You’ve likely heard the buzz around blockchain technology. You may not have Satoshi Nakamoto on speed dial or $1.5M in your crypto wallet, but hey, one step at a time. If you’re a blockchain beginner, you probably didn’t understand any part of that last sentence.
But, fear not, in part one of my blockchain series, I’m going to explain the most important terms to fill your blockchain knowledge basket.
Here we go:
No, this does not refer to the small multi-colored plastic bricks used to build castles (even though Lego allegedly released a blockchain collector set).
A block is a file that contains a permanent record of a transaction and a reference to the previous block. Blocks are organized into a linear sequence over time and can never be altered or removed.
Blockchain can store and replicate data, kind of like nature’s ultimate blockchain, DNA.
Blockchain is a distributed database of transactions that can permanently record anything of value. Blockchains store blocks of information that are identical across a network where the database is either public (available to anyone) or permissioned (limited to who can read the chain, make transactions, and write new blocks). This technology is seen as the next big thing across industries because it’s decentralized, trusted and secure.
- Genesis Block
Like the book of Genesis, the genesis block was written first.
A genesis block, also known as block 0, is the first block in a blockchain.
I’m sure you’ve heard this term in the context of politics and law, but it’s now become the holy grail of blockchain.
Decentralization is the distribution of powers over a less concentrated area – a term often used when talking about a government, a company, or a city’s structure. In blockchain, decentralization means there is no single person in control and so there is no central point of failure. In turn, blockchain is more resistant to failures and attacks.
This is what’s behind the dictatorship of the current data system – a.k.a the raison d’etre of blockchain.
Centralization is the concentration of control under a single authority. Centralized data systems like Facebook and Google are located, stored, and maintained by a single operator. It’s much easier to collect and track data in centralized platforms, but these platforms are also more susceptible to hacking.
Cryptocurrency is so significant that it was recently added to the Merriam-Webster dictionary, along with chiweenie and kombucha.
A cryptocurrency is a digital currency used as a medium of exchange. It is stored on the blockchain and uses encryption techniques to create and verify exchanges. Cryptocurrency has no intrinsic value, no physical form, and is not supplied by a central authority, such as a bank.
Ah, the art of secret messages. Is it too late to apply cryptography to a message I sent to the wrong person?
Cryptography is a method for protecting information by encrypting it into a format that is unreadable to an unauthorized user. The data cannot be read unless you hold a key that allows you to decrypt the information into plain text. Cryptography in cryptocurrencies helps verify the integrity of data and secure every transaction that takes place within the blockchain.
It’s commonly referred to as “virtual money” or “cryptocurrency” but it’s not part of the monetary system – yet.
Bitcoin is the first and best known decentralized, open source cryptocurrency that runs on a global peer-to-peer network. Satoshi Nakamoto is the unidentified person or group of people, believed to have invented Bitcoin back in 2009. In Satoshi’s Bitcoin announcement he claimed the creation of a new electronic cash system that uses a peer-to-peer network to prevent double-spending. Increase in demand has put the value of a Bitcoin at nearly $9,000 as of today. Early investors paid just six cents for a Bitcoin, so a $100 investment made seven years ago would be worth about $15 million today.
Much more than just virtual money.
Ethereum, like Bitcoin, is a blockchain-based open source platform with a tradable currency (Ether). However, Ethereum is more versatile. Bitcoin offers one application of blockchain, a P2P electronic cash system, while Ethereum enables developers to build other decentralized applications on top of the platform. Over 1,000 applications have already been built on the Ethereum network.
If you recently heard the fake news story about a man earning $1M selling Chuck E. Cheese tokens as Bitcoins, then you know that tokens are intangible.
But just because they’re intangible, doesn’t mean they’re not valuable. In general, a token is a representation for something of true value of which we define. And in crypto, tokens represent the digital assets built on a blockchain platform. Owning a token allows you to participate in a blockchain ecosystem, whether it’s an existing ecosystem or a future one.
This article is part one of a three-part series. Sign up for our email to be the first to know when the rest of the series publishes.