Blockchain Glossary

 

51% attack

When an entity − such as a Bitcoin mining pool − controls 51% of the hash power of a network.

 

Because majority rules on the blockchain, if this occurs that single entity could control all confirmations.

altcoin

A cryptocurrency other than bitcoin. Usually, they have been created to solve a problem that bitcoin has. Some examples are: Litecoin, Ethereum, and Ripple.

ASIC

 

Application Specific Integrated Circuits

 

Chips designed to optimally perform a specific task, e.g. bitcoin mining.

Bitcoin

An open source, decentralised digital currency that runs on a peer-to-peer network

Bitcoin Cash

A hard fork in the bitcoin ledger that took place in August 2017 that created as separate cryptocurrency that is traded apart from Bitcoin.

Bitcoin Maximalism

“Bitcoin maximalists often hold that, although the world’s leading digital currency by market cap may have issues with scalability, smart contracts applications, and more for the time being, that there will be a point in the future at which the bitcoin network provides everything that investors want in a digital currency. In this way, maximalists are unapologetically in favor of (or at least in agreement about the inevitability of) a bitcoin monopoly at some point in the future.” (Investorpedia)

bitcoin scalability problem

As of 2019, there is a limit on the amount of transactions the bitcoin network can process. The causes are:

 

(1)    The average block creation time is 10 minutes and

(2)    The maximum transaction processing capacity is between 3.3 and 7 transactions per second.

 

The result is a bottleneck when the number of transactions desired increases.

block

 

“Transaction data is permanently recorded in files called blocks. Blocks are organized into a linear sequence over time (aka the block chain). New transactions are constantly being processed by miners into new blocks which are added to the end of the chain. As blocks are buried deeper and deeper into the blockchain they become harder and harder to change or remove, this gives rise of bitcoin’s Irreversible Transactions.”

Block height

The number of blocks in a blockchain.

Blockchain

A ledger containing information about every bitcoin transaction. It is organized as a set of records (called blocks) with 1 block per transaction.

 

·        The concept of the blockchain was first proposed in a series of 1990s articles by physicists W. Scott Stornetta and Stuart Haber.

 

Byzantine Fault Tolerance (BFT)

 

The ability of a peer-to-peer system to continue to operate correctly even if some of the nodes fail or act maliciously. Blockchains implement BFT by using consensus algorithms.

 

How can a distributed network of computer nodes agree on a decision if some of the nodes are fallible, dishonest, or malicious? This is Byzantine Generals’ problem and it leads to the concept of Byzantine fault tolerance.

 

Byzantine Generals’ Problem

A logical dilemma faced by Byzantine generals during a battle who have communication problems when trying to agree on their next move.

 

1.      Each general has its own army and that each is in different locations around the place they intend to attack.

2.      The generals need as a group to agree on whether to attack or retreat.

3.      After the decision is made, it cannot be changed;

4.      All generals have to agree on the same decision and execute it in a synchronized manner.

5.      One general is only able to communicate with another through messages, which are forwarded by a courier. This means that the messages can be delayed, destroyed or lost.

6.      Even if a message is successfully delivered, one or more generals may choose to deceive the other generals.

 

Putting in another way, the majority of participants within a distributed network have to agree and execute the same action in order to avoid complete failure.

 

The only way to achieve consensus in these types of distributed systems is by having at least ⅔ or more reliable and honest network nodes.

 

This means that if the majority of the network decides to act maliciously, the system is susceptible to failures and attacks (such as the 51% attack).

 

chartalism

 

A theory of money which argues that a country’s fiat currency has value because of the country’s power to levy taxes.

 

Georg Knapp coined the term in his State Theory of Money (1905). He argued that “money is a creature of law” not a commodity. He contrasted this with “metallism” – as embodied at by the Gold Standard – where the value of a unit of currency depended on the quantity of precious metal it could be exchanged for.

Code-chaining

The technique used to link of sequential blocks in the blockchain.

 

Miners structure Bitcoin transactions into a block. Blocks are then linked together sequentially by a special code, where each transaction in the block plus the previous block’s code is used to form this new code. The next block repeats this process, and so on.

 

·        Code-chaining all blocks ensures the permanency of prior transactions – you can’t change information in prior blocks without also changing all subsequent blocks.

·        These linked blocks are the blockchain.

colored coins

a bitcoin that has metadata attached to it

 

A set of methods for representing and managing real world assets on top of the Blockchain. It works because Bitcoin’s scripting language allows storing metadata on the blockchain. This can be used to give asset manipulation instructions.

Confirmation

 

Successfully hashing a transaction and adding it to the blockchain.

confirmation

 

A block chain consists of a set of blocks. Each block is a set of new Bitcoin transactions. When someone sends a bitcoin to someone else, the transaction first goes into an unconfirmed transaction pool.

 

Next, a miner take this and other transactions from the pool, verifies that they are valid (i.e. that the person actually owns the bitcoin they want to spend) and groups them into a block.

 

The new block is set at the top of the blockchain and the transactions in it are considered confirmed.

consensus

 

When all of the network’s participants agree on the validity of a transaction.

consensus achievement

When the participants of a peer-to-peer blockchain network all agree on the current state of the blockchain.

consensus protocol

A set of rules that is used to achieve consensus on the validity of data in distributed systems. The rules are designed to promote reliability in networks that could contain unreliable nodes.

 

The consensus protocol that bitcoin uses is called proof-of-work (PoW).

Delegated Proof of Stake (DPoS)

A consensus protocol that uses delegation to reduce the amount of processing needed to validate a blockchain.

 

It achieves this by using a voting system that allows multiple participants to outsource to a third-party the processing needed to generate and validate new blocks.

 

The voting power is proportional to the number of coins each participant holds.

Distillation

The situation where each component in a network extracts knowledge from downstream models by training a proxy network to learn the outputs from their inputs.

 

With distillation, each call to a neighboring component only involves a single hop, and standalone inference models can be extracted from the network at any point.

distributed ledger

(aka shared ledger)

 

A database that is shared and synchronized across a network. A participant at any network node can own an identical copy of it, and any changes made to the ledger are copied to all participants.

Dogecoin

Created by Billy Markus and Jackson Palmer, it is based on the Litecoin protocol and uses Scrypt as a proof-of-work scheme. Unlimited coins can be produced, thus it’s an inflationary coin, as opposed to Bitcoin which is deflationary because the number of coins is limited.

EOS

A blockchain protocol powered by the EOS’s cryptocurrency. It emulates most of the attributes of a real computer (e.g. CPU, RAM, and hard-disk storage) but these resources are distributed equally among EOS cryptocurrency holders. It also operates as a smart contract platform.

 

The EOSIO platform was developed by the private company block.one and released as open-source software on June 1, 2018. In order to ensure widespread distribution of the native cryptocurrency at the launch of the blockchain, one billion tokens were distributed as ERC-20 tokens by block.one. This provided the distribution to allow anyone to launch the EOS blockchain once the software was released.

 

ERC-20

 

ERC is an acronym for Ethereum Request for Comment, and 20 is the number that was assigned to the standard.

 

A technical standard used for smart contracts on the Ethereum blockchain for implementing tokens. The majority of tokens issued on the Ethereum blockchain are ERC-20 compliant. The ERC-20 standard defines a common list of rules for Ethereum tokens to follow within the larger Ethereum ecosystem, allowing developers to accurately predict interaction between tokens. These rules include how the tokens are transferred between addresses and how data within each token is accessed.

 

Ethereum's native token, ether, does not conform to the ERC-20 standard. To enable the ability to use ether on platforms requiring ERC-20 compliance, users can convert ether to a "wrapped" token, commonly known as "WETH".[6][7] The wrapped tokens are held in a smart contract which maintains a 1:1 peg to ether.[

Ether

Ethereum’s currency. It is used to incentivize people to run the Ethereum DAPP on their computer.

Ethereum

A blockchain-based decentralised platform that allows the scripting and running of smart contracts. Its token is called the Ether. In essence, it allows code to be stored and executed on the blockchain.

Etherium classic

The original Etherium. It consists of the Etherium users that refused to modify the block chain to reimburse people who lost money on the Dao hack. What is now called Etherium is the reimbursement block chain.

Crypto Assets

 

A term more broadly encompassing than digital currencies; it includes assets such as utility tokens, security tokens, and payment (or exchange) tokens.

 

1.      Payment/exchange tokens: Crypto-payment instruments such as Bitcoin.

2.      Utility tokens: Tokens that are used to move resources within a network but are not used as currency outside of that network; most examples of this are Etherium-based projects.

Problem: The SEC considers these to be securities, thus without proper regulatory compliance, many Ethereum-based projects are by default in violation of strict financial regulations.

3.      Security tokens: Utility tokens that try to solve the above problem by achieving regulatory compliance and be functionally similar to traditional securities

Fiat money

Currency that a government has declared to be legal tender. It is not tied to any physical commodity – e.g. it can’t be exchanged for a certain amount of gold – so it has no intrinsic value.

FLP Impossibility

 

A (proved) theorem that states that in an asynchronous system with crash failures (e.g. a node stops functioning), it is impossible to find a consensus algorithm that will satisfy all of the following:

·        agreement (the nodes will agree on the same value),

·        liveness (the nodes will eventually reach agreement) and

·        fault tolerance (even if a node fails, all of the healthy nodes will still reach consensus).

fork

Another version of the blockchain that runs on a different part of the network. There are hard and soft forks.

Full node

A software client running on bitcoin’s p2p network that stores the full blockchain.

 

·        Full nodes verify transactions against their full version of the blockchain.

·        If the full node approves the transaction, it is transmitted to a special type of full node – called a miner – that is allowed to record blocks of transactions into the blockchain.

full node

A program that fully validates transactions and blocks.

genesis block

The first block generated for a blockchain. For example, bitcoins first 50-coin block was generated by Nakamoto in 2008(?) when he was the primordial bitcoin miner.

Glass-Steagall Act

1933 bill that decreed that commercial banks and investment banks must remain separate. Repealed in 1999s by the Clinton administration with support from Republicans, thus the repeal was bipartisan. Perhaps, led to 2008 financial crisis.

Gradient

A fancy word for a derivative, i.e. the rate of change of a function. It's a vector (a direction to move) that points in the direction of greatest increase of a function.

 

To find the gradient, take the derivative of the function with respect to x, then substitute the x-coordinate of the point of interest in for the x values in the derivative.

hash

“A hash algorithm turns an arbitrarily-large amount of data into a fixed-length (usually hexadecimal) string. The same string will always result from the same data, but modifying the data by even one bit will completely change the result.

 

Bitcoin uses the SHA-256 hash algorithm to generate verifiably “random” numbers in a way that requires a predictable amount of CPU effort. Generating a SHA-256 hash with a value less than the current target solves a block and wins you some coins.” (https://en.bitcoin.it/wiki/Hash)

 

hashcash

Adam Back’s proof-of-work system that Nakamoto would use as the foundation for bitcoin mining.

 

Here’s how it’s used with email: A hashcash stamp is added to the email header to prove that the sender has expended a modest amount of CPU time calculating the stamp. This shows that since the sender has taken a certain amount of time to generate the stamp, it is less likely that it’s spam.

Hodling

bitcoin hoarding

hot wallet

Private key info that is stored on an online computer. A malicious hacker can, thus, enter via the internet, access your info, and steal it.

 

As opposed to a cold wallet, where the info is offline.

ICO

Initial Coin Offering

An (as yet) unregulated way of raising funds for a new cryptocurrency venture. In an ICO campaign, a chunk of the cryptocurrency is sold (at what is hoped to be a bargain price) to early backers of the project.

 

Ethereum is an example of a successful ICO. In 2014, the project was announced, and its ICO raised $18 million in Bitcoins or $0.40 per Ether. The project went live in 2015.

Irreversible Transactions

 

“When used correctly, Bitcoin’s base layer transactions on the blockchain are irreversible and final. It’s no exaggeration to say that the entirety of bitcoin’s system of blockchain, mining, proof of work, difficulty etc, exist to produce this history of transactions that is computationally impractical to modify.

 

In the literature on electronic cash, this was often referred to as “solving the double-spending problem.” Double-spending is the result of successfully spending some money more than once. Bitcoin users protect themselves from double spending fraud by waiting for confirmations when receiving payments on the blockchain, the transactions become more irreversible as the number of confirmations rises.”

Lightning network

A network of payment channels that allows multiple bitcoin transactions before making a change to the ledger.

 

·        You open a connection, x transactions occur, the channel is closed and then at that point the bitcoin ledger is updated.

·        This is an attempt to solve the Bitcoin Scalability problem.

·        To perform as intended, the Lightning Network needed transaction malleability fix. This was done using SegWit.

Litecoin

An altcoin that differs from Bitcoin in that:

(1) it allows mining transactions to be approved 5 times faster than Bitcoin

(2) it allows about 4 times more coins to be created than does bitcoin (84 million to 21 million)

(3) it uses a different and more memory intensive proof-of-work algorithm than Bitcoin

Mem pool

The number of unfinished transactions on the block chain. You can view a graphic of this here: https://www.blockchain.com/charts/mempool-size

 

metallists

A theory of money that believes that currency should have intrinsic value – e.g. promoters of a gold standard.

 

As opposed to chartalists who believe that the currency should be viewed as just a symbolic token representing a promise of reimbursement by the state.

mining

The computational validation of blockchain transactions. For doing this, the miners are paid bitcoins

mining pool

A group of miners working together to leverage their powers.

Neural network

A series of algorithms that endeavors to recognize underlying relationships in a set of data through a process that mimics the way the human brain operates.

 

Neural networks are an example of machine learning, where a program can change as it learns to solve a problem.

 

The first artificial neural network was invented in 1958 by psychologist Frank Rosenblatt. Called Perceptron, it was intended to model how the human brain processed visual data and learned to recognize objects.

Node failure types

The main types of failures in distributed systems are:

crash failures — a node comes to a halt. This means no messages are sent or received and no progression in execution is made.

 

omission failures —a node doesn’t send or receive a message. However, as the state is preserved, the node can subsequently resume correct behavior. If every message gets omitted, we get a crash failure

 

Byzantine failures —a node responds with arbitrary messages, or does not respond at all. This can be caused by, for example, software bugs or by malice.

 

peer-to-peer (P2P) network

A network of computers where each acts as a server with no central server coordinating activities.

Price discovery

 

The process by which buyers and sellers reach agreement on the price at which they’ll trade.

 

For example, the trading interface on any crypto exchange will show the order book, a display of buy and sell order information.

On the buy side, bids (offers to buy Bitcoin at a certain price) are listed

On the sell side, asks (offers to sell Bitcoin at a certain price) are listed.

 

When a bid equals an ask, the proper price of bitcoin at moment has been discovered and, hence, a trade can be made.

proof of stake (PoS)

A type of consensus protocol that requires that participants in the network have power within the network proportionate to how much a stake they have in the network. For example, if Bitcoin was PoS, the more coins a participant, such as a miner, has the more mining power they would have.

 

The PoS protocol is the most common alternative to PoW. It was designed to solve some of the problems that arise on PoW-based blockchains, such as the exorbitant power and hardware costs associated with mining.

 

In a PoS blockchain validation of new blocks depends on the number of coins being staked. The more coins a participant holds, the higher the chances of it being chosen to be a block validator. Thus, while PoW systems rely on external investments (e.g. power consumption), PoS systems are rely on an internal investment (e.g. in the system's cryptocurrency).

 

proof of work (PoW)

A type of consensus protocol that stipulates that participants in the blockchain network (e.g. Bitcoin) perform an expensive computer calculation (e.g. mining) in order to create a new block on the blockchain.

 

Hashcash is the algorithm used to implement Bitcoin’s PoW.

Satoshi

The smallest denomination of a bitcoin.

SegWit (Segregated Witness)

 

A July 2017 soft fork in the bitcoin transaction format the goal of which was to solve:

 

(1) bitcoin's transaction malleability problem, and

(2) the blockchain size limitation problem that was reducing transaction speed.

 

The implemented result enabled the Lightning Network of micropayment channels. This solves the scaling problem by enabling almost unlimited instant, low-fee transactions to occur "off chain."

 

Note that some mostly China-based bitcoin miners were unhappy with this, so promoted an alternative plan, which led to the creation of Bitcoin Cash.

SHA-2 (Secure Hash Algorithm 2)

 

 

It’s the way of hashing that’s used by bitcoin.

 

Designed by the US NSA. The SHA-2 family consists of six hash functions that are 224, 256, 384 or 512 bits, e.g. SHA-224, SHA-256, SHA-384, SHA-512/256. Bitcoin uses the SHA-256 algorithm

Smart contract

A self-executing contract whose terms of agreement are executable code that is stored in a blockchain.

 

·        The concept was invented and the term coined by Nick Szabo. See his 1996 essay: Smart Contracts: Building Blocks for Digital Market

 

·        Once a smart contract has been released into the Ethereum network it can’t be changed unless all the computers on the network agree

 

Solidity

Ethereum’s programming language. It allows you to write smart contracts that run on DAPPs.

stateful vs. stateless

 

Whether something contains info about its current state or not. For example, smart contracts are either stateless or stateful.

 

(1)    Stateless logic -- which is supported by Ripple, Bitshares, and EOS -- does not retain state internally. This makes it easier to build large, secure systems.

(2)    Stateful logic does retain state internally, and it is supported by Ethereum, Lisk, and DFINITY, among others.

Sybil attack

 

An attack on a peer-to-peer network where the attacker subverts the network's reputation system by creating a large number of pseudonyms. The attacker then uses this multitude of identities to influence the network. This type of attack is named after the subject of the book Sybil, a case study of a woman diagnosed with a multiple personality disorder.

symmetrical anonymity

The ability to hide the identities of both parties to a transaction. Bitcoin has this. DigiCash didn't because only one of the parties was anonymous, hence it had asymmetrical anonymity.

systemic risk

Crisis in one Institution ripples out and puts other instructions in crisis - e.g. the 2008 crash in mortgage lending causes the stock market to crash and threatened the solvency of the whole American banking industry.

Tensor

A mathematical object similar to but more general than a vector, represented by arrays of numbers, or functions that transform according to certain rules.

 

If a tensor has only magnitude and no direction (i.e., rank 0 tensor), then it is called scalar.

 

If a tensor has magnitude and one direction (i.e., rank 1 tensor), then it is called vector.

 

If a tensor has magnitude and two directions (i.e., rank 2 tensor), then it is called dyad.

 

The concept of tensors has its origin in the development of differential geometry by Gauss, Riemann and Christoffel. The tensor calculus (also known as absolute calculus) was developed around 1890 by Gregorio Ricci-Curbastro and originally presented by Ricci in 1892.

 

transaction identifier (txid)

Bitcoin transactions are identified by a 64-digit hexadecimal hash called a transaction identifier (txid).

Triffin Dilemma

 

First identified by economist Robert Triffin, this is the conflict of interest that arises between short-term domestic and long-term international objectives for a country whose currency is the global reserve currencies. Triffin pointed out that the country whose currency is the global reserve currency must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, and that this must lead to a trade deficit.

wallet

 

 

A software program that stores your public and private keys. It allows you to interact with the blockchain so you can monitor your balance, buy and sell currency, send money, etc.