Glossary Term: Cryptocurrency

L1 refers to “Layer 1” in the context of blockchain and cryptocurrency technologies.

Layer 1 is the foundational layer, the underlying blockchain technology where transactions are recorded. Examples of Layer 1 blockchains include Bitcoin, Ethereum, and many other blockchain networks.

In these systems, Layer 1 is responsible for maintaining the distributed ledger and achieving consensus on the state of the network. It provides the base level of security and decentralization, but it also often suffers from scalability issues as transaction volumes increase.

To overcome these limitations, additional “layers” may be added on top of the base blockchain. These are known as Layer 2 solutions and include technologies like the Lightning Network for Bitcoin and Optimism or zk-Sync for Ethereum. They are designed to process transactions off-chain before recording the final state to the Layer 1 blockchain, thus enhancing the system’s scalability.

Ledger is a company that provides hardware wallet solutions to store cryptocurrencies securely. Ledger offers two main products: the Ledger Nano S and the Ledger Nano X.

Here’s a bit more about each:

1. Ledger Nano S: This is a compact hardware wallet, designed like a small USB device. The Ledger Nano S supports a wide range of cryptocurrencies and is designed to keep your private keys safe. The private key (which is crucial for accessing your crypto assets) never leaves the device, which reduces the risk of theft.
2. Ledger Nano X: The Ledger Nano X includes all the features of the Nano S, but with added Bluetooth functionality, a larger screen, and support for more apps simultaneously. The Bluetooth functionality allows you to manage your assets from your smartphone using the Ledger Live mobile app, making it more versatile for those who want to manage their assets on the go.

Both of these devices work by keeping your private keys offline and isolated from your internet-connected devices. This type of device is known as a cold storage solution and it’s considered one of the safest ways to store your cryptocurrencies. Ledger’s devices also require a physical confirmation (pressing a button on the device) to confirm transactions, adding an extra layer of security.

Remember, the security of your cryptocurrency also depends on how securely you manage your recovery phrase (a sequence of words that can be used to recover your assets if your device is lost or stolen), so make sure you store it carefully.

As for software, Ledger devices use a companion application called Ledger Live, which allows you to manage your assets, perform transactions, and install new applications onto your Ledger device for additional cryptocurrencies.

Trezor is a hardware wallet for cryptocurrencies like Bitcoin. It is designed to provide secure cold storage, protecting cryptocurrencies from various types of threats, including malware and physical compromise.

The key idea behind hardware wallets like Trezor is to isolate the private keys from the internet and the rest of the world. This way, even if your computer is compromised, your private keys cannot be stolen. To perform a transaction, the device signs the transaction inside its secure environment and sends the signed transaction back to your computer to be broadcast.

Trezor supports a variety of cryptocurrencies, including Bitcoin, Litecoin, Ethereum, and many others. It also features a user-friendly interface and the ability to backup your wallet in case the device is lost or stolen.

Optimism is a Layer 2 scaling solution for Ethereum that aims to increase the throughput of the Ethereum network and decrease transaction fees. It does this by implementing a technology called Optimistic Rollup.

Optimistic Rollup is a technology that allows the Ethereum network to process more transactions by taking computations off-chain while keeping the data on-chain. This significantly reduces the gas fees and speeds up transaction times.

The fundamental principle behind Optimistic Rollup and Optimism involves making optimistic assumptions. Instead of verifying every transaction on-chain, Optimistic Rollups assume that all transactions are valid by default. Then they move the computation and state storage off-chain into a sidechain.

If an invalid state transition is detected, anyone can submit a proof, called a “fraud proof,” to challenge it. The proof is then reviewed on-chain, and if it’s confirmed to be fraudulent, the bad actor is penalized and the fraudulent state transition is reverted.

By using Optimistic Rollups, Optimism aims to maintain the security of the Ethereum network while scaling up its capacity for transaction processing. This is crucial as Ethereum becomes increasingly popular and the demand for space on the Ethereum blockchain grows.

“L2” in the context of cryptocurrency and blockchain generally refers to “Layer 2” solutions.

Layer 2 solutions are protocols that increase the throughput of transactions on a blockchain without affecting the security of the underlying Layer 1 (L1). L1 is the main blockchain (like Ethereum or Bitcoin), while L2 is a secondary framework or protocol laid on top of an existing blockchain.

Layer 2 solutions are designed to help scale blockchains by handling transactions off the main chain. They use the main chain for security but perform many functions, like transactions, off-chain. This decreases congestion and increases transaction speed, making the blockchain more scalable.

Examples of Layer 2 solutions include Lightning Network for Bitcoin, and Optimism, zkSync, and Arbitrum for Ethereum.

Zero-knowledge proofs (ZKPs) are a category of cryptographic algorithms that allow one party (the prover) to prove to another party (the verifier) that they know a specific piece of information without revealing the information itself.

The fundamental properties of zero-knowledge proofs are:

1. Completeness: If the statement is true, the honest verifier (one who follows the protocol) will be convinced of this fact by an honest prover.
2. Soundness: If the statement is false, no cheating prover can convince the honest verifier that it is true, except with some small probability.
3. Zero-knowledge: If the statement is true, the verifier cannot learn anything beyond the fact that the statement is true.

Zero-knowledge proofs can be either interactive or non-interactive:

• Interactive ZKPs: The prover and verifier engage in a back-and-forth conversation. The prover attempts to convince the verifier that they possess knowledge of a secret without revealing it.
• Non-Interactive ZKPs (NIZKPs): In a non-interactive scheme, no back-and-forth communication is required. The proof consists of a single message sent from prover to verifier.

One of the main applications of ZKPs is in enhancing privacy and security in blockchain technology. For instance, Zcash, a cryptocurrency, uses a form of ZKP called zk-SNARKs (Zero-Knowledge Succinct Non-interactive Argument of Knowledge) to maintain the privacy of transactions. This allows the network to maintain a secure ledger of balances without disclosing the parties or amounts involved in transactions.

The Ethereum Virtual Machine (EVM) is a key component of the Ethereum network. It’s essentially the runtime environment in which smart contracts, which are self-executing contracts with the terms of the agreement directly written into lines of code, are executed within Ethereum.

Here are some key aspects of the EVM:

1. Platform Independent: The EVM is completely isolated from the main Ethereum network, which makes it a perfect sandbox-type environment for smart contract execution. This isolation not only prevents any malicious code from compromising the whole network but also doesn’t give access to the network, file system, or processes to smart contracts.
2. Language-agnostic: The EVM doesn’t limit smart contracts to be written in one specific language. While Solidity is the most popular language for smart contract development, other languages like Vyper are also used. The EVM only requires that smart contracts be compiled into bytecode, which it can understand and execute.
3. Deterministic: The EVM is deterministic, which means that the execution of smart contracts leads to the same results given the same initial state and inputs. This feature is crucial for consensus within the Ethereum network as it ensures that all nodes agree on the outcome of transactions.
4. Resource Metered: Every operation in the EVM consumes a certain amount of resources (compute, storage), which are tracked in units called “gas”. This system prevents abuse by making it costly to perform operations that consume a lot of resources.
5. Secure: The EVM uses a robust security model to ensure that contracts cannot access each other’s state, unless explicitly allowed to do so.

In essence, the EVM is the decentralized computer of the Ethereum network, providing a controlled environment for the execution of smart contracts.

Polygon zkEVM is an open-source ZK-Rollup solution provided by Polygon that combines the benefits of zero-knowledge proofs (ZKP) with the Ethereum Virtual Machine (EVM). In other words, it is a Layer 2 scaling solution for Ethereum that maintains Ethereum compatibility while significantly increasing scalability and reducing transaction costs.

The term “zkEVM” itself is a combination of two technologies: zero-knowledge and Ethereum Virtual Machine.

• Zero-knowledge is a cryptography protocol that provides heightened security when creating proofs to validate a statement. In the context of blockchain, zero knowledge is used to enhance privacy in transactions, protect credentials, and improve authentication, among other applications.
• Ethereum Virtual Machine (EVM) is the system used by the Ethereum network to enable the running of smart contracts and decentralized applications (dapps) on the blockchain.

A zkEVM merges these two concepts to combine the speed and security enhancements of zero-knowledge cryptography with the standardization of coding and software development provided by the Ethereum Virtual Machine.

In practice, this means that developers and users on Polygon zkEVM can use the same code, tooling, and apps that they use on Ethereum, but with much higher throughput and lower fees. Transactions are grouped into batches with zero-knowledge proof attesting to the validity of each transaction, providing security and preventing the operators of the zkEVM from stealing user funds.

Polygon zkEVM provides unique value propositions including:

• EVM-equivalence: zkEVM provides users and developers an identical experience to Ethereum L1 while offering massive scalability improvements.
• Performance: zkEVM offers better performance (higher throughput, lower latency, and lower cost) than alternative Layer 1 solutions, optimistic rollups, and other ZK-Rollups.

The use cases for Polygon zkEVM include DeFi applications, NFT, GameFi, and Enterprise applications, and real-time, low-fee payments.

Firmware is a type of software that provides the low-level control for a device’s specific hardware. It’s essentially the set of instructions programmed on a hardware device that provide the necessary instructions for how that device interacts with the other computer hardware.

Firmware can be found in a variety of devices, from simple devices like a mouse or keyboard, to complex ones like a computer or smartphone. The firmware is stored in the non-volatile memory of the device (like ROM, EPROM, or flash memory), which means it won’t get erased when the device powers off.

This software is typically written by the hardware manufacturers and is updated less frequently than software applications. But it can still be updated to fix bugs, add new features, or support new hardware. For example, a firmware update might be issued to fix a bug in a device or to improve the performance of a device. Updating firmware can sometimes be a risky process because if anything goes wrong during the update, the device may become inoperable.

Open source refers to something that people can modify and share because its design is publicly accessible. This term originated in the context of software development to designate a specific approach to creating computer programs.

Open-source software (OSS) is software whose source code is available for modification or enhancement by anyone. This means the code for the software is visible, accessible, and can be distributed freely. Some examples of open-source software include the Linux operating system and the Apache web server application.

Open source promotes:

1. Transparency: Since the code is publicly available, anyone can inspect the code to ensure it’s doing what it’s supposed to and nothing more. This transparency can be a confidence builder.
2. Collaboration: Open source invites anyone interested to work on projects, promoting global collaboration. This can bring in diverse perspectives and expertise to help solve problems or improve the software.
3. Freedom: Open source gives users the freedom to use, study, share, and modify the software. This freedom accelerates innovation and can lead to better, more robust solutions.
4. Community: Open-source software often fosters a community of users and developers who can provide a network of support.

Open source principles have been applied beyond software development, such as in open science, open data, open hardware, and even open business models.