Blockchain and cryptocurrencies, in addition to bringing innovation, decentralization, and opportunity, also come with a steep learning curve.
I have decided to put together a glossary of commonly used terms and concepts to help you climb that mountain of blockchain information.
Blockchain
A blockchain is a shared ledger where transactions are permanently recorded by appending blocks. The blockchain serves as a historical record of all transactions that ever occurred, from the genesis block to the latest block, hence the name blockchain.
Block
Blocks are packages of data that carry permanently recorded data on the blockchain network.
Cryptocurrency
Cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.
Wallet
A file that houses private keys. It usually contains a software client which allows access to view and create transactions on a specific blockchain that the wallet is designed for.
Bitcoin
Bitcoin is the first decentralised, open source cryptocurrency that runs on a global peer to peer network, without the need for middlemen and a centralised issuer.
Bitcoin Network
The blockchain network that the Bitcoin currency runs on.
Ethereum
Etherium is a blockchain-based decentralised platform for apps that run smart contracts, and is aimed at solving issues associated with censorship, fraud and third party interference.
Ether
The cryptocurrency that runs on the Ethereum network.
Token & Alt-Coins
Token and alt-coin, or alternative coin, are synonyms for a unit of value issued by a private entity on the blockchain. Tokens are more than a currency because they can be used in a broader range of applications. Virtually all tokens rely on Ethereum’s blockchain protocol, which is more complete than bitcoin’s blockchain. A token can be used in whichever way the person or organization designing and developing it decides. Tokens admit several layers of value inside it, so it is the token’s designer who decides what a specific token has inside.
ICO’s
Acronym for Initial Coin Offering, similar to an Initial Public Offering (IPO) in the traditional business paradigm. An ICO is a fundraising mechanism in which new projects sell their underlying tokens in exchange for bitcoin, ether, or traditional currency.
Asymmetrical Cryptography
Cryptocurrency operates on a 2-factor encryption system that uses public keys and private keys. Public keys are also known as a public wallet address, and are safe to share for sending and receiving transactions.
This accomplishes two functions: authentication, which is when the public key is used to verify that a holder of the paired private key sent the message, and encryption, whereby only the holder of the paired private key can decrypt the message encrypted with the public key.
In a public key encryption system, any person can encrypt a message using the public key of the receiver, but such a message can be decrypted only with the receiver’s private key. For this to work it must be computationally easy for a user to generate a public and private key-pair to be used for encryption and decryption. The strength of a public key cryptography system relies on the degree of difficulty (computational impracticality) for a properly generated private key to be determined from its corresponding public key. Security then depends only on keeping the private key private, and the public key may be published without compromising security.
Blockchain Mechanics:
DAO
Decentralised Autonomous Organizations can be thought of as corporations that run without any human intervention and surrender all forms of control to an incorruptible set of business rules.
Distributed Ledger
Distributed ledgers are ledgers in which data is stored across a network of decentralized nodes. A distributed ledger does not have to have its own currency and may be permissioned and private.
Distributed Network
A type of network where processing power and data are spread over the nodes rather than having a centralised data centre.
Fork
Forks create an alternate version of the blockchain, leaving two blockchains to run simultaneously on different parts of the network.
Genesis Block
The first or first few blocks of a blockchain.
Hard Fork
A type of fork that renders previously invalid transactions valid, and vice versa. This type of fork requires all nodes and users to upgrade to the latest version of the protocol software.
Hash
The act of performing a hash function on the output data. This is used for confirming coin transactions.
Mining
Mining is the act of validating blockchain transactions. The necessity of validation warrants an incentive for the miners, usually in the form of coins. In this cryptocurrency boom, mining can be a lucrative business when done properly. By choosing the most efficient and suitable hardware and mining target, mining can produce a stable form of passive income.
Multi-Signature
Multi-signature addresses provide an added layer of security by requiring more than one key to authorize a transaction.
Node
A copy of the ledger operated by a participant of the blockchain network.
Oracles
Oracles work as a bridge between the real world and the blockchain by providing data to the smart contracts.
Peer to Peer
Peer to Peer (P2P) refers to the decentralized interactions between two parties or more in a highly-interconnected network. Participants of a P2P network deal directly with each other through a single mediation point.
Public Address
A public address is the cryptographic hash of a public key. They act as email addresses that can be published anywhere, unlike private keys.
Private Key
A private key is a string of data that allows you to access the tokens in a specific wallet. They act as passwords that are kept hidden from anyone but the owner of the address.
Proof of Stake
A consensus distribution algorithm that rewards earnings based on the number of coins you own or hold. The more you invest in the coin, the more you gain by mining with this protocol.
Proof of Work
A consensus distribution algorithm that requires an active role in mining data blocks, often consuming resources, such as electricity. The more ‘work’ you do or the more computational power you provide, the more coins you are rewarded with.
Smart Contracts
Smart Contracts encode business rules in a programmable language onto the blockchain and are enforced by the participants of the network.
Soft Fork
A soft fork differs from a hard fork in that only previously valid transactions are made invalid. Since old nodes recognize the new blocks as valid, a soft fork is essentially backward-compatible. This type of fork requires most miners upgrading in order to enforce, while a hard fork requires all nodes to agree on the new version.
Solidity
Solidity is Ethereum’s programming language for developing smart contracts.
Transaction Block
A collection of transactions gathered into a block that can then be hashed and added to the blockchain.
Transaction Fee
All cryptocurrency transactions involve a small transaction fee. These transaction fees add up to account for the block reward that a miner receives when he successfully processes a block.
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