An A-Z Guide to the Blockchain Technology

ASIC

Short form for ‘Application Specific Integrated Circuit’. Often compared to GPUs, ASICs are specially made for mining and may offer significant power savings.

Bitcoin

Bitcoin uses blockchain as its distributed peer-to-peer (P2P) transaction ledger. Bitcoin users or “miners” (explained further down this list) create new blocks, each of which contains data batches of various timestamped Bitcoin transactions. Whenever any amount of digital currency changes hands, a transaction occurs and is then authenticated across a distributed network of blocks. This is where any user can view the entire transaction history, but the decentralized structure and cryptographic data prevents any tampering or any way to track that transaction to its source.

Consensus

Consensus is a dynamic way of reaching agreement in a group. While voting just settles for a majority rule without any thought for the feelings and well-being of the minority, a consensus, on the other hand, makes sure that an agreement is reached which could benefit the entire group as a whole.

From a more idealistic point-of-view, consensus can be used by a group of people scattered around the world to create a more equal and fair society.

Decentralized/Distributed

The distributed nature of blockchain data is one of its most attractive qualities. There’s no centralized location, no single server to be hacked. Instead, blockchains are hosted on a worldwide network of miners’ computers and copied on each node (see below) in the network. In the case of Bitcoin, this also means each item of cryptocurrency has a tracking number that feeds back into the blockchain transaction ledger but anonymizes any owner data. This is also the reason cryptocurrency is so popular for illegal transactions, exemplified by the online black marketplace Silk Road (and subsequent Silk Road 2.0) run by Ross “Dread Pirate Roberts” Ulbricht, who was sentenced to life in prison last year.

Ethereum

An open source, software programme that (like Bitcoin) uses blockchain technology. Although it’s called a cryptocurrency, Ethereum is more than a currency. It is the ledger technology that companies are using to build new programs — so it’s perfect for innovating, enabling developers to write smart contracts and to build decentralized applications. FYI: Quite poetically, Ethereum’s digital asset is an Ether.

Free Market

Aside from the tech giants accepting cryptocurrency and experimenting with blockchain, the technology is evolving quite a bit at the hands of start-ups shaping a thriving blockchain market. There’s a long list of blockchain start-ups on Angel List, and the types of businesses leveraging the technology range from financial technology (FinTech) start-ups such as SETL to MIT start-up Enigma, and companies such as Slock.it that bring blockchain technology to connected cars, homes, and the sharing economy.

Genesis Block

The first block in a blockchain. It’s the only block in a chain that doesn’t reference a previous one and is generally assigned either number 0 or 1. The genesis block is also a key part of Satoshi Nakamoto lore, with the first-ever block mined on January 3, 2009. The genesis block is part of an initial stockpile of Bitcoin that has never been touched — rumoured to be owned by the real Nakamoto — and currently valued at more than half a billion dollars. It’s the pot of gold at the end of the rainbow.

Hashes

The pieces of code that link one block to another. Hashes are a key mining tool. Hash value is used to verify transactions and as the timestamped links in the chain. Hashes are also used as the basis of creating coloured coins around real-world assets and in building smart contracts.

Intellectual Property

One use case for blockchains is in securing digital assets and intellectual property (IP) that currently sit at the mercy of the internet. It’s another area in which smart contracts come into play, particularly around digital multimedia files such as movies and music. In theory, artists, studios, and content providers believe blockchain could be the answer to piracy. This kind of IP protection could also extend to the use of copyrighted code and software, or something as trivial and commonplace as sharing Netflix passwords or grabbing an image off of Google that’s not labelled for reuse.

Keys

Hashes are the code linking one block to another, but blockchains and cryptocurrencies wouldn’t work without keys. There are public and private keys but, for the purposes of something such as Bitcoin, private key codes are vital. Every Bitcoin address is matched to a private key saved in the wallet file of the Bitcoin owner’s balance. Keys are the passwords of blockchains, except there’s no “forgot your password” button. Most cryptocurrency owners keep backup data because, if you forget or lose your key, anyone with your private key information can spend your Bitcoins.

Ledger

The primary function of blockchain. The cryptography and distributed transaction data keep the ledger secure and tamper-free, making blockchains the definitive way to record every type of digital transaction for accuracy and posterity. What started as the real-time public ledger of every Bitcoin transaction that’s ever occurred has become a plug-and-play ledger technology. One of the most prominent examples is R3, a start-up that has developed a financial-grade blockchain ledger with a global consortium of more than 40 global financial companies, including Barclays, Credit Suisse, Deustche Bank, Goldman Sachs, Morgan Stanley, J.P. Morgan Chase, and many others. This all feeds into the notion of blockchain as the so-called Internet of Finance.

Mining

At last, we come to the miners down in the Bitcoin trenches. Miners have a complicated job. They continually code hashes, which are then used to bundle batches of transactions and build blocks. For each successfully created block, miners earn their own cryptocurrency through both transaction fees and new coins created within the blocks. Think of it like a gold rush where the panhandlers in the stream and miners hacking away at rock walls with pickaxes are actually creating their own gold.

Nodes

Nodes are the cogs running the distributed engine underlying blockchain architecture. Blockchain transactions pass from node to node, being copied and validated along the way to ensure decentralized redundancy and verification. Using the Bitcoin network as an example, every node in a system has a copy of the blockchain, which they can broadcast to other nodes. The nodes are the backbone of blockchain’s decentralized security model and, in terms of cryptocurrency, they also ensure a Bitcoin isn’t spent twice.

Open Source

Here’s a term you’re most likely familiar with. Open source refers to a program in which the source code is freely available to the public. All software comes with a license and open source software is no different — it comes with a license given to it by the OSI (Open Source Initiative) and means that the software meets particular open source criteria — such as granting the right to freely redistribute the software, access to the source code, and the permission to modify that source code and distribute the modified version of the software.

Proof of Stake

An algorithm that reward participant who solves tricky cryptographic puzzles to achieve distributed consensus. Unlike PoW or proof of work, a person can validate transactions and create new blocks that is based on their individual wealth, for example, the total number of coins owned. One of the significant advantages that PoS has over PoW is low energy consumption.

Quantum Computing

For a while now, quantum computers have been viewed as the Achilles’ heel for blockchain technology and the cryptocurrency space altogether. Because of their overpowering advantage in computing speed, quantum computers could theoretically be used to disrupt the activity, not only of a decentralized system or a blockchain, but of any software using any kind of encryption.

Revolution

A good place to start if you’re looking for more information on the disruptive nature of blockchain technology is Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World, a book by tech industry veteran Don Tapscott and his son Alex. The Tapscotts talked more about how blockchains are transforming financial services, the sharing economy, manufacturing, enterprise collaboration, and beyond in Harvard Business Review.

Smart Contracts

Smart contracts have applications in IP and digital rights management, manufacturing and delivery of physical goods, networking and data transfer, and even 3D printing. Smart contracts are also a key part of why banks and financial institutions are attracted to blockchain. They’re heavily used by the R3 consortium and by Ethereum for different applications, and Ethereum has even developed its own Turing-complete programming language called Solidity to code smart contracts.

Testnet

A test blockchain used by developers to prevent expending assets on the main chain. A global testing environment in which developers can obtain and spend satoshis that have no real-world value on a network that is very similar to the Bitcoin mainnet.

Unpermissioned ledgers

Unpermissioned ledgers have no single owner and, therefore, they cannot be owned. The purpose of an unpermissioned ledger is to allow anyone to contribute data to the ledger and for everyone in possession of the ledger to have identical copies. This creates censorship resistance, which means that no actor can prevent a transaction from being added to the ledger. Participants maintain the integrity of the ledger by reaching a consensus about its state.

An example of unpermissioned ledgers is Bitcoin.

Validation

Blockchains wouldn’t work as ledgers without validation. Much of this fall on miners, whose block creation software verifies hashes of transactions when bundling them into blocks. In cryptocurrency and banking scenarios, payment verification is also paramount. This validation happens through node communication in the distributed network, cross-checking a Bitcoin transaction against each node’s blockchain data before sending it through.

Whitepaper

An authoritative guide or report that usually describes the philosophy, technology, and objective of a project or initiative. Whitepapers are often presented before the launch of a new coin or token.

XRP

Also known as Ripple, XRP is a global payments network built on blockchain that’s marketed at international banks. XRP itself is the native currency organizations can use to represent fiat currency, cryptocurrency, commodities, or any other unit of value. Ripple is one of the oldest examples of open payment protocols using blockchain, but there’s a laundry list of companies with different APIs, platforms, and distributed payments networks. Deloitte’s Banking Industry Outlook recently released a report estimating that blockchain-based payment systems could equal the volume of the United States’ Automated Clearing House (ACH) financial transactions network by 2020.

Z System

IBM is openly committed to advancing blockchain technology on many fronts, but the company has even gone as far as offering a Blockchain-as-a-Service (BaaS) platform for developers on the IBM Cloud, and integrating blockchain-based apps (created through the Hyperledger Project) on IBM Z Systems. IBM even plans to leverage blockchains combined with Watson on the Watson IoT platform to make it possible for information from devices such as RFID-based locations, barcode-scan events, or device-reported data to be used with IBM’s Blockchain and sync with distributed ledgers and smart contracts. It’s a brave new blockchain-based world.

An A-Z Guide to the Blockchain Technology was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.