Basic Blockchain Lingo Every Entrepreneur Needs to Know
Do the terms 'proof-of-stake,' litecoin' and 'mining' mean anything to you? If not, keep reading.
With all the buzz lately around blockchain technology, it can be tough to keep up. Given how fast this industry is growing, new terms are being introduced on a regular basis, and if you have wanted to learn more about crypto, the blockchain and what it means to "HODL," then here is a short list of essential vocabulary to digest.
If you’re going to talk about blockchain, you have to know what the blockchain is first. Blockgeeks explain that blockchain is a distributed ledger of digital information. Created by an unknown individual named Satoshi Nakamoto (probably a pseudonym), the original use-case for blockchain was the digital currency Bitcoin. A significant benefit of blockchain is that the technology is transparent and incorruptible because the network exists through decentralized consensus. It’s helpful to think of blockchain technology as a giant spreadsheet to which everyone can contribute.
Cointelegraph defines blockchain as a digital or virtual currency designed to be a medium of exchange. It uses cryptography to secure and verify transactions and create new units of a cryptocurrency. Built upon their own blockchains, cryptocurrencies vary in how they process transactions, number of coins available and overall structure.
Bitcoin creator “Satoshi Nakamoto” remains an unknown figure to this day. But his (her?) Bitcoin is the first peer-to-peer currency for online transactions.
Litecoin was created to be a direct competitor of Bitcoin. According to PCMag, Litecoin was designed to handle transactions more quickly than Bitcoin. It can take a significant amount of time for blockchain to process transactions, whereas a Visa or Mastercard can process thousands of exchanges in a second.
Like Bitcoin and Litecoin, Ethereum is considered a significant cryptocurrency. Bankrate describes Ethereum as a “world computer"; this is because Ethereum is a foundational blockchain system that other blockchain developers can use to build new cryptocurrencies. The process of using existing blockchain technology and building on top of it is similar to how mobile developers build apps on the App Store platform.
In the blockchain world, these technologies built on top of foundational blockchain systems are known as dApps.
dApps, or decentralized apps, are applications built upon an existing blockchain. Like applications in the App Store, these apply to a wide variety of uses, from health care to asset management. Numerous entrepreneurs have found different use cases for blockchain and crypto, so dApps have become widely used for blockchain development projects.
Altcoins are cryptocurrencies built either independently on their own blockchains or on top of existing blockchain networks such as Ethereum. According to Just Crypto News, there were approximately 1,368 altcoins in existence in December 2017.
An ICO, or initial coin offering, is a public sale for a token or coin through a blockchain company or dApp. It’s not unlike a Kickstarter campaign, except that ICOs usually offer utility tokens to be used on their own platform instead of the ownership of shares in a company. Nevertheless, ICOs have become a wildly popular way to fund-raise; according to Coinschedule, there have already been approximately 538 ICOs in 2018.
"Mining" refers to a way of earning cryptocurrencies. A lot of cryptocurrencies are mined by solving complex algorithms and math problems, and "miners" are rewarded for solving them in tokens. However, it’s unknown how long mining will be considered a sustainable practice for two reasons; first, miner rewards for Bitcoin have dropped 50 percent every year; and, second, bitcoin mining requires the solving of complex math problems, which in turns means a lot of electricity-eating computer computations.
Gas is the transaction fee to operate on a network, and the price is determined by miners. For example, according to ETH Gas Station, it costs approximately $0.30 per transaction to run a transaction on the ETH network currently. Be mindful of this cost as you trade crypto because these fees can add up quickly, especially if you make several small transactions.
Proof-of-work is a mining algorithm and the basis of Bitcoin. Generally considered a laborious algorithm, it’s much less popular than newer algorithms, such as proof-of-stake.
Proof-of-stake is a consensus algorithm used to validate blocks on the blockchain. Instead of drawing consensus that the block is correctly completing equations using the “show your work” model, proof-of-stake processes blocks by confirming consensus among token stakeholders. Due to the faster transaction speed, many blockchain enthusiasts are switching to the proof-of-stake model.
Nodes are the end points which confirm blocks. These are at work all over the globe, processing each transaction. According to Bitnodes, there are 9,867 nodes for Bitcoin right now; understandably, Bitcoin is one of the biggest networks, but nearly every blockchain network utilizes nodes to confirm transactions.
Hubspot has stated that a white paper is “a persuasive, authoritative, in-depth report on a specific topic that presents a problem and provides a solution.” For blockchain, your white paper is your project thesis and should help users understand why they should invest in your token or coin.
What blockchain lingo are you struggling to understand? If it's HODL, which I alluded to earlier, that's slang for holding on to cryptocurrency rather than selling it.
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