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New bitcoins are created through a process called mining. Network participants, called miners, perform energy-intensive computational calculations to provide network security. As remuneration for this work, miners receive newly created bitcoins in a special transaction on each block, known as a “coinbase” transaction. Currently, the participant who mines a block is remunerated with 6.25 new bitcoins. Every 210,000 blocks produced, or roughly every four years, the number of bitcoins created in each block drops by half, in an event known as “halving.”

A crypto asset is a completely digital currency or token that uses a blockchain to provide a medium of exchange. A key attribute is the use of cryptography, which allows two parties to securely send and receive data anywhere in the world without a trusted third party. Bitcoin (capital “B”) is the network that hosts the world’s first cryptocurrency—bitcoin (lowercase “b”). Thousands of other currencies and tokens have launched since the first bitcoin was created in 2009, but bitcoin remains the largest, making up more than 40% of the total market cap for crypto assets. The Ethereum network token, ether, is the second largest with approximately 20% of the total crypto asset market cap.

“Smart contract” is a term coined in 1997 by computer scientist, lawyer and cryptocurrency pioneer Nick Szabo to define a contract that is purely implemented by computer systems. Smart contracts are self-executing contracts that can be written in programming code. They enable transactions that are more sophisticated than simply sending and receiving digital assets, and are considered one of the most important applications that digital assets can provide.

The simplest definition of a blockchain is a decentralized public ledger where transactions are confirmed by a network of compensated participants. Blockchains can have different consensus mechanisms, such as PoW or Proof-of-Stake (PoS), which define the rules for validating transactions. For most crypto assets, each network node maintains a copy of the blockchain. This helps ensure the blockchain’s security by preventing anyone from altering transactions or taking control of the network. Bitcoin’s blockchain was a novel idea due to the combination of technologies used to create a truly decentralized and immutable public ledger. Previously, financial transactions were dependent on banks and other entities managing both sides of the transaction, including maintaining personal information about the parties and placing restrictions on certain transactions. Fully decentralized blockchains do not rely on any intermediary to confirm transactions and are not limited by geography, allowing for the elimination of gatekeepers from nearly any type of peer-to-peer transaction.