Home Glossary – Blockchain

Glossary – Blockchain

 

51% Attack

When a group of miners end up controlling over 50% of the blockchain network’s mining hashrate and can then launch an attack on the blockchain that could reverse transactions and therefore double-spend coins, as well as halt new transaction confirmations

 

Accidental Fork

A situation where two or more miners find a block at virtually the same time. The situation is resolved after subsequent blocks are added, one of the chains becomes longer than the others, and the blocks that are not in the longer chain are subsequently abandoned (and known as ‘orphaned blocks’).

 

Address

Normally represented as a long string of alphanumeric characters, cryptocurrency addresses are identifiers used to send and receive (or deposit and withdraw) payments on the network.

 

Agreement Ledger

An agreement ledger is distributed ledger used by two or more parties to negotiate and reach agreement. The blockchain is an example of an agreement ledger.

 

Altcoin

Any cryptocurrency or digital currency that is not Bitcoin. Altcoins can also be forks of Bitcoin (such as Bitcoin Cash)

 

ASIC

Application Specific Integrated Circuit” – ASICs are silicon chips that are designed to perform one specific task; in the base of Bitcoin, ASICs process SHA-256 hashing problems to mine new bitcoins.

 

Bitcoin

The world’s first cryptocurrency (createdin in 2009), and remains the market leader, invariably accounting for over half of total cryptocurrency market capitaliztion. Bitcoin uses a proof-of-work consensus algorithm.

 

Block

A package containing a certain amount of data recorded on the blockchain. Once completed, a new block is sequentially added to the chain to record new data.

 

Blockchain

A decentralized, distributed ledger that exists on a network of computers and comprises digitally recorded data grouped into blocks. Using cryptography, each block is sequentially linked to the next block to form a chain of blocks that make up the ledger.

 

Block Explorer

An open source online tool that allows you to view information about blocks, addresses, and transactions on the blockchain (most commonly the Bitcoin blockchain).

 

Block Height

The number of blocks in a blockchain, or preceding a particular block. The genesis block (the first block on the chain), fo example, has a block height of zero.

 

Block Reward

The reward given to a miner by the network for each block they successfully mine. Block rewards are usually given in the form of the network’s particular cryptocurrency, as well as transaction fees.

 

Casper

Still under active development, Casper is Ethereum’s set of projects that will allow it to make the transition from using Proof-of-Work to Proof-of-Stake.

 

Centralized

Maintained or controlled by one central authority

 

Centralized Ledger

A ledger that is maintained under the responsibility of a singly central authority

 

Chaincode

Used in Hyperledger Fabric, chaincode is a program that is designed to manages and update the state of a ledgers state through submitted applications. It is equivalent to smart contracts on Ethereum and other blockchain networks

 

Client

Software that accesses the blockchain via local computer and helps to process its transactions. A client usually includes a cryptocurrency software wallet.

 

Coin

A unit representation of a digital asset (eg cryptocurrency) and is mainly used for the purpose of sending and receiving payments on their respective blockchains.

 

Cold Wallet

An offline wallet that remains disconected from the internet. Often referred to as cold storage.

 

Confirmation

Validation by the blockchain network of a legitimate transaction. Miners confirm a transaction in a proof-of-work system, and once confirmed it can’t be reversed or double spent. Zero confirmations in a block means zero transactions – a fraudulent transaction can also be rejected by the network

 

Consensus Mechanism

The process of securely achieving agreement on the particular state of a network. It often relates to the validation of transactions being added to the ledger, with consensus having to be reached before the ledger is updated to ensure only legitimate transactions are recorded on the blockchain. Consensus mechanisms are decentralized, meaning that no single authority is responsible for changing the state of the network.

 

Cryptocurrency

A digital currency that uses cryptographic techniques to securely verify the transfer of currency units between users. Bitcoin was the first cryptocurrency and remains the most valuable today, despite the emergence of thousands of alternative projects. Most cryptocurrencies operate using blockchain technology in a decentralized network. This network ensures cryptocurrency does not need to be controlled by any single authority, making it impervious to manipulation by a government or central bank.

 

Cryptography

The use of sophisticated mathematical techniques to securely verify the transfer of currency units between users. It has several uses in blockchain and cryptocurrencies, an example being the symmetric-key cryptography used in the Bitcoin, whereby matching private keys are required to access cryptcurrency wallets.

 

The DAO

The DAO was one particular decentralized autonomous organiztion built on the Ethereum blockchain. Its ICO was record-braking in terms of fund raised at the time, but funds were infamously stolen by hackers who were able to exploit an error in the code, resulting in a hard fork of Ethereum that created Ethereum Classic.

 

DDos Attacks

A malicious attempt to disrupt normal traffic of a targeted server, service or network by overwhelming it with a flood of Internet traffic. By doing so, the attacker intends to render the target unavailable to its users.

 

Decentralization

The transfer of authority and responsibility from a centralized organization, government, or party to a distributed network.

 

Decentralized Autonomous Organization

Organizations that are fully autonomous through software. The laws of the decentralized organization are fully stipulated through the code written in the smart contract, which itself is suitably complex enough to ensure the entire infrastructure can function autonomously.

 

Decentralized Application (DApp)

An open source, trustless software application which connects users and providers directly, and doesn’t require a centralized server or middleman to function effectively. Instead, the backend code runs on a decentralized peer-to-peer network.

 

Distributed Ledger

A type of database that is shared across multiple entities, with each node having access to the an identical copy. This helps to greatly improve the robustness of the network and prevent attacks

 

Difficulty

Used in Proof-of-Work mining to determine how hard it is to verify a block. In the Bitcoin network, is it is a measure of how difficult it is to find a hash below a given target.

 

Double Spend

Refers to the problem with digital money whereby transactions can be copied and spent twice. Bitcoin solves this problem with the use of a peer-to-peer network that maintains a universal ledger that is chronologically ordered since the begining of its operation in 2009. Once a bitcoin transaction is confirmed, it is virtually impossible to double spend it.

 

ERC20 Token Standard

Tokens designed to be solely used on the Ethereum blockchain. ERC20 tokens feature several comon standards that enable them to be easily shared and exchanged for other tokens. For this reason they have become especially popular for new projects creating ICOs.

 

ERC721 Token Standard

The token standard for creating non-fungible tokens (meaning that the token is not interchangeable). Similar to ERC20 tokens, but ERC721 gains non-fungible properties by capturing the ownership of that particular token.

 

ERC223 Token Standard

A more secure token standard than ERC20, reducing the chance of tokens being lost during transactions which has frequently occurred under ERC20. ERC223 solves the inability of ERC20 tokens to handle incoming token transactions for non-supported tokens. It also reduces the current two-step transaction process in a token transfer down to just one, allowing for less Gas to be required.

 

Ether (ETH)

The native token of the Ethereum Blockchain network. Ether functions as a fuel of the Ethereum ecosystem, representing the value of Gas in the network and functioning as a method of payment for participants to execute their operations on the network.

 

Ethereum

An open software public blockchain platform on which smart contract code can be written, developers can build decentralized apps and decentralized autonomous organizations, among other things. It is also the second most valuable blockchain-based tokenized project after Bitcoin.

 

EVM (Ethereum Virtual Machine)

A runtime environment for Ethereum smart contracts. The EVM is  Turing complete, and is also designed to prevent DDOS attacks.

 

Exchange

A venue to buy and sell cryptocurrencies. An example of a cryptocurrency exchange is Binance.

 

Fiat Currency

Legal tender issued by the government, such as USD, JPY, GBP

 

Fork

A fork is a software change that creates an alternative version of a blockchain. Both chains then run as separate blockchains on different parts of the network. The split can either be a Hard Fork or Soft Fork.

 

Gas

A unit that measures the computational effort required to execute various tasks on the Ethereum blockchain. Tasks include conducting transactions on the network, which in turn determines the transaction fee required from network users. More computationally intensive tasks are represented by higher gas amounts.

 

Genesis Block

The very first block in a blockchain.

 

Github

A web based software development platform. The code of many open source blockchain/cryptocurrency projects can be found on GitHub

 

Halving

Bitcoins have a finite supply, with 21 million bitcoins being the total that will ever be issued. Every 210,000 blocks that are registered on the blockchain, the amount of new coins minted will be cut in half, with the final halving scheduled to take place in 2140.

 

Hard Fork

A blockchian fork that results in new validated blocks being incompatible with older versions of the software. All network nodes must upgrade their software to successfully work with the new rules.

 

Hash Function

A function that is used to map arbitrary data to data of a fixed size. A cryptographic function that confirms transactions on the blockchain by taking transaction input data and producing a unique alphanumeric output string. Each block contains its own hash value, and the hash value of the  SHA-256 is the cryptographic hash function used in Bitcoin.

 

Hashrate

The speed at which hashes can be performed by a bitcoin miner (normally per second). The higher the hashrate, the greater the opportunity for the miner to mine the next block and receive the block reward.

 

Hot Wallet

A cryptocurrency wallet that is connected to the Internet – and therefore not being kept in cold storage

 

Nonce

An arbitrary number used only once in a cryptographic communication, includinge a timestamp. Nonces are used in proof-of-work blockchains to vary the input into a cryptographic hash function, and therefore obtain a unique hash value to satisfy specific arbitrary conditions.

 

Nothing at Stake

This is caused by validator nodes approving all transactions on old and new software after a hard fork occurs

 

Hyperledger

Hosted by the Linux Foundation, IBM’s Hyperledger brings together various open source enterprise blockchain projects designed to assist businesses#

 

Hyperledger Fabric

Hyperledger’s open source enterprise blockchain platform which hosts smart contracts known as chaincode

 

Immutable

The property/feature of a blockchain that makes it an unalterable, permanent record of transactions over time. No single entity can change the data once it was been written onto the blockchain.

 

Initial Coin Offering (ICO)

A fundraising event for new cryptocurrency-based projects in which it sells its coins/tokens in advance to investors in exchange for capital to fund further development of the project. This capital is often in the form of existing cryptocurrencies such as Bitcoin and Ethereum

 

InterPlanetary File System (IPFS)

An open-source, peer-to-peer distributed protocol that aims to store and share hypermedia in a distributed file system. IPFS aims to improve the speed, security and transparency of running applications based on a new distributed architecture for the internet.

 

Ledger

A permanent summary of records normally pertaining to financial or transactional data. In the case of blockchain, the ledger is distributed, decentralized and can be public

 

Litecoin (LTC)

An open source, peer-to-peer cryptocurrency that was founded in 2011 by Charlie Lee. Often described as the silver to Bitcoin’s gold, Litecoin started as a fork of Bitcoin but one that offers faster transaction times, lower transaction costs and and a different hashing algorithm (Scrypt rather than Bitcoin’s SHA-256).

 

Market Capitalization

The total value of a cryptocurrency. Calculated by multiplying the price by the circulating supply. CoinMarketCap.com is widely considered the go-to source for information on cryptocurrency market capitalizations.

 

Merkle Tree

Named after Ralph Merkle who designed the concept in 1979, Merkle trees hash-based data structure used to verify the integrity of data in peer-to-peer systems. Each leaf node in a Merkle Tree is a cryptographic hash of a block, while each non-leaf node is a hash of its respective child nodes.

 

Mining

The process by which transactions are verified and added to a blockchain. Mining involves solving cryptographic puzzles using computer hardware (such as ASICs) – the first to solve the puzzle mines the block and receives a reward from the network for their efforts.

 

Mining pool

A collection of miners who join forces to aggregate their hashing power and therefore improve their chances of mining a new block and receiving block rewards (which are subsequently distributed among the constituents of the pool). An example of a mining pool is BTCC, which now controls a signifciant portion of the Bitcoin’s network’s hashing power.

 

Multi Signature (or multi-sig)

Cryptocurrency addresses that require more than one party to authorize a transaction. This greatly improves security, and has many benefits for enabling facilities such as storage and escrow.

 

Node (Full Node)

A participant/computer that is connected to a particular blockchain network, and operates a copy of the ledger.

 

Non-Fungible Token

A cryptographic token that is not interchangeable (unlike most cryptocurrencies that are inherently fungible, such as Bitcoin and ERC20 tokens). Ethereum’s ERC721 token has been designed with non-fungibility in mind

 

Oracle

An agent that verifies and transmits real-world data to a blockchain to be used by smart contracts. As such, oracles are important in connecting the blockchain and the real world, and trigger smart contracts when certain conditions of the contract are met.

 

P2P (Peer-to-Peer)

Refers to the distributed architecture that divides workload and interactions among two or more parties in a network. Peers can interact directly with each other without the need for intermediation.

 

Permissioned Ledger

Found in private blockchains, permissioned ledgers places restrictions on who can join the network, or who can articipate in specific transactions. As such, certain entities must obtain permission to access the ledger. Permissioned networks also can appoint a group of participants to be given authority to validatee blocks of transactions.

 

Private Blockchain

A blockchain network that is not open to the general public, and usually requires an invitation that must be validated by the network owner. As such, private blockchains are controlled by a centralized entity. Permissions in the network are also often given varying levels of authority.

 

Private Key

Code that allows users to gain access to their cryptocurrency wallets. Like a password, a private key must only be revealed to the wallet owner, as they grant the owner access to their bitcoins in the wallet. It is paired with a public key to enable both encryption and decryption when storing and sending cryptocurrency.

 

Proof-of-Stake

An alternative consensus mechanism to the proof-of-work system. Instead of using computational power to mine for block rewards, validators use their existing stake in the project’s cryptocurrency to determine how much mining power can be attributed to them. PoS aims to reduce the wasteful energy expended through the heavy computing power required in Proof-of-Work mining.

 

Proof-of-Work

The original consensus mechanism in a Blockchain network, used by Bitcoin. The mechanism confirms transactions and adds new blocks to the chain. Miners compete against each other to solve cryptographic problems for the next block (hashing) and thus validate transactions on the network to receive rewards. The reward given to miners is for the work they have carried out for the network.

 

Protocol

The rules governing how data is transmitted in a blockchain network.

 

Public Blockchain

A blockchain network completely open to the public, allowing anyone to participate. Bitcoin is a public blockchain network, whereby anyone can execute transactions, become a validating node and determine which blocks get added to the blockchain.

 

Public Key cryptography

A cryptographic system that involves pairs of keys: a public key that can be widely shared, and a private key that is confined to only the owner. Both are used to encrypt data when sending from one party to another, allwoing trustless transactions to be possible. The public key converts the data into an encrypted format, while the corresponding private key decrypts it for the recipient.

 

Ripple

A payment network and real-time gross settlement system (RTGS). Ripple is intended to facilitate the near-instantaneous transfer of money between two parties, and can be exchange for any type of currency, including gold and fiat. It does not employ a traditional blockchain, but rather uses a HashTree to reach consensus among validating nodes. It is the third most valuable cryptocurrency project, behind Bitcoin and Ethereum

 

Replicated Ledger

A ledger with one master (authoritative) copy of the data, and many slave (non-authoritative) copies.

 

Satoshi

The smallest unit of the Bitcoin cryptocurrency: 0.00000001 BTC. Named after Bitcoin creator Satoshi Nakamoto.

 

Satoshi Nakamoto

Widely regarded as a pseudonym, Satoshi Nakamoto is the creator of Bitcoin, having published the whitepaper Bitcoin: A Peer-to-Peer Electronic Cash System in 2008. The true identity of Nakamoto remains unknown to date, despite much speculation.

 

Scalability

An increase in the scale of a network in response to meeting its gerater demands. In a blockchain context, scalability refers to a network’s ability to handle substantial increases in network traffic, both now and what is expected in the future.

 

Scrypt

An alternative hashing algorithm to Bitcoin’s SHA-256, used by Litecoin. Scrypt requires much less RAM to be required in the hardware needed to successfully solve the cryptographic problem in mining. As such, it does not require specialist hardware such as ASICs in order to mine blocks.

 

SHA 256

The cryptographic hash function used in Bitcoin’s proof of work system. SHA-256 generates an almost-unique 256-bit (32-byte) alphanumeric string of output.

 

Sharding

The horizontal partitioning of data within a database into smaller components known as shards. In a blockchain cntext, sharding is being explored as a scaling solution to Ethereum’s current limitations, whereby nodes in the network are grouped together into shards, and each shard processes transactions in parallel with the other shards. As such, transaction throughput can be increased.

 

Smart Contracts

Contracts that are represented by computer code, and sotred and executed on a computing system, such as a distributed network like the blockchain.

 

Soft Fork

A rule change that requires a software update. But unlike a hard fork, a soft fork is compatible with older versions of the software. For example, Bitcoin’s SegWit update was a soft fork, where nodes using older versions of the software are not affected by the update.

 

Solidity

A programming language native to Ethereum. Developers use Solidity to write smart contracts on the Ethereum network.

 

Stablecoin

A cryptocurrency that has a fixed peg to a stable asset, such as fiat currency or gold. Tether (USDT) is a stablecoin that is fixed to the US dollar, such that each stable coin has a value of $1.00. Theoretically, the circulating supply of the stablecoin should be back by an equivalent value of the asset, held in reserve, to which is is pegged.

 

Testnet

A testing network environment for a decentralized project, so new features can be tested without risking any damage to the project’s main blockchain

 

Token

A digital asset designed for use on a blockchain network. Unlike a coin which is just used for payment, a token has a specific use within the project’s ecosystem

 

Tokenless Ledger

A distributed ledger that does not require a cryptocurrency to operate.

 

Transaction Fee

A small fee imposed on some transactions sent across the bitcoin network. The transaction fee is awarded to the miner that successfully hashes the block containing the relevant transaction.

 

Turing Complete

Any system in which a program can be written that can solve any computational problem. A machine that is Turing Complete is is said to be computationally universal.

 

UTXO (Unspent Transaction Outputs)

A model comprisin of inputs and outputs that determines how transactions are executed on the Bitcoin network. Under this model, when a bitcoin transaction takes place, two UTXOs are created – the first is the total amount in the sender’s wallet that is sent to the recipient; and the second is the change output over and above what the actual transaction stipulates the recipient should receive, and which goes back to the sender’s wallet.

 

Unpermissioned ledgers

Unpermissioned ledgers such as Bitcoin have no single owner — indeed, they cannot be owned. The purpose of an unpermissioned ledger is to allow anyone to contribute data to the ledger and for everyone in possession of the ledger to have identical copies. This creates censorship resistance, which means that no actor can prevent a transaction from being added to the ledger. Participants maintain the integrity of the ledger by reaching a consensus about its state

 

Wallet

A designated storage location for cryptocurrencies. A wallet can be online (called a hot wallet), and has an address and key for storing, sending and receiving crypto, or it can be offline (in cold storage), on a separate physical device.

 

Whitepaper

An document explaining the business model of a new blockchain project. A whitepaper is a crucial marketing tool for convincing investors that a project is a worthwhile investment, and therefore is deemed essential when conducting an ICO.

 

XRP

The native cryptocurrency for the Ripple network.