Blockchain terminology can be difficult to grasp, especially if you are just starting out. It is also a relatively new concept for almost everyone, both inside and outside the world of technology, so learning more about it reveals a plethora of unfamiliar terms, and the best way to learn them is to understand what each one entails. Hence, here is a list of a few of the most common blockchain terminologies, along with their definitions, to serve as a guide to help you navigate the exciting frontier of Web3.
51% Attack
A 51% attack occurs when a single malicious miner or group of miners consumes more than half of a network's computing power or mining hash rate. This means that this entity has complete control over the network and has the ability to harm a cryptocurrency by taking over mining operations, halting or changing transactions, and spending coins twice. If he controls 51% of the network, he becomes the network's authority, with the ability to spend the same coins multiple times, issue transactions that conflict with others', and prevent the confirmation of others' transactions.
Address
Much like a URL, a blockchain address is the location to or from which transactions occur on the blockchain.
Altcoin
This is an abbreviation of “Bitcoin alternative. Because Bitcoin was the first cryptocurrency, the term "altcoin" was coined to describe "any cryptocurrency other than Bitcoin." In Ethereum or smart contract-enabled blockchain communities, the term is less commonly used. Currently, the majority of altcoins are forks of Bitcoin with usually minor changes to the proof of work (POW) algorithm of the Bitcoin blockchain (e.g., the most prominent altcoin; Litecoin).
Bitcoin
This is the first documented cryptocurrency based on and supported by the Proof of Work (PoW) blockchain, which was developed from a whitepaper written by Satoshi Nakamoto in 2008. The plural of bitcoin is simply bitcoin, and the abbreviation is BTC.
Block
A block is a record of some or a group of most recent Bitcoin transactions entered into a blockchain that have not yet been recorded in any previous blocks. It is comparable to a page in a ledger or record book.
Blockchain
A shared, trusted, public, and digital ledger made up of unchangeable, digitally recorded data in packages called blocks that everyone can inspect but no single user controls. Each block is 'chained' to the next using a cryptographic signature, making it nearly impossible to forge, hack, or disrupt.
Bounty / Bug Bounty
A reward offered for exposing computer code flaws, vulnerabilities and issues.
BUIDL
It was coined by Gitcoin's Kevin Owocki and reflecting the Ethereum-focused mindset of not just investing in a cryptocurrency as a store of value, but rather as an ecosystem and a platform for building public goods and software.
Byzantine Fault Tolerance (BFT)
A distributed, decentralized system's ability to withstand total failure even when some nodes fail or act maliciously.
Coin
This is an identical token issued on a blockchain, either as the network's transactional token or via a smart contract deployed on that network.
Cold wallet / cold storage
An offline wallet disconnected from the internet and thus protects cryptocurrencies from online hacking.
Crypto-
This prefix was originally Greek as its usage comes from cryptography. Cryptographic processes (such as public/private key pairs) that enable innovative functionality and security underpin technologies referred to as ‘crypto’. Of course, because ‘cryptocurrency’ is often abbreviated to ‘crypto,’ this emerging field is rife with instances where something ‘crypto’ is added to or shortened.
Cryptocurrency
Digital currency based on mathematics and employs encryption techniques to control the generation of coins/tokens as well as to verify the transfer of funds. They are generally decentralized and operate independently of central authorities.
Cryptography
A science and method of securing communication that employs individualized code so that only the parties involved can read the messages. Various blockchain networks use symmetric-key cryptography for cryptocurrency transfer, in which blockchain addresses generated for wallets are paired with private keys that allow cryptocurrency transfer. Funds can be unlocked using the paired public and private keys.
DAO
A Digital Decentralized Autonomous Organization is a powerful and highly adaptable organizational structure based on blockchain technology. The DAO was a type of investor-directed venture capital fund that sought to give new decentralized business models to firms. The DAO's code was open source and based on Ethereum. In 2016, the group broke the record for the most crowdfunded project. It consists of a governance structure without a central authority that rewards good behavior and penalizes bad behavior through a set of pre-defined rules that can only be changed through a vote, which typically requires a stake, adding risk to the process in order to discourage bad actors among the participants.
Decentralization
The transfer of power and responsibility from a centralized organization, government, or party to a distributed network.
Decentralized application (dapp)
It is an acronym for "decentralized application." It is an open source software program with backend code that does not rely on a central system or database and can distribute information among its users using a decentralized peer-to-peer network such as a blockchain. To be deemed a decentralized application, an application must be totally open-source, function autonomously, and have no entity holding the bulk of its tokens. The application must also generate tokens based on a common cryptographic algorithm, which serves as evidence of value nodes contribute to the application.
Decentralized exchange (DEX)
It is a platform for exchanging cryptocurrencies based on blockchain functionality (i.e., in smart contracts). The trading is done peer-to-peer or between liquidity pools. A centralized exchange, on the other hand, is more similar to a bank or financial institution that specialized in cryptocurrencies. The two have significant technical and regulatory distinctions that are constantly evolving.
Distributed Denial of Service (DDoS) Attack
A cyberattack style where the attacker repeatedly floods the system with requests in an effort to block the fulfillment of valid requests.
Distributed Ledger Technology (DLT)
The broader category of technology, of which blockchain is a component, is this. There is no central data storage or administration, and it is a digital system for documenting asset transactions in which the transactions and their specifics are stored in several identical copies at the same time.
Double spend
A situation in which a network user tries to send the same bitcoin transaction simultaneously to two different recipients. The likelihood of successfully double spending decreases the more confirmations there are for a given transaction. Early in 2009, Bitcoin was the first to design a system that prevents double spending by checking each transaction uploaded to the blockchain to make sure the inputs for the transaction have not already been used for another transaction.
Encryption
It is the method of turning a clear-text message (plaintext) into an information stream (cypher-text) that seems like a pointless and random sequence of bits.
Entropy
In the context of cryptography, ‘entropy’ refers to ‘randomness’; generally, the more random something is (the more entropy it has), the more secure it is.
ERC-20 Token Standard
ERC is the abbreviation for Ethereum Request for Comment and is followed by the assignment number of the standard. It is a technical standard for smart contracts which is used to issue the majority of tokens (in particular, cryptocurrency tokens) within the Ethereum network. This list of rules is defined by a series of functions which states the requirements that a token must fulfill to be supported, compliant and function within the Ethereum network.
ERC-721 Token Standard
As stated above, this is another standard for Ethereum smart contracts, which allows for the issuance of a non-fungible token, also known as an NFT. This token standard is used to represent a unique digital asset that is not interchangeable. It is also defined by a series of functions that must be supported, including functions to retrieve the total supply, transfer from one wallet to another, and approve a transaction.
Ether (ETH)
Ether is also referred to as ETH. It is the native token of the Ethereum blockchain network which functions as the fuel of the ecosystem and is used to pay for transaction fees, miner rewards and other essential operations on the network.
Ethereum
This is an open-source, public blockchain technology and decentralized software platform that allows developers to write smart contracts, build and deploy localized or decentralized applications(Dapps).
ENS
The Ethereum Name Service is a protocol to assign human-readable and easy-to-remember addresses to Ethereum addresses and assets, similar to the traditional internet’s domain name.
EVM (Ethereum Virtual Machine)
The EVM is a virtual machine that operates on the Ethereum network. It is the programming language within which accounts on the Ethereum blockchain will contain code.
Fiat currency
This is government-issued currency or legal tender which is declared to be valid for meeting a financial obligation. For example, US Dollars (USD), Euros (EUR), Yuan (CNY), Naira(NGN) and Yen (JPY).
Gas
This is a fee charged to write a transaction to a public blockchain on the Ethereum network. This then equates to a fee for network users paid in small units of ETH specified as Gwei. It is also used to reward the miner which validates the transaction.
Gas limit
This is the maximum amount you’re willing to pay for any given transaction to go through the Ethereum network. Another way of looking at it is as a “rough estimate” of how much computing power your transaction will take.
Gas price
This is the cost the network is paid for the computational work being performed in a given transaction. It is paid in units of ETH called Gwei. Depending on network congestion, the gas price may vary significantly.
Gwei
A minuscule and common denomination of ETH, and the unit in which gas prices are often specified.
Halving
Many cryptocurrencies have a finite supply, which makes them a scarce digital commodity. For example, the total amount of Bitcoin that will ever be issued is 21 million. The number of bitcoins generated per block is decreased 50% every four years. This is called “halving.” The Bitcoin block mining reward halves every 210,000 blocks. The final halving will take place in the year 2140. Learn more here
Hard fork
This occurs when there is a change in the blockchain that is not backward compatible (i.e not compatible with older versions), thus requiring all participants to upgrade to the new version in order to be able to continue participating on the network. An example of a hardfork in public blockchains is the Ethereum hardfork which happened on July 21st, 2016. The hardfork changed the Ethereum protocol, therefore a second blockchain emerged (Ethereum Classic, ETC) which supports the old Ethereum protocol. In order to continue existing, ETC needs miners, which would validate the transactions on the blockchain.
Hardware wallet
A physical device that can be connected to the web and interact with online exchanges, but can also be used as cold storage (not connected to the internet).
Hash
A programmatic function that receives an input of any size and returns a unique alphanumeric string of a uniform length known as the “hash value” or “digital fingerprint.” Simply, hashes confirm transactions on the blockchain.
Hot wallet
This is a wallet that is directly connected to the internet at all times, for example one that is held on a centralized exchange. They are considered to have lower security than cold storage systems or hardware wallets.
Hyperledger
This is an ecosystem of open-system tools, libraries, and products designed to enable and support enterprise-grade blockchain technology I.e non-public blockchains.
Immutability
The inability to be altered or changed or the property of being unchangeable. This is a key element of blockchain networks as once a transaction is written onto a blockchain ledger, the data cannot be changed and therefore is immutable.
Know Your Customer (KYC)
This is the legal process in which a business must verify the identity and background information (address, financials, etc) of their customers. KYC requirements vary from jurisdiction to jurisdiction.
Lightning Network
This is a decentralized network using smart contract functionality on the blockchain to enable instant payments across a network of participants. The Lightning Network allows bitcoin transactions to happen instantly, without worrying about block confirmation times, and allows millions of transactions in a few seconds, at low costs, even between different blockchains, as long as both chains use the same cryptographic hash function. As for now, the bitcoin network is capable of processing up to 7 transactions per second.
Liquidity
It is the ease of converting an asset (or, in this case, cryptocurrency) to cash (fiat). The harder the ability to turn an asset into cash the more illiquid the asset. The liquidity of an asset affects its risk potential and market price.
MetaMask
MetaMask, either in its mobile app form on iOS and Android, or in its browser extension form, is a tool to access and interact with blockchains and the decentralized web. Its functions include that of a wallet, a dapp permissions manager, and token swap platform.
Mining
This is the process by which blocks or transactions are verified and added to a blockchain using a Proof of Work (PoW) consensus mechanism and written to the blockchain for which the successful miner is rewarded in the cryptocurrency of the blockchain. In order to verify a block, a miner must use a computer to solve a cryptographic problem. Once the computer has solved the problem, the block is considered “mined”. In the Bitcoin or Ethereum PoW blockchains, the first computer to mine or verify the block receives bitcoin or ether as a reward.
Multisignature Wallet
A wallet that requires multiple digital signatures to execute a transaction.
Node (full node)
Any computer connected to the blockchain network is referred to as a node. A full node is a computer that enforces all of the rules of the blockchain, fully validates transactions, downloads the entire data of a specific blockchain, holds a copy of the blockchain ledger and forms the backbone of the network. In contrast, a “light” node does not download all pieces of a blockchain’s data and uses a different validation process. Most nodes on the network are lightweight nodes instead of full nodes.
NFT
When discussing Non-Fungible Tokens (NFTs), “fungibility” refers to an object’s ability to be exchanged for another. A non-fungible token is a type of token that is a unique digital asset and has no equal token. This is in contrast to cryptocurrencies like ether that are fungible in nature. For example, a Stratovarius violin is non-fungible because the value of it cannot be expressed in a number of other violins.
Nonce
This was originally formed from a contraction of a phrase meaning “not more than once”. On the Ethereum mainnet, “nonce” refers to a unique transaction identification number that increases in value with each successive transaction in order to ensure various safety features (such as preventing a double-spend). It is a thing to note that due to its broader use in cryptography, you may encounter ‘nonce’ being used differently on other decentralized projects.
Off-chain
Data stored external to the blockchain.
On-chain
Data stored within the blockchain.
Open Source
Software products that include permission to use, enhance, reuse or modify the source code, design documents, or content of the product.
P2P (Peer-to-peer)
P2P refers to a direct connection or interaction that happens between two parties, usually two separate individuals of which it can be computer to computer or person to person. A P2P network can be any number of individuals. In regards to a blockchain network, individuals are able to transact or interact with each other without relying on an intermediary or single point of failure.
Private blockchain
A blockchain or distributed ledger that has a closed network where participants are controlled by a single entity and where write permissions are kept centralized to one organization.
Private key
This is an alphanumeric string of data that, in MetaMask, corresponds to a single specific account in a wallet. It can be thought of as a password that enables an individual to access their crypto account and transact over the blockchain. It should never be revealed to anyone, as whoever controls the private key controls the account funds. If you lose your private key, then you lose access to that account. Online wallets are mostly provided by exchanges and keep user’s private keys on their servers. If the service provider goes offline users would lose access to their funds. Hardware wallets for example store user’s private keys in a secure device which looks like a USB flash drive.
Proof of Authority (PoA)
A consensus mechanism used in private blockchains, granting a single private key the authority to generate all of the blocks or validate transactions. Instead of staking cryptocurrency (wealth), in PoA you stake your identity. This means voluntarily disclosing who you are in exchange for the right to validate blocks. Any malicious actions you undertake as a validator will reflect back on your identity. PoA blockchains require a thorough form of KYC (Know Your Customer - a verification process that determines you actually are who you claim to be).
Proof of Burn (PoB)
PoB allows the miners to “burn” or destroy cryptocurrency which grants them the right to add blocks in proportion to the coins destroyed. To burn, miners send currency to a verifiably un-spendable address. This process does not consume many resources, thus PoB is often called PoW without energy waste. Depending upon the implementation, miners are allowed to burn the native currency or the currency of an alternative chain, and in exchange, they receive a reward in the native currency of the blockchain.
Proof of Capacity (PoC)
PoC allows the mining devices in the network to use their available hard drive space to decide the mining rights, instead of using the mining device’s computing power (as in PoW) or the miner’s stake in the cryptocurrency (as in PoS).
Proof of Stake (PoS)
A consensus mechanism in which an individual or “validator” validates transactions or blocks in order to achieve distributed consensus. Validators “stake” their cryptocurrency, such as ether, on whichever transactions they choose to validate. Proof-of-stake asks users to prove ownership of a certain amount of currency (their “stake” in the currency). If the individual validates a block (group of transactions) correctly then the individual receives a reward. Typically, if a validator verifies an incorrect transaction then they lose the cryptocurrency that they staked. PoS requires a negligible amount of computing power compared to Proof of Work consensus.
Proof of Work (PoW)
A consensus mechanism in which each block is ‘mined’ by a group of individuals or nodes on the network to deter denial of service attacks and other service abuses such as spam on a network by requiring some work from the service requester, usually meaning processing time by a computer. As many miners are racing to solve the formula which requires a great deal of computing power, PoW is resource intensive.
Protocol
A set of rules that dictate how data is exchanged and transmitted across a specific network in blockchain.
Public blockchain
This is a globally open network where anyone can participate in transactions, execute the consensus protocol to help determine which blocks get added to the chain, and maintain the shared ledger. As a substitute for centralized trust, public blockchains are secured by crypto economics – the combination of economic incentives and cryptographic verification using mechanisms such as proof of work or proof of stake, following a general principle that the degree to which someone can have an influence in the consensus process is proportional to the quantity of economic resources that they can bring to bear. These blockchains are generally considered to be “fully decentralized”.
Public key
In cryptography, you have a keypair: the public and private key. You can derive a public key from a private key, but cannot derive a private key from a public key. The public key, is therefore obtained and used by anyone to encrypt messages before they are sent to a known recipient with a matching private key for decryption. The public key encrypts a message into an unreadable format and the corresponding private key makes it readable again for the intended party, and the intended party only.
Satoshi Nakamoto
The name used by the person who created the Bitcoin protocol, solving the digital currency issue of the “double spend.” Nakamoto first published their white paper describing the project in 2008 and the first Bitcoin software was deployed one year later. As part of the implementation, Nakamoto also created the first blockchain database.
Scalability
This a blockchain project’s ability to change in size or scale to handle a network’s demands, traffic, capacity and future growth in its intended application.
Seed (phrase) / Secret Recovery Phrase
The seed phrase, mnemonic, or Secret Recovery Phrase is a crucial part of public blockchain technology. It was initially created for Bitcoin, and goes by these names. However, they all refer to a random sequence of words which can be used to restore a lost wallet. These values never change, and therefore the same string of words in the same order will always produce the same number–this is the underlying functionality that allows seed phrases to back up wallets.
SHA(Secure Hash Algorithm)
This is a family of cryptographic hash functions published by the National Institute of Standards and Technology (NIST) as a U.S. Federal Information Processing Standard (FIPS). SHA256 is an algorithm used in Bitcoin that takes an input of any size which can be any form of data(text, jpeg, pdf, etc.), mixes it up and creates a fixed size output(a hash) which is 256-bit (32-byte) long. You can think of the hash as the fingerprint of the data as they are one-way functions – they cannot be decrypted back.
Smart contracts
These are programs whose terms are recorded in computer code once a set of conditions is met, and are the dominant form of programming on the Ethereum Virtual Machine. While they often contain agreements or sets of actions between parties that emulate a traditional legal contract, they are not, in and of themselves, legal documents.
Softfork
This is a change to the bitcoin protocol wherein only previously valid blocks/transactions are made invalid. This kind of fork requires only a majority of the miners upgrading to enforce the go new rules
Solidity
This is a JavaScript-like object oriented programming language developers use to write and develop smart contracts on the Ethereum network. Its syntax is similar to that of JavaScript, and it is built to compile into bytecode for the Ethereum Virtual Machine(EVM).
Stablecoin
It is always spelled as one word and it is a cryptocurrency pegged to a stable asset, like fiat currency or gold designed to minimize the volatility of the price of the coin/token. It theoretically remains stable in price as it is measured against a known amount of an asset less subject to fluctuation.
Staking
In the Ethereum context, ‘staking’ of tokens carries the traditional meaning of ‘setting aside currency for a determined purpose’. However, for decentralized exchanges (DEXes), there is no centralized authority putting up the funds to allow transfers to happen between parties; so here someone might ‘stake’ tokens into a liquidity pool, often for a promised rate of return in exchange for the use of their tokens, with the option to withdraw their tokens later.
Testnet
An alternative blockchain or staging blockchain environment developers use to test applications in a near-live environment before being put into production (or onto the mainnet).
Token
A token represents an asset built on an existing blockchain. It can also be referred to as a digital identity for something that can be owned.They are accessible only by the person who has the private key for that address and can only be signed using this private key.
Tokenomics
This is the study, design and implementation of monetary management and distribution based on blockchain technology.
Transaction block
This is a collection of transactions on a blockchain network, gathered into a block that can then be hashed and added to the blockchain.
Transaction fee
This is a small fee imposed on some transactions sent across a blockchain network. The transaction fee is awarded to the miner that successfully hashes the block containing the relevant transaction.
Trustless
The elimination of trust from a transaction. Blockchain is called a trustless system because the two entities performing a transaction do not need to trust one another. The properties of blockchain - digital signatures, cryptography, etc. help to provide the trust.
Turing completeness
A machine is Turing complete if it can perform any calculation that any other programmable computer is capable of. All modern computers are Turing-complete in this sense. The Ethereum Virtual Machine (EVM) which runs on the Ethereum blockchain is Turing complete. Thus it can process any “computable function”. It is, in short, able to do what you could do with any conventional computer and programming language
Vyper
This is a Python-like programming language for the Ethereum blockchain built for security, language and compiler simplicity, and auditability.
Wallet
This is a digital file or a designated storage location for digital assets (cryptocurrency) that holds coins and token held by the owner and has an address for sending and receiving funds.
Web3 / Web 3.0
Web3, or Web 3.0, are terms used similarly with “the decentralized web” and are often used to refer, broadly, to the blockchain and decentralized technology ecosystems as a whole.
Zeppelin/Open Zeppelin
This is a community of like-minded Smart Contract developers.
Thanks for reading. I hope you have picked up a few of the vocabulary used in web3 and that it is no longer just buzzwords or jargon to you. If you liked it, kindly share with someone so they may learn as well. See you next time!
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