Cryptocurrency is associated with an address. Blockchain stores addresses along with the amounts and movements of cryptocurrency for each address. Usually address is a public key and is a combination of characters and numbers. Addresses can be stored in a wallet or even written down on a paper.
Cryptocurrency can be mined by different methods (CPU, GPU, etc). ASIC stands for Application Specific Integrated Circuit. Unlike CPU and GPU, ASICs are made specificically for a certain prupose. In other words, ASICs are specialized hardware and therefore they outperform general-purpose devices.
Bitcoin is the world's first decentralized digital currency. Bitcoin runs on a global peer-to-peer network and does not require a central bank or single administrator. Transactions take place between users directly, without an intermediary.
Block is a data unit in blockchain that holds a batch of valid transactions. The transactions are hashed and encoded into a Merkle tree. Each block includes the cryptographic hash of the prior block in the blockchain.
In blockchain the blocks are connected to eath other. Block Height simply means the number of blocks connected on the blockchain.
During the mining process new blocks are created. Creation of a new block is associated with solving a certain cryptographic puzzle. When a miner solves this puzzle, a new block is created. Each new block contains certain number of cryptocurrency. Block Reward serves as an incentive for miners.
Blockchain is a continuously growing database of linked blocks. Unlike traditional databases, blockchain is append only. In other words, in blockchain new blocks are appended to it but previous blocks cannot be changed. This feature makes blockchain an ideal choice for a cryptocurrency. However, blockchain can be used to store any type of data that needs to be written once and never altered in the future.
Blockchain explorer is software used to explore a blockchain. Usually blockchain explorer is implemented as an online tool and allows viewing all blocks, past and current. Blockchain explorers also provide additional useful informatoin like network hash rate and transaction growth.
A ledger that is maintained by a central agency. For example, government agencies and banks normally have central ledgers used for storing different types of transactions and records.
Confirmation is an event when a transaction is hashed and added to the blockchain. In decentralized systems transactions are broadcast on the network. Each transaction is added to a certain block. As new blocks are appended to the blockchain, so the number of confirmations grows. Currently in Bitcoin when a transaction gets 3 to 6 confirmations, it can be considered as non-reversible with no risk of double spending.
Consensus is the agreement by distributed nodes on the validity of a transaction. When consensus is reached, all ledgers of the nodes contain the same transaction data. Good consensus must satisfy four key properties: decentralized control, low latency, flexible trust, and asymptotic security.
Cryptoassets are digital assets that use cryptography for security. While cryptocurrencies and cryptoassets overlap, they are not exactly the same. A primary use case for any currency is to be used as means of payment. On the other hand, assets can be used as a store of value or speculation and making payments may not be it's primary purpose. Various tokens issued on the platforms like Ethereum are classified as cryptoassets but they are not viwed as a cryptocurrency.
A cryptocurrency is a digital currency that uses cryptography for security. Unlike fiat currencies (US dollar, Euro, etc), cryptocurrencies cannot be counterfeit. True cryptocurrencies like Bitcoin do not have a central issuing authorize. Thus, cryptocurrencies are immune to government interference or manipulation.
Dapp is an application that is running on a decentralized system (hence the name Decentralized app). Unlike traditional applications, Dapps do not use other backend systems or servers. The application fully "lives" on the blockchain. In other words, both the application's program and data are stored on the blockchain.
DAO stands for Decentralized Autonomous Organization. It's a type of an organization that is run through rules encoded as computer programs called smart contracts. Blockchain makes DAO possible. Once the rules are written on the blockchain, they cannot be reversed.
Distributed ledger is a ledger in which data is stored across a network of decentralized nodes. Contrast this to a central ledger where data is stored on the servers of a single authority.
Difficulty is a measure of how easy it is to mine a new block. Cryptocurrencies like Bitcoin regulate difficulty automatically. As more and more mining power is added, so the difficulty goes up. Theoretically difficulty can down as well.
Digital signature is a certain data (normally a text of alphanumeric characters) attached to a document or a digital message proving its authenticity. For example, if you send an email and sign it digitally, the recipient will have a reason to believe that the email was created by you and that the email was not altered while in transit. Digital Signatures use cryptography.
Double spending is a central problem in digital currencies. Double Spending problem exists because unlike physical assets, digital assets are easy to replicate. Bitcoin was the first cryptocurrency to successfully solve the double spending problem without relying on a central authority.
Ethereum is a decentralized platform that runs smart contracts. Ethereum is built on top of a custom blockchain. Ethereum addresses problems of downtime, censorship, fraud or third-party interference.
EVM is a system of Ethereum that runs smart contracts. EVM stands for Ethereum Virtual Machine. Technically, EVM is a Turing-complete virtual machine that can execute arbitrary computational operations. The EVM enables executing untrusted code in a secure fashion by computers all over the world.
Fork is a situation when a blockchain diverges into two potential paths forward. Forks may also occur when two or more blocks have the same block height. Finally, when there is a change in protocol, it also results in a Fork. Sometimes forks are used to reverse effects of hacking. More often, forks are used to add new features to a blockchain. Forks can be accidental or intentional depending how they happen. Intentional forks are either soft forks or hard forks.
A genesis block is the first block of a blockchain. Modern versions of Bitcoin number it as block 0, though very early versions counted it as block 1.
Hard Fork is a type of fork. When hard fork happens, the software validating transactions according to the previous rules will see the blocks produced according to the new rules as invalid. Hard Fork requires all nodes and users to upgrade to the latest version of the protocol software.
Hash is a mathematical function that takes input data and produces a fixed-size output data. Hashes are used heavily in cryptocurrencies (and in cryptography generally). One of the uses of a hash function is to make sure that the input has not been altered. For example, if we calculate a hash of a certain text, even if a single character is changed, the hash of the changed text will be different. Because of this property (among some other properties), hashes play central role in cryptocurrencies. The process of mining in essence involves calculating many hashes.
Hash Rate is a measure of how many hashes a computing system can calculate per second. We can speak of Hash Rate for a single computing device or for a collection of devices.
Mining is a process of validating blockchain transactions. Each block contains a batch of transactions. Through the mining process miners validate these blocks. Technically the process is very straightforward and involves calculating of hashes to solves the so called puzzle. Because the miner that successfully solves the puzzle gets the block reward, mining provides incentives.
Mining Pool is an online system that gathers computing power from several miners. Mining Pools started when the difficulty for mining increased to the point where it could take years for slower miners to generate a block. Before that each individual would mine on his/her own (often called solo-mining). Mining pools may contain hundreds or thousands of miners using specialized protocols.
Multi-signature (often called multisig) addresses are special addresses that require more than one private key to authorize the transaction. Multi-signature address is generally used to divide up responsibility for possession of cryptocurrencies.
Node is a program running the cryptocurrency software and it normally maintains the transaction ledger. Primary role of a node is to validate transactions. Nodes make blockchain more resilient to attacks.
Normally blockchain cannot access external world. However, often this is required. For example, a smart contract may need to get currency rates or a weather forecast. Oracles act as bridges between blockchain and the external world.
Peer-to-peer (often called P2P) is a type of network and application architecture when the tasks or workloads are partitioned between peers. Participants of a P2P network deal directly with each other without a central server or system. The P2P architecture was popularized by the file sharing system Napster, originally released in 1999. It suits ideally for creating a decentralized cryptocurrency and thus is used by practically all cryptocurrencies.
Public Address is a hash of the public key. Public Addresses can be shared with anyone so that the other party can send cryptocurrency to the address.
Private Key is associated with every cryptocurrency address on blockchain. Private Key allows you to access cryptocurrency stored on the address. You should always keep the Private Key in secret and you should never share it with anyone. Private Keys can be stored in a text file, in a software or hardware wallet or simply written down on paper.
Proof of Stake
Proof of Stake (often called PoS) is a consensus algorithm. Proof of Stake allows nodes to confirm transactions based on the amount of cryptocurrency owned. The more cryptocurrency a node owns, the more confirming power it has. For a more detailed review please refer to our blog post.
Proof of Work
Proof of Work (often called PoW) is a consensus algorithm where nodes confirm transactions by actively participating in mining. Proof of Work requires consumption of electricity and computing power. For a more detailed review please refer to our blog post.
SCRYPT is a cryptographic algorithm used in a number of cryptocurrencies. It was popularized by Litecoin and Dogecoin. SCRYPT does not require as much computing power as SHA-256.
SHA-256 is a cryptographic algorithm used in a number of cryptocurrencies among them in Bitcoin.
Smart Contract is a program that lives on blockchain. Smart Contract encodes certain rules (as computing instructions) and data. Participants of the network enforce Smart Contracts. Smart Contracts were popularized by Ethereum. For more details please refer to our Smart Contract related blog posts.
Soft Fork is a type of fork. In contrast to a Hard Fork, a Soft Fork is a change of rules that creates blocks recognized as valid by the old software. In this sense, Soft Fork is backwards compatible.
Testnet is an alternative blockchain to be used for testing. Major cryptocurrencies provide testnet along with the main blockchain.
Transaction Block is a block that contains a collection of transactions that are hashed and added to blockchain.
Cryptocurrency transactions involve transaction fees. Normally, miners get those transaction fees when they successfully mine a new block.
Wallet is a file that stores private keys. Often Wallet is called the application used with the wallet file. Wallets are used to view and create transactions. Wallets can be implemented fully in software. There are also hardware wallets. These are specialized devices that run special software.
All decentralized cryptocurrencies depend on the consensus achieved by the nodes. When a single entity manages to control 51% (i.e. more than half) of the computing power, such entity may block valid transactions and issue conflicting transactions and thus harm the network.