glossary

An automated market maker is a type of DEX that utilizes algorithms and crypto asset pools (liquidity pools) to facilitate crypto trading without order books. The assets in a liquidity pool (one pool can represent a single trading pair) are algorithmically kept in a ratio which allows the pool to automatically quote prices.

ASICs, or application specific integrated circuits, are specially designed chips that have been optimized to perform a specific task as efficiently as possible. In crypto, ASICs are widely used for crypto mining in Proof-of-Work networks.

An account is an entity in a blockchain system that holds crypto assets and can send transactions to other accounts on the same blockchain network. Accounts can be controlled by the users or, if the blockchain supports them, by smart contracts.

A method for distributing crypto assets in which cryptocurrencies or tokens are sent directly to user wallets. Airdrops are often used to kickstart adoption of a token, dApp or protocol.

An alternative to Bitcoin, the original cryptocurrency.

A commonly employed trading strategy wherein the trader buys a security in one market and simultaneously sells it on another market, profiting from the temporary difference in price. In the context of crypto trading, arbitrage is the practice of buying a cryptocurrency on one exchange and quickly selling it on another where the price is higher.

The launch of the Beacon Chain on December 1, 2020, marked the beginning of Ethereum’s transition to Proof of Stake.

The granddaddy of all cryptocurrencies, Bitcoin was first proposed by Satoshi Nakamoto. It was conceived as an alternative system for electronic payments.

A block is the fundamental component of any blockchain. It's a data structure that stores records of transactions. When multiple blocks are cryptographically chained together we call that larger data structure a blockchain. Crucially, each new block can only be added to the endpoint of the chain, thus appending the chain without changing the existing record.

A numerical value that reflects how many blocks have already been added to a blockchain network before a particular block. For example, the block height of the genesis block of a blockchain is zero, because there are no blocks that precede it. Block height is an important identifier for blocks and can be used to measure the rate at which new blocks are added to a blockchain.

A blockchain is a distributed ledger designed to store the transactional history of a peer-to-peer network. The transaction data is recorded in so called data blocks, which are cryptographically chained together, hence the name blockchain. A blockchain ledger cannot be altered, only appended, as new blocks can only be added to the end of an existing chain.

Blockchains employ consensus mechanisms that manage how new blocks are created and approved.

Byzantine Fault Tolerance is the ability of a distributed system to remain operational even if a number of its nodes are faulty or otherwise compromised. As highly decentralized, distributed systems, blockchain networks need to have Byzantine fault tolerance to ensure reliable and secure service. This is why the most prominent blockchain consensus mechanisms like Proof of Work and Proof of Stake are designed to achieve BFT.

Consensus is the mechanism that allows for blockchain network members to agree on what the correct state of the blockchain is. This includes agreeing on the validity of transactions and the order in which they are recorded on the blockchain.

A broader term than cryptocurrencies, crypto assets cover all types of digital assets that live on a blockchain. These include cryptocurrencies, stablecoins and other fungible tokens, as well as NFTs.

A cryptocurrency is a type of digital currency that is designed to be used on a blockchain or another Web3 network. New cryptocurrency is generated as rewards for the people that maintain the network and validate transactions. Bitcoin was the original cryptocurrency.

Cryptocurrency exchanges are platforms that allow people to trade crypto assets, either for fiat or for other crypto assets. Crypto exchanges generally fall into two main categories - centralized exchanges and decentralized exchanges or DEXes.

Cryptography is the study of making information secure and secret by using encryption algorithms that exploit certain mathematical properties.

In the context of Web3, the term data availability refers to the ability of a Web3 network to ensure that its nodes can always access the data that’s needed to verify a block. There are solutions like data availability sampling (DAS) and data availability committees (DAC), which can ensure data availability even for nodes that do not have a full copy of the blockchain ledger (for example light nodes).

Check out our blog to learn more about data availability.

Decentralized autonomous organizations (DAOs) are a new type of entity, made possible by blockchain technology and smart contracts. DAOs typically employ a flat structure, with each of their members being eligible to vote on important decisions. This decision making process is facilitated by some sort of a voting mechanism.

Check out our blog to learn more about the different types of voting mechanisms in DAOs.

The term DLT describes all technologies that utilize distributed ledgers to store and share data. Blockchain is such a technology, and so are the DLT protocols that utilize a type of data structure known as directed acyclic graph (DAG). More recently, the term Web3 has emerged as а preferred moniker for distributed ledger technologies, as well as the ecosystem built on top of DLT networks.

In essence, decentralized finance utilizes blockchain to power a more open and accessible alternative  to traditional finance (TradFi). Whereas TradFi relies on intermediaries like banks and credit companies, DeFi leverages the power of blockchain technology and smart contracts to create a new wave of services where the role of the middleman is obsolete.

Decentralized applications, or dApps, are applications that run on a Web3 protocol like a blockchain, instead of centralized server infrastructure. This is possible thanks to smart contracts, self-executing programs that power the sophisticated dApp features and allow dApps to operate autonomously.

A DEX is a crypto exchange that is not governed by a centralized authority, but instead relies on smart contracts to execute trades and quote prices. DEXes generally fall into two main categories - peer-to-peer exchanges and auto market makers (see AMMs).

In blockchain terms, difficulty is a measure of the effort needed to produce a new block in Proof-of-Work protocols.  The difficulty is regularly adjusted based on the available hashpower to ensure a steady block production and consistent block times.

A distributed ledger is a type of database that is shared among multiple participants that may reside in different geographic regions. Each participant owns a copy of the database and the copies are synchronized via a consensus mechanism to ensure that there’s only one correct version of the ledger. Distributed ledgers can be public (private) or private.

ETH, also known as Ether, is the native cryptocurrency of the Ethereum protocol. Under the original PoW Ethereum, new ETH was created as mining rewards for discovering new blocks. Ethereum’s transition to PoS has led to a sharp decrease in new ETH supply as mining rewards are no longer a thing.

Simply put, the Ethereum Virtual Machine (EVM) is a software platform designed to execute smart contracts and store the state of the Ethereum ledger.

The term epoch, typically associated with Proof-of-Stake blockchain protocols, refers to a set period of time during which a set of randomly selected validators can propose new blocks to be added to the blockchain. The end of an epoch generally marks the point where staking rewards are distributed and a new randomized set of validators are assigned. Ethereum implemented epochs after it completed its transition to a PoS consensus algorithm. One epoch on Ethereum lasts roughly 6.4 minutes, divided into 32 12-second slots. Each

Ethereum is the second-largest blockchain protocol behind Bitcoin and the biggest blockchain that supports smart contracts. The protocol was invented by Vitalik Buterin, who wanted to create a true general-purpose blockchain.

When a blockchain transaction reaches finality, it can no longer be changed or reversed. This means that once a transaction has become final, it’s been permanently written in the blockchain ledger, becoming an immutable part of the record. Different protocols may have different requirements for reaching finality.

Gas is a unit for measuring the cost of computational power on Ethereum. To put it in another way - every operation in Ethereum requires some amount of computational power to be executed. That amount is measured in gas.

Gas fees reflect the monetary cost that is paid for using the computational power of the Ethereum network. The gas fees are calculated by multiplying the gas cost times the current price of a single gas unit. Gas fees are paid in ETH (see Gwei).

Gwei is a denomination of ETH, the native cryptocurrency of the Ethereum blockchain. It is worth one billionth of an ETH and it is primarily used to calculate the price of gas.

HBAR is the native token of Hedera Hashgraph. The token can be used to pay for services on Hedera and it can also be staked to secure the protocol through a Proof of Stake consensus.

Hashgraph is a distributed ledger technology developed and used by Hedera Hashgraph. It utilizes a directed acyclic graph (DAG) data structure.

The term initial coin offering (ICO) is used to describe a blockchain-powered fundraising mechanism that allows startups to sell newly minted tokens to early adopters in order to raise upfront capital. This resembles the traditional approach of selling equity to investors in initial public offerings, hence the similarity in the names. Unlike company shares, however, tokens do not grant voting or ownership rights to their holders.

Immutability is a property of a blockchain ledger. This essentially means that the data recorded in a blockchain ledger cannot be changed, or at least not without alerting the entire network that maintains the ledger.

Impermanent loss is a phenomenon that’s commonly observed in AMM trading and is a direct result of AMMs’ reliance on liquidity pools. Because each liquidity pool is a self-contained entity and its two underlying assets are kept in a ratio that is adjusted algorithmically, the value of those assets could decrease relative to their real world value.

In broad terms, interoperability simply means the ability of computer systems and software to exchange information or otherwise interact with one another. And, since blockchain networks are computer systems, this definition applies to blockchain interoperability, but with a small twist - when we talk about blockchain interoperability, we specifically refer to the ability of different blockchain networks to interact with each other. And, as it turns out, this doesn’t come naturally to blockchains.

Know Your Customers, or KYC, are a set of regulatory standards aimed at ensuring that financial service providers actively assess the level of risk of their customers. As part of KYC procedures, financial service providers must verify customer identity and collect other personal data in order to verify the legitimacy of their customers. Ultimately, KYC rules are designed to combat money laundering, terrorist financing and financial fraud.

Layer 2 is a collective term used to describe various scaling solutions for main (Layer 1) blockchain protocols, such as Bitcoin and Ethereum. The main purpose of Layer 2 solutions is to help Layer 1 process more transactions per second.

In the context of Web3, a ledger is the distributed database that keeps a record of a blockchain network’s transaction history.

Light client is a piece of software that allows a computer to connect to a blockchain network without needing to hold the full transaction history of the ledger.

The Lightning Network was conceived as a way to increase the transaction-processing capabilities of the world’s first blockchain protocol, Bitcoin. Thanks to the LN protocol, two Bitcoin users can make transactions to one another via a direct channel rather than using the Bitcoin mainnet.

Liquidity mining is a new phenomenon that has emerged following the advent of decentralized exchanges, more specifically automated market makers. AMMs allow for token holders to lend crypto assets - or in other words, provide liquidity - to the exchange and receive a cut of the trading fees, as well as other potential rewards. This practice of providing liquidity for a passive income is called liquidity mining.

Liquidity pools are a key component of AMMs (automated market makers) that enable users to trade crypto assets even without the presence of a counterparty. A liquidity pool stores the two underlying assets of a particular trading pair - for example, an ETH/DAI liquidity pool comprises two assets, ETH and DAI.

Some AMMs seek to sweeten the deal for liquidity providers by giving  additional rewards in the form of liquidity profiver tokens, or LP tokens for short. LP token schemes were initially introduced as a way to battle impermanent loss (see Impermanent loss).

This is the ‘main network’ of a blockchain protocol, where the transactional activity happens.  When we talk about a given blockchain we typically mean its mainnet.

In addition to its mainnet, a blockchain protocol can have one or several testnets, whose purpose is to provide a safe environment for testing and experimentation.

A mempool is where all unconfirmed blockchain transactions are held. From there the transactions are picked up by block producers, who organize them into blocks which are then submitted to a blockchain.

A Merkle tree, also known as a hash tree, is a data structure used in Web3 to encode blockchain data in a compressed form.

Metadata is data that gives information about other data. In the context of Web3, metadata is an important, albeit optional, part of an NFT smart contract. For example, the metadata may contain information about the current owner of an NFT, as well as a secure link to the files that are represented by the non-fungible token.

Metaverse is a term describing a shared digital world where people can interact with one another and participate in a variety of activities - games, virtual events, virtual tourism, etc. - via their digital avatars. While Metaverse-like platforms have existed for some time, the concept has become even more viable following the rise of Web3.

Mining is a colloquial term used to describe the process of verifying transactions and producing blocks in Proof-of-Work (PoW) blockchains. It is performed network participants known as miners, who organize unconfirmed transactions from the mempool into blocks and then submit them to be recorded on the blockchain. PoW protocols require miners to use a lot of computational power in order to produce blocks that are verified and cryptographically secured. For that effort, miners are rewarded with newly-minted cryptocurrency on each block they add to the blockchain. This is why we say that PoW cryptocurrencies like Bitcoin are ‘mined’.

A mnemonic phrase, also known as a seed phrase, is a string of words that is used to recover/access a cryptocurrency wallet. The phrase can be 12-word or 24-word-long, with the latter being the more secure option. Users must keep their mnemonic phrase safe and secure because whoever has it can take control of its corresponding wallet.

Multisig, short for multisignature wallet, is a term that describes a type of crypto wallet that is controlled by multiple private keys, generally owned by different users. Multisig wallets are considered much safer than their standard counterparts because they require multiple people to authorize a transaction. So, if a single private key is compromised, the funds stored in the wallet remain safe.

There are two commonly-used types of multisig schemes: n-of-n (2-of-2, 3-of-3, etc.) where the entire set of private keys controlling the multisig are required for a transaction to be authorized; m-of-n (1-of-2, 2-of-3, etc.), where only some of the keys are required to authorize a transaction.

Any computing device that is a part of a network is called a node. There can be different types of nodes depending on what functions they perform within a network. Some of the node types we commonly encounter in blockchain networks include: full nodes - which store the entire transactional history of the network; light nodes; archive nodes; mining nodes and validator nodes.

NFTs, or non-fungible tokens, are a type of crypto assets that cannot be exchanged with or replaced by equivalent crypto assets. Both fiat money and cryptocurrencies are fungible, meaning that equivalent denominations are interchangeable - a $1 bill is equal to any other $1 bill, 1 ETH is indistinguishable from any other 1 ETH. In contrast, no two NFTs are the same and this is by design. This uniqueness of NFTs is useful for preservation and verification of ownership over digital assets.

Off-chain simply means outside a blockchain system. If something happens off-chain, it takes place outside the blockchain.

On-chain means within the confines of a blockchain system. For example, on-chain data refers to data that is recorded on a blockchain.

Opcodes are short human-readable codes that represent low-level programming instructions. Ethereum has a multitude of opcodes, each representing a specific command that can be executed by the EVM (see Ethereum Virtual Machine).

Optimistic rollups are a type of Layer 2 scaling solution for Ethereum. They fall under the broader category of rollups, which are L2 solutions that take transactions from the mempool, execute them on a L2 network, then bundle all that data and submit it via a single transaction to the main blockchain. Optimistic rollups, unlike their zero-knowledge counterparts, assume that the transaction data is valid by default, but they also include a period during which anyone can verify and challenge that assumption.

A big advantage of optimistic rollup is that they can natively support Ethereum smart contracts thanks to the Optimistic Virtual Machine (OVM).

Oracles are instruments  that allow blockchain networks to gather real-world data to be used by blockchain-based dApps.

Blockchains are deterministic in nature, meaning that they have to always be able to replay a transactional history and produce the same results. This is not possible if the dApp needs to make calls to an external API to retrieve off-chain data. For one, the data might have changed between calls so you’re never guaranteed to get the same result every time. Additionally, an external API might be hacked or otherwise compromised, which would jeopardize the security of the network.

Oracles solve this problem by taking the off-chain data, confirming its veracity and, crucially, submitting that information to the blockchain as an immutable on-chain record. Only then that data is ready to be used for on-chain operations. Oracles are also responsible for updating the data regularly.

Parachains are shard chains that exist in the ecosystems of the Polkadot protocol and its test network Kusama.  In Polkadot, there can be many independent parachains, all tailored to the needs of their corresponding projects. These parachains connect to one central ‘relay chain’ which provides consensus and handles cross-parachain communication.

Plasma is a Layer 2 scaling solution for Ethereum. It’s a network of chains that works independently to process and validate transactions, thus reducing the load on the Ethereum mainnet. However, the Plasma chains are still connected to the underlying blockchain to leverage its security capability.

Polkadot is a sharding Web3 protocol that aims to be a “blockchain for blockchains”. At the heart of the protocol is the Relay chain, which is responsible for connecting and providing consensus for an ecosystem of shard chains called parachains.

A private blockchain is a blockchain-based system that requires permission to join. Private blockchains are built to support a limited number of verified network participants and usually employ lightweight consensus algorithms like Proof-of-Authority.

A private key is a randomly generated string of alphanumeric characters. In Web3, a private key is used to access transactions sent to the key’s corresponding public key (see Public key)

Proof of Authority is a consensus algorithm first proposed in 2014 by Polkadot founder and Ethereum co-founder Gavin Wood. The algorithm is often likened to Proof of Stake, but instead of crypto assets, validators put their reputation at stake. In other words, validators in PoA networks are typically entities with verified identity and proven credibility who are incentivized to act benevolently so that they can keep their reputation intact. PoA seeks to address a potential limitation of PoS systems, namely the fact that the relative value of a stake can vary based on validators’ overall crypto holdings.

The core conceit of PoA algorithms naturally makes them more suited for smaller, permissioned blockchain networks.

Proof of Stake is one of the most popular consensus algorithms out there. In PoS systems, in order to become a validator you ‘stake’ a set amount of crypto in the network. Typically, the PoS algorithm selects a random set of eligible validators who have a fixed period of time (see Epoch) to propose new blocks to be added to the blockchain. Meanwhile, the rest of the validators can cast votes (called attestations) on which proposed blocks should be added. When the epoch expires a new validators are randomly selected and a new epoch begins.

Validators receive token rewards for proposing and voting on blocks.

Proof of Work (PoW) is the original blockchain consensus mechanism, the key innovation that enabled Bitcoin users to agree on what is the correct state of the network. The core assumption behind PoW is that the validity of the chain is always underpinned by computational work.

The Web3 sector is generally built around public blockchains like Bitcoin and Ethereum. Public blockchains are also known as permissionless, because no permission to join is required. They are open and transparent systems that anyone can join by running a blockchain client. Thor ledgers are also publicly available for anyone to see.

In Web3, a public key is a large string of characters that is also known as a wallet address. This is because anyone can send transactions to the public key. However, you need the corresponding private key to access those transactions.

Redundancy is a widely used technique for data storage, where the data is backed up by one or multiple copies that are stored in different locations. This helps to ensure data integrity. In a decentralized Web3 systems.

Rollups are a type of Layer 2 scaling solutions for Ethereum. A rollup seeks to reduce the load on the Ethereum mainnet, by taking transactions off-chain to be executed on a L2 network. Then the rollup smart contract bundles all that data and sends it via a single transaction back to the Ethereum mainnet. This allows for transactions to be processed more efficiently, but still be backed by Layer 1 security.

There are two types of rollups - optimistic rollups (see optimistic rollups) and zero-knowledge rollups (see zero-knowledge rollups), also known as ZK rollups.

SHA-256 is a cryptographic algorithm that is at the heart of blockchain technology.

In computer science, sharding is a data distribution method in which a large database is split into smaller pieces called shards. This is, essentially, splitting a large and likely clunky database into smaller chunks that can be managed much more easily.

The sharding approach has been explored as a potential solution to the scalability limitations of blockchain technology.

A sidechain is an independent blockchain that is connected to a Layer 1 protocol like Ethereum via a two-way peg (bridge). This allows the sidechain to benefit from the security provided by the L1 consensus without losing its autonomy.

Slashing is a punitive measure designed to discourage bad behavior or neglect in PoS networks. PoS validators are required to stake a set amount of tokens in their network to make sure that tey have a vested interest in the well-being of that network. Slashing means losing part, or the entirety of the stake in case of fraudulent actions (for example, sending false transaction data) or errors.

Smart contracts are self-executing software programs that run on a blockchain and enable the creation of  various decentralized applications. In Ethereum, smart contracts are Ethereum accounts that live in the EVM (Ethereum Virtual Machine), but, unlike regular accounts, they are not controlled by users. Instead, a smart contract account is controlled by software code which triggers when specific conditions are met. For example, the code may say that when a certain amount of ETH is sent to the smart contract account, a new crypto token is minted and sent to the original sender’s account. This is the mechanism behind initial public offerings, NFT minting and much more.

Ethereum’s native programming language, Solidity, is an object-oriented language that is used to write smart contracts for the platform and other EVM-compatible networks.

A stablecoin is a type of crypto tokens that is pegged to the price of a fiat currency or real-world asset (or a basket of currencies/assets). This allows stablecoins to become resistant to the significant price volatility that is often associated with the crypto market.

A scaling solution for Ethereum that facilitates direct off-chain transactions between two network participants. Using a state channel requires only two on-chain transactions - one transaction to open the channel and another transaction to close it. A state channel can carry out an unlimited number of off-chain transactions between two users.  

State channels are similar to the Lightning Network scaling solution for Bitcoin.

A public or private chain that is designed to simulate the way a particular Layer 1 network functions and serves as a safe testing environment for dApps and core protocol updates. Ethereum, for example, has four public testnets.

A crypto token is a digital asset that lives on a blockchain/Web3 network. It is different from a Layer 1 cryptocurrencies where new supply is typically generated as a reward for block producers. Instead, new tokens are minted via smart contracts when certain conditions are met. For example, in an ICO a smart contract could be programmed to mint new tokens when it receives ETH and to send those tokens to the user address that has sent said ETH.

Tokens can be programmed to have different features and properties and can serve different purposes within Web3 systems. There can be utility tokens, security tokens, stablecoins, non-fungible tokens (NFTs) and so on.

A token standard is a set of guidelines aimed at ensuring that the tokens issued under those guidelines are compatible with the broader ecosystem of a Web3 protocol. For example, the ERC-20 token standard on Ethereum ensures that all ERC-20 tokens have certain features that allow them to work with Ethereum dApps such as wallets and DeFi protocols.

Tokenomics is the study of tokens, their fundamental characteristics and their role in Web3 networks. Tokenomics examines token supply and demand, how tokens are distributed among the members of a Web3 network and how they are used within that system. Having the right tokenomics model is essential for the success of any Web3 protocol.

When we say that a computer system is “Turing-complete” we mean that it can simulate any other general-purpose computer. This also applies to computer languages, which can also have Turing completeness. For example, the Ethereum Virtual Machine is a Turing-complete system, meaning that it is capable of running general purpose applications, just like a physical computer would. Ethereum's native programming language Solidity is also Turing-complete, thus it can be used to write general-purpose smart contracts.

In contrast, Bitcoin is a Turing-incomplete system and that’s why it can be used only for processing simple BTC transactions.

Uniswap is the leading automated market maker and one of the biggest DeFi platforms in the Web3 space. Uniswap v3, in particular, is seeing trading volumes of around $1 billion on a regular basis, which makes it a strong challenger to the big centralized exchanges.

Validators are specialist nodes tasked with proposing new blocks and attesting to the validity of blocks and transactions. They are the equivalent of miners for Proof-of-Stake protocols. Becoming a validator requires staking a set amount of cryptocurrency in the network.

Validity proofs are used in zk-rollups to verify that the transactions executed on a L2 network have been valid. Validity proofs are generated using zero-knowledge cryptography.

A virtual machine is a system that uses software to simulate a physical computer.

A cryptocurrency wallet is a place where a user can store and manage their public and private keys. The public key, also known as the wallet address, is publicly available so that anyone can send money to that address. In contrast, the private key is known only by the owner of the wallet and should never be revealed to anyone else. This is because whoever knows the private key controls the wallets and the funds stored there.

The term Web3 conveys the idea for a version of the Web that embraces blockchain technology and decentralization. It was coined by Gavin Wood, founder of Polkadot and co-founder of Ethereum, who in 2014 described Web3 as “a decentralized online ecosystem based on blockchain”. Over the past couple of years Web3 has become the go-to term for describing blockchain and blockchain-related technologies.

In Web3, wrapping is the process of creating tokens that represent other crypto assets. The process involves locking (‘wrapping’) an asset in a smart contract and minting an equivalent amount of ‘wrapped’ tokens, which are then given to the owner of the original tokens. The wrapped asset is pegged to the value of its underlying asset.

Wrapped tokens have various applications in the Web3 world. Most notably, wrapping allows for tokens to be used outside their native chain. For example, BTC is not compatible with the Ethereum network, which makes the rich DeFi ecosystem on Ethereum inaccessible to Bitcoin users. However, wrapped BTC (wBTC) allows us to overcome that limitation. In this way, wrapped tokens make cross-chain interoperability possible and are a key component of blockchain bridges.

Zero-knowledge proofs are cryptographic instruments that allow people to prove that certain information is true, without revealing anything about the content of that information. There are two types of zero-knowledge proofs - zk-SNARKs and zk-STARKs

In Web3, zero-knowledge proofs were first used by privacy-focused cryptocurrencies like Zcash. Now they are a key component of one of the most exciting Ethereum scaling technologies - zero-knowledge rollups.

Zero-knowledge rollups are a type of Layer 2 scaling solution for Ethereum that falls under the broader category of rollups. Like their ‘optimistic’ counterparts, zk-rollups take large amounts of transactions from the mempool, execute them off-chain and then submit data representing the end result to the mainnet. The difference between the two rollup types lies in the way they treat the validity of the transaction data. While optimistic rollups assume that the transactions are valid and leave a period in which anyone can challenge that assumption, zk-rollups generate a zero-knowledge proof which guarantees that the transactions are indeed valid. That validity proof is then submitted to the mainnet. The need to generate a validity proof means that zk-rollups are slower than optimistic rollups when it comes to processing transactions. On the flip side, they do not require a challenge period.

One considerable limitation of zk-rollups is that they do not have native support for the Ethereum Virtual Machine, which means that they cannot handle smart contracts. Fortunately, this drawback is already being addressed, with various zkEVM implementations already in the works.

ZK-SNARK is a type of a zero-knowledge proof. The acronym stands for “zero-knowledge succinct non-interactive argument of knowledge”. ZK-SNARKs were popularized by privacy cryptocurrencies such as Zcash and Monero. SNARKs require a trusted setup to produce the pre-generated keys used to create and verify the proofs. This has prompted some criticism that SNARKS are not completely trustless. To lessen reliance on a single party for the key generation event, a multi-party ceremony can be employed instead.

ZK-STARK, or ‘zero-knowledge succinct transparent argument of knowledge’ is a type of zero-knowledge proof. While not as popular as their ZK-SNARK counterparts, STARKs aims to address a certain limitation of SNARKs - the fact that they require a trusted setup to produce the keys used to create and verify the proofs. In contrast, STARKs employ a completely trustless method for key generation, made possible thanks to Cairo - a Turing-complete programming language developed by StarkWare - the team behind STARK-based technology.

On the downside, STARKs have a significantly larger proof size than SNARKs.