38 Basic Blockchain Concepts You Need to Know

Author: Veer singh

Call this blockchain orientation, call this a refresher course, call this a glossary, or call this a mini-wiki. Whatever you want to call it, there are certain concepts that you need to know if you want to break into the blockchain industry or want to get into cryptocurrencies. Without knowing these terms and their definitions, it might be a bit hard to network at a blockchain conference or to have any idea what is going on in a Telegram group.

We have broken down for you neophytes and maybe some of you returnees having a second go at cryptocurrencies thirty-eight of the most basic blockchain concepts to master. So without further ado, here they are.

1. Block: A block is where the summary and transaction data of the blockchain is stored.

All the transactions and data on Bitcoin block #545496 are displayed here

2. Blockchain: Blockchain technology is the underlying technology behind Bitcoin. It is a growing list of digital records, called blocks, which are linked using cryptography. In theory, blocks cannot be altered or hacked with the current existing technology. Decentralized digital ledgers where transactions are stored allows transactions to be recorded chronologically and publicly. Currently, the technology is primarily used to verify transactions, but with the continuous innovations of the technology it is possible to digitize, code and record practically any type of data into the blockchain.

3. Block Explorer: Block explorer is a tool to check information on wallets, transactions and blocks for a particular cryptocurrency.

Example explorers: Ethereum explorer*, Bitcoin explorer

*The Ethereum block explorer also provides information for Ethereum based tokens.

4. Bitcoin: Bitcoin is the first decentralized cryptocurrency. It is also the first use case of the blockchain technology. Bitcoin uses peer-to-peer technology to operate with no central authority. Transaction management and coin issuance are carried out collectively by the network.

Link to the Bitcoin website

5. Bitcoin Halving: Every four years Bitcoin undergoes halving, which reduces the reward of mining to half. The last halving occured in 2016 and the next is expected to occur in 2020. Current Bitcoin mining reward is 12.5 Bitcoins per block. It will be reduced to 6.25 in 2020.

6. Centralization: Centralization is the process by which the activities of an organization, particularly those regarding planning and decision-making, become concentrated under a single authority. Centralized cryptocurrency is controlled by a government, a company or any other form of centralized organization. Decentralized cryptocurrency is not controlled by any state, government or entity.

Examples: Microsoft, IBM, Twitter, Facebook, etc.

7. Circulating Supply: Circulating supply is the best approximation of the number of coins that are circulating in the market and in the hands of the general public.

8. Coin: A cryptocurrency coin is an encrypted digital currency meant to be used as a form of payment. A coin is a unit of value that operates on its own blockchain, independently of any other platform. It can be used to store value and pay for services, in much the same way that you would use physical money.

Examples: Monero, Bitcoin, Ethereum, Stratis, Dash, etc.

9. CoinMarketCap (CMC): A website that lets you check the market capitalization of multiple cryptocurrencies and assets.

Link to the CMC website

10. DApps: Short for decentralized applications, DApps are similar to applications on the App Store/Google Play but in decentralised marketplaces. A decentralized application is an application that is run by many users on a decentralized network using trustless protocols. They are designed to avoid any single point of failure.

Example DApps: Golem, Status, IDEX, MakerDAO, OmiseGO, etc.

11. Decentralization: Decentralization is the elimination of central authority. Decentralization is used to eliminate a single point of failure. The lack of power with a single authority increases the security of the system. Rather than relying on a central authority to securely transact with other users, blockchain utilizes innovative consensus protocols across a network of nodes, to validate transactions and record data in a manner that is incorruptible.

12. DEX: Short for decentralized exchange, DEXs allow peer-to-peer trading of cryptocurrencies.

Examples: IDEX, EtherDelta

13. Decryption: Decryption is the process of taking encoded or encrypted text or other data and converting it back into text so that you or the computer can read and understand. Decryption is the opposite of encryption.

14. Encryption: Encryption is the process of encoding a message or information in such a way that only authorized parties can access it and those who are not authorized cannot. Encryption is a security patch used for transferring data.

15. ERC Wallets: ERC wallets are Ethereum compatible wallets used to store ERC tokens. Wallets such as MetaMask, MyEtherWallet help you store your private keys.

16. Ethereum: Ethereum is the second largest blockchain network in terms of market capitalization. It is an open-source, public, blockchain-based distributed computing platform and operating system featuring smart contract functionality.

Link to Ethereum website

17. 51% Attack: 51% attack is where a particular entity or a group of miners take control of more than 51% of the mining hash power. This can be used to process fraudulent transactions.

18. Fork: When applied to cryptocurrencies, a fork is an open-source code modification that results in a single cryptocurrency splitting in two. It occurs when a cryptocurrency’s existing code is changed, resulting in both an old and new version. A hard fork is a change to a protocol that renders older versions invalid. A soft fork can still work with older versions.

Few forks that took place in the past: Bitcoin Gold, Bitcoin Cash, Bitcoin Diamond, Ethereum Classic, Callisto, Bitcoin God, ZClassic, etc.

19. Hash: Hash algorithm turns an arbitrarily-large amount of data into a fixed-length hash. The same hash will always result from the same data, but modifying the data by even one bit will completely change the hash. Like all computer data, hashes are large numbers, and are usually written as hexadecimals. The hash changes if there are any changes made to the data stored.

Link to the Bitcoin hash of block 545496

20. IPFS: InterPlanetary File System is a decentralized network which stores bits of data into multiple blocks.

21. Low Cost Transfer Coins: Choosing a low cost transfer coin is vital to saving money. There are multiple coins which offer transfers at low cost.

Examples: XRP, XLM, Nano, Doge, LTC, etc.

22. Market Capitalization: Market capitalization is a well-known metric for traditional securities, but has unique implications in crypto. Market capitalization is a measure of the value of a security. It usually consists of multiplying the amount of outstanding stock shares by the current stock price. In crypto, it’s defined as the circulating supply of tokens multiplied by current price.

23. Max Supply: Max supply is the best approximation of the maximum amount of coins that will ever exist in the lifetime of the cryptocurrency.

24. Mining: Mining is the process by which transactions are verified and added to the public ledger, known as the blockchain, and also the means through which new coins are released. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle.

25. Proof of Stake (PoS): A type of algorithm by which a blockchain network aims to achieve distributed consensus, in PoS the creator of the next block is chosen via various combinations of random selection and wealth and age (the stake). In this system there are no block rewards, so the miners take the transaction fees. PoS networks can be several thousand times more cost effective.

Few cryptocurrencies working on PoS: Dash, NEO, PIVX, etc.

26. Proof of Work (PoW): A type of algorithm by which a blockchain network aims to achieve distributed consensus using mining, which is the solving of computationally intensive puzzles to validate transactions and create new blocks. A reward is given to each miner who solves each block problem. Network miners compete to be the first to find a solution for the mathematical problem.

Few cryptocurrencies working on PoW: Bitcoin, Zcash, Ethereum

27. Privacy Coins: Privacy coins are cryptocurrencies that allow users to make direct transactions in a private manner. They are not observable, traceable, trackable, or linkable in any way. Privacy coins also differ from private, non-anonymous currencies like USD, EUR, and GBP, as well as traditional payment methods like credit cards and bank transfers. That is because fiat payment methods, though they don’t broadcast every transaction to a public ledger, are still centralized and traceable.

Few well known privacy coins: Monero, Zcash, ZClassic, Zcoin

28. Private Blockchain: A blockchain is called a private blockchain (or closed blockchain) when the members of the network are selected before being able to download the protocol and therefore use the proposed service by the network privately. A network based on a private blockchain is not considered to be decentralized by many.

Example: Bankchain

29. Public Blockchain: A blockchain is called a public blockchain (or open blockchain) when anyone can become a member of the network without conditions of admission. In other words, anyone wishing to use the service proposed by the network can download the protocol locally without having to reveal his or her identity or meet predetermined criteria.

Example: Bitcoin, Ethereum, Stratis.

30. Satoshi Nakamoto: Satoshi Nakamoto is the name used by the anonymous person or group of people who developed Bitcoin, authored the Bitcoin white paper, and created and deployed Bitcoin’s original reference implementation.

31. Sharding: Sharding has been a buzzword in the Ethereum community for quite some time. In concept, sharding would improve the scalability of Ethereum dramatically. Other projects such as Zilliqa are also working on sharding. Sharding is a type of database partitioning that separates very large databases into smaller, faster, more easily managed parts called data shards.

32. Signature: A digital signature is a mathematical technique used to validate the authenticity and integrity of a message, software or digital document. Digital signatures are based on public key cryptography, also known as asymmetric cryptography. Using a public key algorithm, such as RSA, one can generate two keys that are mathematically linked: one private and one public.

33. Smart Contracts: Smart contracts are code snippets that execute when a particular condition set for them is met.

Few projects that use smart contracts: Ethereum, Lisk, Stratis, Credits, EOS, Stellar Lumens.

34. Token: Tokens are used to represent digital assets that are fungible and tradable, including everything from commodities to voting rights. Tokens do have value, but they cannot be considered money in quite the same way that a traditional coin can. Tokens are generally hosted on another blockchain, like Ethereum or Waves: 2.0 protocols that allow users to create them using the core coin. Tokens offer functionality over and above that of digital cash. They may deliver value to investors, beyond speculative returns. They may be used to hold votes by the community on key business decisions, or even technical changes to the platform.

Examples of tokens: OMG, CHAT, IPSX, XNK, BCPT, etc.

35. Total Supply: Total supply is the total amount of coins in existence right now (minus any coins that have been verifiably burned).

36. Transaction: A transaction is a transfer of cryptocurrency value that is broadcast to the network and collected into blocks.

37. Volume: The amount of a given coin traded over the past 24 hours is volume. Volume helps with knowing how liquid the market is, i.e., how easy it is to liquidate your coin (how to convert it to fiat or another digital currency).

38. Wallet: A wallet is used for storing and transferring your cryptocurrencies. Different cryptocurrencies have different wallets.

Links to different Bitcoin wallets and Ethereum wallet

The information in the article has been compiled from multiple sources, the primary sources for this article were Wikipedia, Bitcoin.org, Ethereum.org

The author of this article is presenting his own personal views and readers should treat this as such. Thank you for reading, please follow us and share the article if you found it useful.