Blockchain, token, fork, ICO, mining, hash – if at least two words are familiar to you, you are in trend. Butâ€œyes, yes, I heard somewhere!â€ is not enough to really understand the topic.
Cryptocurrencies and blockchain are disruptive technologies that will change many industries in the coming years.Therefore, it is recommended that if we are interested in the subject, we should now invest, study or investigate it. Since it is now when it is beginning and everything is to be done.
We compiled a â€œbeginner’s dictionaryâ€, but not in alphabetical order. It is in the directions: the blockchain technology itself, cryptocurrencies, and the blockchain-based business.
Block – units of code that perform the function of a data warehouse about all actions. The generated block is checked by network participants and, if everyone agrees, then the block joins the chain.
After that, it is impossible to change the information presented in the block. Each block can store various information: from a list of transactions to a complex algorithm of actions. A block must contain a header.
Blockchain is an ever-growing chain of such blocks. With its help, you can not only control everything that happens but also transfer ownership of assets in digital form.
A blockchain is also a tool with which you can store transaction data. The main advantages of the blockchain are transparency of transactions and equal access to information to all participants.
The blockchain is decentralized, which means the impossibility of complete destruction of data. Each member of the chain network will have a copy of the transactions made.
Cryptography – encryption and decryption of information.
Smart contracts – an automatically executed electronic protocol that provides the terms for the execution of the transaction on the blockchain by both parties.
The system allows you to completely get rid of the participation of intermediaries, who usually control the execution of the transaction. The document is stored and duplicated in a decentralized registry, which does not allow one of the parties to independently change the terms of the contract.
It is impossible to get around the agreement – the contract is considered to be executed only if the predefined conditions are met.
Attestation Ledgers are distributed ledgers that take into account agreements, commitments, and statements. With their help, you can prove that the agreements have been implemented.
Fork – when one blockchain is divided into parts to create a new project. This new blockchain is created based on the fully copied source code, with some changes.
In cryptocurrencies, a vivid example of a fork is Litecoin. This cryptocurrency was created by changing the Bitcoin code.
Hard Fork – code change when the old version of the blocks cannot recognize the new one.Two completely different unconnected chains are formed.
Soft Fork – a protocol change in which transactions only previously valid blocks were invalid. Older versions may recognize new blocks.
Cryptocurrency – digital (virtual) money.Cryptocurrencies do not have any physical embodiment. It is not affected by the price of oil or the dollar and euro. The coin is encrypted information, it is impossible to copy it. Cryptocurrency is â€œproducedâ€ directly on the Internet.
At the same time, it is impossible to fake it: the basis of such coins is encrypted information that cannot be copied. One of the main features is anonymity. It is impossible to find out the owners of crypto-wallets.
The money itself is stored in an electronic wallet. Cryptocurrencies do not belong to any of the existing banking systems, so no one formally controls them. Because of this, some countries have imposed restrictions on use and fines for violators.
Bitcoin (symbol on the stock exchange – BTC)- payment system and cryptocurrency (considered the first and today the most popular). The Bitcoin blockchain is a list of system transactions available for viewing.
Each wallet transaction on the network is recorded in blocks. Due to the fact that the system is decentralized, it is not possible to crack it. The bitcoin address contains from 27 to 34 Latin characters and starts with the numbers 1 or 3. The bitcoin issue is decentralized and does not have any regulatory authority.
New bitcoins come into circulation as a reward for the formation of new blocks. At the same time, every 210,000 blocks mined, the size of bitcoins mined is halved. The peculiarity is that the output of Bitcoin is limited to 21 million and is highly volatile: it can rise or fall sharply.
Satoshi – one hundred millionth bitcoin(0.00000001). The smallest unit of BTC that can be written in the blockchain. It was named after the creator of Bitcoin.
Satoshi Nakamoto -this name hides a programmer or a group of people who created Bitcoin and its own reference implementation. Nakamoto developed the first block database and the first to solve the double cost problem.
Litecoin (LTC) is a cryptocurrency launched in 2011. In 2016, it was recognized as the second most important cryptocurrency. As in Bitcoin, transactions take place at a specific address.
This address consists of 33 characters and begins with the letter L. Like Bitcoin, it can be sold and bought on stock exchanges, paid for with lightcoin for services and goods, and withdrawn through exchange offices.
Transaction blocks are generated about four times faster than on a Bitcoin network. Encryption complexity changes every three and a half days. The volume of light coins on the market islimited to 84 million.
Altcoin is an abbreviation for”alternative to Bitcoin”. That’s what other cryptocurrencies are called in short. They are about changing at least one bitcoin parameter(transaction speed, mining algorithm or coin distribution method). Most of the new altcoins do not live long.
Ethereum is the second-generation cryptocurrency, the second most popular in the world. Its coin is Ether (ETH).They can be used to trade, pay for services within the network, change and withdraw to fiat.
Ethereum appeared in 2014. Unlike Bitcoin, which is an exclusive means of payment and end product, Ethereum is used as a platform for creating decentralized applications. Using as currency is secondary. Another difference from Bitcoin is the use of smart contracts.
Vitalik Buterin is a Canadian-Russian programmer who created Ethereum in 2014. In the same year, he won the World Technology Award, beating Mark Zuckerberg.
Token is used as internal currency of the project. This is a digital asset that the user buys for money or receives for performing certain actions on the platform.
Tokens can be exchanged for another cryptocurrency or paid by them for services within the project. The main feature: the token works on a foreign blockchain platform, for example, on the Ethereum platform.
Coin is another type of coin that a company can issue on an ICO. They differ from the token in that they work on their own blockchain.
Ripple(XRP) – the internal currency of the Ripple system, in terms of market capitalization is the third after Bitcoin and Ethereum. Ripple can be used as an intermediate currency and protection against spam.
In accordance with the rules of the protocol, 100 billion XRPs were created. Further emission is not provided.Features include high transaction speed, zero commission. It is also not required to confirm operations. And transactions can be canceled if desired.
You canâ€™t buy anything on XRP.Basically, the system only works with banks. It is an economical and efficient way to transfer money anywhere in the world in seconds.
To send currency inside the system, first, you need to exchange fiat money for XRP and complete the transaction.The recipient can exchange XRP for any currency convenient to him.
Fiat currency – any money that governments approve for payment transactions (ruble, dollar, euro, etc.).
“Extraction” of money
Mining is a mathematical calculation process that checks transactions and adds them to the block chain.
Hash cash is a proof-of-work algorithm that requires a sample of data for computation and subsequent validation. The technology was invented in 1997 to reduce the number of spam and DDOS attacks.Cryptocurrency is used as one of the methods of data analysis.
Mempool/ memory pool – a list of transactions awaiting confirmation from a specific node. Before a transaction reaches miners, it is distributed across the network using nodes.By analyzing the pool, the node decides whether to forward the transaction further over the network or not.
The network contains the same number of nodes and pools. However, the state of each pool is unique due to the differences in the equipment on which the nodes are located.
Hash is the basis of blockchain security. This is the result of the hash function (encoder). As a result of the function’s operation, one hash is obtained from the given data set. Wherein:
â— even if you have an encryption key, you wonâ€™t be able to find out similar data for the function;
â— another set of data creating the same hash is almost impossible to find.
Examples of algorithms: SHA 256 is a hash function developed by the US National Security Agency. The calculation is on the CPU or GPU processes. The more powerful the equipment, the more likely it is to mine a crypt. Scrypt is another algorithm, an alternative proof of operation in the SHA 256 system.
Consensus is the process of obtaining a common result by a group of participants. The consensus task is used when approving transactions in decentralized systems.
Proof of Work (proof of work)– an algorithm to protect decentralized systems from abuse. The purpose of the proof of work is to verify the fact of the calculations when creating a new block.
Simply put, in order to get a block, the system needs to do long computational work with a small probability of success and a large number of errors.
Proof of Stake is an alternative method of protection, in which the probability of a participant forming a new block is directly proportional to the participantâ€™s share of a certain cryptocurrency from its total amount. The more cryptocurrencies a user has, the greater the likelihood of generating new blocks.
Transaction fees -fees that are charged for priority transactions. Transactions can be carried out without commission. However, priority transactions are calculated in blocks in the first place. The commission is mandatory in most cryptocurrency systems, and in the bitcoin system, users themselves can set its size.
Protocols – formal rules for the transfer and exchange of data.
Peer-to-peer(P2P) -direct interaction between two parties without the participation of intermediaries in a peer-to-peer network.
ASIC mining (the abbreviation “Application Specific Integrated Circuit”) is mining for industrial purposes, which has become possible along with the creation of specialized microchips designed exclusively for mining coins.
Unlike amateur mining, where the video card performs the same functions, ASIC mining is more profitable due to the higher hash calculation speed and lower energy consumption.
Doubles pend – an attack in which the same money can be used in transactions twice.
Types of attacks:
â— Race – two transactions are created for the same money and sent to two different stores. The money will be received by the one whose transaction first gets into the chain.
â— Finney – to include repeat transactions in the block, the participation of the miner is required. And good luck.
â— Vector76 is a combination of two previous attacks, which allows you to spend money from a transaction with one confirmation.
â— Brute force – an attacker sends a transaction to pay for goods / services, but at the same time continues to mine the blockchain fork of the block chain. AfterN-confirmations, the store sends him the goods. If at this point the attacker received more than N-blocks, he breaks the branch of the chain and receives funds back. If he doesnâ€™t succeed, the attack fails and the money goes to the store.
â— 51% attack – the situation described in his article by Satoshi Nakamoto. In this case, to take control of the network, the attacker needs to control 51% of the generating capacity.
In this case, the user will be able to cancel the old transactions and prohibit the inclusion of individual blocks in the system, but will not be able to redirect or intercept new transactions between users.
Address (addresses) – a string of several tens of Latin letters or characters, sometimes a QR code.With its help, transactions are received and sent. If the user can protect his transactions as much as possible, you need to create a new address for each.
Wallet– a system for storing transaction records on the network. The main task of the wallet is to store the access key to the user’s address. A wallet can be a computer, hardware, online, or even paper.
Private key (security key)- in fact, this is the password that allows access to your crypto wallet. The key should be known only to its owner.
Fee- the fee that miners receive for completed transactions. The more transactions, the higher the fee.
Blockchain based business
ICO/ Crowdsale – the process of attracting capital to a new project. The system is similar to a company issuing shares during an IPO. But instead of shares on a blockchain platform, tokens or coins are issued.
Users can buy them and then spend on paying for services / operations within the project or exchange them for another cryptocurrency. All the money raised for the ICO goes to the development of the project: finalization of the product, advertising, and PR, etc.
Pre ICO is a similar process of raising money, but it can be called a test one. Investors are attracted through bonuses, and the money raised goes to the future of theICO.
As with the ICO, the circle of those who have the opportunity to buy tokens / coins is limited, and they can only buy a certain number of coins.
Whitelist -â€œwhite listâ€, where the startup includes trusted project participants. They get the opportunity to buy tokens earlier than other potential investors, during the pre ICO.
Bounty – distribution of tokens for performing certain actions or for registration. No need to invest. It is launched by projects during the ICO. Such a system helps to save during the entry to the ICO and increases the recognition of the project.
Initially, the bounties helped developers engage a product tester to look for problems in the system. The bounty was a reward for work. Now they are credited for sharing a link to a startup site.
Whitepaper – an official document of the company with a full description of the product. His task is to help a potential buyer get acquainted with the project and motivate him to spend money on the project.
Roadshow is an advertising campaign that a startup launches. It can be carried out both to attract investors and conclude deals (deal roadshow), and for public relations to a wide audience, without a goal to conclude an agreement.