As cryptocurrency and blockchain become increasingly popular terms throughout business, it is important to understand what terms mean with respect to their communities. Below are 10 commonly used intermediate blockchain and cryptocurrency-related terms and their explanations.
Blockchain networks require participants to agree on transaction results and network changes in order to progress. Consensus on transactions is normally reached through the use of either puzzles or shareholder voting. Proof of work algorithms have network participants solve mathematical puzzles. Proof of stake networks require network shareholders to agree on transaction outcomes.
2.) Smart contract
Smart contracts are coded, autonomously executed transactions which store funds or other assets in escrow until certain conditions are reached. Once the criteria are met, the funds and assets are released to the appropriate parties. Smart contracts are often used to regulate business actions and enforce security over ICO funds.
3.) Proof of work
Proof of work algorithms utilize the computing resources of network participants known as miners in order to solve mathematical problems to reach consensus on transaction results. Proof of work is a costly method of reaching consensus, so proof of work-based blockchain networks reward miners for finding the solution to the puzzle with network tokens. These tokens can be used to transact on the network or sold for traditional currencies or other cryptocurrency tokens via exchanges.
4.) Proof of stake
Proof of stake networks reach consensus by having network shareholders vote to accept transaction results, providing each shareholder a portion of the transaction fee based on their share in the network. Proof of stake networks are often more expensive to exploit because a user would have to throw away their own money with a significant likelihood of devaluing the tokens they purchased to do so.
5.) Cross-chain transaction
Cross-chain transactions are transactions that occur between blockchains. Protocols such as the Lightning Network allow users to trade between chains, currently this is only feasible between VertCoin and LiteCoin, two altcoins that have activated the Segregated Witness upgrade required to use Lightning. The only other way to transact between blockchains currently is through exchanges.
Multisignature is a term used to describe cryptocurrency wallets that need two or more signatures to release funds. Multisignature wallets are commonly used to store funds for smart contracts and ICOs. Multisignature hardware wallets are becoming increasingly popular among users due to advances in fingerprint and other biometric technologies.
Altcoin is a term used to describe cryptocurrencies other than bitcoin, which is often regarded as the original cryptocurrency that used blockchain networking principles.
8.) Store of value
Store of value is a traditional finance term used to describe resources like gold that do not have a significant real-world use, but can be sold off or traded in exchange for goods and services. Store of value is an intermediate state between easily used currencies and assets that are harder to liquidate.
9.) Bullish and bearish market trends
Bull market and bear market trends are terms originally used in stock trading. A bull market indicates that stocks are in strong demand and likely to see an increase in price. A bear market is a term used to describe a decrease in buying pressure, which usually relates to a falling stock price.
10.) Value transfer
Value transfer is a term used to describe an exchange of currency or assets between two users on an exchange, stock market, cryptocurrency network, or other market. Ripple is one such market where value exchange commonly occurs.
Please let us know if you would like to see any other blockchain and cryptocurrency related terms in the comments below!