The Beginner’s Glossary for the Emerging Blockchain Landscape
I’m collecting words and their meanings and relationships for the reader who is new to the blockchain and cryptocurrency landscape. This functions as a documentation of my learning and observations, and it may be helpful to you.
The words are presented in the order in which I encounter and become familiar with them, and will hopefully be useful to you as you get your bearings.
This is a non-technical orientation.
What do you really need to know?
You can drive a car (or hire someone to drive you) without knowing how to build one.
You can ride in a plane without understanding the physics behind it.
You can use the internet or a smartphone without knowing how it works.
There are depths and dimensions of knowledge, useful to different people at different times for different reasons.
There is the knowledge of function and creation and also the knowledge of meaning or relevance.
For instance, perhaps you don’t know how to build a spacecraft or have a deep understanding of the laws of physics that make such a thing possible. Your knowledge base of how it functions or is created may not be very deep. But once it exists, you might have some really keen ideas for how to use it, how to market or sell it, how it is relevant, what it means for different people or industries. Your meaning or relevance knowledge may be significant.
The reverse is also true.
People build things without necessarily having a keen sense of what it will mean or how it will be relevant. They probably have a speculative sense, but once it is released and begins to interact with other humans and market forces, the actual outcomes may be quite unexpected to those with primarily functional or creative knowledge.
Language of the Landscape Facilitates Active Participation in the Landscape
Often, those who build have a different perspective and knowledge base than those who end up using that which is built.
In this way, once a product or creation is released into the world it begins to take on a life of its own. People create things with one intention, and the creation will be used in unexpected and unintended ways. There is potential for both beauty and horror in this.
So the idea of knowing all about a thing is not necessarily useful. Recognize that every person holds a perspective and particular stake in that view.
Choose an entry point for learning and use that learning to begin to engage in the space. Continue to explore, learn, and contribute to shaping the space.
When you understand some of the features of a landscape, then you can participate within it more easily.
This matters because that which we build always reflects aspects of the builder, seen and unseen, conscious and unconscious. So the more perspectives and variety of people engaging with technology and participating in its creation, the more likely we’ll build something that is of service to more people in more ways. We increase the benefit and application by being involved.
That begins with language.
This is a kind of technology.
You can think of it as a kind of infrastructure upon which things are created or move.
You can think of it like railroad tracks. They provide the foundation upon which trains and railroad cars move. Those trains and cars can carry lots of different kinds of things.
You may also hear it described as a protocol — like how “http” is a protocol, Hypertext Transfer Protocol.
So in the same way that there was Internet before Hypertext Transfer Protocol, and how HTTP is the foundation for how data moves (or communicates) on the World Wide Web. . . there was Internet before there was blockchain, and blockchain is a protocol that is the foundation for movement of other things — like digital money and other data.
Blockchain is interesting to many people because of how it works, and what you can build or create with it.
Here are some things about blockchain:
- It’s like a ledger (a book for keeping track of economic transactions). In the same way that a ledger keeps track of money — how much to whom from whom — blockchain records how much a person has, how much they send to someone else, and that it was received by the other person.
- It’s decentralized. No single organization or person is in charge of it.
- It’s distributed. So, if a ledger was a book and one person could to write in it, then — in contrast — the information on blockchain is distributed across vast numbers of people who don’t even know each other and who are all verifying and keeping copies of the information.
- You can also think of it like a database. If a ledger is a specific kind of database — it keeps track of money and transactions — blockchain keeps track of other kinds of information and data, too. It’s function is not limited to financial transactions, even though that’s how it’s initially been used.
Some people get excited about the ability of blockchain to keep track of “who owns what.” Others see potential to use it as a record for other important information, like birth certificates.
You may hear it described as “a peer-to-peer (P2P) network” or “open source global network.”
Ok. So if blockchain is a kind of technology, what’s it useful for? What’s a use case?
Well, the first use case was payments: using blockchain to send money from one person to another.
Or put another way: one of the things that runs on blockchain is cryptocurrencies, like Bitcoin.
This word can refer to the specific currency, Bitcoin (BTC), and it can also refer to the specific blockchain that supports it.
It can get confusing because when it was first created the same word was used to describe both aspects: the technology, and the digital currency.
Every cryptocurrency has its own blockchain.
Bitcoin was the first cryptocurrency, so its been around the longest.
It was also the currency of choice for a website called Silk Road, an online marketplace where people could anonymously buy illegal drugs, guns, and hire hitmen. All transactions on Silk Road happened in Bitcoin.
There are lot of other things you can learn about Bitcoin — where it comes from, how it’s created, what the value fluctuation has been, why people in the community are so polarized about it, and so on.
But for the purpose of getting oriented, just know that it is one of many cyptocurrencies and remains one of the most visible.
Many people are excited about it, for different kinds of reasons.
This word is used to describe a category of digital asset, or alternative currency, which includes Bitcoin and other digital currencies. This is the newly invented currency that is created outside the purview of governments and traditional banking systems.
“Crypto” speaks to “cryptography” or “encryption” —not “crypt” like a final resting place for dead bodies. The transaction is encrypted (or encoded) for security. Like “cryptic”.
This is to distinguish from the money in your pocket or in your bank account — US dollars, British pounds, Euros, Rwandan francs, Japanese yen, and so on — these are all fiat currencies and are created by a centralized political entity.
Cryptocurrency is decentralized. It isn’t backed or guaranteed or issued by a central authority. There’s no one in charge. There’s no customer service hotline.
Every cryptocurrency has its own blockchain (sometimes called a network).
- Ethereum (ETC) has Ether
- Lumen (XLM) has Stellar
- Litecoin (LTC) has the Litecoin Network
You may also hear name-brand cryptocurrencies described as “native assets”, as in, “Lumens are the native asset of the Stellar network.”
fiat / fiat money / fiat currency
This is a currency issued by a government regulation or law. Also described as “legal tender.” This is the paper money in your pocket, the lucky penny on the sidewalk, the quarters you use at the laundromat.
Fiat money is centralized currency. There is a central authority in charge of regulating and producing it.
Sidebar: How easy is it to move money across the world?
One reason people are excited about cryptocurrencies is that it also makes it easier for people to send money across international borders, globally.
A buyer in Kenya can order something from a seller in China, and just send money electronically using a cryptocurrency — rather than going through traditional banks, which can be costly and time-consuming and risky. (Listen to Laura Shin’s interview with BitPesa CEO Elizabeth Rossiello to learn more about this subject!)
Or, a migrant worker in Saudi Arabia can send a small amount of money to family in the Philippines over the blockchain — without the cost of using a traditional service like Western Union. (See Abra to learn more about this subject!)
So, some people get excited about the ways that blockchain and cryptocurrency can serve the financial needs of people who are not served by traditional banking systems.
Currency exchange is when people trade one kind of money for another kind of money.
Imagine you have US dollars in your pocket, and you get on a plane and land in Switzerland. You can’t spend US dollars there, you have to get the local currency. So, you go to a currency exchange and you say, “How many Swiss francs can I get for twenty US dollars?” They will exchange your money and also keep a percentage as a service fee.
Imagine someone says, “I rented this 2-bedroom apartment in Thailand for just 7,500 baht!” You might think, “How much is that in US dollars?” You’re asking about the exchange rate.
How much of one kind of money can you get for another kind of money?
Some people trade foreign currencies based on predictions of what the exchange rates will be. Forex trading describes that work.
If you have one kind of money and you want to trade it for a different kind of money, you do that on an exchange.
In the world of blockchain and cryptocurrency, there are exchanges where you can give fiat currency (like US dollars) and get cryptocurrency (like Bitcoin or Ethereum).
Coinbase is one example of a company that operates an exchange for cryptocurrencies. Their exchange is called GDAX.
Some people want the currency because of the way you can use it to send money to other people and places. It’s useful because of how you transact with it.
Some people are excited about it from a currency exchange perspective, and the way it functions as something that can be traded just as you would any other foreign currency.
Some people are excited about Bitcoin because they believe it will continue to increase in value — meaning, if they exchange twenty US dollars for some Bitcoin today, the value of that Bitcoin will go up and up tomorrow and the day after that. Later, they can exchange those Bitcoin for many more dollars than they initially bought it for.
People have passionate opinions about this. They may become assertive or even angry in talking about what’s happening in this part of the landscape.
token / tokenization
In the town where I grew up — Santa Cruz, California — there’s an amusement park on the beach. It’s called The Boardwalk, and it has this big arcade with all kinds of games: video games, skeeball, air hockey, whack-a-mole, and more.
In order to play any of the games, first you need to get some tokens. They’re about the size of a quarter, and you’d get four for a dollar. There was a machine where you could put in $1, $5, or $10 and the tokens would drop out into a little silver dish— clink! clink! clink! clink!
Some games took two tokens, some took four. You used the tokens to transact in the space. (Some of the games, like Skee-ball, issued red tickets for certain skills. . . you could exchange those red tickets for prizes. My favorite was candy, it was a colorful stick — different colors and flavors — like a candy cane but no hook. Each stick of candy was 10 red tickets.)
If you lost your tokens, too bad.
If you didn’t use all of your tokens, you couldn’t trade them back for dollars. You were stuck with them.
In the blockchain and cryptocurrency landscape, a company can issue a token which will be useful only for transacting in that company’s ecosystem. Like how the arcade tokens were only useful in The Boardwalk’s ecosystem.
Kik is one company that announced they will release a token. They are doing this as a way to raise money. They already have a product and platform. The idea is that you can buy tokens now, they’ll build some new things, and then you can use your Kik tokens (called Kin) in their ecosystem to purchase the product or service they’re building.
Based on what you’ve read so far in this Glossary, read this excerpt about the Kik token announcement. Does it make sense to you?
“We’re one step closer to launching Kin and integrating it into Kik, which will be the first mainstream adoption of cryptocurrency,” said Ted Livingston, Founder and CEO, Kik Interactive. “Kin will fuel new experiences in communications, information, and commerce inside of Kik, and will also serve as a foundation for a new decentralized ecosystem of digital services, bringing a fair and sustainable business model to the market.”
Kik is creating Kin as an ERC20 token on the Ethereum blockchain that will be integrated into Kik as the primary transaction currency.
ICOs / initial coin offerings
A company can issue a token even before there is an actual product or service to exchange it for. It’s kind of like crowd-funding — people pay money because they’re excited about the project, believing it will come into existence, and then their tokens will be valuable.
“ICO” sounds a lot like “IPO” (initial public offering) but they are different.
An initial public offering is an offering of stock — an ownership stake in the company, a regulated security — to the public.
An initial coin offering is an offering of a token — with zero ownership stake — to the public.
ICOs are getting a lot of attention because of just how much fiat currency is being raised with no ownership or equity stake given in exchange — often on the basis of speculation or enthusiasm, and without anything actually built yet. There is no fiduciary duty.
People have strong opinions about this.
Some see it as innovative and brilliant — a way for founders to side-step traditional methods of fundraising through the Venture Capital community.
Others see it as foolish and high-risk — a way to scam people out of money and create a bubble that won’t support any real value.
The regulatory landscape of ICOs is still evolving.
As of this writing, China has banned ICOs as a method for raising money.
Begin using these words and having conversations with others. Keep an eye out for articles and read about what’s happening in the space.
Many people anticipate blockchain touching every industry in the same way that the internet touches every industry. You don’t need to be “an internet company” to use it in your business, or to email your friends and family.
When you hear people use words you don’t understand, interrupt them and ask them to clarify. Remember that people will explain things through the lens of their point of view — so they may cast something as marvelous or treacherous. Remember to note their opinion of what the thing means as well as their description of what the thing is.
Also ask questions that seem obvious to you — but might be a blind spot for the speaker.
Be curious. Explore. Make friends.
And remember that you are a welcomed participant in this space.
This is your world.
You belong here.
Learning the language and helping to shape the vocabulary and conversations is an important part of it.
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