“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” DON TAPSCOTTRead more
“Blockchain is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.” Sally Davies (FT writer)
Once you decide to learn more (something, anything) about the blockchain there’ll be a raft of new terms, new words and new meanings for old words that you’ll need to understand too. What follows is an A-Z of some of the most frequent of these to help you on your blockchain journey. Read on…
A – Altcoin: Any alternative to Bitcoin, i.e. the name given to any cryptocurrency that isn’t Bitcoin. Note: many claim to be alternative because they are also better than bitcoin (cheaper, more efficient)
B – Bitcoin: Blockchain was, in fact, originally created for Bitcoin to securely hold and distribute data about digital exchanges using the cryptocurrency. Bitcoin was the first workable cryptocurrency to emerge and remains the best known. First created in 2009 by the still anonymous ‘Satoshi Nakamoto’.
FYI: bitcoins are measured in satoshi/byte. 1 satoshi = 0.00000001 bitcoin
C – Cloud computing (Blockchain as a Service = BaaS): Currently, to run “cloud computing” in general you rent some capacity from a company like Amazon or Microsoft. Using blockchain as a service means that you are instead giving computer resources into the blockchain to make sure transactions complete. Imagine that instead of using a third party service you use blockchain technology to create a blockchain-based distributed cloud where “miners” run your computer intensive workload to complete “blocks” in return for money.
D – Decentralised: Blockchain is a decentralized filing system, meaning that no single power or function has control of it or the ability to secretly tamper with it. The information held in the blockchain is replicated all across the network – anyone with access to a smart phone or computer has access to the same information on the blockchain – there is no middleman involved in transactions and there is no central point of failure.
Note: Defining Blockchain as a decentralized filing system is oft repeated but should be approached with caution. Read Vitalik Buterin’s definition of decentralization to grasp some of the complexity.
E – Ethereum: An open source, a software programme that (like bitcoin) uses blockchain technology. Although its called a cryptocurrency, Ethereum is more than a currency it’s the (ledger) technology that companies are using to build new programs – so it’s perfect for innovating, enabling developers to write smart contracts and to build decentralized applications. FYI: Quite poetically, Ethereum’s coin value is an Ether.
F – Fingerprint (digital): A file/data/digital fingerprint is a unique code (or a short string of text) that is generated by an algorithm to identify a much larger file or column of data – much like a human fingerprint identifies the whole person and all the information attached to them.
G – Genesis Block: The very first ‘block’ in the Blockchain, counted as Block 0.
Interesting aside: “The very first Genesis block was created on January 3rd, 2009 and includes text from the Times newspaper (UK) saying “03/Jan/2009 Chancellor on brink of second bailout for banks,” referencing bitcoin’s birth-date… and possibly mocking fractional reserve banking.” Bitcoin.com
H – Hash function: A hash is the name given for a digital fingerprint and means the same thing (see fingerprint) Hash Function is a mathematical function that takes a file and produces a relative unique shortcode that can be used to identify that file. The two most important aspects of hashes to remember: they are unique and they can’t be reversed.
I – ICO (initial coin offering): You’re probably familiar with IPO (Initial Public Offering) which is how companies and start-ups raise money, through offering investment opportunities (hello Kickstarter). An ICO is for companies that accept cryptocurrency by allowing crowdfunding on the blockchain. ICOs exchange advance digital tokens for cryptocurrency investment. The tokens represent part ownership in the company or a guarantee of profits in the future or a benefit the company’s product or services.
K – Key (Private and Public): To gain access to your data on a blockchain (or, for example, your bitcoin) you’ll need two keys – 1 public and 1 private (a unique string of alphanumeric characters). To simplify, think of your public key as the equivalent of a username which anyone can see and a private key as the corresponding password which only the owner knows. So I send bitcoin to you using your public key to assign it to you, but you access it using your private key only. Importantly, your public key can be extrapolated from your public key but not vice versa.
L – Ledger: As in bookkeeping a ledger records transactions. IRL ledgers are kept by middlemen (e.g. banks) and are often only visible to them and the parties involved. The digital ledger is a secure, decentralized, distributed ledger visible to all areas of the network and visible to all. Each block contains all past transactions and all blocks are chained to each other making any tampering easily detectable.
M – Mining: Miners validate bitcoin transactions and produce more bitcoins by solving complex mathematical problems. Miners get paid in bitcoin. Each time a transaction is made on the blockchain the transaction has to be validated by miners who also have to show Proof of Work. Mining is work-intensive and hugely energy-consuming – Bitcoin mining is estimated to use up to 4 gigawatts of electricity, equivalent to three nuclear reactors’ production levels.
FYI: There’s a very helpful video to explain mining here: https://www.bitcoinmining.com/
N – Network (Lightning): One of the drawbacks of Bitcoin transactions is that they can be slow and costly. Lightning Network has been called Bitcoin 2.0 – it’s a software that sits on top of Bitcoin and makes bitcoin transactions faster and more efficient.
As mentioned in mining (see above) – it takes miners time to solve the complex equations that need to be solved in order to validate bitcoin transactions. The lightning network uses smart contract functionality to process transactions super quickly without having to go to the blockchain every time you make a transaction but the process remains decentralized and still secured by the underlying blockchain technology.
Elizabeth Stark is a name you should get to know, fast: https://startups.sap.com/meet-elizabeth-stark-cofounder-and-ceo-of-lightning/
O – Open Source: Here’s a term you’re most likely familiar with (phew), open source refers to a program in which the source code is freely available to the public. All software comes with a license and open source software is no different – it comes with a license given to it by the OSI (Open Source Initiative) and means that the software meets particular open source criteria – such as granting the right to freely redistribute the software, access to the source code, and the permission to modify that source code and distribute the modified version of the software
P – P2P: Peer to peer refers to decentralized transaction carried out between two or more parties in a network. ‘Peers’ deal directly with each other without the need for a middleman. For example, sending currency directly to an individual without involving a bank or Paypal. In the same way a P2P Network is created when two or more PCs are connected and share resources via the internet without going through a separate server. P2P like everything blockchain is a decentralized means of sharing resources and performing transactions.
S – Smart contracts: Smart contracts are pretty much contracts that are produced and enforced without the need for an intermediary – for e.g. a lawyer. Contracts are paid for in cryptocurrency, converted into code and stored on the blockchain. Making use of the key/hash system, the individuals involved in the contract remain anonymous (see private key) but the contract is visible on the blockchain ledger. Note: Also known as digital contracts or blockchain contracts.
T – Token: Often confused with coins (as in, bitcoins/ altcoins) – tokens are different – but they way they’re different is elusive by most standards. Think of a cryptocurrency coin just as you might a regular coin – it is a ‘coin’ that holds a specific value. You can’t make it yourself – it has to be ‘mined’. Tokens, however, are usually produced and distributed to the public through an ICO (see ICO) and then they come to represent a resource or a utility that sits on a block in the blockchain.
W – Wallet: Your wallet is a lot like the one on your iPhone – it’s a file that contains your private keys (see private key). Worth noting that private keys are created using a one-way function meaning that it’s possible to figure out your public key using your private key but not vice versa. If you lose your private key you lose all the transactions you made with it, forever.
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