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Blockchain Terms You Need to Know

Blockchain Terms You Need to Know

Although blockchain technology traces its origins back to the start of cryptocurrency, it is now being used for an increasing number of purposes where record keeping is important. As blockchain gains more and more traction outside of the cryptocurrency arena, understanding the technology is becoming increasingly important. To help, the following is a glossary of key terms related to blockchain technology:

Blockchain - Blockchain is a mathematical system of record keeping made up of blocks of transactional data which are linked in chronological order. Unlike traditional record keeping which consolidates records in a central location or ledger, blockchain uses a decentralized ledger which stores copies of records on multiple devices or nodes. Because all nodes must have the same version of the ledger, it is very difficult to retroactively change transaction records. The use of distributed ledgers and encryption make blockchain records very difficult to hack, forge or disrupt.

Block - A block is the basic container for storing transaction data within a blockchain.

Node - A node is a computing device that is part of a blockchain network. Each node retains a copy of the blockchain ledger and reconciles that version with other nodes to ensure all nodes contain the same version of the ledger.

Address - Each entity completing transactions in a blockchain network is assigned an unique alphanumeric address. The unique address assigned to an entity is used to send transaction to that entity or receive transactions from that entity.

Transaction - A transaction is a transfer of value between two addresses, or organizations, using a blockchain network. Although most commonly this value is monetary, it can involve and exchange of data or other forms of value.

Distributed ledger - A ledger is essentially a chronological record of blockchain transaction. A distributed ledger stores copies of the ledger on multiple devices, or nodes, in a decentralized network.

Permissioned Blockchain - A permissioned blockchain is a private blockchain that is only available to a closed network of people who are authorized to access it. This type of blockchain is typically stored on a groups of networked servers.

Permissionless Blockchain - A permissionless blockchain is a public blockchain that is available to anyone over the Internet and is stored on a global network of computers.

Mining - Mining is the process of transaction verification performed by nodes in the blockchain network before adding a new block of data to the blockchain. Private blockchains do not rely on mining and perform verification at the nodes of their private network.

Consensus - Consensus is the process within blockchain networks to verify that all nodes concur on the contents of the distributed ledger. Using a variety of algorithms, discrepancies that are not consistent with the consensus version of the blockchain are removed. This process is what effectively makes blockchain immutable. To alter an historical blockchain record requires simultaneously changing the ledger in numerous distributed nodes, defeating the encryption, and overcoming other security measures, making the process extremely difficult.

Smart Contract - A smart contract is an agreement between two parties which is written into code to execute a blockchain transaction.

Provenance - Provenance is a feature of blockchain that can be used for the tracking of the history of an asset using its immutable ledger. Provenance can be used to track the complete history of an asset such as a gemstone as it goes through various stages of value-added transformation, including the chain of custody, before its final transformation into a saleable product.