A non-exhaustive list of some of the frequently-used terms  and phrases in the cryptocurrency space.

 

Accelerating returns

Where continually-increasing innovation and disruption results from exponential technological improvement

 

Antifragility

Where a system does not simply resist attacks, but owing to feedback loops becomes more resilient following each attack

 

Asymmetric payoff

An investment where the potential upside is orders of magnitude higher than the risk of downside

 

Byzantine General’s Problem

Referring to the difficulty in communications between military commanders in the field and a rapidly-changing imperial powerbase in the later Roman Empire. This a game theory problem, setting out the difficulties that decentralised parties will have in reaching consensus without the authority of a trusted central entity

 

Cantillon Effect

The principle that newly-created money creates disproportionate price inflation when injected into an economy, benefiting the early recipients of the new money and unfairly exposing those who receive money at a later date, since price inflation has set in by the time they receive it

 

Category Error

The fallacy that a single property of something is representative of its whole

 

Commodity Money

Money that is not a liability of another party and has value in and of itself without counterparty risk. Gold, silver and Bitcoin have been cited as examples of commodity money. There will typically be a cost associated with the production of commodity money, whether in terms of mining or the expenditure of electricity. See also ‘Fiat Money’

 

Consensus Protocol

A means of achieving consensus between participants as to what the ledger should contain at a specific time. Proof of work and proof of stake are the most widely used consensus protocols

 

Double Spending Problem

A flaw in digital cash systems where a single digital token could be spent more than once. Solved by Satoshi Nakamoto in the implementation of the Bitcoin protocol

 

Feedback Loop

Created when a system reacts to its environment, and new outputs are incorporated as fresh inputs, repeating ad infinitum

 

Fiat Money

Money that is issued by a government or central bank (or created by commercial banks via their lending activities). Fiat money exists largely as a liability of the central bank or its issuer, and its value is derived from trust in that issuer. There is typically zero cost to the creation of additional fiat money

 

First Conclusion Bias

The tendency to accept and adopt the first answer provided, without incorporating further debate, and whether or not such answer is provably correct

 

Gall’s law

The principle that making incremental changes to a system is preferable to building a new complex system from the ground up

 

Game Theory

 A branch of mathematics dealing with situations in which the outcome of a ‘player’s’ choice depends on the decisions of other ‘players’

 

Gartner Hype Cycle

A model to assess the maturity and adoption of new technologies over time

 

Gresham’s Law

Where two forms of commodity money have equivalent face value, the more valuable commodity will be saved by users and removed from circulation

 

Higher order effects

The consequences of actions will themselves have further consequences, frequently unforeseen at the outset

 

Impossible Trinity

The concept that a sovereign nation cannot simultaneously have a fixed exchange rate, an independent monetary policy, and free capital flows

 

Jevons Paradox

Consumption of a resource can increase in cases where using that resource actually increases efficiency

 

Lindy Effect

Also known as Lindy’s law, the proposal that the lifespan of non-perishable goods is proportionate to the current age of such goods

 

Malinvestment

A misallocation of capital investment towards unproductive or misguided targets

 

Miner

Bitcoin miners participate in the process of creating new blocks that add transaction records to Bitcoin’s distributed ledger. In doing so, they maintain an immutable record of past transactions and are rewarded with bitcoins in the first transaction of each new block (known as the ‘coinbase’)

 

Moore’s law

Relating to improvements in computer science and chip speed, where it is observed that the number of transistors on a computer chip doubles roughly every two years

 

Moral Hazard

Where a party or institution that should prioritise the interests of those to whom it owes a duty of care is instead incentivised to prioritise its own interests.

 

Network effect

Where each new user to a network disproportionally improves the utility and value of the network

 

Node

A computer connected to one or more other computers which follows protocol rules and shares information with other computers in its network. In Bitcoin, a ‘full node’ retains a complete copy of all historic transactions on the blockchain and continuously synchronises this with all other nodes in the network

 

Opportunity cost

Where taking one action means that another action cannot be taken instead

 

Protocol

A basis set of rules, written in code, allowing data to be shared between computers in a particular way

 

Power Laws

Correlations between two quantities where a change in one leads to a proportional relative change in another, related quantity

 

Public Key Cryptography

The cryptographic system underlying many cryptocurrencies, including Bitcoin. The system uses related key pairs, consisting of a private key from which one or more public keys are derived. The public key can be openly disclosed and used to ‘receive’ transactions. Messages can only be sent, and value only transferred, by a transaction signed with a user’s private key

 

Prisoner’s dilemma

A thought experiment to explore whether it is better to cooperate or compete

 

Schelling Point

A default solution that people tend to choose in the absence of communication between them

 

Streisand Effect

Where an attempt to suppress or censor a thing actually has the opposite effect and results in further publication and dissemination of information relating to that thing

 

Unit Bias

A fallacious proposition that a single unit of an asset is the relevant amount to use when making comparisons and assessment

 

Veblen Good

The demand for a Veblen good increases as the price of the good goes up

 

Wallet

A wallet is a program or device that holds your private keys and allows you to sign transact