Jargon I wish I knew before learning about blockchain and cryptocurrencies
As you may know, new technologies always come with its fair share of cryptic jargon to separate us from the experts. However, with the blockchain movement growing, and the everyday hero learning about decentralised ledgers and the importance of proof of state, it’s time to break through the jargon barrier.
Even though this list is not the complete dictionary of terms related to digital currencies, this are the terms that always showed up and got me stuck. So I hope I can teach you some new terms for the next time you are reading a whitepaper or news article you can confidently understand it all.
What is Blockchain (without the jargon)?
A blockchain is a database of information that has been verified and secured through the use of multiple computers running advanced mathematics. Because the information isn’t hosted on one location but instead stored across multiple computers, information cannot be modified or deleted only new information added.
Here is a “simplistic” visual representation of a blockchain:
Why is Blockchains so important?
Having a series of information stored across multiple locations and verified with advanced mathematics allows users to trust the accuracy and legitimacy of the information within the blockchain instead of a third-party connection. Removing this third-party connection reduces time, money and effort to the users wanting to transfer information together over the blockchain.
Blockchain (with the jargon)
A blockchain, is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority. — thanks Wikipedia 😀
Further reading for the pros:
What is Cryptocurrency (without the jargon)?
Cryptocurrencies are digital currencies that are secured by advanced mathematics called cryptography.
However, the major confusion with the name “cryptocurrency” is even though all coins and tokens are bucketed as cryptocurrencies, not all act as a currency. The reason for the generalising term for all coins and tokens associated with blockchain is because of Bitcoin. As the first cryptocurrency which was specifically created to be a digital currency, the future similar coins created made the name stick.
Why are cryptocurrencies used?
The founding use of cryptocurrencies with Bitcoin was created to act as a digital currency that is secured by mathematics, decentralised on the blockchain so it can’t be controlled by one group and have a limited supply so it remains a finite resource. It was clear the purpose of Bitcoin as an actual cryptocurrency, however, when looking at other coins and tokens that aren’t being used as currencies, why are they important?
The coins and tokens that were created after Bitcoin are now predominantly used as an exchange of value, whether that be information, actions or dollars. These exchanges occur on their created blockchain, for example, the Ether tokens are exchanged on the Ethereum blockchain.
Fun fact: The first attempt at digital currencies was in the 90’s tech boom, but inevitably died due to many reasons such as financial issues and company breakdowns. Beenz is one example of the 90’s, rewarding you on online actions with beenz. #doitforthebeenz
Cryptocurrency (with the jargon)
According to Merriam-Webster dictionary, a cryptocurrency is any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions.
Further reading for the pros:
What is Decentralisation (without the jargon)?
When we are referring to blockchain technology, decentralisation is being politically decentralised (without a single entity having ultimate power) and architecturally created with the use of various computers that aren’t connected physically, so as to form a barrier against situations where single computers are offline, the entire system is still active.
Why is being decentralised important?
The Bitcoin cryptocurrency and blockchain to support it was ultimately built to remove the financial institutions being the central point of the global currency. This goal to create a global digital currency without the need for the centralisation of its creation, distribution and maintenance insured the ethos of its foundation.
Beyond that, further blockchain companies saw the efficiencies and cost saving possibilities by removing the middle-man between transactions of information and value. ie Ripple is reducing the time and cost for people to send international money around the world.
Decentralisation explained (with the jargon)
Unfortunately, I wouldn’t do you justice if I tried to do better than the Ethereum creator and cryptocurrency celebrity Vitalik Buterin. If you are interested in hearing his very eye-opening explanation, I highly recommend you read “The Meaning of Decentralization”.
Further reading for the pros:
What is Proof of Work and Proof of Stake (without the jargon)?
Proof of Work (PoW) is the method to achieve consensus on adding a new block to the blockchain by having computers (miners) work to solve a PoW mathematical puzzle to verify the transactions on the block. These puzzles can only be solved through brute computational force, and the first miner to solve it receives an award for their computers work.
Proof of Stake (PoS) is a different method to validate transactions by appointing an owner of the block determined by their stake/wealth in the block.
Why is PoW and PoS important?
These methods offer the validation, security and trustless system required for the distributed blockchain to function. It provides security as it deters cyber-attacks such as DDOS (distributed denial-of-service) which can use up the computational resources making the entire system useless. It validates the blocks of transactions added to the blockchain through algorithms so the records added to the distributed ledger can be trusted. With this trust, the fundamental function of removing the third-party services as the transactions can be trusted through the distributed ledger.
Further reading for the pros:
- https://blockgeeks.com/guides/proof-of-work-vs-proof-of-stake/
- https://bitcoin.stackexchange.com/questions/43467/whats-the-difference-between-pow-and-pos
- https://cointelegraph.com/explained/proof-of-work-explained (recommended)
- https://keepingstock.net/explaining-blockchain-how-proof-of-work-enables-trustless-consensus-2abed27f0845
What is Mining (without the jargon)?
Mining is the mechanism to validate new transactions to be added to the blockchain using the PoW method (solving mathematical puzzles based on cryptography with high powered computers). The biggest confusion found with mining is people believe mining creates new cryptocurrencies. However, miners are just rewarded with cryptocurrencies based on the amount of work they have done.
A quick mining video:
Why is Mining important?
As blockchain and cryptocurrencies do not rely on a centralised body to validate a transaction, this is where miners come in. Miners validate the transactions through mathematical problems. Once these problems are solved, the miners are rewarded for their work. And with the more miners being attracted to be rewarded for validating the transaction, the more secure the network is.
The issues with mining:
However, the difficulty of the problems that need to be solved has produced a market of specifically built computers to mine cryptocurrencies, which will constantly increase the difficulty of the problem, making the work required unmatched by the rewards received.
Along with this, these specific computers use up a lot of electricity, with reports saying the Bitcoin miners use more power than Ireland combined.
Further reading for the pros:
What is a Hash (without the jargon)?
The hash function is a one-way mathematical process that converts any digital content into a sequence of letters at a fixed length, and this sequence is a hash. A hash is only ever used for the specific data it was coded from, meaning, if any of the original data is changed, a new sequence of letters, or hash, is created.
Watch this quick video:
Why are Hashes important?
Because of its one way function, hash functions (called cryptographic hashing algorithm) are used to securely write a new transaction onto the blockchain. These not yet confirmed transaction are then validated through the PoW method found in mining, which requires the miner to solve advanced mathematical puzzles.
Further reading for the pros:
What are Dapps (without the jargon)?
A Dapp (pronounced Dee-app, similar to Email) are Decentralised Applications, which are applications that are controlled by no one, cannot be turned off and are always running. Bitcoin was the first Dapp, however, Ethereum has become known as the leader of Dapps with over 1600 applications built.
Why are Dapps important?
Dapps brings the power of the blockchain to the end consumers through problem-solving applications. Without the growth and use case of Dapps, the blockchain technology will struggle to enter the consumer market.
Further reading for the pros:
What are Forks (without the jargon)?
Forks occur when a cryptocurrency conducts a modification to the relationship to it’s associated blockchain. There are two types of forks that can occur:
Hard fork: A permanent change to the programming of the cryptocurrency creates a whole new cryptocurrency which requires an update to use. Ie: Bitcoin and Bitcoin Cash
Soft fork: A change to the cryptocurrency software that doesn’t require an update but invalidates previous blocks. Ie. When Bitcoin upgrades their functionality.
Why are Forks important?
Soft forks will occur naturally as the software and cryptocurrency build upon its functionality. However, hard forks are generally planned to occur as a section of the development team isn’t happy with the direction of the current project and goes out to create a new cryptocurrency.
In the past, these hard forks have been found to be a catalyst to a value spike to the original cryptocurrency and the new, however, some forks are not successful and have ceased to exist.
Prefer videos?
Further reading for the pros:
- https://www.coindesk.com/information/hard-fork-vs-soft-fork/
- https://hackernoon.com/an-explanation-of-cryptocurrency-forks-65d79efe214c
- https://cointelegraph.com/bitcoin-cash-for-beginners/what-is-hard-fork
- https://www.investopedia.com/tech/history-bitcoin-hard-forks/
What about these…
What is a Whitepaper?
A whitepaper is a complete document outlining the new cryptocurrency. It is generally the first piece of information required by investors as it outlines the commercial, financial and technological use case of the new cryptocurrency. Along with this, is a major component needed for an Initial Coin Offering (ICO).
What are Airdrops?
Airdrops are when cryptocurrency enterprises send their tokens to free to their users, generally as a promotional campaign for their up and coming ICO, or as a surprise. With hype being the main reason for airdrops, enterprises generally require the user to complete shareable actions to qualify. However, because airdrops generally occur for brand new cryptocurrencies, the work required for a potentially useless “free” stock is something to consider.
What is Moon?
Moon is a slang term that means the cryptocurrency price will skyrocket.
What is Lambo?
Lambo is another slang term, representing the financial goal of the initial cryptocurrency investors as they perceived the value of their cryptocurrencies would be enough to buy a Lamborghini.
What is HODL?
Originally a misspelling of HOLD, this term is highly used to represent that investors should hold their cryptocurrency investments through the volatility and bear market as the value will increase in the long term. A more recent definition for HODL has been: Hold on for dear life.
Originally published at blog.invsta.com on July 8, 2018.
