Blockchain Glossary for Beginners
Being new to the world of blockchain can be confusing–even downright overwhelming. Have no fear! Uni is here to make blockchain technology easy for anyone! There is a lot of new terminology and technical terms that can cause difficulty understanding as you begin to explore the new area of blockchain technology.
For that reason, we have compiled a list of terms that you should probably know, or at some point will need to, to truly understand blockchain technology. If you’ve already started your trip down the rabbit hole, you’ve likely heard some of them before.
You can use this as a study guide while learning about blockchains, or you can use it as a reference when you come across a term you don’t know! We will be adding to this as words pop up or become more relevant, and if you have any suggestions, don’t hesitate to contact us!
Basic blockchain terms:
Used to receive and send transactions on the a blockchain network. It contains a string of alphanumeric characters, but can also be represented as a scannable QR code.
Generally any cryptocurrency other than Bitcoin or Ethereum — though some Bitcoin folks would probably still say Ethereum is an altcoin. Altcoin is an abbreviation of “Bitcoin alternative.” Altcoins are their own cryptocurrency and run on their own native blockchain (see tokens for a differentiation from altcoins or ‘coins’). Currently, the majority of altcoins are forks of Bitcoin with usually minor changes to the proof of work (POW) algorithm of the Bitcoin blockchain. The most prominent altcoin is Litecoin. Litecoin introduces changes to the original Bitcoin protocol such as decreased block generation time, increased maximum number of coins and different hashing algorithm. Read about popular cryptocurrency and altcoin projects here.
A type of digital currency, where encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Read more about Bitcoin here.
– Capital ‘B’ in Bitcoin: referencing the Bitcoin network
– Lowercase ‘b’ in bitcoin: referencing the token/cryptocurrency bitcoin
Blockchains are distributed ledgers, secured by cryptography. They are essentially public databases that everyone can access and read, but the data can only be updated by the data owners. Instead of the data residing on a single centralized server, the data is copied across thousands and thousands of computers worldwide. The consecutive string of every block ever executed makes up a blockchain. A distributed database of chronologically ordered transactions; these are all of the validated transactions that have ever been executed. Read more about blockchain technology here.
Transactions from the network fill blocks. And, as the transactions are validated, they are compiled into the blockchain permanently. Blocks include a timestamp. They’re built in such a way that they cannot be changed once recorded.
See ‘altcoins’ for a more in depth description. A coin is it’s own currency and runs on it’s own blockchain. See ‘token’ for a differentiation from other cryptocurrency types.
A digital store of monetary value the primary use of which is for buying and selling goods, services, or property, such as bitcoin or litecoin. Cryptocurrencies are cryptographically secured against counterfeit and often are not issued or controlled by any centralized authority (see next term for what cryptography is). Cryptocurrrencies can be referred to as tokens or coins, see the respective places in this list for what differentiates the two.
Mathematics creates codes and ciphers, in order to conceal information. Used as the basis for the mathematical problems used to verify and secure transactions on the blockchain.
Decentralized applications, or applications that exist on a decentralized network. They often use smart contracts in their back-end code, and are common in the Ethereum network.
Distributed ledgers are a type of database that are spread across multiple sites, countries or institutions. Records are stored one after the other in a continuous ledger. Distributed ledger data can be either “permissioned” or “unpermissioned” to control who can view it.
A place to buy and sell cryptocurrency. Some popular exchanges in North America are Coinbase, GDAX, Gemini, Polinex, Bittrex, Kraken, Quadriga, etc. Check out our post about how to buy and sell crypto if you are interested!
Government-issued currency, such as the US Dollar or Euro.
A situation where a blockchain splits into two separate chain, causing the creation of an ongoing alternative version of the blockchain, by creating two blocks simultaneously on different parts of the network. Forks generally happen in the crypto-world when new ‘governance rules’ are built into the blockchain’s code. This creates two parallel blockchains, where one of the two is the winning blockchain. The winning blockchain gets determined by its users, by the majority choosing on which blockchain their clients should be following. You can watch a video about Bitcoin’s August 1st fork here! See our Intermediate Glossary for more specific information on hard forks and soft forks.
Initial Coin Offering (ICO)
An Initial Coin Offering is somewhat similar to an IPO in the non-crypto world. Startups issue their own token in exchange for ether or bitcoin. This is essentially crowdfunding in exchange for a token. See a more in-depth explanation on ICO’s here!
The total value held in a cryptocurrency. It is calculated by multiplying the total supply of coins by the current price of an individual unit. This site shows a great run-down of each coin’s market cap.
The process of trying to ‘solve’ the next block. Through mining, the users secure the network and verify computation and transactions. Currently, systems including Bitcoin’s blockchain, miners are incentivized to validate transactions based of off Proof-of-Work (PoW) protocol, fees, and protocol subsidies. PoW typically requires huge amounts of computer processing power. Proof-of-Stake (PoS) is the upcoming, virtualized system of incentivization for validating transactions. Both of these systems provide economic guarantees and a form of consensus by bet. But, Proof-of-Stake relies more heavily on the betting concept. (See our Intermediate Glossary for more specific definitions of PoW and PoS.)
A computer especially designed for processing proof-of-work blockchains, like Ethereum. They often consist of multiple high-end graphic processors (GPUs) to maximize their processing power.
A native token — a.k.a. native coin or native currency — is a token (see ‘token’ for a definition) that runs on it’s own blockchain and is ‘native’ to that network, offering some greater utilitarian or resourceful value within the network. Native tokens are often used within the network as an incentive for block validation or for a form of spam prevention in transaction costs. Examples of native tokens include BTC, ETH, NXT, etc. Native tokens are also referred to as ‘intrinsic tokens’ or ‘built-in tokens.’
A computer that possesses a copy of the blockchain and is working to maintain it. Child nodes point to parent nodes. So, nodes further “up the tree” are hashes of their respective children. Most hash trees implementations are binary, with each node under two child nodes. Though, more than two child nodes can be used under each node.
A private key is a string of data that shows you have access to bitcoins in a specific wallet. Private keys can be thought of as a password; private keys must never be revealed to anyone but you, as they allow you to spend the bitcoins from your bitcoin wallet through a cryptographic signature.
A cryptographic key that can be obtained and used by anyone to encrypt messages intended for a particular recipient, such that the encrypted messages can be deciphered only by using a second key that is known only to the recipient (the private key ).
A change in size, or scale, to handle the ongoing demand for blockchain network resources.
Also known as a smart property, they are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary. Smart contracts often mirror the logic of contractual clauses, and are being implemented in certain protocol blockchains.
Refers to the ‘currency’ of projects built on top of another blockchain, such as Ethereum or Waves. They have raised money via issuing their own tokens or having an ICO. Tokens often represent some utility, resource, or asset value, and are often used in dApps. ERC20 Tokens are the most frequently heard of ‘tokens,’ and are specific to tokens following a protocol on the Ethereum network. Some common tokens include Golem (GNT), Augur (REP), Basic Attention Token (BAT), Iconomi (ICN), etc. (Read about some ERC20 Tokens here.)
Basically, it’s the Bitcoin or cryptocurrency equivalent of a bank account. It allows you to receive cryptocurrency, store them, and then send them to others. There are two main types of wallets: software and hardware.
– A software wallet is one that you install on your own computer or mobile device. Software wallets are storage for cryptocurrency that exists purely as software files on a device. Software wallets can be generated for free from a variety of sources. Read more about different software wallets, and explore some options, here.
– A hardware wallet stores private keys on a secure hardware device. Hardware wallets are often regarded as the most secure way to hold crypto-currency, partly due to being ‘cold storage’ devices and having additional security features. Read more specifically on hardware wallets here!