Blockchain & Web3 Glossary
The essay "Reimagining Democracy" uses the example of Decentralized Autonomous Organizations (DAOs) to shed light on how blockchain applications enable innovative solutions to improve democratic processes. It is aimed at a broad, interested audience beyond the Web3 bubble. This glossary explains the basic technical terms in plain language. If you want to delve deeper, you will find the relevant links.
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Bitcoin (BTC)
Imagine a global, digital, decentralized ledger where every transaction is recorded securely and immutably. This ledger is publicly accessible and constantly verified, synchronized, and confirmed by a distributed network of computers. Blockchain enables this type of decentralized ledger, which is notably used for cryptocurrencies.
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Bitcoin, the first and most renowned cryptocurrency, has been operating since 2009. It facilitates peer-to-peer transactions without the need for a central authority. This means that individuals like Vera and Max can send Bitcoin to each other from anywhere in the world without requiring a bank or any other intermediary.
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Often referred to as digital gold, Bitcoin is favored by many investors due to its coded scarcity and robust security.
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Ethereum (ETH)
Imagine a global computer network that can run applications without a central server. Developers can write programs that run automatically when certain conditions are met.
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We're talking about Ethereum, the blockchain platform that enables the exchange of cryptocurrencies and the creation and execution of decentralized applications (dApps). At the heart of Ethereum is the Ethereum Virtual Machine (EVM), which enables the use of "smart contracts" - self-executing contracts where the rules and conditions of the agreement are written in code. Ether (ETH) is Ethereum's native cryptocurrency, which serves as the fuel ("gas") for transactions and applications.
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Fiat Currencies
You use paper money, coins, or your bank and credit cards daily to buy and sell things. However, this money has no intrinsic value and is not backed by a precious metal like gold or silver. Instead, as the name implies, it is created out of thin air. Central banks officially issue fiat currencies; commercial banks create additional money by making loans.
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Fiat currencies are traditional currencies such as the US Dollar, the Euro, or the Swiss Franc. Their value is determined by the trust and acceptance of the people and the authority of the issuing government. Fiat currencies are the standard means of payment in the global economy and are regulated and controlled by central banks.
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Governance
Residents of a specific community meet regularly to decide about shared resources and rules. These meetings follow a distinct process that ensures all voices are heard, and decisions are made in the community's best interest.
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Governance in a Decentralized Autonomous Organization (DAO) works similarly. It refers to the processes and rules by which decisions are made within the DAO. The members of the DAO vote on proposals that affect the organization's operation, funding, and development. These decisions are made transparently and democratically, often using smart contracts that automate voting and implementation.
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Governance-Token
As a member of a particular association, you receive a special card allowing you to participate in votes and decisions. This card represents your voice and influence in the association.
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A governance token is a blockchain-based digital version of this particular card. It gives its holders the right to vote on decisions in a DAO. For example, governance token holders can vote on project proposals, development policies, and use of its shared resources.
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Smart Contracts
Imagine a vending machine: You punch in the number of the product you want, insert your money, and the machine spits out the snack. The machine follows the programmed rules - if you pay the right amount and enter the correct number, you get the snack.
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A smart contract is like a digital version of this process but can be used for a wide range of applications beyond simple transactions, such as complex financial agreements and governance protocols. It consists of rules written in computer code that run on the blockchain and are automatically executed when certain conditions are met.
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Soulbound-Token
When you receive an award, certificate, membership card, or credential, you usually can't sell it or give it away. It's connected to you and proves your achievements or entitlements.
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A soulbound token is a digital version of that award or credential. It is a particular type of non-fungible token (NFT) tied to a person or identity and cannot be transferred or traded. Soulbound tokens are handy in areas where inalienability and authenticity are critical.
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Stablecoins
Digital coins whose value remains stable because they are tied to a fixed asset, such as the US dollar, are called stablecoins. They can be sent anywhere and redeemed anytime without fluctuating value.
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Stablecoins are a type of cryptocurrency designed to provide price stability. They are often pegged to traditional currencies such as the US Dollar or the Euro and backed by reserves. Stablecoins allow users to take advantage of blockchain technology without the volatility of other cryptocurrencies.
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Sybil-Attacke
Imagine an election where the right to vote is tied to an identity. Someone with fraudulent intentions could create many false identities to cast multiple votes and thus manipulate the outcome.
This is called a Sybil attack. Someone uses multiple identities to gain an unfair advantage in a network that assumes all participants are acting as one. When identity concepts are unreliable, there is a risk that an attacker can manipulate the network and influence transactions in their favor.
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Tokenomics
An amusement park introduces its currency that visitors can use to pay for roller coaster rides, food, and souvenirs. The park determines how many of these tokens are in circulation, how they can be obtained, and how they can be used.
Tokenomics refers to the economic models and mechanisms behind the tokens used in a DAO. This includes the issuance, distribution, and use of the tokens and the incentives and rules that influence their value and demand.
In a DAO, tokens often grant voting rights and reward member participation. Good tokenomics ensures that the DAO remains sustainable and attractive to its members by incentivizing active engagement and long-term participation.
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Zero-Knowledge Proof
How can you prove to someone that you know the password to a safe deposit box without actually revealing the password to that person? Or prove that you voted in an election without revealing who you voted for? While there are ways to do this in the physical world, more sophisticated cryptographic techniques are required in the digital world.
Zero-knowledge proofs do just that. Using a complex mathematical procedure, one party can prove to another that it knows a specific value without revealing it. This preserves privacy and ensures security.
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