Glossary of Cryptocurrency and Blockchain Terms
A public address is a unique alphanumeric string of characters that you provide to other parties to send you coins. Addresses function similarly to your traditional bank account number. For example, Bitcoin addresses start with the number 1 or 3; Ethereum addresses start with 0x.
A private key is required to access these funds, which is an equally unique string that operates as a password or PIN number.
When sending cryptocurrency, we recommend you double check the destination address. As per the nature of the blockchain, transactions to an incorrect or incompatible address may result in you losing the funds sent. At BitPrime, we will compare the first and last five or six digits to ensure they are correct. We always copy and paste wallet address as there is far too much room for error when typing.
A way for a blockchain project to distribute free tokens to its community. Airdrops came about as a result of the realisation that tokens have more value when held in many different wallets. It’s a great marketing strategy too! A lot of people actively follow boards posting details of upcoming airdrops and spread the word among fellow crypto enthusiasts.
There are a few ways to participate in airdrops. With some, simply having an account with a particular exchange or holding a certain cryptocurrency is enough. Airdrops also happen with some hard forks. These usually require a ‘snapshot’ to prove one holds the original token before they receive the new token. Others may ask you to join a Telegram group or attend a public event.
Any cryptocurrency that isn’t Bitcoin. As of 16th September 2018, there are 1,951 altcoins listed on CoinMarketCap. Altcoins currently make up 68% of the entire cryptocurrency market 24-hour volume.
ASICs – Application-Specific Integrated Circuits
A piece of hardware designed specifically to perform cryptocurrency mining. ASIC miners are extremely powerful computing systems designed for mining a specific algorithm, and as such, the specific currencies running that algorithm. ASICs produce very high hash rates to perform the necessary cryptographic calculations as quickly as possible. It is worth noting that these miners can be very costly to buy and to run.
Atomic swaps allow two different cryptocurrencies belonging to different blockchains to be swapped directly. The development of this technology is in early stages and is being worked on by the likes of Komodo. It is said that the idea of Atomic swaps, or cross-chain transfers, was first discussed in a Bitcoin forum.
Bitcoin is the first, and most widely used, cryptocurrency. Created in 2009 by the unknown Satoshi Nakamoto, bitcoin is a decentralised digital currency built using a combination of cryptography, computer science and economics. Bitcoin is more than just a currency; it is in fact a cultural revolution. Inspired by the idea of minimal centralised authority (libertarianism), cypherpunks and “crypto-anarchists” grew increasingly concerned with privacy. Nakamoto’s whitepaper, released in 2008 described an electronic payment system based on cryptographic proof instead of trust in any one group or individual. This idea soon generated interest, and the first transaction of BTC occurred not long after on January 12th, 2009. Jump forward a year and perhaps the single most famous BTC transaction occurred. Laszlo Hanyecs made the first ever purchase of a physical item using bitcoin; a pizza worth $25 (USD) for 10,000 BTC. Bitcoin’s all-time highest price was reached on December 17th, 2017; a whopping $29,818.93 (NZD). These days, bitcoin still dominates over half of all cryptocurrency transactions and has a market cap of over $131,000,000,000 (NZD)!
The term blockchain refers to a distributed database, or ledger, which is hosted by multiple computers, or nodes, simultaneously. A blockchain is comprised of blocks of data which, in theory, can’t be changed without consensus. These blocks tend to represent movements of value, such as a currency or can work as an access instrument for a platform providing services. The most well-known blockchain is Bitcoin.
William Mougayer, a blockchain specialist, has described blockchain technology as working in a similar way to Google Docs. Multiple parties can have access to the same document, at the same time, and the version being viewed is by each party is always the current one.
This refers to the number of blocks produced in a mined blockchain between any given block and the first block. The first block in a blockchain is usually referred to as the “genesis block”. Another way to think of block height is as the page numbers in a book.
A cryptocurrency that can operate independently from other cryptocurrency platforms e.g. bitcoin versus ether. However, it is worth noting that the terms “coin” and “token” are often used interchangeably to mean the same thing.
Cryptocurrency cold storage involves storing coins in a way that is NOT continuously connected to the internet. The primary benefit of cold storage is a reduction in the threat posed by hackers. Methods of cold storage include paper wallets, hardware wallets, and less commonly, sound wallets.
Block difficulty represents the number of computations required to “find” a block, aka solve the cryptographic puzzle. It is an approximate figure based on how quickly the puzzles are solved on average.
The factors which determine difficulty include the rules set by the cryptocurrency and the global hashrate (computing power available). The difficulty adjusts so as to maintain a constant block time as miners join and leave the network e.g a 10-minute blocktime for Bitcoin.
Extra: Block difficulty is implemented as a requirement of a leading number or zeroes on the block header hash. As the difficulty increases, the number of zeros increases and vice versa.
A contractual agreement where a third party receives and then disburses something such as money or documents for the two primary parties. The release of the money or documents depends on pre-determined conditions being met by the two primary parties. Escrow services are used in both traditional financial arrangements as well as in some cryptocurrency platforms.
Forks – Soft & Hard
Both soft and hard forks are a change or upgrade to the underlying protocol, or rules, of a blockchain. Soft forks are backward compatible, meaning that changes can be reversed if need be. By contrast, hard forks are not. Additionally, there are also temporary forks that occur incidentally when two miners find a block at the same time. BitPrime has a handy infographic that explains the five key differences between hard and soft forks in more detail.
Smart contracts work similarly to traditional contracts in that two parties agree on specific conditions which, when met, enable the contract’s terms to be executed.
A smart contract is a software programme stored on a blockchain that is automatically implemented when the specific conditions stated are met. I.e. If each party involved presents their asset, the transaction is automatically affected.
A significant benefit that smart contracts offer is their failure resistance. If one party fails to present its asset, the contract doesn’t execute, the second party retains its asset and moves on.
For more information on how smart contracts work, please refer to our “What you need to know about smart contracts” article.
A cryptocurrency that depends on another cryptocurrency as a platform to operate on e.g. Zilliqa (ZIL) operates on the Ethereum network.
– Utility Token
Used to access services or assets offered. Similar to purchasing the rights to use a software programme or a product. These tokens are like pay-per-use software as a service offerings (SaaS), subscriptions to online magazine content, or a means of compensating the contributors of a platform. Think, in-game currencies like Shards in Dota.
– Security Token
Can represent an equity stake in an organisation, or a claim to the wealth generated by its activities. Similar to a traditional securities offering which is a discrete round of funding. Boils down to tokens that derive their value from externally tradeable assets.