Since blockchain technology is experiencing a major boom and every second industry is eager to adopt it in a variety of use cases, it is important for you, as an internet user, to know about some important terminologies in this regard.
Please note that this article mentions and explains several terms that are relevant to newbies and experts alike, however, to make it more friendly and meaningful, we will start with the easiest terms and then gradually explore the technical ones as well.
Everything in the blockchain sphere revolves around the concept of blocks. In fact, it’s the foundation of this technology.
Every record or data that the network produces is essentially stored inside a block and every time a record is created, there is a new block to contain it. In other words, you can also think of it as a container for holding the blockchain data.
Oftentimes, people have a hard time understanding this. But now that you are clear about “blocks”, it would be fairly easy to explain this.
Every block that is produced on the network is linked to its predecessor, thus forming a chain of blocks where all “containers” are linked together. Moreover, the blockchain as a whole consists of several rules that define the type of data that can be stored within its blocks.
3. Genesis Block
It happens to be the very first block on a blockchain network and can also be considered as the pioneering record.
Apart from this major distinction, this block is also different from the rest of the blocks as it mainly contains the configurations and rules for the smooth running of the blockchain.
Please note that the height of this block is ‘zero’ as there is nothing before or “above” it in the chain.
4. Block Height
Just like any other data structure, there is an index or rather a “serial number” assigned to each block, which in this context is referred to as the block’s height and its relative to the genesis block.
For instance, the 10th block in the chain would have a block height of 10.
It’s a phenomenon or rather an environment where no one has absolute control over the network. All actions occur after the majority of the network has provided its explicit consent, thus removing the dependency from a single member or administrator.
As a result of this, every member of the network has the same level of authority.
6. Peer to Peer
This term is effectively an extension of the idea portrayed in “decentralization” as it means that two individuals or computers can communicate directly without depending on an intermediary (i.e. a centralized organization).
For instance, if person A wants to send money to person B, they can do so directly without going through a bank.
7. Smart Contract
In simple words, it is a real-world contract that is agreed to and executed in a digital and secure environment. Due to this, it can be triggered automatically, without depending on any external factor and both parties can enjoy the same level of transparency.
This programming language is most commonly used in the blockchain industry for writing smart contracts and resembles closely with C++.
Once the data is published on the chain and a block is created for the data, it cannot be changed, whatsoever. Not even the developer who created the system can change it and this property is known as immutability.
This is one of the primary reasons why several organizations running sensitive use cases prefer blockchain at their backend.
This is the core of any blockchain network and refers to the creation of a new block that contains the record. Once a block is created, there is no reversal for this operation.
This is a tradeable digital asset that runs on blockchain technology. A few primary distinctions and advancements from fiat are:
- Can be owned and used by anyone anywhere in the World
- The proof of ownership can always be proved
- Can never undergo inflation by a centralized body
Please note that oftentimes, people use the two terms interchangeably, but it should be noted that while blockchain is a generic technology, cryptocurrency is just one of its use cases.
It is one of the most popular ways for marketing a cryptocurrency startup and to raise funding. It resembles quite closely with IPOs in the stock market.
Although it was previously an unregulated niche, ICOs now fall under the domain of the SEC and thus, investors have more trust.
13. Simple Agreement for Future Tokens
This mechanism was designed particularly for investors which allows them to buy tokens for a project that is yet to be launched. The amount that the investor receives is in the percentage of total tokens, rather than the company’s equity.
If you have traded cryptocurrencies, you already know that it’s possible to buy them in fractional amounts as well, unlike fiat. Therefore, by that analogy, a token is the most basic unit of a cryptocurrency that cannot be further divided.
In fiat, it’s always a whole number but in cryptocurrencies, it is mostly a fractional number.
Another major distinction is that tokens do not have their own blockchain and in fact, a project that offers tokens, runs on a blockchain provided by 3rd party.
From a layman’s point of view, there is no distinction between a coin or a token. However, from the technical perspective, it is worth noting that a coin has its own blockchain network.
To put it straight and make it easier to understand, ETH is the coin of the Ethereum network but all other projects or cryptocurrencies on this network are tokens.
These are basically cryptocurrencies but were created to provide low-risk entries and minimize the overall volatility of the cryptocurrency market.
In order to provide feasibility, these coins are pegged to an underlying asset. For instance, one of the most popular stablecoins is USDT and it is pegged with the US Dollar – implying, that one USDT always equals 1 USD. Even if there is a fluctuation due to liquidity, the value moves in a fractional range.
It happens to be a “vault” where digital assets (i.e. cryptocurrencies) are stored. But from a technical standpoint, a wallet is a secure entity that contains an individual’s private keys, allowing him to communicate on the network and sign transactions.
18. Block Reward
This term is only valid for cryptocurrency use cases where miners are essentially rewarded for the resources and energy they spend for mining and allowing the network to reach a consensus.
19. Certificate Authority
This is an entity on a blockchain network that issues digital identities to all members. Moreover, every time a transaction is to be signed, the CA is responsible for validating the IDs of the involved parties.
In order to record a transaction on the blockchain ledger, it is important for the majority of the members to validate it and be on the same page.
This entire process of maintaining a “network-wide agreement” is referred to as consensus.
A transaction is an event on the blockchain network that generates data. For instance, one of the most important transactions on the BTC network happens when person A sends coins to person B.
Since this transaction generates data as to who transferred the coins, the value of the transfer, and the address of the recipient, it is recorded on a public ledger.
22. Transaction Pool
A TP represents a list of all pending transactions that are waiting to be published on the blockchain network.
It should be noted that it is not important for all nodes to have the same pool. However, it is crucial that once a transaction gets verified, every node is notified of the event to maintain a similar state across the network.
This is quite a common term in the blockchain industry, particularly when the use case revolves around cryptocurrencies.
For any blockchain that utilizes UTXO, it is important for an upcoming transaction to link back or rather refer to the output of the previous transactions. The most interesting part is that this new transaction fully consumes the tokens released by the previous transaction.
This is quite a reliable method to maintain immutability on the network.
It is a property of the blockchain network that says “none of the parties have to trust each other whatsoever”. It does not mean that the network cannot be trusted. In fact, it implies that two entities do not have to depend on a middleman to carry out their transaction as the entire network is responsible for ensuring that no fraud happens.
As a result of this robust and futuristic feature, one bad member cannot bring the entire network down, even if he happens to be the CEO of the organization.
25. Public Blockchain
In simplest words, it is an entirely open network that anyone on the internet can join without any permission. Moreover, on such a network, every member has equal rights when it comes to viewing, reading or writing any data on the ledger.
26. Private Blockchain
From all aspects, a private blockchain is totally different from its significant other. Every network member has an access level defined and they can only take specific actions, as defined against their access level.
As a result, a handful of network members can read and write on the ledger (i.e. the transactions are not public and you can only view them if you have access).
27. Turing Complete
This is a term commonly used in the blockchain industry and quantum computing as well and it refers to the ability of technology to simulate the Turing machine in all aspects.
28. Blockchain 2.0
It brought a revolution in the blockchain niche itself. Blockchain 2.0 essentially means that any digital asset can be transferred from person A to person B without requiring an intermediary with the help of smart contracts and Ethereum was the pioneer in this trend change.
It should be mentioned that Blockchain 1.0 was stirred by Bitcoin but it only revolved around transferring cryptocurrencies and the use case was not generic in nature.
It is the process by which a blockchain network encodes its data (on various steps) to make it meaningless and unreadable for anyone outside the network.
For instance, if you send a message to person A on the network as plain text, it would immediately be changed into ciphertext or rather an alternate text, representing your message. Since this is done randomly, nobody can predict what string the system would assign your text.
It’s the opposite of encryption and runs on the receiver’s end. Basically, an encrypted message must be changed to its original form so the receiver can understand it and for that purpose, the decryption algorithm validates the receiver to determine whether he is the rightful reader or not and then shows the message.
31. Blockchain Node
It is a member of a blockchain network that is connected to several other peers and is responsible for creating new blocks and publishing new transactions on the network.
32. Hash Function
It happens to be a cryptographic function that takes an input and changes the output entirely (this new output is used to represent the original information). The reason why it’s so popular among blockchain enthusiasts is that the output of hash functions can never be predicted.
It’s the rate of a machine or an algorithm to execute a hashing function per second.
34. Hash Collision
It refers to an event where two inputs fed to a hashing function deliver the same output. It should be noted that it’s almost impossible to create a hash collision on purpose as it’s entirely random and the output of a hash function is never known.
This concept is native to cryptocurrencies and it refers to an event where a new network is created from an existing one. In most cases, the new network inherits the consensus and architecture of its predecessor and can even instantiate itself from the original network.
One of the primary reasons for conducting a fork is when the network fails to reach a consensus on most of its core decisions. That is when the developers decide to create a separate blockchain network and introduce their ideas, which again need to be validated by the majority.
36. Closed Source
This term is also quite commonly used in the blockchain industry, especially while comparing its perks with the rest of the software and technologies in the market.
It refers to software that is not available to be “explored” by the general public (as opposed to the open-source tools). As an end-user, you may be able to download the software and use it, but you can never read its code as it’s in binary format.
This is a form of private blockchain where the network is not available for the general public and is entirely operated by a few individuals or an organization. Although such organizations may not accept it, these networks are pretty much centralized among the tier 1 management.
In order to be a part of such networks, read the ledger or publish any block, the member must have the required level of access.
In its truest essence, it is a decentralized application and the reason why it’s called so is that, unlike mainstream web applications, a DApp communicates with a decentralized network rather than a centralized database server, thus making it more trustable for the end-user.
These days, Ethereum is one of the go-to choices for developers to publish their DApps.
39. Decentralized Autonomous Organization
Conceptually, it’s quite similar to a real-world organization, but a major distinction is that DAOs comprise several entities in a digital environment and their operations are governed by smart contracts. Technically, they act as a bridge between the business logic of an organization and its programming logic.
For instance, just to set the perspective, several blockchain networks take votes from their full nodes in order to implement a decision, and their votes are recorded in a smart contract before calculating the weightage and then deciding whether to take the action or not. This entire process represents a DAO.
40. Double Spending
It is basically an attack executed by one of the members of the blockchain network and the aim is to send two similar transactions towards the nodes and convincing the network that at least one of them is valid. However, in reality, both transactions conflict or rather contradict each other logically.
41. Directed Acyclic Graph
This is a very important concept implemented in blockchain networks. Basically, a DAG ensures that once a process is initiated (e.g. sending 10 BTCs to another member on the network), it either goes from one end to another or it is terminated midway. However, there can never be a reversal in the process, let it be during or after process execution.
The primary motivation is to prevent fraud and ensure the reliability of transactional data.
42. Ethereum Enterprise Alliance
Currently, Ethereum happens to be the most widely used platform for developing DApps, and therefore, its community is also quite huge. In order to keep the technology robust and scalable, several organizations have committed their resources to the development and support of the Ethereum platform and they are collectively known as EEA.
43. Ethereum Virtual Machine
Before understanding what an EVM is, it is important for you to realize that a successful blockchain network must always be in a state of agreement, which is achieved by reaching a consensus. As soon as the network agrees on a new block, the state of the network changes, which is handled by the EVM that utilizes eWASM bytecode for managing transitions.
Moreover, it should also be noted that the state of the network is always the same on every node and in case if it is not, then the network is not in consensus and hence, a failed blockchain.
This web assembly is integrated by Ethereum Virtual Machine to provide an array of extensive functionalities, that are not generally offered by blockchain networks.
It happens to be a platform where users can trade their digital assets without involving an intermediary. Some of the popular exchanges include Binance, CoinBase, Bitmex, and Bybit.
46. Gas Price
It is important to understand this concept from the real-world example. Whenever you visit a bank and transfer the funds to another person’s account, the bank acts as an intermediary and charges a certain transaction fee to facilitate the transfer.
Since there is no middleman that you have to trust on a blockchain network and every task is performed by a self-executing smart contract, the network needs a fractional amount of funds from each transaction to sustain its operations. Therefore, whenever a smart contract is executed, a transaction fee is applied which is also referred to as gas price.
47. Gossip Protocol
As the name suggests, it happens to be a process by which the members of a blockchain network “communicate” or rather exchange information with their peers.
While the term might be funky for some people, its importance cannot be ignored as, in order to maintain the same copies of the ledger on all nodes, it is important for each node to pass on the received information to its peer. This process should be repeated for as long as all nodes have the same information.
Please note that this process is recursive – implying that every time a node receives new information, the same cycle is repeated.
As the name suggests, a blockchain protocol running on the testnet is not available to the general public and is primarily for developers’ testing. The reason is that if they deploy it for the public, then instead of developing a quality platform, the developers would have to spend a substantial amount of time on addressing the bandwidth in real-time as well.
As soon as the blockchain is fully developed, it is deployed on the mainnet and the entire functionality is available for the mainstream users (or the public).
50. Merkle Tree
It is rather a technical concept as it’s a data structure. Although it contains the data, the way it stores it is quite unique because each branch of the tree has an identifier and contains references to all the subsequent branches attached to it.
Therefore, instead of going through the entire data set, anyone can determine the validity of the stored data on different nodes by ensuring that the leaves contain the same reference points.
If we view it particularly from the blockchain’s perspective, the branches of a Merkle tree represent blocks in a transaction.
51. Merkle Root
Conceptually, it is the junction where all branches of the Merkle tree meet. From a technical standpoint, Merkle root represents the hash of all transactions on the blockchain network.
52. Public Key
A public key is your identity on the blockchain network as it allows you to receive funds and decrypt the messages sent to you.
53. Private Key
Just to be clear, unlike a public key, your private key is now known to the mainstream public network. Although their generation and security are difficult and technical tasks, you don’t have to worry about that as your wallet would do it, but these are important as a private key determines whether you have the ownership of an asset or not.
54. Public Key Infrastructure
This is also referred to as PKI and since public key encryption rules the blockchain networks, PKI is responsible for handling everything that governs the encryption logic, including the definition of access, roles, hardware and software to be used on the network, CA, and a variety of policies as well.
Please note that all this is defined in a programming language.
55. Proof of Work
It was one of the most popular consensus algorithms that were initially used by Bitcoin. Whenever the blockchain network has a new block to verify and publish. In order to do that, a significant amount of computational power is required to solve a mathematical sum and since a substantial amount of resources are spent in the form of energy (i.e. work done), the network rewards the miner who does this exhausting job.
It is not quite common these days due to several flaws (i.e. environmental concerns and high electricity consumption).
56. Proof of Stake
This is yet another type of consensus algorithm but is less energy-consuming than Proof of Work and is actually more decentralized.
Under this mechanism, the age and stake (wealth) of the node are determined randomly before selecting it to verify and publish a block on the chain.
57. Ring Signature
This concept is native to cryptography and it establishes that any person among a particular set of members can perform a signature on each other’s behalf and it will be deemed valid.
This is yet another consensus mechanism but is quite different from the ones used in the mainstream industry. Here, the transaction that is waiting to be published on the public ledger, must confirm the validity of two preceding transactions.
If you look at it, this method forms a tightly knitted and connected chain where older blocks are more trustworthy and each upcoming block or transaction indirectly strengthens the validity of all the previous transactions.
It refers to the ability of a system to scale up when the influx of users and the utilization of the system increases.
The more scalable a system is, the more robust and acceptable it can be in the market.
60. Secure Hash Algorithm
It is a type of hashing function that was primarily designed by the NSA, although there are several iterations to it now (e.g. SHA256 that is used in Bitcoin).
It is one of the concepts upon which the entire crypto industry stands. Basically, it refers to the process of mapping any real-world entity into a digital environment.
62. Non-Fungible Token
Essentially, it is a type of cryptocurrency but a major distinction is that while mainstream coins and tokens can be bought in fractional amounts as well, an NFT represents a unique entity, and therefore, it is never divisible.
For instance, if an artist published a music file on the blockchain network, an NFT would be assigned to that file.
63. Zero-Knowledge Proof
This is a very interesting concept in the blockchain niche and it states that when two parties interact, the prover can just “hint” the other party that they know a certain part of the information, without revealing any additional information. In fact, they don’t even know about the additional information.
In short, it only reveals a single fact that allows the verifier to trust that the prover possesses the secret, but he doesn’t know the content of the secret.
64. Byzantine Fault Tolerance
It is a property that depicts the “robustness” of a blockchain network to reach consensus even if some malicious and fraudulent nodes attempt to deceive it by establishing a fake majority.
65. Hyperledger Fabric
While Bitcoin and Ethereum blockchains are public and permissionless by default, Hyperledger Fabric offers an enterprise-grade solution where organizations can define their customized consensus, access controls, and permissioned or permissionless nature of the network.
This was rolled out by the Linux Foundation but has received massive support from the likes of IBM and Intel.
Corda is basically a competitor of Hyperledger Fabric and falls in the same category. However, despite being an enterprise-grade blockchain framework, it offers interoperability while maintaining a high level of privacy as well.
The private blockchain networks, like the ones built on Hyperledger Fabric and Corda, are run by a variety of companies, especially if the use case involves multi-industry collaboration.
The association of such organizations to keep a network running by mutual agreement (aka consensus) is called a consortium.