Cryptionary: A to Z Guide to Blockchain Vocabulary
The world of blockchain is huge and keeps growing. Wired to trigger the real change in all walks of life, the tech is already starting to show up in many fields and keeps attracting multitudes. However, if you’re hoping to enter the game, you will first need to wrap your head around the obscure blockchain vocabulary. With our handy cheat sheet, it will all start to make sense soon and you’ll speak like a boss in your next crypto conversation.
Truth be told, keeping up with the blockchain lexicon in the fast-paced crypto sphere can be tough. As with any new tech phenomenon, more and more acronyms, jargons and slangs are coming to light. Sometimes it seems like Blockchain has its very own language. What on earth do bizarre words like “hash”, “HODL” or “whale” mean?
If you’re new to the space and feel baffled by the blockchain vocabulary, don’t fret! To help ease you into the landscape, we have put together a glossary of key concepts you will come across on your cryptocurrency journey. Here’s the A to Z Blockchain lingo buster.
Address (or Addy)
A unique string of numbers and letters (both upper and lower case) used to send, receive or store cryptocurrency on the network. It is also the public key in a pair of keys needed to sign a digital transaction. Addresses can be shared publicly as a text or in the form of a scannable QR code. They differ between cryptocurrencies. You can’t send Bitcoin to an Ethereum address, for example.
Altcoin (alternative coin)
Any digital currency other than Bitcoin. These other currencies claim to be better alternatives to Bitcoin regarding features and functionalities (e.g. faster confirmation time, lower price, improved mining algorithm, higher total coin supply). There are hundreds of altcoins, including Ether, Ripple, Litecoin and many many others.
ASIC (Application Specific Integrated Circuit)
A type of computer chip designed specifically to mine cryptocurrency. ASICs are far more efficient than traditional hardware (CPUs and GPUs) as they are a huge improvement in power savings and speed.
A situation where a single malicious individual or group gains control of more than half of a cryptocurrency network’s computing power. Theoretically, it could allow bad actors to manipulate the system – spend the same coins multiple times, stop other users from completing blocks and make conflicting transactions to a chain that could harm the network.
ATH (All Time High)
The highest price ever achieved by a cryptocurrency in its entire history.
ATL (All Time Low)
The lowest historical price of a cryptocurrency.
A tendency of prices to fall; a pessimistic expectation that the value of a coin is going to drop.
A market can be bearish, or a person can be bearish if they feel negatively about the future of crypto.
The very first, and the highest ever valued, mass-market open source and decentralized cryptocurrency and digital payment system that runs on a worldwide peer to peer network. It operates independently of any centralized authorities (meaning no single entity can control it) and allows payments between users without the need for intermediaries.
A package of permanently recorded data about transactions occurring every time period (typically about 10 minutes) on the blockchain network. Once a record has been completed and verified, it goes into a blockchain and gives way to the next block. Each block also contains a complex mathematical puzzle with a unique answer, without which new blocks can’t be added to the chain.
An unchangeable digital record of all transactions ever made in a particular cryptocurrency and shared across thousands of computers worldwide. It has no central authority governing it. Records, or blocks, are chained to each other using a cryptographic signature. They are stored publicly and chronologically, from the genesis block to the latest block, hence the term blockchain. Anyone can have access to the database and yet it remains incredibly difficult to hack.
The technology is considered one of the most significant breakthroughs in the tech world and sure has a bright future ahead. It has also given rise to the whole new blockchain vocabulary that the tech community is using.
A tendency of prices to rise; an optimistic expectation that a specific cryptocurrency will do well and its value is going to increase.
An agreement among blockchain participants on the validity of data. Consensus is reached when the majority of nodes on the network verify that the transaction is 100% valid. Bitcoin’s consensus algorithm involves contributing power in the form of computing capacity, meaning you can only participate by incurring electricity costs. If you play fair and support the system by processing transactions, you are rewarded in Bitcoin and get your money back. Anyone trying to cheat will most likely lose their money, spending too much in costs. It’s a simple game.
A type of digital currency, secured by strong computer code (cryptography), that operates independently of any middlemen or central authorities. With each unit of currency and transaction uniquely encrypted, it’s extremely difficult to counterfeit or manipulate. Some of the most widely recognizable names include Bitcoin, Ethereum, NEO, Litecoin and Ripple, but there are now thousands of different coins out there.
The art of converting sensitive data into a format unreadable for unauthorized users, which when decoded would result in a meaningful statement. Cryptography is used extensively to provide security for many blockchain networks, preventing anyone not privy to the transaction from intercepting information or corrupting the blockchain.
The use of someone else’s device and profiting from its computational power to mine cryptocurrency without their knowledge and consent.
Dapp (decentralized application)
Definitely a buzzword in the blockchain vocabulary. It’s an open-source application that runs and stores its data on a blockchain network (instead of a central server) to prevent a single failure point. This software is not controlled by the single body – information comes from people providing other people with data or computing power.
A system with no fundamental control authority that governs the network. Instead, it is jointly managed by all users to the system. The structure is distributed over a global network of computers, so there is no centralized location to be hacked.
An encrypted digital code attached to an electronic document to prove that the sender is who they say they are and confirm that a transaction is valid and should be accepted by the network.
An attack on the blockchain where a malicious user manipulates the network by sending digital money to two different recipients at exactly the same time (even though they only have enough for one transaction). However, the consensus mechanism on the blockchain plus bitcoin mining make double spending nearly impossible.
Ethereum is an open source, public, blockchain-based platform that runs smart contracts and allows you to build dapps on it. Ethereum is fueled by the cryptocurrency Ether, used for transaction fees, contributor rewards and other services offered by dapps.
Converting data into code to protect it from unauthorized access, so that only the intended recipient(s) can decode it.
A split in the blockchain, resulting in two separate branches, an original and a new alternate version of the cryptocurrency. As a single blockchain forks into two, they will both run simultaneously on different parts of the network. For example, Bitcoin Cash is a Bitcoin fork.
FOMO (fear of missing out)
In crypto, this is the overwhelming sensation that you may miss a potentially rewarding investment opportunity and regret it later. The FOMO mindset urges investors to immediately get onboard a skyrocketing price rally. As you watch a particular coin go up and see all your peers reap immense profits, you get this ‘now or never’ feeling that can eventually lead to irrational decision-making. It’s always a gamble.
Fear, Uncertainty and Doubt regarding the crypto market, a sense of panic that crypto naysayers try to invoke in others. It is a disinformation strategy that involves spreading baseless negativity, fake news and false rumors to undermine the price of an asset and cause traders to sell their holdings. A FUDster is someone who is spreading FUD within the community. The common FUD that we keep getting is that Bitcoin is a bubble.
A fee paid to run transactions, dapps and smart contracts on Ethereum. Any operation takes computing power to complete it, so everything you do on the network comes with a cost. The money is used to reward blockchain participants who process your transactions. The more gas an operation consumes, the more ether you’ll have to pay. While simple processings don’t require much gas (~3-10), more complex instructions can cost you as much as 21,000 gas. The actual fees are then paid in Ether. Gas is also meant to protect Ethereum from abusers and allocate resources on the network.
Bitcoin network members receive the reward for successfully mining a block. Halving cuts that reward by half. Because bitcoins are finite, the reward will continue to halve every 210,000 blocks (approximately every 4 years). The total number of coins that will ever be issued is locked at 21 million. The purpose of halving is to manage the flow of coins in order to counteract inflation.
The process that takes input data of varying sizes, performs an operation on it and converts it into a fixed size output. It cannot be reversed. You can’t reconstruct an input by just looking at its hash. The receiver compares the hash value generated from the signature data to that received with the message. If both values are the same, it proves that a set of data hasn’t been tampered with. The slightest modification to the input will always drastically change the output and warn miners about a fraud attempt. This is therefore a more secure way of processing and verifying transactions.
One of the most frequently used terms in the blockchain vocabulary. It originated as a typo on a crypto forum, when a Bitcoin enthusiast accidentally misspelled the word HOLD and it has since stuck. The word came to describe a long-term investment strategy where you hold onto your coin despite the dramatic price fall, hoping that one day it will boom again. When you HODL, you resist the urge to sell emotionally even during dips in the market. HODL is also now humorously interpreted as “hold on for dear life”.
ICO (Initial Coin Offering)
A blockchain-based fundraising mechanism, or a public crowd sale of a new digital coin, used to raise capital from supporters for an early stage crypto venture. Coins are offered in exchange for already established cryptocurrencies like Bitcoin and Ethereum. Typically, ICOs are unregulated and so there’s a lot of risk associated with them. Before buying in, an investor needs to make sure a startup really has a working idea or product.
Away from Blockchain, it is a book of financial transactions and balances. In the world of crypto, the blockchain functions as a ledger. A digital currency’s ledger records all transactions which took place on a certain blockchain network. Ledgers are immutable, meaning their records can’t be changed once a transaction is confirmed. Coupled with cryptography and the distributed nature of blockchains, this makes them effectively secure and temper-free.
The act of solving a complex math equation to validate a blockchain transaction using computer processing power and specialized hardware. Contributors to a blockchain taking part in this process are called miners. In exchange for their efforts, miners are rewarded with bitcoin for each successfully created block. The first miner to solve the ‘puzzle’, and thus enabling the transaction, is compensated with a newly minted bitcoin. So, mining is also the mechanism that triggers the release of new coins.
Any computing device that connects to the blockchain network. Nodes store a copy of the ledger and support the entire system by verifying new transactions and relaying them to other nodes.
P2P (Peer to Peer)
A type of network connection where participants interact directly with each other rather than through a centralized third party. The system allows the exchange of resources from A to B, without having to go through a separate server. The idea is beautifully simple.
Proof of Stake
A consensus validation method that verifies transactions and rewards participants on the basis of their existing stake in a cryptocurrency (the total number of coins owned) rather than mining for reward. The more you invest in a coin, the more likely you are to be chosen to generate a block, and consequently the more you will earn by participating. Proof of Stake is much less energy-intensive, more environmentally friendly and more cost effective than Proof of Work.
Proof of Work
A blockchain consensus mechanism where miners are rewarded for the work done, i.e. the amount of computational power they have provided. Doing more ‘work’ will get you rewarded with more coins. Users compete to be the first to solve computationally intensive puzzles to verify transactions and create new blocks. By doing this, they prove that their computers have contributed effort to approve a transaction – hence proof of work.
A self-executing, digital contract with the terms of agreement written into the code. The contract makes decisions based on pre-set rules without ever involving a third party. Smart contracts were first introduced and made popular through the Ethereum blockchain. See our guide to smart contracts here.
A unit of value that represents a digital asset built on a blockchain system. A token is usually considered as a “coin” of a cryptocurrency, but it really has a wider functionality. Tokens are a key part of ICOs (see above). They are issued for attracting investment into a new coin project where funders are awarded with tokens in return for actual hard cryptocurrency.
A file that stores all your private keys and communicates with the blockchain to perform transactions. It allows you to send and receive bitcoins securely as well as view your balance and transaction history. A wallet is a core term in the blockchain vocabulary.
An investor that holds a tremendous amount of cryptocurrency. As the name suggests, whales are the biggest swimmers in the crypto pond. Their extraordinary large holdings allow them to control prices and manipulate the market.
Zero Confirmation Transaction
A bitcoin transaction that has not yet been confirmed on the blockchain.
Phew! Good job on making it all the way to the bottom! Your reward? You are now starting to make sense of the vast expanse of the blockchain vocabulary that keeps growing and evolving with the technology. The deeper you dive into the world of crypto, the more new terms you will come across. Start small. Let this glossary be your starting point and continue to build on your vocabulary as you explore the depths and heights of blockchain.