The crypto market has thrived recently following BTC (Bitcoin) price breakout. Hence, the industry has attracted new investors who want to have a taste of investing in crypto assets. With its increasing use, it’s important to understand the key terms associated with it. Previously, we published an article about crypto terms for beginners. In this blog, we’ll explore other key crypto terms along with examples to help clarify each term.
Testnet
A testnet is a blockchain network that is created specifically for testing purposes. It’s a safe environment for developers to experiment with different ideas and test their code without risking real funds. Testnets are often used for testing new features, upgrades, or even entirely new blockchains. One example of a testnet is Ethereum’s Ropsten testnet, which allows developers to test smart contracts and other Ethereum-based applications without using real Ethereum tokens.
Airdrop
An airdrop is a marketing technique cryptocurrency projects use to distribute free tokens or coins to many people. Airdrops are usually used to promote a new cryptocurrency or to reward early adopters of a project. On March 23, the Arbitrum network conducted an airdrop and distributed 11.62% or 1.162 billion tokens of their ARB (Arbitrum) token supply to users who participated in their incentivized testnet.
L1 and L2
L1 and L2 refer to different layers of blockchain technology. L1, or Layer 1, is the base layer of the blockchain that handles the primary functions of the network. These include creating blocks, validating transactions, and maintaining consensus. Bitcoin and Ethereum are examples of L1 blockchains. L2, or Layer 2, is a secondary layer built on top of L1 that can process transactions more efficiently and at a lower cost. An example of an L2 scaling solution is the Lightning Network, which is built on top of the Bitcoin blockchain.
Rollups
Rollups are a Layer 2 scaling solution that helps to increase the transaction throughput of a blockchain. Rollups bundle multiple transactions together into a single transaction, reducing the amount of data that needs to be processed on the blockchain. One example of a rollup solution is Optimism, a rollup solution for Ethereum that can process up to 100 transactions per second, which is much faster than Ethereum’s base layer.
The metaverse is a term used to describe a virtual reality space that is created and maintained by a decentralized network. The metaverse is often associated with gaming but can also be used for other purposes, such as socializing, shopping, or education. Decentraland is an example of a metaverse built on top of the Ethereum blockchain. Users can buy virtual land in Decentraland, build their own virtual experiences, and interact with others in the metaverse.
NFT, or non-fungible token, is a type of cryptocurrency that is used to represent unique digital assets. NFTs are often used to represent digital artwork, collectibles, or in-game items. Unlike traditional cryptocurrencies, NFTs cannot be exchanged for each other as they are unique. One example of an NFT is the famous digital artwork, “Everydays: The First 5000 Days” by artist Beeple sold for $69 million in a Christie’s auction.
Consensus
Consensus refers to the process of validating transactions on a blockchain network. In a decentralized network, a consensus is achieved through a consensus algorithm that ensures that all nodes on the network agree on the validity of a transaction. Bitcoin uses a consensus algorithm called Proof of Work. Ethereum on the other hand with its ongoing upgrade to ETH 2.0 has fully transitioned to Proof of Stake.
Mainnet
A mainnet is the primary blockchain network used by a cryptocurrency project. It is the live version of the blockchain, where all transactions are recorded and validated in real time. The mainnet is the network used by real users to send and receive cryptocurrency.
Nodes
Nodes are the individual computers that make up a blockchain network. Each node on the network is responsible for validating transactions and ensuring that the blockchain remains secure and decentralized. Nodes are connected through a peer-to-peer network. This allows them to communicate and coordinate with each other. There are different types of nodes on a blockchain network including full nodes, light nodes, and master nodes.
To sum it all up, these key crypto terms are essential for anyone looking to navigate the complex and ever-changing world of cryptocurrency. Whether you’re a developer looking to test new code changes on a testnet, a user looking to participate in an airdrop, or a metaverse enthusiast exploring the possibilities of a virtual world built on blockchain technology, understanding these terms is critical to staying informed and making informed decisions.
