Block chain technology is used in many different business functions. But despite its popularity, many people are confused about what it is and what its capabilities are.
Blockchain is a distributed ledger technology that functions as a decentralized and highly secure database. A blockchain network consists of many nodes that contain a copy of the database. This makes it so a failure of one or more nodes does not affect the accessibility of the database.
Transactions that occur within the blockchain are recorded and added to the previous transaction block. The blocks are joined together using encryption to create a chain of transaction events. The encrypted chain makes it theoretically impossible to alter, interfere or access the data contained within the blocks.
The blockchain technology market is expected to reach a valuation of nearly $400 billion by 2028, according to a recent report by Grand View Research. This is a projected compound annual growth rate of 82.4% over the next eight years. Most of this growth can be attributed to increased interest in cryptocurrencies. However, blockchain uses in other market verticals are also expected to drive a portion of this projected growth.
Below is a list of common blockchain terms that beginners can reference as they learn more about this technology.
Address. A blockchain address is a collection of unique numbers and letters that points to a specific destination where cryptocurrency can be sent and received within a blockchain network.
Altcoin. Any blockchain-based coin or token that is considered an alternative to Bitcoin. Popular Altcoin examples include Ether, Litecoin and Dogecoin.
Attestation ledger. To prove the authenticity of a cryptocurrency transaction and to verify that a transaction has been completed, a record book -- also called an attestation ledger -- is used to show a receipt of the transaction.
Bitcoin. First created in 2008, Bitcoin is the first cryptocurrency that uses a decentralized model with no need for a central bank.
Block. A record that stores data -- commonly transactional in nature.
Blockchain. A series of blocks that are bound together using cryptographic signatures. Because of the use of secure encryption methods and a distributed database structure, blockchains are helpful in securing important data such as cryptocurrency.
Blockchain storage. An emerging technology for decentralized data storage. It's appealing because it's transparent, verifiable, traceable and tamper-proof.
Byzantine Fault Tolerance (BFT). A mechanism used to adapt to node failures or malicious attacks where the distributed system can continue operating.
Chain of Custody (CoC). The complete history of ownership. A chain of custody helps prove data integrity and tamper-proof protections.
Coin. The use of blockchain to represent the value of a digital asset that is native to the blockchain network. Examples of coins include Bitcoin, and Altcoins such as Ether, Litecoin and Dogecoin.
Cold wallet. A method of storing cryptocurrency that is not connected to the internet. Cold wallets are added protection against malicious activities to steal or disrupt the integrity of digital coins/tokens.
Cryptocurrency. A digitized form of currency that is secured with cryptography and decentralized networks using blockchain technologies.
Cryptography. The science of creating secure communications using codes. These codes are protected so only the sender and receiver of the information can access the contents of the communications.
Digital identity. A digitized identity that operates on the network and is attached to users, businesses and connected devices. Blockchain is one way that digital identities can maintain integrity.
Distributed ledger. A database that has been developed to be distributed/replicated across many nodes on a network. Blockchain is a type of distributed ledger.
Ethereum. An open source blockchain platform and cryptocurrency developed in 2013 that is currently the most active blockchain in the world. The platform enables other developers to build distributed, blockchain-backed applications. The native cryptocurrency of the platform is called Ether and is Bitcoin's main competitor.
Exchange. A business that provides a convenient online location for the exchange of cryptocurrencies -- or to exchange traditional fiat currencies with cryptocurrencies. Popular cryptocurrency exchanges include Binance, Coinbase and Kraken.
Fiat currency. A currency issued by a government that is not backed by any type of commodity. Instead, the currency is backed -- or guaranteed -- by the issuing government. Fiat currency is different from traditional commodity money that was originally backed by real assets such as gold, salt and tea.
Fork. A split, change or alternative version of a blockchain. For blockchain technology to work, all nodes within a blockchain network must run the same underlying core software. If enough nodes wish to change or alter the core software, a fork occurs, splitting the nodes into two separate networks.
Fungible. The ability to replicate data in such a way that each replicated unit can replace any other. From a cryptocurrency perspective, each coin or token is fungible as each one has the same value. Thus, each coin/token is considered identical and interchangeable.
Gas. Writing a transaction into a public blockchain requires the use of computing power. This is accomplished by miners who allocate compute resources on a distributed network. Gas is a fee charged by the miner as a form of compensation. Usually, the fee is paid in the form of cryptocurrency.
Genesis Block. The Genesis Block is the first block of data ever created on a blockchain network.
Hard fork. A protocol change in blockchain software that renders new blocks or transactions as invalid for nodes still using the old software. Thus, the only way for any node to participate on the blockchain network is to ensure that everyone is on the same revision of software.
Hash. A function within encryption that captures an arbitrary-length input string and computes a fixed-length output. Hashes are created using a hashing algorithm that uses cryptography to form a one-way function. This means that the hash theoretically cannot be reverted without a key.
Hot wallet. Cryptocurrency storage that is directly connected to the internet. When Bitcoin or Altcoins are stored in an exchange, this is a type of hot wallet.
Identity. A method to use secure and tamper-proof information to represent a specific person, entity or device.
Initial coin offering. The first sale of cryptocurrency coins on an exchange.
Java. A popular programming language considered a prime language in the blockchain space.
Know the customer. A set of processes with the goal of identifying business customers. Common identifiable information includes names, addresses and financial material that can be tied to a single person or business.
Ledger. An account or record used to track transactions. From a blockchain perspective, ledgers are distributed across many nodes within in a blockchain network.
Liquidity. The ease at which a cryptocurrency can be converted into some other form of crypto or fiat currency.
Mainnet. A type of blockchain network that is responsible for the transport of cryptocurrency from a sender to a receiver.
Mining. The processes of using computers to process token or coin transactions. The reward for the allocation of computational power to calculate these transactions comes in the form of a quantity of tokens/coins that is issued as new currency.
Node. Within a blockchain network, nodes are computing devices that store and replicate blockchain data in a distributed architecture.
Nonce. As an abbreviation for "number only used once," a nonce number is generated to create an encrypted -- or hashed -- block that connects to a blockchain. When rehashed, a nonce meets specific algorithmic difficulty levels. It is the first number a blockchain miner looks for when mining cryptocurrency.
Nonfungible token (NFT). Data that is stored on a blockchain that certifies a digital asset is completely unique and impossible to copy or interchange.
Off-chain. A storage mechanism where transaction data is stored outside the blockchain in a nonpublic location. The sender and receiver must approve transactions in an off-chain scenario. It must also be validated by a third-party system prior to the transaction being added to the network ledger. Off-chain transactions are more "private" and faster than on-chain alternatives.
On-chain. A storage mechanism where transaction data can be publicly accessed. Using this process, each node on the chain must verify the transition before it can be marked as completed in the network's public ledger.
OpenChain. This open source blockchain platform is used to manage and preserve digital assets.
Oracle. A third-party person, business or device that provides external information to a blockchain network via the internet. Oracles feed information from outside of the blockchain network to share smart contracts, which can trigger changes on the blockchain.
Private key. A key, code or string of characters that unlocks or decrypts data that has been encrypted. Private keys must be kept safe from others and cannot be recovered.
Public key. A string of unique characters created from the private key that is used to encrypt data. The only way to theoretically decrypt the data is if the user/device has the private key.
Quantum computing. A field within the computer sciences that focuses on developing advanced computing techniques based on principles discovered with quantum physics principles. Instead of using bits to create, store and transfer data across networks, quantum computers use qubits. Qubits allow for faster computations compared to traditional binary structures.
Relayer. A person or organization that hosts an off-chain ledger and works as a transaction intermediary between the sender and receiver.
Shard. A process developed to streamline transactional speeds and create blockchain networks that are highly scalable. Sharding takes a database and partitions it into many smaller pieces called shards. These smaller shards are distributed and networked together to increase transactional performance when compared to databases that are not partitioned.
Sidechain. A disconnected blockchain created with the purpose of linking to a primary blockchain. This creates additional transaction processing channels, increasing speed and scalability of the blockchain network.
Smart contract. Programs or code stored within a blockchain that automate the agreement process between two parties that wish to complete a transaction without the need for an intermediary acting as a transaction bridge.
Soft fork. Unlike a hard fork, soft forks are changes to blockchain software that is backward compatible with older/outdated version. While older versions recognize new blocks as valid, the newly forked software will consider blocks generated by old software as invalid.
Token. Digital assets that are built on existing blockchain networks. They are considered non-native to the blockchain -- unlike coins, which are native to the blockchain.
Token generation event. The process of generating the very first token in a token utility blockchain network. This signifies the launch of the network onto the open market.
Unconfirmed transaction. A transaction state where the blockchain network is still in the process of being verified. Depending on the blockchain network, transactions can be in an unconfirmed state for seconds, minutes, hours or days -- depending on how busy blockchain nodes are at any given moment.
Valid block. A block that is considered to be "valid" occurs when its hash has a value that's less than the one that preceded it.
Wallet. A digital storage file that contains coins or tokens that are held by a user or entity. Every wallet in a blockchain network has a unique address to identify it so it can transmit/receive coins or tokens.
xPub. Short for "extended public" key, xPub is a public key that is used to house sub-keys or child keys in a wallet hierarchy.
Zcash. A cryptocurrency with enhanced privacy/security for network users.
Zero knowledge proof. A mechanism used to prove that a person or device holds specific data without sharing or revealing what the data or information actually is.
Blockchain technologies are and will continue to be an important method for creating, storing and transmitting highly sensitive information. Because of its ability to be transparent, accurate, resilient and secure, it's likely that blockchain technologies will begin to creep into other aspects of enterprise operations -- not just those that deal with cryptocurrencies and financial transactions.