Have you ever been caught up in a coffee corner discussion wondering why the entire conversation sounds like Greek? Well, sometimes it might be because you are in Greece but other (and most) times it’s because you’ve tried to learn something that has too much, or too little information associated with it. One such wonderful mystery is Blockchain.
Blockchain has caused a fair bit of excitement in the market and for very good reasons too. However, despite its near cult-like popularity, it’s still a bit of an enigma and we’re going to work on breaking down the elephant into small, understandable ‘blocks’ of information.
To start off with, here’s a list of the terms you absolutely must know before you go any further in your learning journey.
Blockchain: Blockchain is literally a chain of blocks, where each block represents a transaction. Multiple and exact copies of each Blockchain are distributed amongst multiple computer miners, who verify the validity of these transactions and insert them into the chain.
Blockchains are decentralized ledgers, which means there is no single controlling authority. Due to this, Blockchains are highly secure and a big asset to critical sectors like the banking and financial one.
Block: Blocks, also known as nodes, are the smallest unit of a Blockchain structure.
Typically, they represent a transaction, which when verified is added to the Blockchain. Each block contains a brief description of the transaction, a timestamp for when it was added, a proof-of-work, and a reference to the previous block in the chain. This reference to the previous block is why blocks cannot be edited without impacting every subsequent block, thus compromising the integrity of the Blockchain.
Distributed Ledger: A distributed ledger is a system that is shared amongst multiple ‘stakeholders’ across a network. Each holds an exact copy of the ledger and each copy is updated parallelly, every time a new transaction is added to the ledger.
Since a distributed ledger requires multiple independent and successful authentications to make any changes, it is highly secure with a very low susceptibility to cyber-attacks.
Miner: A miner is either a person or a system responsible for verifying the viability of a transaction to check if it can be added to the Blockchain. A miner is required to solve a complex mathematical problem or a riddle to win the rights to approve a transaction before the others.
The process of verifying a transaction and adding it to a Blockchain is called mining.
Block Reward: A block reward is allotted in the form of cryptocurrency to a miner who successfully mines a block.
Decentralized: A decentralized network is one that is not dependent on a single central authority. This makes the network more stable and secure against hackers and cyber-attacks.
Decentralized apps based on Blockchain are also known as dApps.
Cryptocurrency (crypto): Cryptocurrencies are a digitally encrypted form of currency that are involved in transactions independent of any banking authority; because of this, cryptocurrencies are immune to any government policies.
Bitcoin is one of the oldest and most popular forms of cryptocurrency in the market today, based on a proof-of-work Blockchain.
Consensus Algorithm: A consensus algorithm is used in distributed systems to obtain an agreement on a specific bit of data. The algorithm is specifically designed to ensure reliability in a network with multiple stakeholders.
Proof-Of-Work is Blockchain’s consensus algorithm while Proof-of-Stake is Ethereum’s.
Have you ever come across a commonly used term that you would like to know more about?