100,000 Questions and Answers about Cryptocurrencies 12
What is a cold wallet?
A cold wallet, also known as a hardware wallet, is a physical device that stores cryptocurrencies offline in a secure environment. It provides increased security compared to hot wallets by keeping private keys offline and out of reach of hackers.
What is a hot wallet?
A hot wallet is a cryptocurrency wallet that is connected to the internet. It allows for easy access to cryptocurrencies for trading, spending, and other activities but carries a higher risk of theft due to its online presence.
What is a private key in a blockchain wallet?
A private key is a secret code that gives the owner access to their cryptocurrencies stored in a blockchain wallet. It is used to sign transactions, proving ownership of the funds and authorizing their transfer.
What is a public key in a blockchain wallet?
A public key is a cryptographic code that corresponds to a private key in a blockchain wallet. It is used to receive cryptocurrencies and serves as the address where others can send funds.
What is a multi-signature wallet?
A multi-signature wallet, or multi-sig wallet, requires multiple private keys to authorize a transaction. This adds an extra layer of security by requiring multiple parties to agree before funds can be transferred.
What is a hardware security module (HSM)?
A hardware security module (HSM) is a dedicated hardware device that stores cryptographic keys and performs cryptographic operations securely. It is often used in blockchain and cryptocurrency applications to protect private keys and ensure the integrity of transactions.
What is a blockchain airdrop?
A blockchain airdrop is when a cryptocurrency project distributes free tokens or coins to wallet addresses. This is often done as a marketing technique to reward early supporters or promote the project's token.
What is a seed phrase in a cryptocurrency wallet?
A seed phrase, also known as a mnemonic phrase or recovery phrase, is a series of words that can be used to restore a cryptocurrency wallet and access its funds. It is generated when creating a wallet and should be kept secret and safe.
What is a DEX aggregator?
A DEX aggregator is a platform that combines liquidity from multiple decentralized exchanges (DEXs) to provide users with the best prices and deepest liquidity when trading cryptocurrencies.
What is impermanent loss in liquidity pools?
Impermanent loss refers to the potential loss in value that liquidity providers in a liquidity pool may experience due to price fluctuations between the two assets in the pool. It occurs when the relative value of the assets changes during the time the funds are locked in the pool.
What is a stablecoin premium?
A stablecoin premium refers to the difference between the price of a stablecoin and its pegged asset, such as the US dollar. When the price of a stablecoin exceeds its peg, it is said to be trading at a premium.
What is a decentralized exchange (DEX)?
A decentralized exchange (DEX) is a peer-to-peer platform that allows users to trade cryptocurrencies directly with each other without a central authority or intermediary. DEXs rely on smart contracts and decentralized ledger technology to facilitate trades.
What is an oracle pool?
An oracle pool is a group of oracles that work together to provide data to smart contracts on a blockchain. Oracle pools increase the reliability and redundancy of data sources, reducing the risk of a single point of failure.
What is a DeFi protocol?
A DeFi protocol is a set of rules and procedures that enable decentralized financial applications and services on a blockchain. DeFi protocols often utilize smart contracts to automate lending, borrowing, trading, and other financial activities without relying on traditional financial institutions.
What is a staking pool?
A staking pool is a group of stakeholders who pool their tokens together to increase their chances of earning staking rewards. By staking in a pool, users can share the rewards proportionally based on the amount of tokens they contribute.
What is a zero-knowledge rollup?
A zero-knowledge rollup is a Layer 2 scaling solution that uses zero-knowledge proofs to compress and bundle transactions off-chain, reducing transaction fees and improving scalability. It allows for faster and more private transactions on the base blockchain.
What is a zk-rollup?
zk-rollup is an abbreviation for zero-knowledge rollup and refers to the same Layer 2 scaling solution described in question 236. It leverages zero-knowledge proofs to enable efficient off-chain transactions while maintaining the security of the base blockchain.
What is a plasma chain?
A plasma chain is a sidechain solution that enables scaling by executing transactions off-chain while maintaining security guarantees through the use of fraud proofs and mass exit mechanisms. Plasma chains aim to improve scalability and reduce transaction fees on the base blockchain.
What is a state channel?
A state channel is a Layer 2 scaling solution that allows users to conduct off-chain transactions privately and efficiently. State channels involve opening a channel between two parties, conducting multiple transactions within the channel, and then settling the final state on the base blockchain.
What is a validator in Proof-of-Stake?
In Proof-of-Stake consensus mechanisms, a validator is a node that stakes a certain amount of tokens to participate in the consensus process. Validators are responsible for validating and adding new blocks to the blockchain in exchange for block rewards.