Blockchain and cryptocurrency have become increasingly popular in business over the last several years. This presence has recently been augmented by a sharp increase in the value of cryptocurrencies across the board since the beginning of the year. Listed below are 10 commonly used blockchain and cryptocurrency terms and an explanation of each.
Cryptocurrency is a term used to describe virtual money. Cryptocurrencies exist outside the realm of traditional banks. Generation of new currency is regulated based on mathematical calculation. Cryptocurrencies are secured through similar mathematical calculations. Transactions are verified by other participants in the network.
Blockchain technology consists of a few cooperative mechanisms. Among the most valuable assets that blockchain has are immutability and decentralized information storage. When these two strengths come together in one package, the result is an incredibly strong information storage system.
Blockchains store transactions in time-stamped segments known as blocks. Blocks are stored in the order they are verified by the rest of the network.
Immutable is a term that means unchanging or unable to be changed. Immutable
Information storage is a core facet of many blockchain networks. By creating an environment in which information cannot easily be altered, blockchain networks provide a platform for reliable execution and storage of transactions. The peer-to-peer nature of blockchain networks aids in establishing immutability.
Blockchain networks are based upon peer-to-peer protocols. Peer-to-peer protocols allow network users to interact directly without an intermediary party to monitor or interact with their communications. Peer-to-peer protocols enable distributed ledgers to remove the need for intermediary parties to participate in transactions.
5.) Distributed Ledger Technology
Distributed ledger technology refers to a peer-to-peer protocol that stores a copy of every transaction outcome on the computer of every network participant. Distributed ledger technology is being researched for use in banking and corporate environments to increase operational efficiency.
Miners are a major part of blockchain networks that work based on a proof of work algorithm (see our intermediate terminology article for an explanation of proof of work algorithms.) Miners inspect and verify transactions based on a timestamp and transaction ID. Once a miner finds the solution to the puzzle they are given, a new block is formed and sealed with that solution. Other miners then sign off on the block and build a new block on top of that.
Wallets are addresses that are used to hold cryptocurrency tokens for use at a later date. There are several types of wallets. The proper wallet can be determined for each situation by assessing the needs of an individual situation. Hardware wallets provide restricted usage by providing much higher security. Software wallets are easier to use but lower levels of security.
Wallets have a couple of vital parts that allow them to operate. The three main components of a wallet are their address, their public key which is used to send and receive funds, and their private key which is used to accept and sign transactions to release funds. Users should never publish their private keys, send them to other individuals, or share them in any other way.
Addresses are network values linked to wallets that are used to direct the transfer of funds between wallets. Addresses are randomly generated when a wallet is created on a network. It is recommended that users create alternative addresses within their wallets to carry out transactions from in order to protect their funds.
ICO stands for Initial Coin Offering. Much like Initial Public Offerings for publicly held corporations, ICOs serve as a method of raising funds for blockchain projects to proceed with their developmental phases. ICOs are also commonly referred to as tokensales. It is important for individuals to do their due diligence before participating in ICOs just the same as when participating in IPOs.
Centralized bodies which transfer currencies between blockchains and regular currencies are referred to as exchanges. Much like the various stock exchanges that exist, cryptocurrency exchanges act as an intermediary to move money and cryptocurrencies between users and networks.
Please view our article 10 Intermediate Blockchain and Cryptocurrency Terms to Know in 2017 for more information!