Basic Blockchain Terms You Must Know About
Blockchain technology has revolutionized the world and we would see tons of its applications in all fields of life. Before going any further we have to learn Blockchain basics, terms, glossary and definitions to understand it.
What is a blockchain?
We want to adopt cryptocurrencies but also want to learn about what a blockchain is. Blockchain can be said a computer represents a “block” and since they all remain connected to verify transactions that’s a “chain” or a network of computers in a nutshell.
A blockchain allows us to transfer, verify and send information in a decentralized way. So you can think of a blockchain like a database except it’s way more open and maintained by people all over the world. The blockchain technology is already being used in bitcoin and other altcoins but it will likely be used in way more ways than that in the future. People have theorized using it to:
- Digitize real-world assets
- Secure digital identities
- Conduct elections etc.
There are thousands of ways to use blockchain and ensure transparency. That is what a blockchain is in a nutshell.
What is DAO?
DAO is an acronym that stands for ‘Decentralized Autonomous Organization.’ It’s a way of structuring a company where the operating rules are digitally coded into a blockchain like Ethereum. You can have this company operate entirely or mostly based on the codes contained in its Digital Charter. For example a possible DAO driverless taxi cabs. As of right now we have Uber and Lyft but in ten years we might get picked up by a self-driving car. Instead this self-driving car could be controlled by a DAO.
It could have a set of instructions for how to pick up passengers, where to send profits, how those profits are split and even when to refuel or recharge. That’s only one of many potential ways that DAOs can be used in the future. They could make all kinds of business practices more efficient and democratic, they could even allow people all around the world to collaborate and innovate together in ways that have never before been possible.
What is a Node in cryptocurrency?
Nodes are the most talked about whenever someone talks about mining a coin or cryptocurrency. Let’s start off with the non-blockchain definition because nobody really uses the word Node in everyday life. A node is defined as a connection point between branches in a system. It’s synonyms would be like crossing or Junction. It’s a place where things meet.
Now think back to how a blockchain works. There’s a huge worldwide network of computers that constantly communicate back and forth with each other. Basically they are always taking in information and sending out information to other computers. These computers all work together to verify transactions and update their common database.
Nodes are places in the network where information is received and sent out elsewhere. So basically every computer in the network is a Node. There are definitely some more technical distinctions to be made here for example there’s a slight difference between nodes and miners. A miner’s a subset of Nodes or computers that both verify transactions and add them to the blockchain. There are some Nodes that just verify transactions without adding them. So all miners are Nodes but not all Nodes are miners.
What is a Mining Pool?
What really is a crypto mining pool? Mining is the process that secures and validates transactions in a blockchain. However as mining became more profitable huge companies started mining operations that pretty much took individuals out of the game. It’s pretty hard to compete with that much computing power. The mining pools were introduced as a solution individuals enter into a cooperative Mining agreement but all the cryptocurrency earned is split amongst the members instead of receiving a huge payout. If you are lucky enough to mine a block which if you are just an individual is pretty unlikely. Instead you are paid out in smaller amounts but much more frequently.
This way payments are more consistent and reliable. The mining pools make mining feasible for individuals but they also concentrate power in the hands of large groups and there’s some controversy for that reason.
What is a private cryptocurrency key?
A private key is what allows you to access your cryptocurrency. It’s a long randomly generated string of numbers and letters. You can think of it like your cryptocurrency password, your super important long random cryptocurrency password. Whoever has access to your private key has the power to send your cryptocurrency making it kind of like your email password. Once emails are sent they cannot be unsent.
The same is true for crypto transactions. If someone figures out your private key you are kind of screwed so keeping your private key safe is really important. Most of the time you don’t actually have to remember your private key or even interact with it, instead use an application called a wallet to keep your private key and your money safe. The wallets can be phone apps, computer apps or even hardware devices.
What is a seed phrase?
what a seed phrase is. When you use a cryptocurrency wallet; the wallet generates something called a private key for you. Now a private key is kind of like a top-secret cryptographic key blockchain password that you can use to access your cryptocurrency. But since it stores your private key for you. What happens if you lose your wallet? That is where a seed phrase comes in.
Your wallet will give you a string of 12 or 24 words that you can write down and keep in a safe place. That string of words is called your ‘seed phrase.’ If you lose access to your wallet you can use your seed phrase to regain control of your funds. So that’s why you need to keep your seed phrase somewhere very safe.
What is a smart contract in crypto?
What really are smart contracts in cryptocurrency? The smart contracts are digital agreements with superpowers–specifically the power to move money, documents information and more between people and they run on blockchains. They are automatic. Once we sign a smart contract it executes automatically once the terms are met. Smart contracts can be used in the future to automate all kinds of financial transactions safely and cheaply. For example let’s say you are selling a house today you would use a broker to mediate between you and the buyer when the buyer sends funds to the broker the broker then sends them to the house but these brokers take up to a 5% fee. That’s a ton instead you could use a smart contract as a broker you send the deed to the smart contract and the buyer sends it the funds. The contract then executes automatically sending you the money and the buyer the deed. Instead of costing you a 5% fee it would barely cost you anything.
What’s a stablecoin?
What are stablecoins? In order for money to work as money it has to have a consistent value. For example if a dollar is worth a dollar today, 90 cents tomorrow and $130 next week we can’t really use it to buy things. Popular coins like Bitcoin and others have that problem, their price when measured in dollars is really volatile. That’s why engineers have created stablecoins. The cryptocurrency is designed to keep a consistent price because one unit of the currency is always worth the same amount, usually one US dollar. They are actually useful for day-to-day purchasing. The stablecoins have all the benefits of cryptocurrency while also having the stability of the dollar. The popular stablecoin is tether USD coin.
What is Bitcoin cash?
Bitcoin cash is like Bitcoin but kind of not at the same time. Sometimes cryptocurrencies experience a split also called a fork. In mid-2017 bitcoin was going through network congestion problems. One group of developers wanted to solve it by basically changing the size of blocks in the blockchain. But a majority group disagreed so the dissenting group split off out of the change and forked Bitcoin to make Bitcoin cash. Up until the split only Bitcoin existed and there was only one blockchain after the split there was Bitcoin and Bitcoin cash meaning two separate blockchains.
Everything that was true in the original Bitcoin blockchain is also true in the Bitcoin cash blockchain up until the fork. What that means is if you had half a Bitcoin before the split after the split you had half a Bitcoin and half a Bitcoin cash. Now it might seem like free money but keep in mind that the market values of Bitcoin and Bitcoin cash are different. Ideologies are really strong on both sides here and only time will tell how these crypto currencies fared.
What are KYC and AML?
What are KYC and AML acronyms? You may be wondering why you have to provide all sorts of information like a photo ID or a social security number. When you register for U.S. Crypto currency exchanges like coinbase that actually has to do with government protocols specifically KYC and AML.
KYC stands for ‘Know Your Customer’ and AML stands for ‘Anti Money Laundering.’ The crypto exchanges are required to collect this information from all customers so the government can prevent illegal activities like tax evasion and money laundering. Basically the government wants to make sure ‘you are who you say you are’ as opposed to ‘you are who you say you are not’ or ‘who you don’t say you are.’ When you hand over all this information, mainly a social security number and a photo ID you can thank the US government for making it so that’s KYC and AML.