Cryptocurrency and Blockchain Dictionary

Bits

What Are Bits? Bitcoin, like any currency, must have the capacity to be subdivided. This is especially important for the use of Bitcoin and other cryptocurrency as a unit of exchange rather than pure speculation. Subdivision also became increasingly vital when Bitcoin's price rose so dramatically.There is a long list of broadly agreed classifications of Bitcoin sub-units. Bitcoin has a metric system, and is divisible to eight decimal points. A deci-bitcoin (written as dBTC) is 0.1 of a coin. Centi-bitcoin (cBTC) is 0.01 — while the smallest unit of value, 0.00000001, is known as a Satoshi.The use of bit as the standard subdivision grew out of a proposal originally published on the Bitcoin subreddit, suggesting that each coin be divided into one million units. These are referred to as bits.The bit as a subdivision has several key advantages. Most standard financial software is only able to parse two decimal places, a key issue for the interoperability of Bitcoin. Bits can be expressed to two decimal places, for example 99.99 bits, making bookkeeping and accounting with bits possible. Similarly, the simplicity of bits will, it is hoped, mean that it remains an easily understandable expression of value even if Bitcoin prices rise very significantly, in part because it is in line with the subdivision format of most global currencies.Agreement on subdivisions is seen as an important element of Bitcoin's route to mass adoption. If it is to become a widely used method of payment for real world goods and services, it needs to be easily understood by average consumers.

Backflush Costing (Backflush Accounting)

What Is Backflush Costing (Backflush Accounting)? Backflush costing is an accounting method that involves the process of assigning costs to products after the production process is complete. Also referred to as backflush accounting, this method comes into play when a company works backward to set the final price of the manufactured goods. How Does Backflush Costing Work? When the production process starts, the company orders all the raw materials required to make its product. In the basic costing process, a journal entry is passed every time a raw material is ordered, but in backflush costing, no journal entry is made throughout the process. The raw material, labor, utility and all other expenses are calculated after the production process is completed. This final journal entry is then used to assign a standard cost to the product. It enables the company to simplify its bookkeeping process and save time. Where Can Backflush Costing Be Used? Backflush costing is very hard to implement. Every company is not eligible to carry out the complex process. For a successful implementation, a diligent and expert team is required. Shorter Manufacturing Period: Backflush costing is suitable for products with a shorter manufacturing time. This makes the bookkeeping process easier for accountants. With a longer process, numerous variables get involved, an accurate price is not assigned, and the difference between the standard and actual costs varies by a more significant margin. Un-customized Products: Backflush costing is not suitable to be used by companies offering customized products. The standard cost for each product would be different and need to be calculated separately, making the process lengthy. Just-in-Time Inventory System: Backflush costing works best for JIT Inventory management systems where inventory is minimized. Materials are ordered only when needed, making it easier to keep track of the inventory for a single entry. Advantages and Disadvantages of Backflush Costing  Backflush costing is a time-efficient accounting procedure. It saves the time involved in tracking all expenses during the production process by introducing the single entry method. It also supports a low inventory system and saves up storage costs making it cost-efficient.  With all its benefits, backflush costing comes with its drawbacks too. First, it is a complex method to implement, and any wrong step leads to the company losing money. Second, the single entry system makes it nearly impossible to conduct an audit as it requires proof of each transaction. Such a company is also found not to be following the generally accepted accounting principles (GAAP), which may cause problems with potential investors.

Centralized Exchange (CEX)

What Are Centralized Exchanges? Centralized exchanges most commonly facilitate trades between users by maintaining an order book: a collection of buy and sell orders posted by individual traders. Orders are requests to buy or sell a certain amount of a specific cryptocurrency at a certain price. CEXs aggregate orders from their users and then use special software to match and execute the corresponding buy and sell orders. CEX users do not actually exchange crypto or fiat currencies with each other. Instead, when they deposit their funds onto an exchange, the latter takes over the custody of those assets and issues a corresponding amount of IOUs to the trader. The exchange tracks every user’s IOUs internally as they change hands in trades, and it only converts them into actual currency at the moment of withdrawal of funds. As of 2020, CEXs are the most widespread mode of operation for cryptocurrency exchanges. The speed and cost-efficiency of processing transactions by a single point of authority make them a convenient venue for day traders and crypto investors to purchase and sell crypto. The reliance of CEXs on a central entity does lead to some disadvantages, however. They do not reveal their internal operations to the users, leading to a lack of transparency that enables malicious practices such as wash trading and price manipulation. The fact that they hold custody over users’ assets makes a centralized exchange a lucrative target for potential attackers both from outside and from within the organization. Technical issues or coordinated attacks can lead to significant downtime of CEX services, leading to lost trade opportunities for their customers. Finally, these exchanges become an easy target for government censorship, allowing regulators to freeze and/or seize user funds and force the exchanges’ parent companies to reveal their customers’ personal information.

Cloud

What Is the Cloud? A cloud is essentially a group of servers that are accessed through the usage of an internet connection. The software and the databases that run on those servers can also be considered the cloud. Cloud servers are typically located throughout different data centers all over the world, and by taking advantage of cloud computing, both the users and companies as a whole do not have to manage physical servers and can do all of this remotely. In fact, through the cloud infrastructure, you can access the same files as well as applications from any device due to the fact that all of the computing, as well as storage, takes place on servers in a data center, instead of locally on your physical device. Cloud computing is available through the usage of a technology known as virtualization, which allows for the creation of simulated, digital-only virtual computers that can behave as if they were physical computers that ran on their own hardware. This is known and commonly referred to as a virtual machine.  When this is implemented correctly, the virtual machines on the same host machine are sandboxed from one another. In other words, they cannot really interact with each other, and the files, as well as applications from one virtual machine, are not visible to any other virtual machine, even though they essentially run on the same hardware. Clouds make more efficient use of the hardware which hosts them, so you are not wasting any precious hardware that the server can offer. There are multiple service models when it comes to cloud computing, and these include software-as-a-service (SaaS), platform-as-a-service (PaaS), infrastructure-as-a-service (IaaS) and function-as-a-service (FaaS). You can deploy a private cloud, a public cloud, a hybrid cloud and a multicloud. A private cloud is a server, data center or distributed network that is specifically distributed to one organization. A public cloud is a service that is run by an external vendor that can include servers in one or multiple data centers. A hybrid cloud combines public and private clouds. A multicloud involves the usage of multiple public clouds.

DeFi Aggregator

What Is a DeFi Aggregator? A DeFi aggregator brings together trades across various decentralized finance platforms (DeFi) into one location, saving users time and increasing efficiency for cryptocurrency trades. As the name suggests, DeFi is spread out across different blockchains such as Ethereum and Binance Smart Chain. Within each blockchain is an ecosystem of isolated financial protocols.  While having a wide selection of different protocols is beneficial to diversify investments and getting the best yield rates from crypto lending, efficiency and convenience are hindered since the financial information is spread vastly across multiple protocols. That’s where DeFi aggregators thrive.  DeFi aggregators siphon the very best prices from DEXs, lending services and liquidity pools into one place so that users can optimize their trades. Without an aggregator, users need to go to each platform on an individual basis to compare prices that will generate the best deal for them. Then, the user must manually execute each transaction using smart contracts. While this strategy may be fine for casual crypto trading, it severely limits those looking to implement advanced trading strategies.  Not only do aggregators pull the best prices, but some DeFi aggregators even offer a unique, user-friendly way to analyze and combine other users' trading strategies via a convenient drag and drop mechanism. This way, users can create an entirely new strategy of their own using the inspiration of other successful traders. The drag and drop mechanism also helps users visualize complex DeFi protocols via blocks that can be built on top of one another. Aggregators put UX/UI at the forefront, offering a far superior experience to the traditional way of manually interacting with liquidity layers. As a result, this helps users who are not as crypto-savvy as trading experts navigate the world of DeFi with ease.  The potential downside of using a DeFi aggregator is the gas fees. As Ethereum continues to reach new all-time highs and volume increases across the network, gas fees tend to follow this upward trend. Usually, gas fees are higher on aggregators compared to using the individual protocol. However, some aggregators found a solution to this problem via gas tokens or gas cubes developed into the platforms that let users save money on gas fees. It’s also important to note that while gas fees may be higher on an aggregator, they act as a sort of “convenience fee” since the optimization and efficiency that comes with an aggregator can outweigh the gas fee.   While DeFi has certainly helped bring millions of new users to the cryptocurrency market, there are still users who are intimidated by the sheer number of protocols to choose from and industry-specific lingo. As a result, many crypto enthusiasts prefer to simply hold cryptocurrencies like Bitcoin (BTC) in a wallet without putting it to better use. With the advent of DeFi aggregators, new entries to the industry can benefit from DeFi without having to understand the technical complexities of trading, coding, blockchain, etc. An aggregator gives power to these new users and helps them make better trading decisions. In a decentralized economy such as this, it’s still important to centralize some aspects of DeFi for the sake of efficiency. DeFi aggregators bring together the best of both worlds of centralized organization strategies and decentralized finance protocols to create an important tool in this new, exciting industry.  Author:  Hsuan-Ting Chu, the founder and CEO of DINNGO exchange and CEO of Furucombo, is a serial entrepreneur with extensive experience in startups, especially in building new business models in financial fields.

Chicago Mercantile Exchange (CME)

What Is the Chicago Mercantile Exchange? (CME) Initially founded in 1898 under the name "Chicago Butter and Egg Board,” CME is one of the most important exchanges in the United States. In 1919, the exchange renamed itself the Chicago Mercantile Exchange and became a standard among traders in the country. While initially, the futures and stocks the exchange offered were focused predominantly on the foods and beverages industry, today CME is a leading exchange provider. In many respects, CME is a revolutionizing force on the American stock market. In 1961, it was one of the first exchanges to start offering features. In 1972, CME introduced the first interest bond in the US, and CME was the first exchange  in 2000 to become a corporation, which is entirely owned by its shareholders.  In 2007, the CME exchange entered into a merger agreement with the Chicago Board of Trade, essentially creating the CME group, one of the largest financial exchanges globally. Since then, the CME has been actively purchasing partial or full ownership in other exchanges all over the U.S., including the New York Mercantile Exchange (NYMEX) and Commodity Exchange, Inc (COMEX). In 2010, CME Group also acquired a 90% interest in the Dow Jones stock and financial indexes, while in 2012, the group purchased the Kansas City Board of Trade. Another streak of revolutionary action on CME’s part came in 2017 when the Chicago Mercantile Exchange started actively trading in Bitcoin futures. Trading in futures has experienced a significant boost of interest from both enterprise and private investors in the past several decades. The CME group and all exchanges participating in it aim to provide a regulated, centralized environment with high liquidity, where investors can easily assume risks and bank on the fluctuation in prices of different assets. CME Group is a big player in the exchanges industry in the United States. According to official CME reports, the corporation handles, on average, about 3 billion contracts worth approximately $1 quadrillion annually. This makes the CME group one of the most trusted exchange services providers in the US. The success of the Chicago Mercantile Exchange and its affiliates largely lies in the fact the group constantly diversifies the tools and products it offers to investors. One of CME’s biggest advantages is its Globex platform, which was a pioneer in introducing electronic trading in 1987. By introducing cryptocurrency futures to the global trading community, CME pioneers the worldwide adoption of the asset on traditional exchanges.