If you’re new to the world of cryptocurrency and the blockchain, it’s easy to feel overwhelmed by all the new words and phrases you’ll come across. What is a hash? Or a DApp? And what on earth does “hodl” mean?
Here’s the only blockchain and cryptocurrency glossary you’ll ever need.
51 Percent Attack
The blockchain’s most significant weakness from a security standpoint. An entity on a blockchain only needs 50%+1 to control the entire network, allowing them to do almost anything they want: spend the same coins twice, prevent validation of certain transactions, stop miners, etc. Learn more in our article on blockchain security and Bitcoin transactions.
The blockchain is made up of blocks. Each block is akin to a page on a traditional paper ledger; it contains a list of recent transactions. When a block is completed, it is added to the end of the previous block, thus giving rise to the word “blockchain.” Each block also contains the solution to its mathematical puzzle. Without this answer, the block cannot be added to the chain.
The block height is the number of individual blocks in a blockchain. The first block is Height 0. It is also known as the Genesis Block.
A distributed ledger that records all the transactions and smart contracts for a cryptocurrency or platform. The blockchain is replicated on several thousand nodes all around the world.
You cannot keep your cryptocurrency in your bank account or under your bed. Instead, you need to keep them in cold storage.
Cold storage typically comes in three forms: a printed QR code that you keep somewhere safe, a USB drive, or a specialized hardware wallet. See our recommendations for the best cold wallets for cryptocurrencies.
A transaction receives confirmation when it’s been successfully hashed and added to the blockchain. For Bitcoin, most companies will require six confirmations before processing a transaction.
A decentralized digital currency that can be used for goods, services, and transfer of assets. The first cryptocurrency was Bitcoin. It went live in January 2009.
DApp is short for “decentralized app”. Unlike a regular app (which uses centralized servers to run its code), a DApp runs on a decentralized peer-to-peer network. The most well-known mainstream example is CryptoKitties, a cat breeding game. Popular exchange EtherDelta is also a DApp.
Decentralized apps also need a frontend. That requirement differentiates them from smart contracts, which only run on the backend. Learn more about what decentralized apps are and how they’re used.
Fiat currency is regular national currency like the U.S. dollar, British pound, and the euro. It is declared legal tender by a government but is not backed by physical assets like gold.
A blockchain fork can arise for several reasons. Perhaps it’s necessary for security, maybe part of the community wants to take the project in a different direction, or perhaps new governance rules are added to the blockchain’s code. A hard fork will make previously invalid blocks/transactions valid, while a soft fork will make previously valid blocks invalid.
Bitcoin’s code dictates that only 21 million coins can ever be in existence. To manage the flow of coins, the reward for discovering a valid block is due to half at certain times. The reward was originally 50 BTC. That fell to 25 BTC in 2012 and 12.5 BTC in 2016. Once 64 “halvings” have occurred, the supply of new Bitcoins will cease. That’s expected to happen sometime in the next century.
The hash rate refers to the number of hashes that a cryptocurrency miner can perform every second.
Hashing is a cryptographic term that refers to turning an input of any length into a fixed-length output. In the world of the blockchain, the input is every transaction that’s ever occurred, meaning the output is a direct representation of the blockchain’s current status. A change to the input (such as an edited transaction) would drastically change the output and alert people to the attempted fraud.
Hodl is a cryptocurrency meme for holding on to your crypto assets rather than selling. The meme was born in December 2013 when a user who’d drunk one too many beverages made a typo on a popular Bitcoin forum. You can still see the original thread on bitcointalk.org.
Hot wallet refers to cryptocurrency storage that’s connected to the web. Coins kept in an exchange fall under this category. Due to security vulnerabilities, you should not keep large amounts of coins in a hot wallet.
As cryptocurrencies grow in popularity, an increasing number of start-ups launch coins. Each of them promises to fix, address, or improve a particular aspect of the crypto landscape. These new coins are made publicly available via ICOs (initial coin offerings). They are like the crypto version of a stock market IPO.
We end with Lambo. It’s a phrase you will see time and time again in forums and chatrooms. There’s nothing technical about this one—it’s just the car we’re all going to buy when crypto finally makes us rich!
The Lightning Network is a possible answer to Bitcoin’s inherent scalability problems. Using smart contract functionality, it allows payments to happen instantly. It even allows from cross-blockchain payments, as long as both use the same cryptographic hash function. With specific regard to Bitcoin, the Lightning Network is still in its infancy.
Because of the cryptographic nature of cryptocurrencies, verifying transactions requires an enormous amount of computing power and specialized hardware. In exchange for the computing power, people who solve (and thus, authorize) a transaction receive some cryptocurrency for doing so. This process is called mining.
In 2017, coins would explode in price seemingly overnight. The entire sector’s market cap went from $15 billion in January to $600 billion in December. Ripple was the biggest winner; its price increased 28,963 percent over the 12 months. For comparison, the S&P 500 went up by 19.4 percent. The phenomenon of massive gains by a single coin is known as mooning.
A node is a computing device on the blockchain. It is responsible for verifying transactions and keeping the distributed ledger up-to-date.
Most blockchains—including Bitcoin—allow anyone to join them. This creates some risks; the blockchain could become vulnerable to a 51 percent attack. A permissioned ledger means only verified people can join the blockchain.
However, it’s still not perfect. Who is setting the criteria for verification? And who is doing the verifying?
If you want to send or withdraw coins, you need to use your private key. Anyone who knows the key can access your funds, so you need to guard it carefully. If you lose your private key, you will lose access to your funds forever.
If you want to receive cryptocurrency, either from an exchange or other people, you need to provide them with your public key (also known as a public address). Sharing the key has no ill-effects from a security viewpoint.
A Satoshi—named after Bitcoin founder Satoshi Nakamoto—is the smallest unit of Bitcoin that can be recorded on the blockchain. It has a value of 0.00000001 BTC.
In addition to the cryptocurrencies (a.k.a. tokens or coins), some blockchains also support smart contracts. The most prominent smart contract network is Ethereum.
Smart contracts allow non-currency assets to exchange hands on the blockchain without the need for a middleman. Assets could include membership records, insurances, or even real estate.
Any Other Cryptocurrency Terms We Missed?
Of course, the deeper you dive into the world of crypto, the more terms you don’t understand you will come across. If you’d like us to explain anything, reach out in the comments below.
Read the full article: The Blockchain and Cryptocurrency Glossary: Common Terms to Know