The ABC of Blockchain and Cryptocurrencies: key concepts and terms you need to know. Part II
Part II: From I to W
I is for …
ICO: Which stands for Initial Coin Offering, sometimes referred to as crowdsales. An ICO is a fundraising tool used by companies, especially start ups. The inspiration for the name derives from IPO (Initial Public Offering), when a company floats on the stock market by releasing shares in the company which can be bought by the public. The key difference with an ICO is that you don’t acquire shares in a company (with all the legal ramifications that includes). Instead, you exchange fiat or crypto currency for coins or tokens issued by the company. So, what are these tokens? Essentially, they are digital coupons issued on a blockchain and used for operations within the network or product being developed by the company itself. Therefore, any potential value a token or coin might have depends heavily on the success of the network. When you purchase coins in an ICO, you are basically exchanging something which has real value now (eg. fiat currency or established crypto currencies like Bitcoin) for something with potential future value. It’s important to note that ICOs are, at present, unregulated and as such carry high risk.
L is for …
Ledger: Understanding blockchain and its importance is all about understanding ledgers and how they work. That’s because blockchain’s most obvious value is as a ledger, albeit a distributed one. But first, what is a ledger? It is a log of transactions that have taken place. And a distributer ledger is a digital record of these transaction which is held in multiple copies across a network. These copies are constantly updated to match each other. Distributed ledgers enable transactions to be verified by anyone in a network.
M is for …
Mining: Put simply, mining is a way new tokens of cryptocurrency are created. Another way to think of it is as a way of allocating computer power to carry out transactions on a network — and in return for this computing power, you receive tokens. Transactions on a network — such as the creation of a new Bitcoin — are encrypted, and solving these encryptions requires significant computing power. Miners race to be the first to solve these equations, and are rewarded with a fee if they succeed.
N is for …
Node: Networks that use blockchain need numerous computers within their network so that transactions are verified and logged multiple times. A computer in a blockchain network is referred to as a node. Having nodes scattered around a network enables it to operated a distributed blockchain network.
O is for …
Oracles: Blockchain networks are based on smart contracts, and these smart contracts are executed when certain conditions are met. For example, a smart contract may be set up to send a payment when certain tasks have been completed. Sometimes these smart contracts need additional information or data from outside the blockchain in order to confirm that the defined conditions have been met. This additional data for triggering the execution of a smart contract is provided by oracles. Put another way, oracles act as a bridge between the real world and the blockchain, and can input data from the real world which will trigger a smart contract to execute.
P is for …
Peer-to-Peer (P2P): P2P refers to the sharing of information directly between two members of a network. This information does not need to pass through a server.
And
Private Key: To access the cryptocurrency tokens in your wallet, you need to prove who you are, and you do this through Private Keys. These act as passwords, and are kept hidden from anyone except the owner of the wallet. They can be stored offline — called cold storage, which carries less risk — or on exchanges — which is riskier but enables you to trade and exchange your cryptocurrency tokens.
S is for …
Smart Contract: Smart contracts execute certain actions automatically using blockchain technology. Conditions for the contract’s execution are pre-defined, and when those conditions are met, the contract is automatically executed.
T is for …
Token: A token is an individual coin on a blockchain network. Tokens give value to a transaction within a network.
And
Transaction Block: Blockchain networks are built in blocks (hence the name). When a number of transactions have been executed on a network, these transactions are collected into a block, hashed (given a unique digital finger print) and added to the blockchain. This is a transaction block.
W is for …
Wallet: Your cryptocurrency wallet is your way of receiving and spending cryptocurrencies. Your wallet stores the public keys and private keys that control the cryptocurrency you own.
