Every new concept has its own language. Block chain and crypto-currencies are no different! In order to understand and communicate, we need to know the block chain vocabulary being used. Here’s a head start!
Block chain/Crypto-currency Glossary: From A-Z
Block chain Vocabulary
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
When more than half of the computing power of a currency network is controlled by a single entity or group, this entity or group may issue conflicting transactions to harm the network, should they have the malicious intent to do so.
Cryptocurrency addresses are used to send or receive transactions on the network. An address usually presents itself as a string of alphanumeric characters.
Short form for ‘Application Specific Integrated Circuit’. Often compared to GPUs, ASICs are specially made for mining and may offer significant power savings.
Bit is a common unit used to designate a sub-unit of a bitcoin – 1,000,000 bits is equal to 1 bitcoin (BTC or B⃦). This unit is usually more convenient for pricing tips, goods and services.
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.
Blocks are packages of data that carry permanently recorded data on the blockchain network.
A blockchain is a shared ledger where transactions are permanently recorded by appending blocks. The blockchain serves as a historical From the genesis block to the latest block, hence the name blockchain.
Block ciphers are a method of encrypting text (to produce ciphertext) in which a cryptographic key and algorithm are applied to a block of data at once as a group rather than to one bit at a time.
Block explorer is an online tool to view all transactions, past and current, on the blockchain. They provide useful information such as network hash rate and transaction growth.
The number of blocks connected on the blockchain.
A form of incentive for the miner who successfully calculated the hash in a block during mining. Verification of transactions on the blockchain generates new coins in the process. And the miner is rewarded with a portion of those.
The block at which the block chain diverges into multiple chain branches.
BTC is a common unit used to designate one bitcoin (B⃦).
A ledger maintained by a central agency.
Chain linking is the process of connecting two blockchains with each other, thus allowing transactions between the chains to take place. This will allow blockchains like Bitcoin to communicate with other sidechains, allowing the exchange of assets between them.
Every once in a while, an old block hash is hard coded into Bitcoin software. Different implementations choose different checkpoint locations. Checkpoints prevent various DOS attacks from nodes flooding unusable chains and attacks involving isolating nodes and giving them fake chains. Satoshi announced the feature here and it was discussed to death here.
The successful act of hashing a transaction and adding it to the blockchain. Confirmation means that a transaction has been processed by the network and is highly unlikely to be reversed. Transactions receive a confirmation when they are included in a block and for each subsequent block. Even a single confirmation can be considered secure for low value transactions, although for larger amounts like 1000 US$, it makes sense to wait for 6 confirmations or more. Each confirmation exponentially decreases the risk of a reversed transaction.
Consensus is achieved when all participants of the network agree on the validity of the transactions. This ensures that the ledgers are exact copies of each other.
Also known as tokens, cryptocurrencies are representations of digital assets.
Cryptographic Hash Function
Cryptographic hashes produce a fixed-size and unique hash value from variable-size transaction input. The SHA-256 computational algorithm is an example of a cryptographic hash.
Cryptography is the branch of mathematics that lets us create mathematical proofs that provide high levels of security. Online commerce and banking already uses cryptography. In the case of Bitcoin, cryptography is used to make it impossible for anybody to spend funds from another user’s wallet or to corrupt the block chain. It can also be used to encrypt a wallet, so that it cannot be used without a password.
A decentralised application (Dapp) is an application that is open source, and operates autonomously. It has its data stored on a blockchain, incentivised in the form of cryptographic tokens and operates on a protocol that shows proof of value.
Decentralised Autonomous Organizations can be thought of as corporations that run without any human intervention. They surrender all forms of control to an incorruptible set of business rules.
The process of distributing or dispersing functions, powers, people or things away from a central location or authority.
Decryption is the process of turning cipher-text back into plaintext.
Every 2016 blocks, Bitcoin adjusts the difficulty of verifying blocks based on the time it took to verify the previous 2016 blocks. The difficulty is adjusted so that given the average estimated computing power of the whole bitcoin network, only one block will verified on average every ten minutes for the next 2016 blocks. Difficulty is usually expressed as a number, optionally accurate to many decimal places (eg. in block 100,000 it was 14,484.162361. The difficulty is inversely proportional to the hash target, which is expressed as a hex number with around 50 digits, and is the number under which a block’s generated hash must be to qualify as an officially verified block. The hash target is equal to ((65535 << 208) / difficulty). Difficulty is also often called block difficulty, hash difficulty, verification difficulty or the difficulty of generating bitcoins.
A digital code generated by public key encryption that is attached to an electronically transmitted document to verify its contents and the sender’s identity.
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.
A type of network where processing power and data are spread over the nodes rather than having a centralised data centre.
Double spending occurs when a sum of money is spent more than once.
Encryption is the process of turning a clear-text message (plaintext) into a data stream (cipher-text), which looks like a meaningless and random sequence of bits.
Ether is the native token of the Ethereum blockchain which is used to pay for transaction fees, miner rewards and other services on the network.
Ethereum is a blockchain-based decentralised platform for apps that run smart contracts. And it is aimed at solving issues associated with censorship, fraud, and third party interference.
The Ethereum Virtual Machine (EVM) is a Turing complete virtual machine that allows anyone to execute arbitrary EVM Byte Code. Every Ethereum node runs on the EVM to maintain consensus across the blockchain.
A currency, conjured out of thin air, which only has value because people say it does. Constantly under close scrutiny by regulators due to its known application in money laundering and terrorist activities. Not to be confused with bitcoin.
Forks create an alternate version of the blockchain, leaving two blockchains to run simultaneously on different parts of the network.
The first or first few blocks of a blockchain.
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.
The act of performing a hash function on the output data. This is used for confirming coin transactions.
Measurement of performance for the mining rig is expressed in hashes per second.
A hybrid PoS/PoW allows for both Proof of Stake and Proof of Work as consensus distribution algorithms on the network. In this method, a balance between miners and voters (holders) may be achieved, creating a system of community-based governance by both insiders (holders) and outsiders (miners).
I – K
Internet Coin Offering – The idea to presale coins of a cryptocurrency or token of a blockchain project has evolved in a crazy successful instrument to raise funds for the development of a new application.
L – M
Every transaction has a hash associated with it. In a block, all of the transaction hashes in the block are themselves hashed (sometimes several times — the exact process is complex), and the result is the Merkle root. In other words, the Merkle root is the hash of all the hashes of all the transactions in the block. The Merkle root is included in the block header. With this scheme, it is possible to securely verify that a transaction has been accepted by the network (and get the number of confirmations) by downloading just the tiny block headers and Merkle tree — downloading the entire block chain is unnecessary. This feature is currently not used in Bitcoin, but it will be in the future.
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 addresses provide an added layer of security by requiring more than one key to authorize a transaction.
A copy of the ledger operated by a participant of the blockchain network.
O – Q
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.
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.
A public address is the cryptographic hash of a public key. They act as email addresses that can be published anywhere, unlike private keys.
A block chain reorganize (or reorg) happens when one chain becomes longer than the one you are currently working on. All of the blocks in the old chain that are not in the new one become orphan blocks, and their generations are invalidated. Transactions that use the newly-invalid generated coins also become invalid, though this is only possible in large chain splits because generations can’t be spent for 100 blocks. The number of confirmations for transactions may change after a reorg, and transactions that are not in the new chain will become “0/unconfirmed” again. If a transaction in the old chain conflicts with one in the new chain (as a result of double-spending), the old one becomes invalid.
Scrypt is a type of cryptographic algorithm and is used by Litecoin. Compared to SHA256, this is quicker as it does not use up as much processing time.
SHA-256 is a cryptographic algorithm used by cryptocurrencies such as Bitcoin. However, it uses a lot of computing power and processing time. This forcies miners to form mining pools to capture gains.
A cryptographic signature is a mathematical mechanism that allows someone to prove ownership. In the case of Bitcoin, a Bitcoin wallet and its private key(s) are linked by some mathematical magic. When your Bitcoin software signs a transaction with the appropriate private key, the whole network can see that the signature matches the bitcoins being spent. However, there is no way for the world to guess your private key to steal your hard-earned bitcoins.
Smart contracts encode business rules in a programmable language onto the blockchain and are enforced by the participants of the network.
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 is Ethereum’s programming language for developing smart contracts.
T – W
A test blockchain used by developers to prevent expending assets on the main chain.
A collection of transactions gathered into a block that can then be hashed and added to the blockchain.
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.
Turing complete refers to the ability of a machine to perform calculations that any other programmable computer is capable of. An example of this is the Ethereum Virtual Machine (EVM).
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.
In conclusion, as one step in the learning process, I hope this block chain vocabulary helps. Refer back here often as more and more block chain vocabulary is added.