Understanding Key Blockchain Terms – A Blockchain Glossary
With Blockchain Technology being the latest talk of the town, lets check out a couple of terms that you’re likely to come across over this introductory stage;
Alt-coin – A cryptocurrency that works similarly to Bitcoin but with modifications such as being able to process transactions faster.
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.
Consensus protocol – A process, encoded in software, by which computers in a network, called nodes, reach an agreement about a set of data.
Cryptocurrency (or crypto-token) – A scarce digital asset defined by a blockchain protocol and exchanged via that blockchain system.
Decentralization – A hard-to-quantify measure of a network’s resistance to attack, a function of how broadly control is distributed among different actors.
Distributed ledger technology (DLT) – A system, most commonly a blockchain, for creating a shared, cryptographically secured database.
Fork – A change to the way a blockchain’s software rules define valid transactions, or blocks.
[ Hard fork: A change to the rules that all nodes on a network must adopt, or else leave the network. Soft fork: A backwards-compatible change that hinges only on a majority of nodes’ adopting the new rules. ]
Hash function – A cryptography tool that turns any input into a string of characters that serves as a virtually unforgeable digital fingerprint of the data, called a hash.
Initial coin offering (ICO) – A blockchain-based fund-raising mechanism in which entrepreneurs mint new crypto-tokens and sell them to investors.
Mining – The process by which nodes in Bitcoin, Ethereum, and many other blockchain systems (those that use the consensus protocol known as proof of work) add new blocks to their respective chains and generate new crypto-tokens.
Permissioned blockchain – A shared database with a blockchain structure that requires participants to obtain permission before reading or writing to the chain. Contrast this with permissionless blockchains, which anyone can join.
Proof of work – The consensus protocol of choice for Bitcoin and many other cryptocurrencies. To add a new block, miners must calculate a hash for it that meets certain narrow criteria. Doing so requires an enormous number of random guesses, making it a costly process that deters attempts to commit fraud.
Smart contract – A computer program stored in a blockchain that automatically moves digital assets between accounts if conditions encoded in the program are met. It serves as a way to create a mathematically guaranteed promise between two parties.