Glossary Term: Cryptocurrency

A Distributed Denial of Service (DDoS) attack is a type of malicious act in which multiple systems, which are often infected with a Trojan, are used to overwhelm a targeted system, such as a server, website, or network. The aim is to make the targeted system unavailable to its intended users.

Typically, the attacker tries to interrupt or suspend the services of a host connected to the internet. This is achieved by overwhelming the target or its surrounding infrastructure with a flood of internet traffic. The traffic can consist of incoming messages, requests for connections, or fake packets.

In a DDoS attack, the incoming traffic flooding the victim originates from many different sources, potentially hundreds of thousands or more. This effectively makes it impossible to stop the attack simply by blocking a single IP address; plus, it is very difficult to distinguish legitimate user traffic from attack traffic when spread across so many points of origin.

DDoS attacks can be broadly divided into three types:

1. Volume Based Attacks: These are attacks that aim to overwhelm the bandwidth of a site with sheer volume of data. The aim is to consume all available bandwidth resources. Examples include ICMP floods and UDP floods.
2. Protocol Attacks: These are attacks that focus on exploiting server resources. They aim to overwhelm the actual server machines and intermediate communication equipment (such as firewalls and load balancers) by consuming all available processing capacity. Examples include SYN floods, fragmented packet attacks, and Ping of Death.
3. Application Layer Attacks: These are the most sophisticated types of attacks that focus on particular web applications. They are the hardest to detect and mitigate because they can mimic normal user behavior and require less bandwidth to cause damage. Examples include HTTP floods and Slowloris attacks.

DDoS attacks are a major security threat and are becoming increasingly common due to the proliferation of IoT devices, many of which have poor security, and the availability of DDoS-for-hire services. They are typically motivated by a desire to cause harm to the target rather than personal gain, but can also be used as a distraction for other malicious activities or for competitive advantage.

A “reorg” in the context of blockchain technology refers to a “blockchain reorganization”. This is an event where one chain becomes longer than the one currently accepted by the network, causing the nodes to switch to the longer chain. The term reorg is shorthand for reorganization.

This is a natural part of how blockchain works. For example, Bitcoin’s blockchain allows for temporary forks due to the way it handles network latency. It’s possible for two miners to solve a block at roughly the same time, leading to two competing chains. The network then decides which chain to continue with based on the “longest chain rule”, where the chain with the most proof-of-work (i.e., the longest chain) is deemed the correct one. Once the decision is made, the blockchain “reorganizes” to this new longest chain.

However, when reorgs happen deep in the blockchain’s history, they could potentially result in a double-spending attack. In such a situation, a nefarious actor could trick the network into accepting a transaction, wait for services or goods to be delivered, then create a longer chain where that transaction never occurred. This is generally prevented in most blockchains by a combination of measures, including the computational difficulty of rewriting multiple blocks and the economic incentives of following the protocol honestly.

It’s also worth noting that not all blockchains handle reorganizations in the same way. For example, in Ethereum, reorgs (known as “uncles”) contribute to the security of the network and miners of these blocks receive partial rewards.

A Black Swan event is a term popularized by the finance professor and former Wall Street trader Nassim Nicholas Taleb. It refers to an extremely rare event that has severe, often catastrophic, consequences. These events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.

When applied to the field of cryptocurrencies, a Black Swan event would typically refer to a very rare and unexpected event that significantly impacts the value or functionality of cryptocurrencies. It could be a technical issue, like a flaw in a cryptocurrency’s algorithm that allows it to be hacked, or a social one, like a sudden governmental ban of cryptocurrencies in a major economic power.

A notable example is the 2010 incident in the Bitcoin network known as “value overflow incident,” which was a major bug that created 184 billion bitcoins. It was a black swan event because it was unexpected, had a massive impact (potentially disastrous for Bitcoin), and in hindsight, the bug was obvious.

Another hypothetical example could be a sudden decision by a large country like China or the US to outright ban all cryptocurrency transactions. This would have a major impact on the value of all cryptocurrencies and would come as a shock to most people.

Keep in mind, the unpredictability and rarity are what make an event a “Black Swan.” So it’s often hard to predict what the next one might be, and even harder to prepare for it.

A Denial of Service (DoS) attack is a type of cyber attack where an attacker attempts to make a machine or network resource unavailable to its intended users by temporarily or indefinitely disrupting services of a host connected to the internet.

In a DoS attack, the attacker typically floods the targeted system with superfluous requests to overload the system and thereby prevent legitimate requests from being fulfilled. The attack essentially works by overwhelming a system’s resources such as its CPU, memory, or network bandwidth, causing it to slow down or crash.

There’s also a variant of DoS attack known as a Distributed Denial of Service (DDoS) attack. A DDoS attack is similar to a DoS attack but involves multiple compromised computers (often forming a “botnet”) to flood the targeted system with traffic. Because the attack traffic originates from many different sources, a DDoS attack is much harder to block than a single-source DoS attack.

It’s important to note that these attacks don’t typically involve a breach of security or data theft, but they can be used as a smokescreen for other malicious activities, or simply to disrupt services as a form of vandalism or protest.

A Credit Default Swap (CDS) is a financial derivative or contract that allows an investor to “swap” or offset their credit risk with that of another investor.

Here’s how it works:

• Party A believes that Party B will default on its debt, so Party A buys a CDS from Party C (usually an insurance company, bank, or other financial institution).
• Party C promises to insure Party A against a default by Party B. In return, Party A pays a premium to Party C, usually on an ongoing basis.
• If Party B defaults, Party C has to purchase the defaulted debt for its face value or cover the loss suffered by Party A.
• If Party B doesn’t default, Party C keeps the premium and makes a profit.

So, in simpler terms, a Credit Default Swap is like insurance against a bond default. The buyer of the CDS pays a premium in exchange for safety: if the bond defaults, the buyer won’t lose money because the CDS seller will compensate them.

One important thing to note is that the buyer of a CDS does not need to own the underlying security; they can use it purely as a speculative device. This characteristic was a key factor in the financial crisis of 2008, as it allowed for a buildup of risk in the financial system.

MakerDAO is a decentralized organization built on the Ethereum blockchain. The main goal of MakerDAO is to manage and control a pair of cryptocurrency tokens: DAI and MKR.

DAI is a stablecoin, which means it’s pegged to a stable asset, in this case, the US dollar. This means that 1 DAI equals approximately 1 USD. This is a key factor in the DeFi (Decentralized Finance) space because it provides a stable medium of exchange, in contrast to other volatile cryptocurrencies.

The value of DAI is kept stable using smart contracts and mechanisms that automatically adjust the total supply of DAI in response to changes in demand. If the demand for DAI goes up (pushing the price up), new DAI is minted. If the demand for DAI goes down (pushing the price down), DAI is taken out of circulation.

MKR is the governance token of MakerDAO. People who hold MKR can vote on proposals for changes to the system. These proposals can cover a wide range of topics, including changes to the risk parameters of the system, changes to the type of collateral accepted, or changes to the system’s upgrade processes.

The MakerDAO system is a complex one with many moving parts, but the overall aim is to create a decentralized stablecoin system that can be used as part of the wider Ethereum DeFi ecosystem.

DAI is a type of stablecoin in the cryptocurrency world. It was created by the MakerDAO (Maker Decentralized Autonomous Organization) and operates on the Ethereum blockchain. The main goal of DAI is to mitigate volatility through a system of smart contracts which automatically react to market dynamics.

Unlike many other cryptocurrencies such as Bitcoin or Ethereum, whose prices can fluctuate wildly in a short period, DAI is pegged to the US Dollar and is intended to maintain a roughly 1:1 ratio with the dollar. This is achieved through a system of collateralized debt positions (CDPs), into which users deposit some amount of Ether (ETH) in return for a corresponding amount of DAI.

If the value of Ether falls, users are required to deposit more ETH into the CDP to maintain the peg to the dollar. Conversely, if the value of Ether rises, users can withdraw excess ETH from the CDP.

This mechanism allows DAI to provide many of the benefits of cryptocurrencies (such as decentralization, privacy, and borderless transferability), while also maintaining a stable value. This makes it more useful for certain applications, such as loans, savings, or predictable transactions.

“Off-ramp” is a term often used in the context of cryptocurrency to refer to a means by which digital assets can be converted into fiat currency, or transferred into traditional financial systems. In other words, it’s a method of “cashing out” your crypto assets.

These off-ramps often take the form of crypto exchanges that support fiat withdrawals, like Coinbase, Binance, or Kraken. They allow users to sell their cryptocurrency for fiat currency, which can then be withdrawn to a bank account or to a debit card. Some off-ramps also offer services to pay bills directly with crypto or to load crypto onto prepaid debit cards.

However, off-ramps can vary by region due to local financial regulations. Some countries might have limitations or strict regulations concerning cryptocurrency to fiat conversions, which can make finding an off-ramp more challenging. In contrast, others are more lenient and provide numerous off-ramp options.

It’s important to note that using these off-ramps usually involves some form of KYC (Know Your Customer) process, which can include identification verification. This is used to prevent illicit activities such as money laundering or fraud.

On-ramp in the context of cryptocurrencies refers to a platform or service that allows people to transition from fiat money (like US dollars, euros, or another government-issued currency) to cryptocurrencies.

This usually happens through exchanges or other services that accept fiat money, and give you cryptocurrencies in return. These services typically have features to manage KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements, as they are handling regulated fiat currencies as part of their operations.

Some popular examples of on-ramps include Coinbase, Binance, and Kraken. These services allow users to deposit fiat money via bank transfer or credit card, and then purchase cryptocurrencies. The exact method and availability might differ based on jurisdiction and specific platform features.

In the broader sense, an “on-ramp” is a term used in the tech industry to refer to the ways in which a user might start using a service, particularly one that is trying to bridge the gap between traditional and newer technologies. In the context of crypto, this is about making the process of getting started with cryptocurrencies easier for people who are not familiar with the technology.

Perpetual futures, often referred to as perpetual swaps, are a type of futures contract in the world of cryptocurrency trading. Unlike traditional futures contracts, perpetual futures do not have an expiry date. This means traders can hold these contracts for as long as they like, which makes them a popular choice for many traders in the cryptocurrency space.

Perpetual futures are designed to mimic the spot market but with added leverage. They are often used by traders for speculative purposes, as well as hedging existing spot positions.

Here are a few characteristics of perpetual futures:

1. No Expiry Date: Traditional futures contracts have an expiration date, which means the contract will be settled at a specific time in the future. Perpetual futures, as the name suggests, do not expire. They can be held indefinitely, until the trader decides to close the position.
2. Price Alignment: To ensure that the price of the perpetual futures contract is in line with the spot price of the underlying asset, a mechanism known as “funding rate” is used. If the price of the contract differs from the spot price, this funding rate incentivizes traders to bring the contract price back to the spot price.
3. Leverage: One of the main reasons many traders use perpetual futures is the ability to leverage their positions. This means traders can take on larger positions than they would be able to with their existing capital. Leverage amplifies both potential profits and potential losses.
4. Mark to Market: Perpetual contracts are marked to market frequently, often every 8 hours. This means the gains and losses are reflected in the trader’s account continuously. This mechanism allows for the realization of profits and losses and reduces the credit risk for the other party in the trade.

However, trading with leverage and in derivative products like perpetual futures is risky and it can lead to substantial losses. Hence, it’s important to understand the mechanisms and risks involved before getting involved in such trading activities.