Crypto FAQ: What is cryptocurrency? What is cryptoeconomics?
This Cryptocurrency FAQ consists of Frequently Asked Questions related to digital currencies (e.g., BTC, ETH, ADA), Distributed Ledger Technology (Blockchains, DAGs, Tangles), cryptocurrency exchanges, crypto currency wallets, smart contracts, and related topics.
- Defn: currency
[noun; from Latin "currens" (condition of flowing)]
Currency is a generic term for money in any form that can be used as a medium of exchange (i.e., legal tender) for goods and services, especially government banknotes (a.k.a. paper notes) and coins.
There are many kinds of currencies, including:
- fiat currencies based on government decree ("fiat") — e.g., most modern currencies including USD, EUR, JPY, CNY, GBP, CAD, etc.);
- precious-metal-based currencies — e.g., mostly pre-21st century currencies convertible to gold or silver, such as the pre-1933 paper US Dollar, which was based on a gold standard);
- commodity-based currencies — e.g., the values of several major world currencies are closely correlated to the prices of the commodities that the subject nation exports: Australia AUD: Iron Ore; Canada CAD: Oil; Russia RUB: Oil; Columbia Peso: Oil; Peruvian Sol: Copper, etc.;
- digital currencies — e.g., centralized Central Bank Digital Currency (CBDC), PayPal, etc.; and decentralized cryptocurrency coins and tokens.
The following section describes the Monetary Properties of currencies. For a description of the additional Transactional Properties and Disruptive Properties of cryptocurrencies, visit the FAQ: What is cryptocurrency?.
Monetary Properties of Currency
Historical and modern currencies can be classified accoring to the five properties that Aristotle attributed to mediums of exchange (money) in his classic Politics:
- durable — the medium of exchange must be hard-wearing and able to withstand the test of time and the elements without becoming unusable.
- portable — the medium of exchange must represent a large amount of universal value relative to its size and weight, and be easily movable.
- divisible — the medium of exchange must be relatively easy to decompose and recombine without affecting its other basic characteristices.
- fungible — the medium of exchange must be exchangeable for a similar denomination without affecting its other basic characteristices.
- intrinsically valuable — the medium of exchange must be valuable in its own right, totally independent of other entities. (Of the four Aristotelian attributes, this is by far the easiest to fault. However, consider that leading world reserve currencies (e.g., USD, EUR, JPY) are fiat currencies that also lack instrinic value! Further consider that the secure transport protocols associated with cryptocurrencies may eventually prove to have intrinsic value as vital utilities for transporting digital assets.)
- Alt. Phrasing: What is a digital currency?; What is a virtual currency?
- Defn: cryptocurrency
[portmanteau: noun "crypto(graphy)" + noun "currency"]
Cryptocurrency is a decentralized form of digital currency (a.k.a. virtual currency) that uses strong cryptography techniques (e.g., blockchains with cryptographic harsh functions) and distributed peer-to-peer networks to securely regulate currency generation and fund transfers independent of central banks.
In addition to the Monetary Properties of traditonal currencies (see FAQ: What is a currency?), cryptocurrencies also have the following Transactional Properties and Disruptive Properties:
Transactional Properties of Cryptocurrency
Since cryptocurrencies are implemented using rigorous and secure protocols, they also support the following transactional properties:
- fast and global — second generation cryptocurrency transactions can be quickly propagated and confirmed by the network internationally within a couple minutes. Third generation cryptocurrencies, which are currently being rolled out, will soon reduce this propagation time to seconds.
- secure — cryptocurrency funds are strongly encrypted at rest, and in transit, using a proven secure public key cryptography system. Only the owner of the private key for a cryptocurrency wallet, which has a unique internet address, can send cryptocurrency.
- irreversible — after a cryptocurrency transaction is confirmed, it cannot be undone.
- permissionless — cryptocurrency software is typically free and open source; anyone with an Internet connection can download and use it without requesting permission.
- anonymous — most first and second generation cryptocurrency transactions are pseudonymous, where crypto coins are sent and received to lengthy random character addresses. However, since sender/receiver addresses and IP addresses can be encrypted on the blockchain (e.g., Monero cryptocurrecy), future cryptocurrency transactions can potentially become fully anonymous.
Disruptive Properties of Cryptocurrency
Given their synergistic monetary and transactional properties, cryptocurrencies have the potential to disrupt traditional financial and legal services:
- more stable than traditional fiat currencies — since the circulating and maximum supplies of cryptocurrency coins are mathematically defined, as opposed to being whimsically manipulated by Central Bankers, cryptocurrencies can potentially displace world reserve currencies as safe havens during times of financial uncertainty.
- more efficient financial funds transfer than traditional banks — since cryptocurrency protocols are potentially both cheaper and faster than traditional financial funds transfer mechanisms (bank wire transfers, automated clearing houses, credit cards), they have the potential to strongly displace the latter.
- "smarter" contracts than traditional financial contracts — since many second and third generation cryptocurrency blockchains have been extended with customizable programmable logic for financial transactions ("smart contracts"), smart contracts have the potential to displace many kinds of common financial contracts (e.g., POs, invoices, escrows) in the near future.
Compare: currency, fiat currency
Contrast: Distributed Ledger Technology (DLT), blockchain
Since cryptocurrencies have both monetary and transactional properties, they can both satisfy and exceed the capabilities of traditional fiat currencies, such as the U.S. Dollar (USD), Euro (EUR), and Yuan/Renminbi (CNY).
Monetary Properties of Cryptocurrency
As shown in the table below, cryptocurrencies satisfy at least four of the five properties Aristotle attributed to mediums of exchange (money) in his classic Politics: durability, portability, divisibility, and fungibility. Since the more evolved cryptocurrencies typically support secure transactional protocols and smart contracts, it can be argued that they have more intrinsic value for transporting digital assets than their fiat currency counterparts.
Transactional Properties of Cryptocurrency
Since cryptocurrencies are implemented using rigorous and secure protocols, they also support the following transactional properties:
- fast and global — second generation cryptocurrency transactions can be quickly propagated and confirmed by the network internationally within a couple minutes. Third generation cryptocurrencies, currently being rolled out, will soon reduce this propagation time to seconds.
- secure — cryptocurrency funds are strongly encrypted at rest, and in transit, using a proven secure public key cryptography system. Only the owner of the private key for a cryptocurrency wallet, which has a unique internet address, can send cryptocurrency.
- irreversible — after a cryptocurrency transaction is confirmed, it cannot be undone.
- permissionless — cryptocurrency software is typically free and open source; anyone with an Internet connection can download and use it without requesting permission.
- anonymous — most first and second generation cryptocurrency transactions are pseudonymous, where crypto coins are sent and received to lengthy random character addresses. However, since sender/receiver addresses and IP addresses can be encrypted on the blockchain (e.g., Monero cryptocurrecy), future cryptocurrency transactions can potentially become fully anonymous.
Disruptive Properties of Cryptocurrency
Given their synergistic monetary and transactional properties, cryptocurrencies have the potential to disrupt traditional financial and legal services:
- more stable than traditional fiat currencies — since the circulating and maximum supplies of cryptocurrency coins are mathematically defined, as opposed to being whimsically manipulated by Central Bankers, cryptocurrencies can potentially displace world reserve currencies as safe havens during times of financial uncertainty.
- more efficient financial funds transfer than traditional banks — since cryptocurrency protocols are potentially both cheaper and faster than traditional financial funds transfer mechanisms (bank wire transfers, automated clearing houses, credit cards), they have the potential to strongly displace the latter.
- "smarter" contracts than traditional financial contracts — since many second and third generation cryptocurrency blockchains have been extended with customizable programmable logic for financial transactions ("smart contracts"), smart contracts have the potential to displace many kinds of common financial contracts (e.g., POs, invoices, escrows) in the near future.
The first decentralized cryptocurrency, Bitcoin (BTC), was defined and implemented by Satoshi Nakamoto (likely a pseudonym) in a 2008 white paper ("Bitcoin: A Peer-to-Peer Electronic Cash System" [Nakamoto 2008]), and a 2009 C++ computer program [Nakamoto 2009], respectively. While the actual identity of Satoshi has never been disclosed or verified, it is clear that the originality and quality of both the white paper and computer program are quite high. Since Satoshi has never spent the first million Bitcoins s/he mined, which are currently worth billions of USD, it has been speculated that Satoshi's work may have been produced by an elite intelligence or hacker organization rather than a gifted, altruistic, egoless individual.
Prior to the advent of Bitcoin, which is decentralized (based on a peer-to-peer network), there were several notable centralized digital currencies (a.k.a., digital money, electronic money, electronic currency). The earliest known digital currency was described by David Chaum in a research paper in 1983; Chaum later founded DigiCash, a digital currency company, in 1990.
Since the advent of Bitcoin, numerous (1500+) other cryptocurrencies—frequently called altcoins (alternative coins)—have been created. For a comprehensive list of active cryptocurrencies, see All Cryptocurrencies.
- Defn: fiat currency
[compound noun: noun "fiat" (decreed) + noun "currency"]
The term fiat currency refers to a currency without any intrinsic value (i.e. it is not backed by a commodity and has no value on its own) that is typically backed by a national Central Bank.
Compare: currency, cryptocurrency
Contrast: Distributed Ledger Technology (DLT), blockchain
As explained in the FAQ: What is a currency?, both fiat currencies and cryptocurrencies are types of currency, where the former is the dominant type of international currency form of currency backed by the vast majority of world governments, and the latter is the emerging disruptive challenger.
As the table below shows, neither fiat nor crypto currency is commodity-based (e.g., convertible to gold, silver, etc.). In addition, most fiat currencies are electronically exchanged: at the consumer level, it is common to exchange fiat money for goods and services; at the corporate level, it is common for corporations, banks, and central banks to exchange fiat currencies via Electronic Funds Transfer (ETF) services such as ACH, SWIFT, etc.
So could a cryptocurrency become a de facto fiat currency (i.e., a currency backed by a government decree ("fiat")) that it is valid as legal tender for paying for goods, services, and taxes? Absolutely — it is simply a matter of a government selecting or designing one and backing it with its "full faith and credit".
In the context of cryptocurrencies, the term coin generally refers to any cryptocurrency that has its own separate, standalone blockchain, and which can be used for as a medium-of-exchange for buying and selling things in its own right. In contrast, the term digital token (or simply token) refers to any cryptocurrency that is built on top of an existing blockchain ecosystem (infrastructure).
For example, the Ethereum project's Ether (ETH) is a cryptocurrency Coin that is buit upon the Ethereum blockchain ecosystem. In contrast, EOS, TRX (Tron), ZRX (0x), OMG (OmiseGo), ZIL (Zilliqa), REP (Augur), et al. are ERC20 Digital Tokens that are built upon the existing Ethereum blockchain ecosystem.
As a general rule, you can buy a crytocurrency Token with a Coin, but not vice versa. A cryptocurrency Coin operates independently, whereas a Token has a specific use in the cryptocurrency project's ecosystem.
- Defn: Bitcoin
[compound noun: noun "bit" + noun "coin"]
Bitcoin (a.k.a. ₿; BTC) is a cryptocurrency and global payment system. It is the first decentralized digital currency, as it works on a peer-to-peer distributed network without a centralized bank or administrator.
Bitcoin transactions are verified by network nodes through the use of strong cryptography tecniques, and recorded in a public distributed ledger called a blockchain. Bitcoin was invented and implemented by an unknown person or group of people under the name Satoshi Nakamoto, and first released as an open-source software in 2009.
Bitcoin is often referred to as “digital gold” by its advocates, who maintain that Bitcoin can provide a stable store-of-value, similar to gold, whose value is uncorrelated with more volatile financial assets, such as stocks. Bitcoin maximalists also see the cryptocurrency as a “safe haven” asset that can serve as a hedge against global economic uncertainty and inflation, which reduce the purchasing power of sovereign currencies (e.g., USD, EUR, GBP).
- Defn: altcoin
[portmanteau: adjective "alt(ernative)" + noun "coin"]
An altcoin refers to one of the plethora of "alternative coin" cryptocurrencies launched after the advent of Bitcoin in 2009. Altcoins are sometimes promoted as second and third generation alternatives to Bitcoin since many of them purport to improve upon first generation blockchain limitations, such as block size and transaction speed.
For a selected list of popular altcoins, see Selected Cryptocurrency Coins & Tokens - Top 10. For a comprehensive list of active altcoins (15K+), see All Cryptocurrencies.
- Defn: stablecoin
[portmanteau: adjective "stable" + noun "coin"]
A stablecoin is a digital coin that is tethered to the price of a "stable" currency, commodity, or other asset. Most stablecoins are backed, in which case it is subject to the same volatility as its backing asset. Generally, however, it is still considered much less volatile than other cryptocurrencies, which can fluctuate to a large degree sometimes even over the span of a few minutes.
The following are four main types of stablecoins:
Fiat-backed stablecoins are the most common and earliest type of stablecoins on the market. They are backed by and tethered to a fiat currency, such as the US Dollar. Fiat-backed stablecoins are collaterized off of the blockchain, generally through banks, which serve as serve as depositaries for the backing currency. The amount of the currency used as collateral for the currency must equal the amount of the stablecoin in circulation. Examples include USD Tether (USDT) and USD Coin (USDC).
Commodity-backed stablecoins function similarly to fiat-backed stablecoins, but are instead backed by a commodity (e.g. gold). Examples include Tether Gold (XAUT) and Paxos Gold (PAXG).
Cryptocurrency-backed stablecoins are backed by a cryptocurrency on the blockchain through smart contracts. These are generally more volatile than fiat- or commodity-backed stablecoins due to the volatile nature of cryptocurrencies; as such, there is generally more of the backing currency kept as collateral than other types of stablecoins. Examples include DAI and Havven.
Algorithmic stablecoins (also called seigniorage-style stablecoins) are stablecoins that are not backed by an asset and are instead managed by algorithms, which control the currency supply (i.e. it creates or destroys coins according to supply and demand to maintain its tether). Although they are not necessarily backed by an asset (though there is generally some collateral regardless), algorithmic stablecoins' prices are still tethered to one. One example is TerraUSD (UST), which lost its tether to the US Dollar in May 2022 and resultingly fell below 10 cents.
Stablecoins have low transaction fees and fast processing speeds, and therefore can be used to easily and inexpensively send money internationally. Additionally, they experience less volatility than other cryptocurrencies and are usually backed by some sort of collateral, meaning they are a more secure way to invest in cryptocurrency.
- Defn: blockchain
[compound noun: noun "block" + noun "chain"]
Blockchain refers to a specific Distributed Ledger Technology (DLT), which consists of a continuously-growing list of digital records—called blocks—that are linked and secured using cryptographic techniques. Each block in the blockchain contains transactional data (e.g., cryptocurrency exchange information) as well as a timestamp and a secure link (e.g., a cryptographic hash) to the previous block in the blockchain.
Blockchains are typically managed by peer-to-peer networks that adhere to specific protocols for inter-node communication and verifying new blocks. Once a block is recorded and verified on the blockchain, that block cannot be altered retroactively without the alteration of all subsequent blocks, which requires the collusion of a network majority. Common examples of blockchain protocols are the Bitcoin and Ethereum protocols for the Bitcoin and Ether cryptocurrencies.
Compare: Distributed Ledger Technology (DLT)
Contrast: cryptocurrency
- Defn: cryptography
[noun: "crypto-" (hidden) + "-graphy" (writing, representation)]
Cryptography is the study and practice of techniques for secure (confidential or private) communication in the presence of third parties, referred to as adversaries in this context, because the latter may intercept and compromise (usually by decoding or deciphering) the secure communication for nefarious purposes. In general practice, cryptography is concerned about designing and analyzing secure communication protocols that thwart adversaries.
For a more comprehensive explanation of cryptography see the source FAQ: What is cryptography and how does it work? on fhe CryptographyWorks.com web.
- Defn: cryptoeconomics
[portmanteau: noun "crypto(currency)" + noun "economics"]
Cryptoeconomics is a cross-disciplinary approach to the study of digital economies and decentralized finance (DeFi) applications. In addition to traditional economic concepts and principles (production, distribution, and consumption of goods and services), cryptoeconomics synergistically integrates concepts and principles from cryptography, computer science, and mathematical game theory disciplines.
— [Source: FAQ: What is cryptoeconomics and how does it work?]
For a more comprehensive explanation of cryptoeconomics, see the source FAQ: What is cryptoeconomics and how does it work? on fhe CryptoEconWorks.com web.
- Defn: smart contract
[noun: adjective "smart" + noun "contract"]
A smart contract refers to a computer algorithm program (software code) hosted on a cryptocurrency blockchain (Digital Ledger Technology [DLT]) that executes (enforces) the legal terms of a financial agreement between two or more parties. A smart contract typically uses the cryptocurrency associated with its host blockchain to legally bind and enforce the subject financial agreement. Smart contracts allow cryptocurrency software developers to build applications that take advantage of blockchain accessibility, reliability, and security to automatically execute a wide range of financial applications, ranging from currency trading and loans, to insurance and gaming.
— [Source: FAQ: What is a smart contract and how does it work?]
For a more comprehensive explanation of smart contracts, see the source FAQ: What is a smart contract and how does it work? on fhe CryptoEconWorks.com web.
- Defn: NFT
[acronym; Non-Fungible Token: prefix "non-" + adjective "fungible" + noun "token"]
A Non-Fungible Token, or NFT, is a cryptographic asset representing a real-world object (e.g. art, music, and other forms of media) that can be bought and sold online. Unlike cryptocurrencies, NFTs are not mutually interchangeable (i.e. an NFT cannot be bought with another NFT), since each NFT has its own value assigned to it and isn't divisible.
Buyers of NFTs do not necessarily receive from sellers the copyright to the works they purchase, though they do receive proof of ownership separate from copyright.
Cryptocurrency and Cryptoeconomics are rapidly evolving disruptive disciplines which have evolved their own colorful jargons to distinguish them from traditional financial and economic disciplines. These jargons include terms and acronyms such as the following: HODL (pun on "Hold On for Dear Life"), BUIDL (pun on "Build" and HODL), FOMO (Fear of Missing Out), KYC (Know Your Customer), DYOR (Do Your Own Research), tokenization, tokenomics, and many others.
For a comprehensive glossary of crypto jargon, see the Glossary of Crypto Terms & Acronyms page.
Cryptocurrency: Advanced FAQ
The Blockchain Trilemma refers to a theory that decentralized networks, such as blockchains, at any given time can only guarantee two of the following three benefits: decentralization, security, and scalability. Stated otherwise, any blockchain protocol must make design tradeoffs among the three potential benefits: decentralization vs. security vs. scalablity.
As of this writing there is no known blockchain protocol implementation that is decentralized, scalable, and secure.
Historical Note: The Blockchain Trilemma theory may be considered an evolution of the CAP Theorem in computer science, which posits that it is impossible for a distributed data network to guarantee more than two of the following benefits at any given time: consistency, availability, and partition tolerance.
- Alt. Phrasing: What is distributed ledger?; What is a shared ledger?
- Defn: Distributed Ledger Technology (DLT)
[noun; a.k.a. distributed ledger, shared ledger]
Distributed Ledger Technology is an umbrella term for the consensus collection of shared, replicated, and synchronized digital data that represents financial records (i.e., ledgers) that are physically spread (i.e., distributed) across multiple sites, organizations, or countries. Distributed ledgers are typically enabled by peer-to-peer networks and consensus algorithms, without a single or central point-of-failure. Stated otherwise, DLT designs and implementations do not require either centralized data storage or a centralized system administrator to authorize transactions.
The difference between Blockchain and Directed Acyclic Graph (DAG) DLTs are further elaborated below.
- Blockchains: simple, linear linked-list type data structures that are easter to implement than DAG trees, but are more problematic to scale (even when using hash algorithms for indexing) in terms of computational time-space tradeoffs.
Blockchains are currently the most popular and widespread DLTs used by Bitcoin (BTC) and the vast majority of altcoin cryptocurrencies. A blockchain is a continuously-growing list of digital records—called blocks—that are linked and secured using cryptographic techniques. Each block in the blockchain contains transactional data (e.g., cryptocurrency exchange information) as well as a timestamp and a secure link (e.g., a cryptographic hash) to the previous block in the blockchain. Blockchains are typically managed by peer-to-peer networks that adhere to specific protocols for inter-node communication and verifying new blocks. Once a block is recorded and validated on the blockchain, that block cannot be altered retroactively without the alteration of all subsequent blocks, which requires the collusion of a network majority. Common examples of blockchain protocols are the Bitcoin and Ethereum protocols for the Bitcoin and Ether cryptocurrencies.
For further information about blockchains, see the What is a blockchain? FAQ and check out the How Do Cryptocurrencies & Blockchains Work? section.
Directed Acyclic Graphs (DAGs): are tree-like data structures that are more complex than blockchains to implement, but are more efficient to scale in terms of computational time-space tradeoffs. More specifically, compared to blockchains DAGs can substantially reduce the data size per transaction (Tx), thereby increasing Tx speed (TPS), decreasing costs (Tx fees or "gas").
- Tangle DAGs
- A Tangle is a DAG which applies the following Proof-of-Work (PoW) consensus algorithm [Popov 2015]. In order to send a new Tangle DAG transaction you must first validate two randomly allocated previous transactions you have received, confirming that they are well-formed and conform to all protocol rules. This "two-for-one", "pay-it-forward" consensus building assures the validity of Tangle transactions as more transactions are added to the Tangle DAG, assuring scalability. The best known cryptocurrency/DLT that currently uses a Tangle DAG for PoW is MiOTA / IOTA.
- Hashgraph DAG
- A Hashgraph is a Directed Acyclic Graph (DAG) digital ledger that package transactions into blocks, but unlike on a blockchain, all hashgraph blocks are added to the distributed ledger, regardless of their chronological order. Instead of a "winner-takes-all" mining race to validate all the blockchain data, Hashgraph DAGs are used to create a more complete picture of all the network’s transactional data. One of the primary advantages of DAGs over blockchains is that they can reduce the data size per transaction, thereby lowering costs, increasing speed, and ultimately achieving higher levels of scalability.The best known cryptocurrency/DLT that uses a Hashgraph DAG for PoW is HBAR / Hedara.
- Tangle DAGs
Usage note: Blockchain should not be used synonymously with Distributed Ledger Technology, since the former is a sub-classification of the latter.
Compare: blockchain
Contrast: N/A
References:
* [Scheuffel 2018] Alternative Distributed Ledger Technologies: Blockchain vs. Tangle vs. Hashgraph
* [Popov 2015] The Tangle
- Defn: consensus algorithm
[compound noun: noun "consensus" (agreement) + noun "algorithm" (sequence of instructions)]
In the context of Computer Science, a consensus algorithm is a mechanism that proves distributed entities agree upon the correctness of one or more data values. In the context of cryptocurrency, a consensus algorithm is a procedure through which all the peers of the Blockchain network reach a common agreement about the current state of the distributed ledger.
Common cryptocurrency consensus algorithms include, but are not limited to:
Proof-of-Work (PoW): if someone has proof that they can produce large amounts of computational power to solve mathematical work (i.e. they can mine for cryptocurrency), they are able to participate in a blockchain. The amount of weight a participant has in the blockchain is proportional to the amount of computational power they have. Although it is more costly and considerably less energy-efficient, it is also therefore harder to control more than half of the blockchain than in a PoS consesus algorithm;
Proof-of-Stake (PoS): if someone has coins that they can give as a deposit (or as a "stake" in the blockchain), they can become a participant. The amount of weight these "actors" have in the blockchain is proportional to the amount of stake they have in it—that is, how many coins they have deposited. Although PoS is more energy-efficient and less costly than PoW, it is also arguably less secure (such as, for example, in the event of a 51% attack).
- Defn: hard fork
[noun: adjective "hard" + noun "fork"]
In the context of cryptocurrency, a hard fork (or hardfork) refers to a radical change to the blockchain protocol that makes previously invalid blocks and transactions valid, or vice-versa. A hard fork requires all nodes or users to upgrade to the latest version of the protocol software.
For example, the Bitcoin Cash (BCH) blockchain executed a hard fork from the Bitcoin (BTC) blockchain at block 478558 on 1 August 2017, where for each bitcoin (BTC) an owner got 1 Bitcoin Cash (BCH). In turn, the Bitcoin SV (BSV) blockchain executed a hard fork from the BCH blockchain at block 556766 on 5 November 2018, where for each BCH an owner received 1 BSV.
Compare: blockchain Contrast: N/A
- Defn: sharding
[gerund: noun "shard" (fragment)]
In the context of a cryptocurrency blockchain, sharding is a performance optimization technique that splits a blockchain network into smaller partitions, known as shards. Each blockchain shard is comprised of its own data, making it distinctive and independent when vis-a-vis other shards.
Compare: blockchain
Contrast: N/A
- Alt. Phrasing: What is a Layer 1 protocol?; What is a Layer 2 protocol?; What is a Layer 3 protocol?
Layer 1 Protocol refers to a base blockchain—such as Bitcoin, BNB Chain, and Ethereum—and its underlying foundation. These are able to process and finalize transactions within their own network without the need for another external network.
Layer 2 Protocols, such as Bitcoin's Lightning Network, are built on top of Layer 1 Protocols to improve the original network's functionality, particularly its scalability.
Layer 3 Protocols, also known as application layers, are built on top of Layer 2 Protocols to address interoperabilty between different blockchain networks. Typically, these layers include DApps (compound of Decentralized and Applications)—such as Synthetix and Uniswap—and the protocols that enable them.
- Defn: CyberML™
[noun: noun "cyber" + gerund "modeling" + noun "language"]
The CyberML™ (Cyber Modeling Language™) is a UML/SysML profile and model library for specifying the architectures and designs of cybersecurity applications. These cybersecurity applications include, but are not limited to, the modeling and simulatiion (MODSIM) of Distributed Ledger Technologies (DLT), commonly known as cryptocurrency blockchains, and fault-tolerant Descentralized Finance (DeFi) systems.
Since CyberML is designed and implemented as a UML/SysML profile (UML/SysML dialect) and model library it is compatible with the OMG UML and OMG SysML architecture modeling language standards, and can be implemented in popular visual modeling tools that comply with those standards (Cameo/MagicDraw, Sparx EA).
For more information about CyberML and its applications, check out the CyberML™ for Cybersecurity Architecture & Design web.
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