Blockchain Terms

51% attacks can occur if more than 50% of power in a network is controlled by a single person or group. It enables attackers to execute double-spending (“spend your currency twice”) or censorship of certain accounts by changing the history of transactions.

Altcoin is an abbreviation for “Bitcoin alternative”. The term describes all coins launched after Bitcoin such as Filecoin, Litecoin or Ethereum.

Blockchain is a chain of blocks. It is a chronological list of data sets (“data transactions”) that are connected via cryptography.

Blocks are created in approximately similar time periods on a Blockchain. Blocks are packages of data that can include 0, 1 or multiple transactions. New blocks build on the existing chain of blocks and the more blocks are built on top, the more secure it is.

Block explorers are tools to view the past transactions on blockchains. In the best case, you have access to multiple explorers that get information from multiple sources.

The block height describes the number of blocks connected to a Blockchain. The first issued block has the height 0 and is called the genesis block.

Block rewards are incentives for miners which they receive once they have mined/validated a block and added it to a chain. Block rewards are decided by network participants and consist of a “fixed” cryptocurrency payout, transaction fees or both.

Block time describes the time that passes until the next block is added to a Blockchain.

The Bitcoin cryptocurrency was launched in 2008 by Satoshi Nakamoto. It was the first implementation of blockchain technology and solving the double-spend problem of digital money. Bitcoin is a digital coin used for payment on the Bitcoin blockchain.

Blockchains require a consensus algorithm which defines how the validator for the next block is determined or sets the rules for a majority agreement on the validity of transactions. This process ensures network agreement on the correct data and that blocks are added in a controlled manner.

A cryptocurrency is a medium of exchange (digital method of payment) that is used for transactions on blockchain networks. The term coin is usually used to describe a method of payment that is native to a blockchain such as Bitcoin on the Bitcoin blockchain and Ether on the Ethereum blockchain. Token is a more general term in blockchain and describes any kind of voucher that gives certain entitlements and can be exchanged.

Cryptocurrency addresses consist of numbers and letters and are randomly created by your wallet. Cryptocurrency addresses are used to send or receive transactions but can also contain other data such as messages and function as container.

Cryptography is the science of encrypting and decrypting information. In blockchain, it is an integral part and used for hash functions, in Merkle trees and in wallets to transfer information securely based on a mathematically proven set of rules (algorithms).

dApps are applications that run on a decentralized network. Definitions differ between completely decentralized applications and applications that partly run on a blockchain.

A DAO is a decentralized autonomous organisation. That is a project or organization that runs without human intervention according to business rules specified and enforced by code.

Blockchains are exposed to multiple attack vectors. One of these attacks is flooding the network with requests (spamming) that the network has to serve back and cannot detect whether they are legitimate or not.

Forks happen when there is temporarily or long-term support for more than one chain by developers, miners or people. Miners naturally try to create a block and get a block reward – if their chain is not supported by the network they usually abandon it. A fork is a split from the original, creating two versions of the blockchain in parallel to upgrade a network (soft fork) or to create a new chain (hard fork).

Every block has its own unique hash (“fingerprint”) which is the result of a hash function – it contains both letters and numbers. The hash value of the previous block of a blockchain is integrated into the current block in order to connect the blocks – creating the “chain”. Changing the contents of a block would create a completely different hash for it, disconnecting it from the chain. This makes a blockchain immutable since hackers would have to change the hash of all the blocks.

ICO is an event and method where a project or startup sells digital tokens to raise funds. The buyer can receive rights, claims or nothing – depending on the offering. Often smart contracts are utilized for a secure exchange of coins and payments.

A ledger is a record of transactions. Due to Blockchain technology’s nature, ledgers are distributed and all nodes have a copy. This makes it really difficult to change records (immutable ledger).

Merkle trees are an essential part of the blockchain allowing efficient and secure verification of the contents of large data structures and ensure data integrity. Merkle trees or hash trees summarize all transactions in a block by producing a digital fingerprint of the entire set of transactions. (Read more)

Mining is the process of verifying a block of transactions by solving mathematical problems for rewards in systems utilizing PoW. In blockchains with other consensus algorithms, participants in the validation process are called forgers, stakers or bakers. 

A node is a computer connected to the blockchain network. A node can participate in the network by keeping a shallow-copy of the blockchain (Light Client) or by keeping a full copy of the blockchain (Full Node) or by verifying the transactions as a miner.

A peer-to-peer (P2P) network is a decentralized network with equal nodes with the same capability that are interconnected to each other. Participants deal directly with each other through a single mediation point.

In a permissioned blockchain the participants can restrict the validators and decide who is allowed to participate in the consensus finding and general rights in the network. A permissioned blockchain can be private or public. Bitcoin and Ethereum are the best known public permissionless networks.

Public and private key are part of a cryptographic system of two keys and created during the address/wallet creation. The public key can be shared with others who can encrypt a message with it. Only the one with the matching private key can decrypt this message. The private kes is used to send and receive transactions and should, therefore, be kept secure and only be known to the owner. (Note: Do not forget to back up the private key)

Satoshi Nakamoto is a person or group that invented and launched Bitcoin in 2009. Satoshi Nakamoto is an online presence, however to this day it is still unknown who is behind the name. One Satoshi is the smallest unit of Bitcoin: 0.00000001 BTC

Smart contracts were first conceptualized by Nick Szabo in the 1990s. Smart contracts are self-executing contracts which do not require any middlemen. In blockchain, smart contracts are essentially small computer programs stored on a blockchain that work with an IF-THEN-ELSE mechanism. The distributed ledger is used to store contracts (computer programs).

Every blockchain transaction on a public permissionless network is validated through network consensus which requires some effort. The validators are incentivized to put in the work of validation and receive transaction fees of a block – fees that also prevent network spamming. In some distributed ledger technologies, there are attempts to eliminate transaction fees or cover transaction fees for others since they are a barrier to adoption.

The blockchain wallet is a digital wallet that allows users to store their cryptocurrency holdings. There are different types of cryptocurrency wallets such as paper wallets, software and hardware wallets – often also categorized in hot and cold wallets. Technically, a blockchain wallet is a software program that allows users to buy, sell, and check balances for their digital currency.