price of a trade and the price you actually get, usually larger for big trades or illiquid tokens.
Smart contract
A program stored on a blockchain that runs automatically when its conditions are met.
Stablecoin
A token designed to keep a stable value, usually pegged to 1 US dollar. Examples include USDT, USDC and DAI.
Staking
Locking coins to help secure a proof-of-stake network in exchange for rewards. You can stake directly, through a pool or through a liquid staking token.
Test transaction
A small transfer sent before the main one to confirm the address and network are correct.
Token
A crypto asset created by a smart contract on an existing blockchain, as opposed to a coin, which is native to its own chain.
Transaction hash (TXID)
A unique ID for a transaction that you can look up in a block explorer to check its status.
UTXO
Unspent transaction output: the accounting model used by Bitcoin, in which a balance is made up of discrete coins received in earlier transactions.
Wrapped token
A token that represents another asset on a different chain at a 1:1 ratio, for example WBTC on Ethereum.