Blockchain Semantics Insights
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Blockchain Glossary For BeginnersBy Abhishek Singh | June 30, 2018, 8:16 a.m. GMT
The blockchain world is one that is full of its acronyms and here are some of the important ones you must know if you’re planning to dig into this domain. This list will be updated regularly.
A network of computers that each store the same data in a time-stamped, cryptographically secured form. Bitcoin and Ethereum are good examples.
You can break this word into two: Cryptography and Currency. A cryptocurrency is a digital or virtual currency meant to be a medium of exchange. Transactions that use these currencies are secured using cryptography, hence the term, cryptocurrency.
Bitcoin is the first cryptocurrency. May also refer to the Blockchain technology it runs on.
4) Distributed ledger
This is a ledger that is not stored in one place, not held by a single party, and there is no central authority. Blockchain is also known as distributed ledger technology because there is no central authority and each node stores a copy of the ledger.
Think of a hash is a fingerprint of any data. Typically, it is a string value that is unique to an input data which could be text, numbers, photos, videos etc.
This is a type of hashing function, most popularly used by blockchain. SHA-256 stands for Secure Hashing Algorithm, 256 bits.
Blockchain uses a block-like structure to perform transactions and store data, where each block is created by a miner. A block contains two things, a block header and a set of transactions.
8) Genesis block
This is the first block in a Blockchain.
A node is a device (computer) that connects to the blockchain network and has internet. A node stores a local copy of the blockchain ledger. There are two types of nodes, full node and partial/lightweight node.
10) Full node
A full node locally stores the complete blockchain ledger from the genesis block till the latest block and updates the ledger every time a block is added.
11) Miner nodes
Miner nodes or Miners are creator nodes that create and add blocks to the blockchain network. Miner nodes are different from the other nodes in that other nodes only store the blocks of data created by the miners.
Mining in bitcoin is where miners add blocks in a blockchain and get a reward for that. Anyone with access to the internet and suitable hardware can participate in mining.
13) Partial nodes
Partial nodes don’t store the complete blockchain ledger. There are two types of partial nodes, one which stores only the block headers and the other which store recent blocks only.
14) Block header
The block header is part of a block. It contains at least these five attributes:
- Previous block header hash
- Merkle root
A timestamp acts as an indicator of time of each block of data in a Blockchain.
16) Previous block header hash
Each block stores the hash value of the previous block. The previous block’s header hash provides the linkage between the blocks.
This is a number that is stored in the block header of a block. To add a block to the blockchain, the miner must solve a puzzle by guessing the nonce using computational power.
18) Difficulty level
The difficulty level defines the amount of computational work that has to be done by a miner in order to calculate the nonce before creating a block. Difficulty level defines how tough the puzzle will be.
19) Merkle tree
Every transaction in blockchain is stored in form of a Merkle tree. A Merkle tree is a type of data structure where each transaction is hashed and stored in a way that forms a tree.
20) Merkle root
A Merkle root is the root or top node of a Merkle tree.
Transactions in blockchain are like regular transactions where a person A gives some money to person B. Such transactions on Blockchain will be done by transferring cryptocurrency.
Address is the Blockchain counterpart of an account number in a bank.A blockchain address is where you store your cryptocurrency. It is also used to send or receive cryptocurrency. In Bitcoin, the size of an address is around 26-35 alpha-numeric characters.
23) Private key
A private key is used to sign any transaction performed by a user. A private key is generally 32-bytes of an alphanumeric string. Private keys provide access to a user’s assets; you cannot use a user’s assets on blockchain without the private key. A private key is only known to the owner and it is meant to be kept that way.
24) Public key
A public key is used to authenticate the user who has initiated a transaction, that is, the sender. A sender signs the transaction using the private key known to the sender alone. Verifying this signature requires a public key.
25) Consensus algorithm
Consensus means general agreement. A consensus algorithm is an algorithm used to synchronize the blockchain ledger that is distributed among the various nodes in a blockchain network.
Proof-of-work is a type of consensus algorithm. Producing a proof of work involves solving a mathematical puzzle which requires trial-and-error. It is a GPU-intensive process. After adding a block using proof-of-work, one can say that the miner has done enough work to prove that the block added is verified correctly.
In proof-of-work, all miners in a network compete with one another to add the block which consumes a lot of electrical power. In proof-of-stake, the validator (miner) who will add the block in blockchain is decided by the wealth the validators have. Miners with more cryptocurrency get to mine more blocks. Miners do not need to compete.
Forking is a divergence in blockchain and can be either temporary or permanent. Basically, it means splitting the blockchain into two branches. Forking happens when there is a change in a consensus rule or any other software changes. There are three types of forking, chain fork, soft fork, and hard fork.
A wallet is a software that lets you manage your assets. It gives you the functionality to send and receive assets.
All the coins other than Bitcoin are known as Altcoins. There are two ways in which an altcoin can be generated, one by forking an existing blockchain and the other by creating another blockchain from scratch. Some people also call these coins $hitcoins. They believe whatever is not Bitcoin, must be $hitcoin.
31) Smart contract
Smart contracts are self-executing contracts where the terms of the agreement between buyer and seller are directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
An Initial coin offering or ICO is a means of crowdfunding via the use of cryptocurrency. It is typically a source of capital for Blockchain start-ups. Investors, both corporate or individuals can invest money in a company usually by means of cryptocurrencies like Bitcoin and Ethereum, as a part of an ICO. In return, they get a percentage of the project or company- specific cryptocurrency being sold in the project.
Decentralized applications (or DApps) are server-less applications that can be run jointly on the client side and on a blockchain, such as Ethereum. Decentralized applications can also run without blockchain.