# Web3 concepts ### Account One key difference between Web2 and Web3 is how identity works. In Web3, users control their own accounts and identity, and authenticate themselves using [digital signatures](https://proton.me/blog/what-is-a-digital-signature#what-is-a-digital-signature). Learn more about [accounts ->](https://ethereum.org/en/guides/how-to-create-an-ethereum-account/) ### Wallet Wallets are software applications that help you interact with blockchain networks and sign in to Web3 applications. Wallets store private keys and digitally sign transactions. With a wallet, you can manage digital assets and use smart contracts. Some wallets require a hardware device for extra security. Learn more about [wallets ->](https://ethereum.org/en/wallets/) ### Security Web3 builders prioritize security, and rely on a combination of cryptography, computer science and game theory to build systems that are resilient to shocks and extremely difficult to attack. In addition, Web3 systems place a lot of responsibility on the user — actions are often irreversible, and accounts cannot be recovered. Learn about [consensus mechanisms->](https://ethereum.org/en/developers/docs/consensus-mechanisms/) which secure blockchain networks Learn about [cryptography->](https://github.com/ethereumbook/ethereumbook/blob/develop/04keys-addresses.asciidoc#cryptography) which supports private messaging and identity systems on the Internet ### Blockchain A blockchain is a ledger that is maintained and updated by a decentralized network of computers, called a consensus network. It's the foundational technology behind cryptocurrencies and many Web3 applications. Learn more about [blockchains and how they work ->](https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-blockchain) ### Smart Contract Smart contracts are small computer programs stored and executed on a blockchain network. Smart contracts can hold tokens — decentralized finance (DeFi) applications, including Toucan, are built with the technology. Learn more about [smart contracts ->](https://ethereum.org/en/smart-contracts/) ### Token Digital assets or units of value issued on a blockchain. They can represent assets, access rights, or even participation in a network. Token systems are managed by smart contracts. {% hint style="info" %} Tokens can be created to represent anything, and often do not have any intrinsic value or backing. The tokens used in Toucan Protocol are backed by **real world assets** — carbon credits certified by reputable standards bodies, like Puro. {% endhint %} Learn more about [tokens ->](https://www.coinbase.com/learn/crypto-basics/what-is-a-token) ### Oracle Oracles are services that provide external data to smart contracts on the blockchain. This data can trigger smart contract executions or inform decision-making processes. Learn more about [oracles ->](https://chain.link/education/blockchain-oracles) ### DeFi (Decentralized Finance) DeFi leverages blockchains and smart contracts to recreate and improve financial services like lending, borrowing, and trading, but in a decentralized, transparent, and permissionless way. Learn more about [DeFi ->](https://ethereum.org/en/defi/) Read a balanced take on the [risks and potential benefits of DeFi ->](https://www.economist.com/leaders/2021/09/18/the-beguiling-promise-of-decentralised-finance) ### Automated Market Maker An automated market maker (AMM) is a type of decentralized exchange protocol enabled by smart contracts that relies on a mathematical formula to price assets. Instead of using an order book like a traditional exchange, an AMM uses liquidity pools that traders can trade against. These pools are funded by liquidity providers who deposit their assets into the pool and earn fees based on trading activity. The AMM algorithm automatically adjusts prices based on the supply and demand of assets in the pool. This allows for continuous trading without the need for traditional market makers or buyers and sellers to create liquidity. Read more about AMMs in the Constant Function Market Maker section of [this paper from the Federal Reserve Bank of St Louis ->](https://research.stlouisfed.org/publications/review/2021/02/05/decentralized-finance-on-blockchain-and-smart-contract-based-financial-markets) ### Web3 "Web3" refers to a movement to rebuilt the Internet so it serves its users. A wide range of technologies and products are emerging from the movement, including blockchains and smart contracts, decentralized data systems, peer-to-peer communication apps and privacy-preserving technologies.
General Web3 Resources [Toucan — Key terms in the digital voluntary carbon market explained](https://blog.toucan.earth/dvcm-terms-explained/) [Chris Dixon — The Potential Nof Blockchain Technology](https://podcasts.apple.com/us/podcast/chris-dixon-the-potential-of-blockchain-technology/id1154105909?i=1000516930066) [Matt Levine — The Only Crypto Story You Need](https://www.bloomberg.com/features/2022-the-crypto-story/) [Linda Xie — Composability is Innovation](https://a16zcrypto.com/posts/article/how-composability-unlocks-crypto-and-everything-else/) [Coinbase Blog — Understanding Web3: A User Controlled Internet](https://www.coinbase.com/en-gb/blog/understanding-web-3-a-user-controlled-internet) [Consensys — Blockchain in Digital Identity](https://consensys.net/blockchain-use-cases/digital-identity/) [Andreas Antonopoulos — Mastering Ethereum](https://github.com/ethereumbook/ethereumbook/tree/develop)