Bitcoin, and by extension blockchain, have been around since 2008 when Satoshi Nakamoto published the Bitcoin White Paper. The first Bitcoin block, the so-called 'Genesis Block,' was mined in 2009. As the Bitcoin protocol is open source, anyone could take the protocol, fork it (i.e., modify the code), and start their own version of P2P money. In the years since, the number of blockchain solutions — and cryptocurrencies — have grown dramatically. Enterprises have started looking at blockchain as a new way of securing and sharing data. However, it is still very much the early days for blockchain, with many business users struggling to understand what it is and how it works.
Building a Blockchain Glossary
Over the last few weeks we've been exploring the enterprise implications for blockchain. And in that time we discovered that even the terminology is creating confusion. To clarify what blockchain is and how to use it we have put together a glossary of terms for future reference. To build the glossary, we used several sources, and plan to add further sources as the glossary develops and grows. Initially, though, we have taken references and contributions from:
- Kyle Fournier, crypto analyst and outreach specialist at CryptoManiaks.
- Justin May of dock.io.
- Clay Space, founder of Blockspace Media, who consults on blockchain and cryptocurrency applications.
- Bassim Alkhafaji, partner at Andra Capital.
- Darryn Jones, vice president of business development, Greater Phoenix Economic Council.
51% attack: Also called a double spend attack, this is a situation where more than half of the computing power on a network is operated by a single individual or concentrated group, which gives them complete and total control over a network. An entity with 51 percent of the computing power can do things including, but not limited to, halting all mining and manipulating currencies.
Addresses: Cryptocurrency addresses are used to receive and send transactions on the network. An address is a string of alphanumeric characters, but can also be represented as a scannable QR code.
Altcoin: This is an abbreviation of “Bitcoin alternative.” Currently, the majority of altcoins are forks of Bitcoin with usually minor changes to the proof of work (POW) algorithm of the Bitcoin blockchain.
Bitcoin: This is a well-known cryptocurrency, based on the proof-of-work blockchain.
Bitcoin Core: An integral part of the Bitcoin network, Bitcoin Core is a software program specifically designed to correctly identify valid blocks on the blockchain that contains valid Bitcoin transactions. It includes a secure wallet that can be used to store, send and receive bitcoins.
Block: A collection of data to be recorded on a blockchain. Blocks often contain transaction data but can be used to store all sorts of different data.
Block Size: The amount of data that can be stored in any single block of a blockchain. Larger block sizes allow for more data.
Blockchain: A structure for storing data in which groups of valid transactions, called blocks, form a chronological chain, with each block cryptographically linked to the previous one.
Private blockchain: A fully private blockchain is a blockchain where write permissions are kept centralized to one organization. Read permissions may be public or restricted to an arbitrary extent.
Public Blockchains: A public blockchain is a blockchain that anyone in the world can read, anyone in the world can submit transactions to and expect to see them included if they are valid, and anyone in the world can participate in the consensus process, the process for determining what blocks get added to the chain and what the current state is.
Confirmation: A confirmation means a transaction has been successfully included in a block and added to the public blockchain. The more confirmations you have, the less chance you have of being a victim of a double spend attack.
0-confirmation: Merchants can choose this method of payment if they want a speedy checkout process. However, it is a bit risky as it leaves you open to a possible double spend attack.
Consensus: Blockchain is a process of building consensus among large networks of computers (or nodes) that, through a proofing process, ensures the blockchain is distributed, permissioned and secured. This unique technology enables the transfer of viable assets digitally and in a decentralized and trustless manner, meaning without requiring the approval of a central authority.
Consensus Mechanism: The method by which a blockchain adds new blocks to its chain. Consensus mechanisms require the participation of many individuals to achieve security, accuracy and immutability.
Distributed Networks: Distributed networking is a distributed computing network system, said to be distributed when the computer programming, the software, and the data to be worked on are spread out across more than one computer, but they communicate, or are dependent upon each other. Usually, this is implemented over a computer network.
Distributed ledger technology (DLT): A system, most commonly a blockchain, for creating a shared, cryptographically secured database.
Trustless/distributed consensus system: This means if you want to send and/or receive money from someone, you don’t need to trust in third-party services. When you use traditional methods of payment, you need to trust in a third party to set your transaction (e.g. Visa, Mastercard, PayPal, banks). Because everyone using a blockchain has access to all transactions, there is no need for third-party involvement as everyone can verify a transaction.
Ethereum: Ethereum is an open software platform based on blockchain technology that enables developers to write smart contracts and build and deploy decentralized applications (dApps).
Hash function: Hash function is a mathematical process that takes input data of any size, performs an operation on it, and returns output data of a fixed size. A common use of this kind of hash function is to store passwords. A hash is created using an algorithm and is essential to blockchain management in cryptocurrency.
Hashing: A one way (non-invertible function) that maps a set of inputs to a set of outputs.
Immutable: Is used to denote something which can never be modified or changed. In a blockchain, it refers to the global log of transactions, which is created by consensus between the chain’s participants.
Miner: Miners validate new transactions and record them on the global ledger (blockchain). Miners are participants in Proof of Work consensus mechanisms. Miners contribute their effort and computing power to help verify transactions and add new blocks to blockchains in exchange for mining rewards.
Mining Reward: Mining is the process by which heavily encrypted information is verified and added to the blockchain. Doing this kind of work is computationally expensive and so it is rewarded through a lottery system in the relevant blockchain’s coin. But mining is NOT the act of searching for a coin, it is the act of solving difficult mathematical puzzles (often using large, expensive computers) to verify encrypted information.
Cloud Mining: The process of bitcoin mining utilizing a remote datacenter with shared processing power. This type of cloud mining enables users to mine bitcoins or alternative cryptocurrencies without managing the hardware. The mining rigs are housed and maintained in a facility owned by mining company and the customer simply needs to register and purchase mining contracts or shares.
Proof of Work: A type of consensus mechanism used by many blockchains, one example being Bitcoin. On average, a block (the structure containing transactions) is mined every 10 minutes. Miners compete to solve a difficult mathematical problem based on a cryptographic hash algorithm. The solution found is called the Proof of Work. This proves the amount of time and resources a miner spent to solve the problem.
NFT (Non-Fungible Token): A token that is verifiably one-of-a-kind. Unlike a cryptocurrency that may have a supply of 21 million, with each token being the exact same and able to be broken down into smaller parts, an NFT is a token that may have a supply of 21 million, but each token is completely different than the one that came before it. Think of it as the difference between 10 dollars and 10 action figures. They’re still action figures, but you can have G.I Joe and Star Wars figures in the same group. They’re the same, but different.
Peer to Peer: P2P refers to the decentralized interactions between two or more parties in a highly-interconnected network.
Satoshi Nakamoto: A person or group of people who created the bitcoin protocol and reference software, Bitcoin Core (formerly known as Bitcoin-Qt). In 2008, Nakamoto published a paper on The Cryptography Mailing list at metzdowd.com describing the bitcoin digital currency. In 2009, they released the first bitcoin software.
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.
Smart Contracts: Self-executing, digital contracts created and stored on a blockchain. They are automatically executed according to agreed upon conditions, and the agreement and transaction are immutably stored on the ledger. Smart contracts have the potential to automate a tremendous number of currently laborious processes.
Trusted Third Party: A trusted third party is a business that facilitates access to blockchain technologies through a centralized model meaning they have control over your funds, your wallet and your access.
Wallet: Software or physical items in which you can store your cryptocurrency.
Hot Wallet: When your wallet is directly connected to the internet 24/7. This is risky because it opens you up to the potential of hackers stealing your coins.
Cold Wallet: When your wallet is disconnected from the internet. This prevents hackers from stealing your cryptocurrencies through malware.
Hardware Wallet: A physical device that allows you to interact with a computer that's connected to the internet, yet still maintains a cold wallet by isolating the private keys. For the most part, these wallets are secure.