When it comes to any field, knowing specific terminology not only helps you sound good but is key in being able communicate with others in a meaningful & productive way.
Cryptocurrency is no exception.
The distributed ledger space is still in its infancy and is littered with confusing messaging and misunderstanding of what's really going on.
The press has clouded jargon and there's a lack of real-world consumer-facing cryptocurrency services, which makes it pretty tough to form a solid foundational understanding.
And so, this post takes the opportunity to educate everyday Jacks and Jills on the technology's basics.
Note: This post is not focused on cryptocurrency markets or technical-analysis of price fluctuations — this is project and technology focused and is aimed at clearing up some fog around the lingo — similar to what has been done in "Crypto 101: What You Need to Know About the Future"
This post makes the assumption you don't know much about cryptocurrency and blockchain at all.
Below, you'll find..
- Outsourced definitions from a large web-source
- Resource recommendations if you're curious as to where we learn from
Cryptocurrency and blockchain definitions, explained in plain english
If you get something out of this, feel free to give us a tweet @livenpay, or join the conversation in our Telegram.
We'll start slow and progress to some of the key words used in the space today.
- A system of money in general use in a particular country.
- The fact or quality of being generally accepted or in use.
Explanation: A currency is an accepted means of value exchange. In the past, we've used tulips, salt and metals as currency - these days we use fiat and more recently, digital currencies (cryptocurrencies are a kind of digital currency too!).
2. Fiat currency
Investopedia definition: Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material from which the money is made.
Explanation: Currency is something we use as a means of exchange, in the past our currencies have held true intrinsic value in that they are useful to us on their own (e.g you can eat food, tulips are pretty and gold is useful). Fiat currency is coins and paper money which have been made legal tender by fiat (aka order) of government.
The Australian Dollar ($AUD, US Dollar ($USD), Euro and Tunisian Dinar are all examples of fiat currencies.
3. Digital currency
Wikipedia definition: Digital currency is a money balance recorded electronically on a stored-value card or other device.
Explanation: A digital currency is non-tangible, meaning it is traded and stored completely digitally. There are no physical assets tied to a digital currency like coins or notes with normal currencies, and you might use a card or your phone to access and use your funds. Some common digital currencies are airline and credit card rewards points, and cryptocurrencies like DOGE.
Google definition: Facts and statistics collected together for reference or analysis.
Explanation: Data is information. On computers, paper, and essentially the world around us, data is everywhere in statistics, facts, quotes, transaction history - anything really. Your Myspace selfie at the zoo from 2007 is valuable data at your 25th birthday, and your scrolling habits after a night out on the town are probably valuable to Facebook. Today, data is stored in a centralised manner, like how banks store our transaction history, and social media platforms store our online behaviour. Data is bought, sold and utilised by companies and the industry is worth over USD $200 billion. In the context of cryptocurrency and blockchain, data can be stored, accessed and used in ways which revolve around the people themselves - you can have more control of your data and therefore, you can monetise it.
Wikipedia definition: A white paper is an authoritative report or guide that informs readers concisely about a complex issue and presents the issuing body's philosophy on the matter. It is meant to help readers understand an issue, solve a problem, or make a decision.
Explanation: As above, a project's whitepaper should inform the potential contributor on everything they need to know in order to contribute to the project or technology. This might include the project's vision, and everything that might be involved in accomplishing that vision.
In the context of cryptocurrencies, whitepapers are written to explain why and how a project is launching a currency and should include details about token allocation and distribution, use of funds as well as tokenomics (token economics). The Bitcoin whitepaper was the first cryptocurrency whitepaper we saw - read it here; and Liven’s whitepaper is available here, it also includes LivenCoin’s unprescedented tokenomics in the Reward Protocol (hint: section 5).
Google's definition: A book or other collection of financial accounts.
Explanation: Ledgers have been recorded on stone slabs and walls. Nowadays they are stored electronically (digital ledgers). A ledger generally records a list of transactions or data, though with the advent of digital ledgers, this data can get a lot more complex.
7. Distributed ledger technology (DLT)
Investopedia's definition: A distributed ledger is a database that is consensually shared and synchronized across network spread across multiple sites, institutions or geographies. It allows transactions to have public "witnesses," thereby making a cyberattack more difficult.
Explanation: You know Google docs right? Everyone can be on a Google doc and edit it at the same time. This is possible through Google’s servers receiving updates to the document, and everyone viewing getting immediate updates. Now imagine if Google wasn’t there, meaning no business or centralised servers to manage the data. How would this work? The answer is distributed ledger technology (DLT). Blockchain is an example of distributed ledger technology, and essentially it means that data is shared and synchronised across multiple places where anyone could participate in hosting the data. In this case, rules are set so that the data is validated and difficult to tamper with. Distributed ledgers are also more difficult to hack or disrupt since there are multiple servers (aka nodes) where the data sits.
Google's definition: The process of converting information or data into a code, especially to prevent unauthorized access.
Explanation: In case that definition isn't enough, encryption is turning hello into llohe, except instead of hello and llohe, it's your healthcare data encrypted as.. 50a664234bc3e16e184a9836f89b0d2454f2d2079cf4e7830.
ComputerHope's definition: Decryption is the process of taking encoded or encrypted text or other data and converting it back into text that you or the computer can read and understand. This term could be used to describe a method of un-encrypting the data manually or with un-encrypting the data using the proper codes or keys.
Explanation: With encrypted data (like our friend 50a66434bc3e16e184...), decryption is the process we would use to make it readable again.
Techopedia's definition: Hashing is generating a value or values from a string of text using a mathematical function.
Techopedia extends their definition with a great explanation here if you're curious.
Explanation: Hashing is used to translate data into something unreadable (hash value) - which sounds similar to encryption, except they are quite different. Encrypted data can be reversed back with a key, hash values can not. The difference here is that hashing is one way.
But if hashing is one way, how do you turn a hash value back into the message?
The answer is you don't - the only way to figure out what a hash actually is, is by hashing a message to see if you get the same hash value as a result, confusing right?
A real world example of hashing is passwords. Why do you have to reset your password instead of just recovering what it is? A majority of services we use from Facebook to Gmail to Uber to Good On You don't actually store our passwords, they store hash values of our passwords. When you try to login to Facebook, your password is hashed, and if the hash value is the same as what Facebook has stored, you succeed! But Facebook can only see the hash value, not the password itself.
Google definition: The art of writing or solving codes.
Explanation: In the context of technology, cryptography uses encryption and decryption to mask data away from third parties. This results in data only being readable by those who are intended to read it.
Short for cryptocurrency. Crypto can mean cryptocurrency or crypto-token, which are regarded as 2 different things. The former being built on their own blockchain, like Bitcoin with the Bitcoin Blockchain, and Ether with the Ethereum blockchain. The latter being like Binance Coin (BNB) which is built on the Ethereum blockchain as an ERC-20 token, and LivenCoin (LVN) which will be launched on the Ethereum blockchain as well.
“Got any crypto?” - “How’s the crypto market?” - “I don’t know much about crypto” - “Crypto is the future” - “What can you do with your crypto?” - “What’s your favourite crypto?” - “Not every crypto has their own blockchain” etc etc.
13. Cryptographic hash function
Wikipedia definition: A cryptographic hash function is a hash function which takes an input (or 'message') and returns a fixed-size alphanumeric string. The string is called the 'hash value', 'message digest', 'digital fingerprint', 'digest' or 'checksum'.
Explanation: Cryptography + hashing = cryptographic hash function. As above, a cryptographic hash function is used to turn a message into a fixed-length hash. It is the combination of cryptography (which includes encryption and decryption) and hashing. A cryptographic hash function is the equation, algorithm or function which can be used to turn data into a hash value. Essentially a pumped up version of hashing. Cryptographic hash functions can have multiple hash equations and multiple levels of encryption built into them to increase security. A popular hash function, and the one used in the Bitcoin blockchain, is the SHA-256 algorithm.
Google's definition: A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Explanation: A currency is a means of exchange, and cryptography is adding layers of security to data. Therefore, a cryptocurrency is a digital currency where its storage and transfers (data) are supported by cryptography.
Currencies as we know them today are stored in banks, and transactions between people are handled by banks. Fees associated with your currency are set by banks, and what you can do with your currency is also subject to banks. When we replace what banks do with cryptography, we allow for our own custom currencies to have parameters and rules built into them, like how many are generated, how they are generated, how they are exchanged between people and how they are acquired - in fact, we get to design all these rules ourselves and write them into code.
Google's definition: A digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.
Explanation: A blockchain is a type of distributed ledger technology, meaning it is a digital ledger which is distributed across multiple computers — for example the Bitcoin blockchain is a public list of Bitcoin transactions stored across thousands of computers at the same time. Further than storing transactions, blockchains can store basically anything from ownership of assets, to self-executing contracts called smart contracts.
In a blockchain, how does everyone agree on what data is right?
Participants in a blockchain agree on what is right, valid or true, by conforming to the consensus protocol of that particular blockchain. We won't go into consensus protocols today but they're pretty interesting — reaching consensus (agreement) on something is traditionally managed by corporate bodies, blockchain allows for us to agree on things without a third-party corporate body, which has impressive implications. What if you could agree on stuff with complete trust, with a stranger?
Investopedia definition: A hard fork (or sometimes hardfork), as it relates to blockchain technology, is a radical change to the protocol that makes previously invalid blocks/transactions valid (or vice-versa).
Explanation: A fork is essentially the community and the code of a project splitting. There are 2 kinds of forks, hard and soft.
A hard fork is when a blockchain's code is copied and split to exist independently of the original, resulting in 2 blockchains which aren't compatible; an example of this is Ethereum (ETH) and Ethereum Classic (ETC).
Ethereum fork story time:
To sum up this story - an exploit in Ethereum's code (which was pointed out months earlier) was utilised to 'steal' 3.6 million ETH. In this situation there are 2 sides:
- You could say the code was flawed, and support the funds being returned back to those who lost it - this would mean editing the blockchain’s code so that funds could be moved without the thieves permission.
- The other side says that “code is law”, in which case it is the blockchain’s fault that it got exploited, in which case the funds would remain taken.
There was a vote called over whether the Ethereum blockchain should be hard-forked to compensate the stolen ETH - the argument of 'yes' sided with compensating for exploitable code, the argument of 'no' says that "code is law" and sides with the 'immutable' aspect of blockchain. The community majority voted yes and the 'old' blockchain was hard-forked and called Ethereum Classic (ETC). Ethereum Classic was expected to die since people would continue using Ethereum, but surprisingle, the 'no' community ended up continuing the blockchain by mining blocks, and Ethereum Classic (ETC) is ranked in the #20 by market cap at time of this post.
A soft-fork can be looked at as more of an update to a blockchain's code such that one blockchain continues, rather than a hard-split where an ‘old’ blockchain is left on its own in cyber space.
If you're interested in forks, here's a better explanation.
17. Smart contract
Blockgeeks definition: Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.
Explanation: Smart-contracts are contracts written into computer code, they can have execution conditions, cancellation conditions, fund transfers and a whole bunch more in them. Let's take a land & property contract as an example, you and I are buying a house. To do this, we'd like to set up a contract which says when I pay half the deposit and you pay half the deposit, that we buy the house and the ownership of the property is split 50/50, such that when it sells, we get 50% of the sale each. Right now if we wanted to do this, it would take real estate agents and financial officers to execute and manage this contract. Instead, a smart-contract could exist where the services of real estate agents and financial officers are managed by the code. Meaning when you and I pay our deposit into the smart-contract, which meets the execution conditions of the contract, and ownership of the property is assigned to us. Obviously this is massively simplified but essentially smart-contracts can be used to create immutable agreements between parties - and for these agreements to be maintained with complete integrity without the need for a third party corporate body.
Merriam-webster definition: The dispersion or distribution of functions and powers, specifically government: the delegation of power from a central authority to regional and local authorities.
Explanation (and a word): Decentralisation can be applied to a range of scenarios. You can think of governments as defined above or you could think of business structures where bottle-necks of responsibility and authority are delegated to more localised managers or overseers. In the context of apps or technology, you could look at a marketplace like Etsy, where the ability to sell products is decentralised. Wikipedia is a fine example of the potential of decentralisation and is now a reliable go-to resource whether educational institutions like it or not.
Decentralisation is not a 'black-or-white' attribute, certain things can be decentralised to certain extents in certain contexts and although it is a buzzword further popularised by cryptocurrency, not all blockchains are decentralised and not all data should be put on a blockchain.
Combining the peaks of computer science, network computing, economics, game theory, community building and more, the cryptocurrency and blockchain space is vast - basically any hard-skill you can think of can be applied to the space in ways you might already know, and ways you might not. Below are valuable resources that the team at Liven have benefitted from in understanding the technology (there is heaps more out there!).
Reads - articles and whitepapers
Listens - Podcasts/interviews
- "The quiet master of cryptocurrency - Nick Szabo" - Tim ferris podcast
- "Crypto and the Evolution of Open Source" - a16z
- "Fireside chat with Vitalik Buterin" (co-creator of Ethereum)
- Any Charles Hoskinson talk, interview or AMA - like this one.
Watches - Ted talks and animated videos
- Ted talk - How Blockchain is changing money and business - 19 minutes
- How does a blockchain work - simply explained - 6 minutes
- Ever wonder how Bitcoin (and other cryptocurrencies) actually work? - 26 minutes
- What is Blockchain? The best explanation of blockchain technology - 6 minutes
Thanks for reading.
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