The Blockchain Glossary explores the weird and wonderful words used when discussing Blockchain and Decentralized Technology. There are lot of new words being brought about through the Blockchain revolution. On top of that many words which were previously only of concern to computer scientists and high financiers are now commonly used when discussing blockchains.
Unless you spend your days buried in technical whitepapers, trading portals, and more, you could be forgiven for not understanding all the terms that are passed around as if they should be common knowledge. Here are a few of the most popular ones that come up…
- Altcoin – Bitcoin was the first currency based on blockchain technology and is considered by some to be the main cryptocurrency. As new cryptocurrencies began to emerge and experiment with different ways of doing things, these alternative implementations became known altcoins, short for alternative coins. Technically any cryptocurrency that is not Bitcoin could be considered an altcoin although the ecosystem is a lot more diverse and there are a lot fewer people who see Bitcoin as the only long term viable cryocurrency.
- ASIC – This is a term that is often used in relation to mining and refers to an “Application-Specific Integrated Circuit”. In the context of mining they a computing chips that have been specifically optimized for the required calculations so they can perform them at a much higher rate than a general purpose CPU (Central Processing Unit) inside your average computer.
- Block – A block contains a list of transactions that have occurred and been validated during a certain period. They are mined, which is essentially validating them as a bank would in traditional finance, and then added to the blockchain which maintains a full history of transactions.
- Blockchain – This is one of the fundamental innovations of Bitcoin. It is a decentralised database containing a series of transactions and hashing results that confirm previous blocks, whilst appending new ones, and building on previous rounds of hashing to prove that a certain chain of transactions occurred and has been validated by the network.
- Confirmations – When a transaction is performed on a blockchain network you are generally advised to wait for a certain amount of confirmations. The first confirmation is a record of your transaction being validated within a block. Each following confirmation means that further blocks have been mined and added to the chain, continuing your transaction, so the risk of alternative block histories being produced is reduced exponentially.
- Cryptocurrency – This is the name given to blockchain assets that are designed to be used as digital money. The name is given to them as they are considered to be currency backed by the fundamentals of cryptography.
- Decentralization – This is the primary theme of many blockchain related technologies. It advocates for spreading the points of failure and trust nodes through as many unrelated parties as possible. Some examples are the miners that secure the network, to avoid collusion, and the nodes that store the blockchain to avoid forging or reversing of transactions.
- Encryption – This is the process of encoding data in a way that only people with the authorised people can access it. Often private keys are kept in protected, or encrypted, storage so that only people who know a password or hold an authorisation key can access or use it.
- Fiat Money – This is tradtional currency that maintains its value based on the faith brought about by being backed by government regulation or law.
- Fork – A fork occurs when a blockchain splits into multiple chains. This generally shouldn’t happen unless changes need to be made to the underlying blockchain protocol. When the protocol changes the software may still see blocks produced by the old software as valid which is known as a soft fork or if it doesn’t then this is known as a hard fork. In the case of a necesssary or generally desired upgrade the new split will be adopted as the source of truth by the majority. However if the changes are controversial it is possible that some miners will continue to support the old blockchain leaving two versions in existence. To avoid market confusion either the new or the old chain should be allocated a different name and protections introduced to avoid confusion or communication between the chains.
- Genesis Block – In most blockchain systems this is the first block brought into existence which all other blocks in the blockchain will follow. As the network does not truly exist until this moment, the state of first block will contain manually predetermined rules for allocation of initial values ,or simply act as gateway to fully validating blocks that follow.
- Hash Function – This is a computer algorithm which produces a string of data known as a hash when provided with arbitrary data. If two, or a million, completely unconnected computers provided the same piece of data to the hash function it will always produce the same output so you can validate that the data you have is the same data that everyone else sharing the same hash has.
- Immutable – Blockchains are commonly referred to as immutable which literally means an “object whose state can’t be modified once it is created”. This refers to all transactions that have been validated in blocks and is what allows you to trust that the coins you have received will remain yours. However it should be noted that this is still dependent on the will of the economic majority and there have been examples such as in “The DAO” hard fork where the blockchain state was overwritten due to a hack.
- JubJub – This is a new cryptographic system that you probably don’t need to know too much about unless you’re a cryptographer or blockchain developer. But to be frank; I wanted to include a glossary entry for J and I had nothing else 😉
- Keys – Blockchains typically use something called an asymmetric key algorithm that provide both a public key and a private key. The public key identifies an entity on the network and is usually your public address that you share with others to receive payments or interact with smart contracts. It is always paired with a private key that allows unrestricted access to any funds or functions under the control of the related public key. You should never share your private key with anyone or website that you don’t trust 100%.
- Lightning Network – This is the technology that allows for a network to be built on top of a blockchain like Bitcoin that allows for increased scalability, on-standard transaction types, and lower cost transactions by running them off-chain through smart contracts which are settled at a later date on the blockchain. You can view videos and papers introducing the concept of Lightning Networks here.
- Mempool – This is where transactions sit within the network until they are validated by mining and confirmed to a block. It is possible that some transactions which fail to meet certain criteria will reach the mempool but never be mined, which is why it is usually important to wait for several confirations before accepting a transaction as complete.
- Mining – This is the process of validating blocks on a blockchain to earn block rewards and transaction fees. As transactions are constantly being produced on the blockchain network, blocks need to be validated semi-regularly to confirm them. To decide who validates recent transactions there is usually a kind of lottery between mining nodes. The most common ways of choosing a block producer are known as Proof of Work and Proof of Stake. Both have entries on this page.
- Mnemonic – This is often a collection of 12-24 memorable words that can be used in place of a private key. They are considered to be easier for the average user to remember or store securely than the randomly generated characters that are used in a private key.
- Nonce – This is an arbitrary number that can only be used once and is often used with cryptographic systems in co-ordination with random number generators to improve security. They are also be used in co-ordination with blockcahin mining specifications to allow for variation in the difficulty of succesfuly mining a block.
- Nodes – These are independent instances of the blockchain software that are live on the network. Full Nodes are versions of the software that maintain a full history of the blockchain and Light Nodes, use a modified system to verify a subset of the blockchain whilst relying on the validity of the wider network of full nodes.
- Off-Chain – This relates to state changes and transactions that happen in reation to the blockchain but are not actually stored on the blockchain database. These generally suffer from increased risk and complexity.
- Opcode – These are commands, or code functions, that exist in the Bitcoin Script language to enable interaction with the Blockchain.
- Private / Public Keys – See Keys.
- Proof of Work (PoW) – This is the method by which miners compete to validate blocks on the Bitcoin blockchain among others in exchange for a reward. Thousands of computing rigs around the globe all attempt to assemble the preceeding transactions and cryptographic knowledge in a way that produces a hash which meets a specific pattern, for example a hash that starts with ‘000000’. As you would likely have to try millions of variations to reach the specified pattern the first person to find it and declare it to the network has shown “proof of work” and gets to validate a block and receive the related transactions fees and a block reward in return.
- Proof of Stake (PoS) – This is an alternative mining system, that Ethereum intends to switch to, where miners lock up funds they hold on the network in a smart contract that deterministically decides who is allowed to validate the next blockchain in a type of lottery. The person or entity with most at stake has the highest chance of being able to validate a block. As this avoids the situation where thousands of computers are spending electricity on hashing on millions of solutions that are instantly discarded, PoS is though to be more environmentally friendly.
- Quantum Computing / Cryptography – This is an emerging field of computing research that utilises quantum mechanics to perform certain calculations faster than traditional computers. Some fear that this could allow for hacking cryptocurrencies in the future by allowing anyone to generate the private key from a known public key.
- RPC – This stands for “Remote Procedure Call” and is generally used to allow other computers or servers perform actions on software located on a different device. You should be very careful if asked to enable this as it may enable third parties to control your funds.
- Segregated Witness (SegWit)– This was a controversial upgrade to the Bitcoin protocol that offers an effective increase in allowed block size by removing signature data from transactions. At current, Bitcoin blocks are limited to 1 MB in size to ensure that the it is feasible for nodes to efficiently process and store the entire blockchain. By removing some of the data that is necessary for validation as soon as the block is processed it allows for some nodes to discard this one-time-use data and store more transactions within the same amount of disk space.
- Smart Contracts – These are scripts that live on a blockchain, most commonly Ethereum, which allow for programmatic definition and enforcement of a set of rules. They allow for the automatic distribution of funds when certain circumstances are met, the creation of new blockchain based tokens, and even for authentication and identity systems.
- Testnet – This is an alternative blockchain that exists for most cryptocurrencies to allow developers to perform tests without using real funds or risk damaging the primary transacting blockchain. Generally these chains are deleted or replaced semi-regularly so the tokens shouldn’t hold any value.
- URI – This literally means “Uniform Resource Indicator” and is a string of characters that allow a computer or browser to take an address and understand which protocol it relates to when performing a certain action. For example entering bitcoin: followed by an address will usually open a bitcoin payment window to the specified address in supported systems.
- Vanity Address – This is an address or public key that has been generated with special software to include specific text for personal or branding reasons. They are generated by making thousands of guesses until an address is generated that includes the desired pattern. As long as secure software is used to generate them, they are just as secure as any other address.
- Wallet – This is usually a file on your system that holds the private keys which control access to your blockchain funds. Multiple addresses can be held within a single wallet. Alternative uses of this word include hardware wallets which keep your private keys on a dedicated device, cold wallets which describes any wallet not connected to the network, or brain wallets which are essentially remembered passwords for accessing private keys.
- XBT – This is the currency symbol adopted by several financial companies for Bitcoin. The preceeding X denotes that it is a currency that is not issued by any country and the BT is used to denote Bitcoin. It has not received widespread adoption as regulators initially resisted Bitcoin being recognised as currency and users widely used the currency symbol BTC.
- YubiKey – This is a hardware token, developed by a company called Yubico, that acts as a form of second-factor authentication to increase security when accessing some online exchanges in addition to your password and usual security measures.
- zk-SNARKs – The acronym stands for “zero-knowledge Succint Non-Interactive ARgument of Knowledge“. This is technology for creating Zero Knowledge Proofs which allow you to prove some data exists and is within your possession without necessarily revealing what it is. ZCash was the first crypto-currency to introduce this technology for anonymous payments. You can read a more technical introduction to ZK-SNARK here.
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