GLOSSARY

MARKNetwork Inc.: Blockchain 101

The Blockchain Technology Glossary by MARKNetwork Inc. is a complete blockchain 101 that will guide you through this new industry revolution by explaining commonly used terms and specific meanings.

A
Accidental Fork

When two or more miners happen to find a block almost at the same time, this incident is known as Accidental Fork. Two chains start forming for two miners and eventually this fork is resolved only when one of the chains becomes longer. At this point the second chain is abandoned by the network and the blocks that were part of this chain are called “Orphan Blocks”.

Addresses or Cryptocurrency addresses are 27-34 alphanumeric codes that are required to make a transaction on a blockchain. Each address is unique and is specific to a blockchain network.

Agreement Ledger

Blockchain comes across as an agreement ledger when it is used between two parties to reach an agreement and it comes across as a proof of agreement.

Altcoin

Altcoin is an abbreviation term used for cryptocurrencies that are an alternative to Bitcoin. By altering the consensus rules, hundreds of Altcoins have come up over time. These coins are forks of Bitcoin or coins like Ethereum that have used the same framework but with certain alternations and advancements.

ASIC

An acronym of Application Specific Integrated Circuit, ASIC is a silicon chip that is dedicated to perform one specific predetermined function. These chips are designed to perform extremely complex complications of mining like processing the SHA-256 mining algorithm to mine new bitcoins.

The CPU and GPU processing chips proved to be time and energy intensive that is why this special category of chips were designed. Using ASIC’s made mining quick, energy-efficient and profitable too.

B
Bitcoin (BTC)

Developed by Satoshi Nakamoto (Pseudonym of a person or group) in 2009, Bitcoin is the first cryptocurrency that uses proof-of-work as a consensus mechanism to create new coins. It is a decentralized currency which is not controlled by any centralized body like banks or governments. It acts as a global peer to peer network circumventing all middle men to make monetary transactions across the globe.

Bitcoin ATM (BATM)

An ATM machine where Bitcoin can be traded against fiat currencies. Some of the Bitcoin ATM support bi-directional trade (sale and purchase) of Bitcoin. In place of a banks network, the BATM is connected to the Bitcoin exchange.

Block

Blocks over a blockchain can be interpreted as digital files that store bitcoin network data permanently. A block keeps record of some or all of the previous blockchain transactions. The records made on these blocks cannot be altered thus creating a permanent and immutable entry on the blockchain.

To add a new block to the network four things need to happen:

  • A transaction must take place
  • The transaction must be verified
  • The transaction needs to be stored in the block
  • The block must be given a hash (identification code)

Whenever a new block is created, it is added to the end of the chain of records, which is the blockchain. The blocks have 100% permanency unless it is an orphan block that can be removed by certain layers like Masternodes.

A new block is added to the network only when the mathematical problem associated with the block is solved. Once a new block is added to the chain of records, it adds records recent transactions, details of the immediately preceding reference block came immediately before it. Each resolve block also hold the unique answer of the mathematical problem.

The mathematical problems linked to each block are extremely difficult to solve and require heavy computational power. Multiple miners try to solve the problem but there is only one correct answer and the one who solves the problem first gets incentivized.

The Bitcoin address that gets incentivized for solving the problem is also recorded in the block itself. This transaction becomes the first record of the block is called the generation transaction.

Blockchain

A public ledger of transactions that can be shared in a trustless manner as it is supported by a decentralized distributed network of computers. As there is no single authority that controls the network, there is no single point of failure in the blockchain.

To make it easily understandable, it can be said that blockchain is a chain of blocks (records). Each block is sequence of digital information which is stored on this public ledger (the blockchain).

It works as a secure and immutable distributed database. A blockchain is a perfect database to store digitized assets. The growing list of records of the blockchain are linked to each other using cryptographic problems. As an open distributed ledger it brings two parties together in a permanent way. Once a new block is created, within minutes it adds all the previous records and no changes can be made to these entries without making changes in all the subsequent blocks.

With the development of blockchain, Satoshi Nakamoto (Pseudonym of a person or group) was able to solve the double-spending problem which was a point of concern in peer-to-peer networks where no central authority is present.

Block explorer

With the advent of so many cryptocurrencies in the landscape, the need of an online tool where live transaction happening on blockchain could be followed built up. Block explorer is a tool that allows anyone an insight into total network hash rate, coin supply, transaction growth and more thus leading to the blockchain project analysis in real-time.

Block Height

A simple definition of Block height is the number of blocks preceding the block for which the height is being measured. The first block of every blockchain is called the genesis blog and has a Height 0. The height of an entire blockchain is calculated by subtracting 1 from the total number of the blocks in the blockchain.

Block Reward

For every new block created, the miner who solved the problem (hashing) associated with the block receives a reward. The Block rewards are calculated as per the terms of agreement between the miner and the network. The rewards include the coins and transaction fees associated.

It is the final amount of crypto-currency which the miner receives for resolving the mathematical problem. This incentive is the entity that encourages crypto enthusiasts to indulge in mining of a particular currency.

C
Central Ledger

A central ledger is a database on blockchain that is being maintained by a central body.

Chain linking

When the two blockchains are connected together, the process is called as Chain linking. This allows interoperability between the two chains so that asset transactions between the two functionally different blockchains can happen.

Cloud Mining

Cloud mining facilitates cryptocurrency mining without actually engaging in installing hardware like ASICS and rigs. A cloud miner is powered by a hardware miner only but it allows enthusiasts to participate in the mining by contributing a part to the mining pool.

Using cloud mining, the participants can engage in mining activity without being physically closer to the hardware. The process is simple. The users need to register themselves with the cloud miner and buy a certain hash power. As the mining is done over the cloud, the participant does not need to bother about the equipment installation, maintenance and the energy costs.

The cloud miner generally allows participation to engage in the mining over the website. As compared to the traditional hardware mining, the cloud mining has proved to be less profitable.

Consensus

A consensus mechanism is a framework that blockchain system uses to come to an agreement about the distribution process when there are multiple agents in the system.

Public blockchains are decentralized at operational level and as the system is self-regulating. This is why blockchain requires a verification and authentication mechanism which is automated. As the blockchain network involves a lot of participants, there is a need of a common consensus framework to authenticate the transactions.

The blockchain network is dynamically changing, there are many transactions going backward and forward. Thus a consensus ensures the transactions following through the network are functional, reliable, and secure in real-time. It is actually a set of rules that fundamentally establishes the reliability of the blockchain network. The different consensus protocols are:

  • Proof of Work (PoW)
  • Proof of stake (PoS)
  • Delegated Proof-of-Stake (DPoS)
  • Proof-of-Authority (PoA)
D
DAO  

It stands as an acronym for decentralized autonomous organization. A DAO is a type of smart contract where the laws of the organization are embedded into the smart contract itself. It is a complex system as the complex governance rules need to be inserted into the smart contract.

Once the code is deployed the consortium becomes an independent entity. Despite being open source DAOs are immutable and transparent. The transactions of a DAO are recorded on a blockchain thus the organization becomes an autonomous entity and does not require any intermediary.

Simply speaking, DAO is a piece of code that is executed on the cluster of distributed networks and consensus-based blockchains like the Ethereum.

Decentralization 

The decentralization means there is no central point of control in a network. A decentralized network is devoid of a central body making the system inherently fair, transparent and immutable.

A decentralized network uses its consensus protocol to confirm the transactions and maintain their security.

dApp (decentralized application) 

Decentralized applications (dApps) are applications that run over a P2P network of computers. There have been traditional dApps like BitTorrent where there was no blockchain.

An App that is decentralized and where the smart contract is used to communicate with the blockchain is known as a dApp. To be categorized as a dApp, the code must be open-source and the App must be able to operate autonomously which means there is no single entity that controls the major share of the tokens. A dApp has a development team that takes the feedback from the users and improves the App.

But no change is made without the consensus of its users. The dApp data is secured cryptographically over a public ledger. The application will make use of a token supported by its blockchain and the miners will also be incentivized with the tokens.

The tokens generation follows a standard consensus protocol.

Digital Signature 

In a blockchain, each transaction is signed to ensure integrity and security of the data. As the digital signatures use cryptography, the information they transact can be shared with anyone with the use of a public key.

If a hacker tries to modify the data being transacted, the digital signature becomes invalid thus the tampering cannot go unnoticed. Each digital signature is unique and it requires three algorithms to create it:

Key generation algorithm

It generates a private and public key.

Signing algorithm

Combines information to be transacted and private key to build a signature.

Verification algorithm

It verifies the signature and determines the authenticity of the message using the public key and the signature. It is used by the miners.

Distributed Ledger 

A ledger where the records are maintained in a decentralized manner. This ledger could span multiple-locations and can be used by multiple people without the interference of any central authority.

It is shared among the nodes that accept to adhere by the standard consensus protocols and is synchronized in real time. The participants of the distributed ledger are present at each node and can access the records on the ledger at any point in time. Permissioned and un-permissioned distributed ledgers define who can access the records.

Difficulty 

In the Proof-of-Work kind of mining, every block that is mined requires to resolve a hash. The longer it takes to resolve a hash, the more difficult is the Mining considered.

Double Spending 

Double-spending is a major problem while transacting digital currencies. When the same digital currency is spent twice or more, the problem is known as double-spending. Bitcoin was the first digital currency that got rid of the double-spending challenge as it verifies each transaction.

As bitcoin is a decentralized currency, it had no third party to verify the transactions to avoid double-spends. This is where miners come into the picture as they work to validate each transaction and record it on the ledger. The miners are incentivized for validating the transactions.

E
Ethereum (ETH)

Ethereum is a distributed public blockchain network which is also an open source platform. It opens up opportunities for developers to code smart contracts to establish multiple use cases. The dApps are also built on Ethereum blockchain. Ether is the native token which is transacted and the miners are incentivized with ether as rewards and fees.

Before Ethereum was developed the use of tokens was limited to just cryptocurrencies but as its source code is open source one can build smart contracts that can be used as an entity of transaction.

EVM (Ethereum Virtual Machine) 

The Ethereum Virtual Machine (EVM) is considered as the biggest advantage of Ethereum network. It allows the developers and enterprises to run any application on Ethereum blockchain.

Ethereum Virtual machine enables the development of varied applications on top of a functionally same platform. Thus it saves a lot of capital and resources were consumed in multiple projects doing the same things. The scripting language of EVM is Turing-complete and full-featured. It allows executing the arbitrary EVM Byte Code anywhere.

Exchange 

An Application or website that allows buy and sell of cryptocurrency. The exchange users are required to pay fees for transactions, withdrawals, and deposits. Some of the exchanges offer multiple fiat-crypto or crypt-crypto exchanges. The centralized exchanges are the ones where the user has to transfer the cryptocurrency to a central wallet while in case of decentralized exchanges the users retain the full control of their assets.

F
Fiat currency 

A currency that is issued and controlled government. USD or EUR is a fiat currency.

Fork 

When two blocks are created simultaneously on the blockchain but on different parts, an alternative version of the same blockchain is created, this process is called forking. The users of the blockchain determine which version sustains. The blocks in the loser blockchain are discarded and are called “Orphan Blocks”.

G
Gas 

For every transaction to execute on Ethereum network, there is some internal pricing. Gas is a basic unit which measures the aggregated computational effort that will go into executing transactions or contracts. Gas is used to calculate the total amount of fees that a network user needs to pay to the network for processing a simple or complex transaction.

Genesis block 

The first block of every blockchain is called the Genesis block. The block depth of a genesis block is ‘0’.

H
Halving 

For every transaction to execute on Ethereum network, there is some internal pricing. Gas is a basic unit which measures the aggregated computational effort that will go into executing transactions or contracts. Gas is used to calculate the total amount of fees that a network user needs to pay to the network for processing a simple or complex transaction.

Hardfork 

The first block of every blockchain is called the Genesis block. The block depth of a genesis block is ‘0’.

 Hardware Wallet

A physical USB like device that acts as offline storage of cryptocurrencies. It is one of the most secure ways to store cryptocurrencies.

 Hashrate

The number of hashes per second or the hashrate generally the number of hashes performed by a miner.

 Hot Wallet

A wallet App or Website which is always online is called a hot wallet. The cryptocurrencies in these wallets are more susceptible to hacks.

I
Initial Coin Offering (ICO) 

ICOs is the new age mechanism of raising funds. Categorized as a crowdfunding mechanism, it involves pre-selling of tokens to investors. The roadmap and whitepaper of the project are made public and the interested investors are allowed to buy tokens at a pre-declared price. The tokens can be purchased using Bitcoin, Ethereum or any other kind of currency.

Initial Exchange Offering (IEO) 

When an exchange manages the pre-sale and fundraising for a blockchain project, the mechanism is called IEO. The exchanges have their goodwill at stake when they launch an IEO of a project thus this process of fundraising is considered to be safer than ICO.

Initial Token Offering(ITO) 

Initial Token Offerings are more or less similar to Initial Coin Offerings each project may not be developing a new coin. It would be more of an application project rather than a coin based project.

L
Lightning Network 

A decentralized network based on blockchain which uses smart contract to execute near instant payments across the network. The Lightning Network is a layer on top of the blockchain layer that works as a payment protocol making the blockchains more scalable.

Millions of transactions are executed within seconds on the same blockchain as well as different blockchains.

Litecoin (LTC) 

A proof-of-work peer-to-peer cryptocurrency that is a fork of the Bitcoin Core client. It uses an entirely different hashing algorithm known as Scrypt which gives a decreased block generation time (2.5 minutes).

M
Merkle tree 

These make the basic component of a blockchain as they allow secure verification of very large data structures. As data structure trees each non-leaf node is a hash of its respective child nodes which offers a higher degree of cryptographic security. If the hash is changed, the block becomes invalid.

Mining 

The process of adding records to a decentralized public ledger is called mining. The purpose of mining to implement the tamper-resistant consensus protocols and in the due course, it adds more coins to the system. Miners are entities that aid mining with high computational computers and get incentivized.

Mining Pool 

Mining is a computational power intensive task. When multiple miners come together and pool their computational power to aid mining, it is called a mining pool.

The block rewards generated during mining are distributed among the participant miners according to the power proportion contribution.

N
Node (Full Node) 

The computers that participate in the blockchain network are called nodes. Full nodes help enforce all of the rules of the protocol on the blockchain.

O
Oracles 

Oracles are the bridge between the data from outside the network and the smart contracts. Based on the data collected by the Oracles, the smart contracts are executed.

P
Private Blockchains 

A private or permissioned blockchain is a blockchain where the permissions of accessing and writing records on a ledger are centralized to a particular body.

Private Key 

Every time a new wallet is set up, a public-private key pair is generated. A private key is an alphanumeric password which is used to send cryptocurrencies from one wallet to another. It is a randomly generated 256-bit long number and is unique for every user which is stored locally.

Proof of Authority (PoA) 

A consensus mechanism which is used in a private blockchain. It gives all the block creation rights only to the private key holder.

Proof of Stake (PoS) 

A distributed consensus mechanism where the user proves his holding of the cryptocurrency to contribute to the decision making. The main aim of establishing this consensus mechanism was to contain the extensive power consumption that was happening due to PoW.

Proof of Work (PoW) 

PoW is the consensus mechanism on which bitcoin operates. It requires the miners to use the computational power to validate the transactions and mine new blocks. It is a computational power intensive task.

Public Blockchains 

A public blockchain is a network which anyone with internet can join. The records are public and anyone can participate in its consensus. These are fully decentralized blockchains also called as un-permissioned blockchains.

R
Ring Signature 

Ring signature in cryptography is the type of signature that is associated with a group of users. All the users in the group that have keys can perform a ring signature. A digital signature is called a ring signature when it is capable of keeping the group member who signed the message anonymously. The anonymity of this scale is achieved by establishing computational infeasibility. Ring signatures are quite similar to group signatures but the difference lies in the aspects that the anonymity of the individual member cannot be revoked. This is one of the substantial ways to increase anonymity in a blockchain.

S
Satoshi 

The Satoshi is the smallest unit of the bitcoin currency which can be recorded on the blockchain. 1 Satoshi = one hundred millionth of one bitcoin (0.00000001 BTC). For even minuscule payments, the denomination is also recorded in millisatoshi (one hundred billionths of a bitcoin).

Satoshi Nakamoto

It is the pseudonym used to represent the developer or group of developers of bitcoin. In October 2008, the first Whitepaper of Bitcoin was released to the mailing list at metzdowd.com and the bitcoin blockchain was deployed on Sourceforge on 9 January 2009. It was for the first time that the double spending issue was circumvented in transacting a digital the currency on a peer-to-peer electronic cash system.

SHA (Secure Hash Algorithm)

The Secure Hash Algorithms in cryptography are a family of cryptographic hash functions. These functions are a U.S. Federal Information Processing Standard (FIPS) and have been collectively published by the National Institute of Standards and Technology (NIST). SHA256 is the most common hash function used in the blockchain which acts as a fingerprint of the data. The Bitcoin uses SHA256 hash function. The input of any length, size or type is mixed and a fixed length (256-bit) output is created known as a hash. There are multiple variants of hash and they differ on the basis of output size, internal state size, block size, message size, and the rounds. Hashes encrypt an input which cannot be decrypted hence known as a one-way function. Although using brute forcing it is possible to decrypt the output but that requires the attacker to try all possible combinations of the input. The process is extremely long which reduces the probability of breaking through the encryption mechanism.

Smart contracts

Smart contracts are automated contracts that self-execute once the terms of the contract are met. It is a computer program based protocol in which the terms of the agreement are coded and are distributed on a decentralized blockchain network. Establishment of smart contracts allows the execution of trusted transactions without any human intervention. It facilitates the execution of agreements when the buyer-seller are anonymous parties and they want to get into a transactional relationship without a central authority. The transactions carried using the Smart contracts can be traced, are transparent, and cannot be reversed. The utilization of smart contracts promise higher security to the transactions over blockchain and also pulls down the cost of transactions.

Sidechains

Sidechains are discrete Blockchain that linked to the main Blockchain to enrich its capability. They are interoperable among themselves as well as the main blockchain and thus protect the network against liquidity challenges, violent fluctuations, security attacks or frauds. Sidechains are considered as new blockchains which remain pegged to the main blockchain and there is no limit on the number of sidechains a blockchain can have. Sidechains take care of their own security and have their independent set of miners. The advantages of Side chains are that they are permanent and they allow multiple cryptocurrencies to interact and become exchangeable.

Softfork

A softfork is a process change to the blockchain protocol because of which the previously generated and validated blocks/transactions are rendered invalid. The old nodes in place are able to identify the new blocks as valid despite the protocol change which makes a softfork backward-compatible. Only a majority of miners are required to use the new set of rules to make the softfork happen.

Solidity 

Solidity is an object-oriented programming language specifically designed to write smart contracts. As a statically typed programming language, its syntax is just like JavaScript. Currently, Solidity is the primary language of Ethereum.

SPV (Simplified Payment Verification) client

SPV clients are lightweight clients. As opposed to a full node client. Generally used to operate a wallet. It does not download and store the whole blockchain but connects to an arbitrary full node and downloads only the block headers. Thus without actually downloading the entire blockchain, these wallets are able to verify transactions.

State Channel 

State channels are pathways that are open both ways and help two users to execute transactions between each other. The private key of each participant is used to sign the transaction to maintain the security of the same. As these channels are off-chain and private, the transactions on these state channels are instant and anonymous. Based on the time and amount of each transaction, the lifespan of the state channels is determined.

Swarm

Swarm is a distributed storage platform that is used to distribute content. The main chain is the Ethereum web three stack. It acts as a decentralized ledger of Ethereum’s public record primarily concerning the dApp code and blockchain data.

T
Token

A tradable asset on the Blockchains is called a token. It is a digital identity of any fungible commodity that can be owned over a blockchain. The tokens were explained as a meta information that was encoded in the blockchain transactions to use the immutability of the same. But today the definition of tokens has transformed into sophisticated smart contracts. These systems use complex permission protocols. There are multiple types of tokens like:

  • Usage tokens – A service token is known as a usage token. Bitcoin is a perfect example of the usage token although owning a bitcoin does not give a user ownership rights of the network but he receives a service for owning the tokens.
  • Work tokens – A work token is a proof of stake token which is used to secure the network along with its usage advantage.
  • Native Tokens – Bitcoin and Ethereum is known as the native token as the block validation leads to incentive distribution.
  • Application Tokens – Ethereum allows development of an application layer on top of the main chain. The tokens that are part of the new chain formed over the Ethereum are known as Application tokens.
  • Asset-backed tokens – Many crypto projects tokenized a commodity like gold or diamond.The token issued to the user in lieu of the underlying asset are called asset-backed tokens.
Testnet

It is a second blockchain which is used by developers for testing the changes to the main chain. This is a replica of the main chain but using this averts the risks of non-tested changes on the main chain.

Transaction Fees (Bitcoin)

The bitcoins can be transacted in a peer to peer mechanism but this transfer requires a certain amount of fees to be paid to the network which is known as transaction fees. The transaction fees collected for each bitcoin transaction is used to give incentive to the miner who verified the transaction. Whenever a new bitcoin block is generated with a successful hash, the transaction details including the transaction fees are stored in the block itself.

Turing completeness

A machine is rendered Turing complete if it capable of performing any computation that any other system can execute. In simple language two machines are turning complete when A can simulate B and B can simulate A. Today all the computational machines Turing-complete as they can simulate each other. The Ethereum Virtual Machine (EVM) is an example of a Turing Complete machine as it is capable of doing what a computer system can do.

W
Wallet

A software program that contains the private and public keys of a user account and helps user communicate with the blockchain. These are used to send and receive cryptocurrencies but they do not actually contain the coins but the keys to these coins. The wallet users can store multiple currencies in the same wallet, send/receive, buy/sell and perform exchanges between the pairs.

Whisper

Whisper mode of communication between two Ethereum users. It allows people send messages over the blockchain using a specific p2p protocol suite. The primary purpose of the whisper is to allow secure communication between two dApps.

Others
51% attack 

An attack on the blockchain where the miners who hold more than 50% of the computing power prevent confirmation of new transactions. This is a very hypothetical scenario but could stall all or some of the payments. In such an event this group of miners can also reverse the transactions and double spend the coins leading to a potential conflict.

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