Are you new to the world of blockchain and cryptocurrencies? You might hear so many new terms, which can be a bit overwhelming. Help is at hand though. Check out the ultimate glossary of blockchain terms.
An “actor” in the context of blockchain is a person or entity that can participate in a network or an action.
A “51% attack” is a form of attack on a cryptocurrency network. Popular cryptocurrencies like Bitcoin or Ethereum use public blockchain networks. These are decentralized networks, where “miners” validate transactions using a process called “mining”. “Miners” are “nodes” on these networks. They have equal authority, and they function independently. Hackers trying to compromise the Bitcoin or Ethereum network need to control more than half of the total computing powers of all the miners. That’s called a “51% attack”. Staging such an attack on any large public blockchain network is very hard, and it’s practically impossible for cryptocurrencies like Bitcoin or Ethereum.
An “address” in the context of cryptocurrencies typically refers to the cryptographic address of a recipient of cryptographic assets. Users of Bitcoin and other cryptocurrencies use cryptocurrency wallets. These digital currencies exist as transaction records, and cryptocurrency wallets store them. These wallets have 2 keys. One is the public key, which is publicly shared. This is the address to which another person/entity can send cryptocurrencies. The other key in the wallet is the private key. Users must secure the private key since it should be a secret.
ASIC (Application Specific Integrated Circuit) is a specific type of microchip. Its importance in the blockchain/cryptocurrency space lies in relation to the crypto mining process. Bitcoin, Ethereum, and many more cryptocurrencies use a process called “mining” for transaction validation. This process uses a consensus algorithm called “Proof of Work” (POW).
This consensus algorithm is computing-intensive, and miners run up large electricity bills. Miners often use computers equipped with ASIC, which offer significant power savings.
Bitcoin (BTC) is the most popular cryptocurrency, and it’s the most popular application of blockchain. Satoshi Nakamoto, a pseudonymous person or group created it. Nakamoto launched it in 2009. This cryptocurrency commands the highest market capitalization among all cryptocurrencies, and it’s the most expensive among them. The total supply of Bitcoin is limited to 21 million. Bitcoin uses a decentralized public blockchain network that allows anyone to join.
The Bitcoin network is a “Peer-to-Peer” (P2P) network. Computers on the Bitcoin network are called “nodes”, and every node has equal authority. All nodes have all transaction records, which effectively makes Bitcoin a distributed ledger. This decentralization means that one can’t shut the Bitcoin network down by shutting down one node. Cryptographic hash functions, digital signatures, and the “Proof of Work” (POW) consensus algorithm protect the Bitcoin network from hackers.
Block is a data structure. On a blockchain network, a block will consist of a few transaction records. It might have other information too. E.g., blocks on blockchain networks like Bitcoin and Ethereum networks are created using the “Proof of Work” (POW) consensus algorithm. This requires the block to contain the answer to a moderately difficult cryptographic puzzle. Blocks on such blockchain networks also have the cryptographic hash of the earlier block. This link with the earlier block makes it look like a chain, therefore, the technology is called “blockchain”.
Blockchain is a relatively new technology. Bitcoin, the popular cryptocurrency is the most famous application of it. Blockchain has several components, namely, peer-to-peer (P2P) network, encryption, digital signatures, cryptographic hash functions, and consensus algorithms.
This P2P network has data structures named “blocks”, which have transaction records. A block also has a reference to the earlier block, which makes it look like a chain. That’s why the technology is called “blockchain”.
Every computer in the network, also called “node”, has all the blocks. This makes it a distributed ledger. We also call blockchain the “Distributed Ledger Technology”. Blockchain offers decentralization, security, transparency, and immutability. Cryptocurrencies are the most famous applications of it. However, it has other applications in many sectors and functional areas.
“Blockchain 1.0” refers to the first generation of blockchain technology that had limited functionalities. Bitcoin is an example of “blockchain 1.0”. The Bitcoin network has one use case. That use case is to transfer units of this digital currency from one address to another. While having limited utilities, “blockchain 1.0” demonstrated the fundamental promises of blockchain.
“Blockchain 2.0” refers to the 2nd generation of blockchain technology that offered smart contracts. Thanks to smart contracts, this generation of blockchain offers more functionalities than “blockchain 1.0”. Ethereum is the first example of “blockchain 2.0”.
“Blockchain 1.0” and “blockchain 2.0” networks don’t offer interoperability. You can’t execute a Bitcoin transaction on another “blockchain 1.0” network. “Blockchain 1.0” and “blockchain 2.0” networks don’t scale very well. “Blockchain 3.0” refers to the generation of blockchain technology that intends to solve the problems of scalability and the lack of interoperability. At the time of writing this, “blockchain 3.0” is under research and development. EOSIO and SkyCoin are 2 examples of “blockchain 3.0”.
If you want to visualize a blockchain network, then you will think of a number of blocks arranged one after another in a chain. The term “block depth” refers to the position of a blockchain on this chain relative to the most recent block on the chain. A block that’s 2 blocks before the latest block has a “block depth” of 2.
Banking Secrecy Act (BSA)
BSA (Banking Secrecy Act) is a law in the USA. This was passed by lawmakers in the USA in 1970. This law mandates that banks and financial services institutions will assist the government agencies in detecting and preventing money laundering. BSA includes mandatory reporting and maintaining records about customers. It includes limitations on the kind of investment instruments one can buy/sell.
Byzantine Fault Tolerance
“Byzantine Fault Tolerance” (BFT) refers to the ability of a network reach to a consensus at any time. The underlying assumption is that not more than 1/3rd of the actors on this network are malicious actors.
Users of a blockchain network need to see the transactions on it. They might need to recent transactions or the ones that took place earlier. Users need a tool for this, and “Block explorer” is that tool. It provides plenty of information about the blockchain network, e.g., hash rate, transaction growth, etc.
Blockchain can be conceptually thought of as a series of blocks on a chain. This is due to the fact that one block has a reference to the earlier block. The phrase “Block height” refers to the number of blocks connected on a blockchain network.
“Block reward” is relevant to the process called “crypto mining” that some popular blockchain networks like Bitcoin and Ethereum use. The “crypto mining” process validates transactions on the blockchain. This process uses a consensus algorithm called “Proof of Work” (POW), which involves solving a cryptographic puzzle. The “miner”, i.e., transaction validator that solves this puzzle creates a new block with the transactions that he/she validates. This process creates new digital coins, and the miner earns a portion of these as a reward. This is called the “block reward”.
A central ledger generally means a ledger maintained by a central administrator or entity. In the context of blockchain, this means a distributed ledger maintained by a central administrator. Public blockchains like Bitcoin and Ethereum are decentralized, therefore, no central administrator maintains these ledgers.
However, businesses build and maintain enterprise blockchain networks. These blockchain networks need to cater to the specific business needs of organizations, therefore, they can’t be fully decentralized. This kind of blockchain network has centrally administered ledgers.
A “Certificate Authority” (CA) is a centralized authority that correlates the identity of an individual/entity with a pair of public and private keys. A CA uses a “Private Key Infrastructure” (PKI) for this. These companies provide the security certificates of websites. They also validate such security certificates.
A “closed source” software is proprietary software. Developers or companies owning such software don’t display the source code to the general public. Users can buy the software and run it. Users can’t view the code or modify it though.
In the world of blockchain and cryptocurrencies, the term “coin” refers to cryptographic tokens. We also call them “digital currencies”.
Coinbase is a cryptocurrency brokerage based in the USA. It’s one of the largest cryptocurrency exchanges in the world and, and it’s the largest in the USA.
The “coinbase” of a block refers to a public address. Blockchain networks using the “Proof of Work” (POW) consensus algorithm employ the “mining” process to create a new block. The process involves “block reward”, a reward to successful “miners”. The “coinbase” is the address to which this reward is delivered.
Command Line Interface (CLI)
A CLI (Command Line Interface) is a form of a user interface to a software application. Users execute commands from a command prompt when they use a CLI. A CLI can help users to communicate with software, however, it provides the core functionalities only. Unlike a “GUI” (Graphical User Interface), a CLI doesn’t focus on usability. CLIs are more useful for software developers. Users that aren’t tech-savvy might find it hard to use a CLI.
In the context of blockchain, the term “consortium” refers to a private blockchain operated by a company or a group of companies. It processes information that must be securely and immutably interchanged between the organizations that participate in such a network. However, such information is not suitable for display on a public blockchain network.
“Confirmation” in the context of blockchain means the act of successfully validating a transaction. The process includes adding the transaction to a new block on the blockchain network.
Blockchain promotes decentralization. As a result, the transaction validation process on a blockchain can’t rely on a central administrator. Public blockchain networks like Bitcoin and Ethereum even allow anonymous and pseudonymous participants to join. Nodes on these blockchain networks have equal authority, therefore, these networks need a process to validate transactions.
Consensus algorithms on blockchain networks play a central part in transaction validation. They are parts of the overall protocol program in a blockchain, and there are various consensus algorithms.
E.g., the “Proof of Work” (POW) consensus algorithm on the Bitcoin and Ethereum blockchain networks require “miners” to solve a moderately difficult cryptographic puzzle to confirm transactions. On the other hand, the “Proof of Stake” (PoS) consensus algorithm has “stakers” that stake their cryptographic assets to take up the role of a transaction validator.
Cryptocurrencies are digital currencies built using blockchain. Bitcoin was the first such digital currency, however, many more have emerged since then. Cryptocurrencies use decentralized blockchain networks as their foundation. Different cryptocurrencies might use different technology solutions though. E.g., the consensus algorithm might vary from one cryptocurrency to another. Different cryptocurrency networks aren’t interoperable. Cryptocurrency users need to use cryptocurrency exchanges to trade one digital currency for another.
Cryptography is the body of knowledge to encode and decode messages. Modern cryptography uses mathematical algorithms, mathematical proofs, and computers. Cryptographic tools and solutions often use mathematical problems that are very hard to solve with the help of today’s computers. This deters hackers and cyber-criminals that try to decode secret messages.
Cryptographic Hash Functions
“Cryptographic Hash” are computer algorithms. They use cryptographic techniques to scramble a plaintext to an alphanumeric string. The output is called the “hash” of the input plaintext. Modern cryptographic hash functions are used in a variety of software systems, e.g., blockchain networks.
Cryptographic hash functions have the following characteristics:
• Converting a plaintext to a hash is very easy with the help of cryptographic hash functions. That’s not true the other way round. Unless someone knows the secret key to decode, it’s practically impossible to create the plaintext from the hash.
• A cryptographic hash function will always produce the same hash from one specific input.
• Cryptographic hash functions will always produce a different output if the input is changed even slightly.
While Cryptocurrencies use blockchain, they vary with respect to the lower-level technology solutions they use. E.g., two cryptocurrencies might use two different consensus algorithms. Cryptocurrency users can’s use a Bitcoin on the Ethereum network. Cryptocurrencies aren’t interoperable.
How can crypto users trade one cryptocurrency for another? Cryptocurrency exchanges emerged to help users. These are centralized applications. You can trade one cryptocurrency for another on an exchange, furthermore, you can trade against fiat currencies like USD. Binance, KuCoin, etc. are examples of crypto exchanges.
Currency or money is an established form of exchanging value. An example is the U. S. Dollar, the national currency of the USA.
A DApp (“Decentralized App”) is an application that runs on a decentralized blockchain.
DApps have the following characteristics:
• They are open-source applications.
• Developers can use any technology to create the front-end of a DApp, however, the back-end must consist of smart contracts.
• DApps must execute on a decentralized blockchain network and store their data on that network.
• A DApp must use a cryptographic token that’s created using established cryptographic standards.
• No one user of a DApp can control the majority of the cryptographic tokens.
• One can’t modify a DApp without a consensus within its user community.
• DApps must store data on a decentralized blockchain using established cryptographic standards.
A DAO (Decentralized Autonomous Organization) is a community of users. This concept has become popular in the world of technology with the advent of blockchain. DAOs on a blockchain don’t have a central administrator. They have business rules, and these rules are codified on a decentralized blockchain network. These rules are called “smart contracts”. Since these rules are stored on a decentralized blockchain, they are immutable. DAOs operate based on these rules, and they don’t require human interventions.
The word “decentralization” refers to moving actions and authorizations from just one central person or entity to all entities in an organization. In the context of computer networking, a decentralized network is one that doesn’t have a central administrator. All computers on the network have equal authority. They administer the network in a shared manner. Blockchain networks like Bitcoin use decentralized networks.
Decentralized Exchange (DEX)
A decentralized exchange (DEX) in the context of cryptocurrencies is one where there’s no central administrator. Popular Cryptocurrency exchanges like Coinbase or Binance are centralized exchanges. A company manages such a crypto exchange centrally. This goes against the tenet of decentralization that blockchain enthusiasts emphasize. Furthermore, centralized exchanges have all the security risks that any centrally managed website has. Hackers routinely compromise such exchanges.
Therefore, many blockchain developers felt the need to have decentralized exchanges. Many of them created such exchanges using the Ethereum blockchain platform. PancakeSwap, Uniswap, and BurgerSwap are examples of DEX.
Directed Acyclic Graph (DAG)
DAG (Directed Acyclic Graph) is a mathematical concept. This involves a graph or flow chart without any recursive routes. This means that traversing through the graph will never take you twice through the same route/branch.
In the context of blockchain and cryptocurrencies, a few blockchain project teams have used a DAG to design their network and transaction processes. IOTA, a cryptocurrency focused on the IoT space is an example.
A distributed ledger is a ledger of transactions. These ledgers involve storing data across a decentralized network of computers. These computers are called “nodes”. Blockchain networks use distributed ledgers, and such networks may be public or private.
A distributed network is a type of network of computers. These networks have their processing power and data distributed across the computers on the network, and these computers are commonly called “nodes”.
In the context of blockchain, the word “difficulty” has a connection with the consensus algorithm named “Proof of Work” (POW). Popular cryptocurrency blockchain networks like Bitcoin and Ethereum use this consensus algorithm. The transaction validation process in these networks is called “mining”, and it involves solving a moderate difficult cryptographic puzzle.
The difficulty of the puzzle determines how long it will take to “mine” a block in a blockchain using the POW algorithm. E.g., the participants in the Bitcoin blockchain want a specific interval of time between the creation of two blocks. If the miners find the puzzle easy enough, then they might create a block earlier than the desired interval. Therefore, the Bitcoin miners’ community keeps making the puzzle more difficult from time to time.
A digital signature is a digitally created code. The owner of the digital signature secures it so that the code remains secret. Owners of digital signatures can use them to authenticate themselves when transmitting electronic documents. Furthermore, they can use digital signatures to certify the content of the document.
Digital signatures use modern cryptographic techniques and algorithms, which ensure their security. Private Key-Public Key encryption is such a technique. Strong cryptographic techniques used in established digital signature software products make it very hard for hackers to compromise them.
“Double spending” is a risk that digital currencies need to mitigate. Central bank-backed currencies, or “fiat currencies” as we call them, are physical currencies. Even if you transact online with such currencies, you do that through banking or financial services institutions. If you transfer a sum of money to another person or individual, then you can’t transfer the same money to another person or individual.
However, cryptocurrencies like Bitcoin are “mathematical money”. Transactions involving such digital currencies exist as records on computer systems. As we know, hackers find many ways to manipulate computer systems. They can potentially modify a transaction record involving a cryptocurrency. E.g., hackers can change the recipient address of a cryptocurrency transaction that was executed earlier. Effectively, this amounts to the same money spent twice. This is why we call this risk “double spending”.
Cryptocurrency project teams find different ways to prevent double-spending. E.g., the Bitcoin blockchain network prevents it with the help of the “Proof of Work” (POW) consensus algorithms and cryptographic hash functions.
EOSIS or EOS is a blockchain network in the “blockchain 3.0” generation. This network uses the DPoS (Delegated Proof of Stake) consensus algorithm. It uses WASM (Web Assembly) for smart contracts. This blockchain network intends to deliver a high transaction throughput.
Ethereum is a public blockchain network. It’s a decentralized “peer-to-peer” (P2P) network that allows anyone to join. Even anonymous or pseudonymous participants can join this blockchain network.
This blockchain network has its native cryptocurrency, which is called Ethereum or Ether (ETH). Ether is the 2nd most popular cryptocurrency. The Ethereum blockchain network offers transparency, decentralization, immutability, and security. It uses a combination of the P2P network, protocol program, consensus algorithm, digital signature, and modern cryptography.
To execute any transaction on the Ethereum main network, you need to pay transaction fees by Ether. Ethereum offers a blockchain application development platform. It offers a runtime environment called the “Ethereum Virtual Machine” (EVM). Developers can code “smart contracts” and “DApps” (Decentralized Apps), and execute them using EVM. Many entrepreneurs use the Ethereum platform to develop DApps of different kinds.
Ether (ETH) is the native cryptocurrency of the Ethereum blockchain network. Ether is often called “Ethereum”. You need Ether to execute transactions on the Ethereum network.
Ethereum Enterprise Alliance (EEA)
While Ethereum is a public blockchain network, there’s a considerable effort towards making the Ethereum blockchain platform useful for businesses too. EEA (Ethereum Enterprise Alliance) is an industry association that works towards this. Several enterprises participate in this, e.g., Intel, AMD, Microsoft, are JP Morgan Chase. This industry group creates applications and tools to make the Ethereum blockchain platform suitable for enterprises.
Ethereum Virtual Machine (EVM) is a virtual machine. It’s a “Turing complete” system, i.e., it can recognize or decide data manipulation rule-sets. EVM allows developers to run smart contracts and DApps on the Ethereum blockchain network. It offers the necessary runtime environment for this, and it helped developers to create applications using the Ethereum blockchain platform.
WASM (Web Assembly) is a low-level programming language like Assembly. Developers don’t need to code in this language. They can code in popular languages like C, C++, etc. WASM is the compilation target. WASM can deliver near-native speed, which is a significant performance advantage. EWASM is a version of WASM implemented in the EVM (Ethereum Virtual Machine).
Currencies like U. S. Dollar or Euro are supported by the respective national governments. These national governments mandate the use of such currencies in their countries, and they have the necessary laws in place for that. These currencies are called “fiat currencies”.
FinCEN (Financial Crimes Enforcement Network) is a U. S. Federal agency. It investigates and prosecutes financial crimes, e.g., money laundering. FinCEN governs several aspects of cryptocurrency transactions in the USA.
A fork is a term commonly used in the world of software development. It generally refers to creating a copy of an open-source software development project. In the context of blockchain, the term refers to creating a copy of a blockchain network. This results in two blockchain networks operating simultaneously.
The genesis block is the first block in a blockchain network. Blocks in public blockchain networks like Bitcoin and Ethereum have a reference to the earlier block. This link with the earlier block gives the impression of a chain, which gives rise to the name “blockchain”. The only exception to this is the genesis block. It can’t have any reference to the earlier block since it’s the very first block.
The term “Gas” in the world of blockchain and cryptocurrencies is used in the context of the Ethereum blockchain network. It’s a measurement. It refers to the amount of processing required to execute a set of computing instructions on the Ethereum blockchain.
The term “Gas price” is used in the context of the Ethereum blockchain network. It refers to the number of Ethers or their smaller units. This number of units is to be charged as a fee for each unit of “gas” consumed by a smart contract operation on the Ethereum network.
In the context of blockchain, the “gossip protocol” refers to a process by which actors on a network exchange information with others. This involves an actor relaying the information received to other actors that don’t have the information already.
Graphical User Interface (GUI)
A “Graphical User Interface” (GUI) of software is an interface for users to interact with it. Typically, developers and designers of software systems try to make the GUI user-friendly. They use specific styles. Furthermore, they use on-screen elements like windows, taskbars, etc.
A “hard fork” is a form fork in the blockchain. Hard forks involve significant changes to the protocol programs of a blockchain network. It makes previous valid transactions invalid. On the other hand, it would make previously invalid transactions valid. A hard fork requires all nodes and users of the blockchain network to upgrade to the new version of the protocol programs.
The word “hash” can have two different meanings depending on the context of the usage. If the word is used as a part of the phrase “cryptographic hash function”, then “hash” refers to the scrambled form of a plaintext.
The word “hash” has a different meaning when we use it in the context of a decentralized blockchain network like Bitcoin. In this case, it refers to the function of running cryptographic hash functions on the output data of an operation. Note that it’s different from the scrambled alphanumeric string. The act of “hashing” refers to one of the processes used in confirming a transaction on a decentralized blockchain.
The term “hash collision” refers to a possibility where two sets of input data have the same output hash. This is theoretically possible. However, creating such a scenario in the practical world is nearly impossible. If you try to create two such sets of input data, then you first need to construct the input data from a cryptographic hash. This is practically impossible with the computing technologies that we have today.
“Hashgraph” is a decentralized ledger that uses the “gossip protocol”. It uses this protocol to communicate transactions. This network uses a consensus algorithm similar to Tangle, the technology behind the cryptocurrency named IOTA.
The phrase “hash rate” is used in the context of blockchain networks that use the “mining” process and POW consensus algorithm for transaction validation. Miners often set up mining rigs with many computers and appropriate infrastructural support. “Hash rate” refers to the measure of the performance of a mining rig.
Hexadecimal notation is the expression of raw data in the hexadecimal (0-f) format.
“Hybrid PoS/POW” is a method of using consensus algorithms on a blockchain network. This method involves using both POW and PoS consensus algorithms. The user community of the blockchain network in question achieves a balance between these two algorithms, and they set up a community-based government model.
Hyperledger is an umbrella project to create open-source tools and frameworks that help organizations in adopting blockchain. Hyperledger Consortium, an industry association manages the various projects under the Hyperledger umbrella. Linux Foundation hosts Hyperledger. Many enterprises like IBM, Intel, SAP, etc. are members of the Hyperledger Consortium. Hyperledger Fabric, an open-source enterprise blockchain framework is one of the most important projects undertaken by this consortium.
ICO (Initial Coin Offering)
ICO (Initial Coin Offering) is a fund-raising method used by cryptocurrency/blockchain entrepreneurs. When a start-up tries to raise funds, it can try to get investments from Venture Capital (VC) funds. When an established private company wants to get more funds for its expansion, it can go through the IPO (Initial Public Offering) route. VC raises or IPOs have many regulatory requirements and due diligence processes. However, ICOs don’t have them.
ICOs operate outside the ambit of regulations. Even retail investors can invest in ICOs. A blockchain or cryptocurrency start-up creates a website with descriptions of the project. It creates a document named “whitepaper” to describe the business model, product, technical solutions, development roadmap, etc. The company then asks for investments from potential investors all over the world. Many of them use the Ethereum blockchain platform for this, and they create cryptographic tokens. They sell these tokens to investors.
Many governments and regulators scrutinize ICOs since these fund-raising efforts don’t follow securities investments-related regulations. Blockchain/crypto entrepreneurs are looking for alternative fund-raising means too, e.g., STOs (Security Token Offerings).
ITO (Initial Token Offering)
See “Initial Coin Offering” (ICO).
Immutability refers to a property in a software system that prevents altering of data. In such a software system, “Immutable data” means data that hasn’t been changed. Users of such a system can have the confidence that the data won’t be tampered with. One of the promises of blockchain is immutability. It uses a decentralized network, cryptographic hash functions, and consensus algorithms to offer immutability.
Java is one of the most popular programming languages. Developers use it to develop enterprise applications. It’s popular for web application development, furthermore, it’s popular with Android developers too. Many blockchain developers use Java to code blockchain applications or their components.
KuCoin is one of the popular cryptocurrency exchanges. It allows users to trade in all popular cryptocurrencies like Bitcoin, Ether, Litecoin, Ripple, etc.
Litecoin is a cryptocurrency. Charlie Lee, a former Google engineer, and his team launched this cryptocurrency in 2011. Litecoin shares many similarities with Bitcoin, which includes several features. E.g., Litecoin uses the “Proof of Work” (POW) consensus algorithm.
The term “Mainnet” refers to the version of a blockchain network that contains the real value. This is the “production” version of the network as considered by users and developers. A blockchain network might have test networks too, however, they are separate from the main network. E.g., the Ethereum blockchain network has a mainnet, and it has several “testnets”, i.e., test networks.
A “Merkle Tree” is a data structure. Many computer science applications use it, which include several cryptocurrencies. Bitcoin, the most popular cryptocurrency uses it. Blockchain networks use Merkle Tree to encode data with more security and efficiency. Merkle Trees are also known as “binary hash trees”.
The term “Merkle proof” refers to the process of traversing a Merkle tree from leaves to the root. This process includes hashing each level with the previous level. This process creates a unique hash for the structure of the Merkle tree. In the case of a blockchain network, participants see the final hash to determine if the data in a Merkle tree matches with their version of the data.
The term “Merkle root” refers to the cryptographic hash of all hashes in a Merkle tree. In the case of a blockchain network, this is the hash of all transactions in the blockchain. Participants on the network can see the “Merkle root” to verify the authenticity of the data on the chain.
The word “mining” in the context of blockchain and cryptocurrencies refers to the transaction validation process of blockchain networks that use the “Proof of Work” (POW) consensus algorithm. Bitcoin, Ethereum, and some other popular cryptocurrencies use the transaction validation process.
Users of nodes that take part in the mining process are called “miners”. The cryptocurrency mining process is computation-intensive, therefore, miners use specialized hardware. The process is energy-intensive too. Cryptocurrency miners tend to run up large electricity bills.
It’s a popular video game. Despite the presence of the word “mine” in its name, this video game has no connection with cryptocurrency mining.
A “Miner” is an actor on a blockchain network that uses the “Proof of Work” (POW) consensus algorithm. The transaction validation process in such a blockchain network is called “mining”. “Miners” create new blocks after solving a cryptographic puzzle. The “mining” process is competitive, and the “miner” that solves this puzzle first gets to create a new block.
A “CPU miner” is a computer used by a “miner” on a blockchain network that uses the crypto mining process for transaction validation. A CPU miner uses its CPU to perform the calculations required as part of the “mining”.
A “GPU miner” is a computer used by a “miner” on a blockchain to perform the crypto mining process. Such a computer uses its “Graphics Processing Unit” (GPU) to perform the calculations required for this.
An “ASIC miner” is a computer used by a “miner” for transaction validation on a blockchain network. Such computers use an ASIC (Application-Specific Integrated Circuit) for the calculations involved in “mining”.
A “mining pool” refers to a group of miners that work together to create the next block on a blockchain network. They intend to improve efficiency.
This refers to the act of transmitting money from one entity to another via an intermediary.
“Multi-signature addresses” use more than one key to authorize a transaction. This provides additional security to users.
In the context of blockchain, a “network” is a collection of computers connected to each other via a protocol program.
A “node” is a computer on a “Peer-to-Peer” (P2P) network. In the context of blockchain and cryptocurrencies, a “node” has the same meaning. It’s a computer on the decentralized, P2P blockchain network. Decentralized blockchain networks like Bitcoin and Ethereum allow all nodes to have the entire ledger of transactions in them.
A “full node” is a node on the blockchain network that has the complete state of the network.
A “light node” is a node on the blockchain network that has enough data to validate the chain. However, it doesn’t have the complete state data for each of the blocks on the chain.
In the world of computing programming, the term “opcode” refers to a machine-level instruction for a computer processor. Programs written using high-level programming languages like Java are compiled into opcodes. The processor of a computer executes the instructions in those opcodes.
Open-source software is a kind of software for which the source code is open to all.
Blockchain smart contracts reside on a blockchain network. They can process data that are available on that blockchain network. They don’t need any external agent for that since smart contracts are autonomous. However, some contracts process information obtained from the world outside of a blockchain network. They need a “bridge” for this so that they can the relevant outside data. An “Oracle” is a program that acts as that bridge, and it provides external data.
Oracle is a multinational company that has built enterprise-scale software products like the popular database with the same name.
A “Peer-to-Peer” (P2P) network is a decentralized network. Such networks don’t have a central server or central administrators. Each computer on a P2P network has equal authority. Blockchain uses a P2P network as one of its fundamental components. E.g., Bitcoin and Ethereum are P2P networks, and each computer on the network is called a “node”. Each node on Bitcoin or Ethereum has the same authority.
Cryptocurrency users store their cryptocurrencies in crypto wallets. Cryptocurrencies are transaction records, and wallets store them. A crypto wallet has a public address. That’s the address to which another user can send cryptocurrencies.
A private key in the context of blockchain and cryptocurrencies is related to the cryptocurrency wallet and digital signature. A cryptocurrency wallet has a public key or public address for receiving funds. The wallet also has a private key, which is supposed to be a secret. Modern cryptographic techniques link the private and public keys, and hackers find it very hard to compromise them. Users of a cryptocurrency wallet should secure their private key, which allows them to authenticate themselves and sign transactions.
Private Key Infrastructure (PKI)
A PKI is a set of rules, policies, and computer programs to manage the identification of users through public-key encryption. Organizations use this to authenticate users with the help of a public-key/private-key pair. This form of authentication is more secure than username/password-based authentication.
Proof of Liquidity
A “Proof of liquidity” refers to a cryptographically signed statement from a trusted 3rd party auditor. Such a statement confirms that an entity or actor holds a certain amount of resources. Cryptocurrencies that are pegged to a security of a commodity in the real world uses proof of liquidity.
Proof of Stake
“Proof of Stake” (PoS) is a consensus algorithm used in some blockchain networks. Tezos (XTZ) is an example of a cryptocurrency that uses this consensus algorithm. Blockchain networks are decentralized, and there isn’t a central administrator. This requires a process for transaction validation. A consensus algorithm plays that role.
In the case of a blockchain that uses the PoS algorithm, there are a few “stakers”. They stake their cryptocurrencies to take the role of transaction validators. In some cases, “stakers” with longer duration and the higher amount at stake get transaction validation responsibilities more often.
It is expected that a “staker” will follow appropriate ethics and rules when validating transactions. That’s because a foul play will cause the “staker” to lose his or her cryptocurrencies. This ensures fair play in the transaction validation process.
Proof of Stake (Delegated)
“Delegated Proof of Stake” (DPoS) is a consensus algorithm that’s built on the PoS algorithm. In the case of DPoS, a stakeholder can nominate block producers that validate transactions.
Proof of Work
“Proof of Work” (POW) is a consensus algorithm used in many prominent blockchain networks. E.g., the Bitcoin and Ethereum networks use this consensus algorithm.
These blockchain networks are decentralized networks. Anyone can join these networks, and that includes pseudonymous and anonymous participants. Computers on these networks are called “nodes”. Each node has equal authority, and there’s no central administrator.
Such a network needs a transaction validation process aligned with the decentralized nature of the network. That process is called the “consensus algorithm”. Transaction validators on the Bitcoin or Ethereum network are called “miners”, and the transaction validation process is called “mining”.
The POW consensus algorithm requires miners to solve a moderately difficult cryptographic puzzle to create a new block. The miners can successfully validate a transaction only if they can include it in a new block. Solving this cryptographic puzzle doesn’t require skills, however, it requires miners to keep trying one number after another at high speed.
When a miner finds the answer to the puzzle, he/she broadcasts it to the blockchain network. Everyone else can see the proof that the puzzle is indeed solved. That’s why we call this consensus algorithm “Proof of Work”.
This algorithm is computing power-intensive. Bitcoin miners use GPUs along with their computers for such high-speed number-crunching. The process is energy-intensive, and miners run up considerable electricity bills.
Proof of Work (Delegated)
“Delegated Proof of Work” (DPOW) is a consensus algorithm built on the POW algorithm. It uses the same transaction validation process used in the POW algorithm. However, the miner that finds the solution to the cryptographic puzzle might not create the block. The miner might assign the right to create a block to another actor on the network.
RPC (Remote Procedure Calls)
Some blockchain networks offer a development platform for programmers to create blockchain applications. Ethereum is a good example. Developers need appropriate tools to communicate with the blockchain network, and an RPC (Remote Procedure Calls) protocol can help them. E.g., programmers can use the Ethereum JSON-RPC to communicate with the Ethereum blockchain network.
A “ring signature” is a private key-based cryptographic signature. One needs multiple valid keys to verify the signature. Cryptocurrency networks that focus on the privacy of their users often use ring signatures.
Ripple is a blockchain network that intends to simplify the transfer of money. It connects payment providers and banks for this.
Scalability is an important non-functional requirement (NFR) in the information technology industry. In the context of blockchain, it refers to the ability of a network to function without performance degradation even if the number of participants increases by many times.
“Scatter” is a wallet that Bitcoin or Ethereum users can use.
There are various cryptographic algorithms available. Scrypt is one such algorithm. Litecoin, a popular cryptocurrency uses this algorithm.
Secure Hash Algorithm (SHA)
“Secure Hash Algorithm” (SHA) is a cryptographic hash function created by the United States National Security Agency (NSA).
Securities and Exchange Commission (SEC)
The United States Securities and Exchange Commission (SEC) is a federal regulatory body that regulates how investment markets work in the USA. SEC has reviewed many cryptocurrency projects, and it has mandated them to register as providers of securities investment instruments.
SHA-256 is a well-known cryptographic algorithm. Bitcoin, the most famous cryptocurrency uses it. SHA-256 provides a high degree of security. It consumes plenty of processing power though, and it requires high processing time.
Security Token Offering (STO)
An STO is a token offering where the company issuing the cryptographic token has registered it as a securities investment contract. Such companies register their STOs with the US SEC (Securities and Exchange Commission).
Simple Agreement for Future Tokens (SAFT)
SAFT (Simple Agreement for Future Tokens) refers to an investment mechanism. The blockchain project that will issue tokens is still in a work-in-progress status. The project team hasn’t launched the blockchain product yet. This investment mechanism allows investors to obtain tokens in the future.
“SkyCoin” is a “blockchain 3.0” project. It uses a consensus algorithm called the “Web-of-Trust”. This blockchain network can support other blockchains. This project will allow users to create “trustless” networks, and it can deliver a high transaction throughput.
Smart contracts are pieces of code. The Ethereum project introduced them. Developers can build blockchain-based applications by developing smart contracts. Smart contracts have the following characteristics:
• They are open-source.
• They have If-Then-Else statements that transfer cryptographic assets based on predefined conditions.
• Smart contracts are autonomous, i.e., they execute automatically when the trigger condition is fulfilled.
• Developers need to store smart contracts on decentralized blockchains, therefore, smart contracts are immutable. Programmers can’t modify them after deployment.
• The execution of a smart contract is recorded on a decentralized blockchain. Therefore, their execution results are irreversible.
Smart contracts can make contract execution transparent, automatic, and efficient. However, recovering from a smart contract bug can be hard. Developers need to eliminate defects before implementing smart contracts.
A “Soft fork” is a type of fork in a blockchain network. It involves changes to the blockchain protocol program. Unlike a hard fork, a soft fork doesn’t invalidate the transactions that were valid previously. An old node, i.e., one that didn’t upgrade to the new protocol program can still recognize the blocks created after the upgrade as valid ones. This makes a soft fork backward-compatible.
“Sharding” is a database management concept. In the context of blockchain, it means partitioning the data in the blockchain in a way that a set of nodes will contain only a set of the data on the blockchain. This is drastically different from Bitcoin or Ethereum, where all nodes contain all data.
Bitcoin and Ethereum are designed to offer excellent decentralized security. However, all nodes containing the entire data causes performance bottlenecks. This reduces the scalability. Sharding is expected to improve the scalability since a set of nodes will only contain one set of data.
The transaction validation process in a blockchain that uses sharding will vary drastically from blockchain networks like Bitcoin and Ethereum. Since all nodes can’t see all data, the POW algorithm won’t work. Such a blockchain needs to first adopt the “Proof of Stake” (PoS) algorithm. Then, transaction validators can be appointed for each shard.
A “Stablecoin” is a cryptocurrency. A stablecoin project intends to maintain stability in the price of the associated cryptographic token. It might peg the stablecoin to a fiat currency like USD for this.
The term “staking” refers to the practice of transaction validators on a cryptocurrency network putting their own cryptocurrencies at stake for the sake of trust. This process is relevant to the blockchain networks that use the “Proof of Stake” (PoS) consensus algorithm for transaction validation.
The term “State machine” refers to a model of computation in the field of computer science. A state machine can only have one of a finite set of states at a given point. A state transition function can change the state of a state machine. A blockchain network is a state machine.
“Tangle” is a blockchain-like technology. The cryptocurrency project named IOTA uses it. Tangle uses the concepts of DAG (Directed Acyclic Graph). Here, the validation of one transaction requires the validation of at least two preceding transactions.
A “testnet” refers to a test blockchain network. Developers that create blockchain applications can first deploy them on a testnet, where they can test it. Ropsten is an example of a testnet for the Ethereum blockchain network.
The phrase “transaction block” refers to a set of transactions that will be grouped in one block on a blockchain network.
A “token” in the context of a blockchain is a cryptographic token. It’s the same as a “coin” or “cryptocurrency”. A token is a cryptographic asset that can be transferred from one entity to another on the blockchain network.
A non-fungible token is a form of cryptographic token. Each instance of such a token is a unique instance. It represents a distinct object or entity.
A “security token” is a cryptographic token. It’s a securities investment contract. Issuers of a security token register it with appropriate regulators, e.g., SEC (Securities Exchange Commission) in the USA.
A “utility token” is a cryptographic token that’s not a securities investment contract. It has utilities other than just transferring value from one entity to another. E.g., a utility token might provide access to a blockchain platform to users.
The term “tokenization” refers to translating goods or services into units of cryptographic tokens stored on a blockchain.
A total-complete language is a kind of a functional programming language. They have certain specific characteristics. E.g., the compiler of such a language knows how many iterations a loop written in that language will perform. Therefore, the program will terminate instead of going into an infinite loop.
The term “transaction” in the context of blockchain means the processing of input data to change the data on a blockchain network.
Cryptocurrency transactions require a transaction fee. Requesters of transactions pay this fee, and they use the native cryptocurrency of the blockchain network to pay. E.g., requesters for transactions on the Ethereum blockchain need to pay using Ether (ETH).
A “transaction pool” in the context of a blockchain refers to a pool of transactions that have been submitted to the blockchain network, however, these transactions aren’t yet included in any block.
A “trustless” system refers to a software system that doesn’t require one user to explicitly trust another user. Blockchain promises to provide “trustless” systems where mathematical verification will eliminate the need to explicitly trust anyone. Malicious actors can’t manipulate trustless systems since internal validation processes in the system secure them.
A “Turing complete” computer is the one that can perform calculations that any other programmable computer can perform. EVM (Ethereum Virtual Machine) is a “Turing complete” machine. The name derives from the late Alan Turing, a British computer scientist.
Unspent Transaction Output (UTXO)
Some blockchain networks might use a concept called UTXO (Unspent Transaction Output). Here, a transaction references a previous transaction. It uses 100% of the tokens in the output of the previous transaction. It assigns the desired payment amount to the address of the recipient. Furthermore, it assigns any “unspent” token back to the address of the owner. No other transaction can refer to this UTXO since it’s already consumed.
Virtual Machine (VM)
In the modern computing world, one can create a “virtual machine” (VM) using one computer using the “virtualization” technology. A VM runs on the physical computer. It’s just an instance created on the physical computer. Users of a VM get exclusive control over the computing resources allocated to it.
Vyper is a programming language to code smart contracts on the Ethereum Virtual Machine (EVM). It’s inspired by Python, the popular programming language.
Vyper is a strongly-typed programming language. It supports fewer advanced features than Solidity, the more popular programming language to develop smart contracts. Instead, the focus of Vyper is to make smart contracts more secure and easier to audit.
A “wallet” in the context of cryptocurrencies refers to the means to store cryptocurrencies. Cryptocurrencies exist as transaction records. Cryptocurrency wallets use software to store the transaction record securely, and they use a combination of private and public keys for that. A wallet needs to support a particular cryptocurrency before a user can store that cryptocurrency on it.
Multisignature wallets require users to authenticate using multiple private key signatures to access or create a transaction.
Web Assembly (WASM)
Web Assembly (WASM) is a relatively new low-level programming language like Assembly. Developers aren’t expected to write WASM code. Rather, they will continue to write code in popular programming languages like C, C++, etc. WASM is a compilation target for programs written in popular programming languages.
WASM will allow you to run code written in a high-level language on the web, and you can achieve near-native speed. Web developers can continue to write code in familiar programming languages. WASM will deliver significant performance gain to their programs.
Monero (XMR) is a privacy-focused cryptocurrency. This project use technologies like ring signatures and stealth addresses, which help it to hide the identities of the sender and receiver.
In the context of blockchain and cryptocurrencies, the term “yield farming” means locking up cryptocurrencies owned by a user. Users get rewards for locking up their cryptocurrencies.
Zcash (ZEC) is a cryptocurrency. It shares some characteristics with Bitcoin in the manner of its design. Zcash has a total supply limit of 21 million, which is similar to Bitcoin. The specialty of Zcash lies in the fact that it’s a privacy-focused cryptocurrency. Users can protect the confidentiality of their transactions.
Zero-Knowledge (ZK) Proof
A “Zero-Knowledge” (ZK) proof is a mechanism to prove that you have certain information without showing the information you have. This mechanism uses advanced mathematical functions to do that. The field of “zero-knowledge proof” is still under research and development at the time of writing this.
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