You’ve probably seen these terms thrown about whenever the digital assets topic comes up, but what do they really mean? Let’s explore them in this week’s Crypto Terminology: A to Z series, beginning with the letter ‘T’.
A term made popular during the DeFi liftoff in 2020, this indicator reveals the aggregate value of assets that have been staked on smart contracts belonging to decentralized protocols. It is the most direct indicator of adoption and success for DeFi applications, as most of these protocols require a pool of funds to provide high liquidity and features such as yield farming for its users. In June 2020, the DeFi sector recorded only slightly under $1 billion in assets locked. Fast forward a year later and that number has grown more than 77 times to hit a high of $77.4 billion.
In a market that is as fast-moving and volatile as that of crypto’s, time is of the essence when it comes to making profitable trades or transferring funds from one point to another. Credit card juggernaut Visa has the capacity to process up to 2,000 transactions per second, but in decentralized, permissionless and trustless blockchain networks, this number decreases significantly due to the nature of peer-to-peer verification required in the process.
The Bitcoin network clears approximately 5 transactions per second, while the Ethereum network handles up to 16.5 transactions in the same time frame. Solutions to increase the TPS of any network are not easy to implement, but improvements are certainly well underway.
Not quite the negative word most people think it is; blockchain networks are often touted as permissionless and trustless. Using the Bitcoin network as an example, what this means is that no single entity has to enforce consensus or trust between all parties within a system when transactions are verified. The resulting data is immutable and available for viewing on a public blockchain.