Over the past few months, we’ve spent a lot of time discussing the basics and benefits of blockchain for the enterprise. There has been a lot of hype on the topic and there are many reasons to look into a blockchain initiative. However, many of these explanations expect you to run before you can crawl, so to speak. At MIBAR, we’re about more than that.
Today, we’re kicking off a series on the basics of blockchain, discussing how it can be used by businesses to track, trace, and tokenize, starting with an introduction to the key terms and essential concepts. Over the coming months, we will help you develop a deeper understanding of why the use of this can help you see and control more.
Defining Blockchain
Let’s start at the beginning. As defined:
“Blockchain – A blockchain is an expanding list of cryptographically signed, irrevocable transactional records shared by all participants in a network. Each record contains a time stamp and reference links to previous transactions. With this information, anyone with access rights can trace back a transactional event, at any point in its history, belonging to any participant. A blockchain is one architectural design of the broader concept of distributed ledgers.”
Blockchain Simplified
Yikes. Let’s roll this back a bit. Blockchain was originally called “block chain.” The “block” refers to a record, like a financial transaction or any other piece of data. The “chain” is a cryptographic formula known as “hashing” that links each block to the next block in a sequence, known as a “ledger.”
In essence:
- Block: A package of data.
- Chain: A series of blocks. New blocks are added to the end of the record and can never be changed or removed.
25 Terms and Definitions Used in Blockchain Discussions
So many things go into a blockchain, whether it’s for a transaction using a well-known currency or for the transmission of information (i.e. contract). Here are just a few of the terms that go into blockchain.
- Address: A string of alphanumeric characters used as an identifier, as well as to send and receive information.
- Blocks: A package of data.
- Block Height: The number of connected blocks in a chain. This chain starts with a genesis block and is built upon chronologically.
- Confirmation: The process of a transaction being hashed and verified by the network.
- Cryptocurrency: A digital store of monetary value. Cryptocurrencies feature a limited supply to prevent inflation, are secured against counterfeit, and are not controlled by a central authority.
- Cryptography: The practice and study of secure communication; the fundamental concept of blockchain. In computer science and algorithms are used to generate and transform messages. Modern cryptography has four objectives: Confidentiality, integrity, non-repudiation, and authentication.
- Dapps: The applications created on a blockchain.
- Decentralization: Rather than data existing on or controlled by a single entity, it is copied and accessible on thousands and thousands of computers or nodes.
- Digital Signatures: Part of the hashing process. Used to bind a key to a dataset. No different than signing a paper contract, the signature process happens when a user produces a short string of data (private key). This string is tied to a public key.
- Distributed Ledger: A database spread across multiple sites.
- Distributed Network: Processing power spread across devices instead of a data center. If you’ve seen Silicon Valley, this was the concept. Also considered the future of the cloud.
- Hashing: The process used by the blockchain to condense input data into a fixed size and connect the existing state to the new transaction. Hashes identify, compare or run calculations against files and strings of data.
- Immutability: Resistance to change over time. This is the reason blockchain is considered secure, valuable, and useful for accounting, financial transactions, identity management, and asset ownership, management and transfer, just to name a few examples.
- Merkle Trees: One of the pieces of metadata on a block. Used to summarize all the transactions in a block. Produces digital fingerprint of all previous transactions.
- Multi-signature (multisig): Allow multiple parties to require more than one key to authorize a transaction. Useful in
- Node: A computer that maintains and possesses a copy of the blockchain.
- Oracle: The entity that sits between a smart contract and the external world, used to prove performance.
- Peer to Peer (P2P): Sending information or completing an interaction without an intermediary.
- Private Key: The equivalent of a password, private keys are matched with your public key to verify you are the sender or recipient.
- Proof-of-work: The proof-of-work is produced when the target-hash is solved. Used in the verification and confirmation process. Also known as nonce (Number only used once)
- Public Key: A cryptographic key that can be obtained and used by anyone to encrypt messages intended for a particular recipient. Related to address.
- Smart Contracts: Computer protocols that facilitate, verify, and enforce a contract, rendering the contractual clause unnecessary. Smart contracts essentially enable any two parties to carry out transactions without a central authority, legal system or oversight by regulatory entities. Additionally, smart contracts are traceable, immutable and transparent.
- Timestamp: Digital record of time that an event occurred. Another piece of metadata on a block.
- Transaction Fee: The reward for hashing the block containing a relevant transaction. Similar to any other payment processor, this is the fee collected.
- Tokens: A representation of value within a specific blockchain network. These serve as transaction units and are unique to the application (i.e. a blockchain-based rewards program).
Additional Resources from Blockchain Experts
The Business Software Education Center is here to help you understand the software landscape. For advice from people who specialize in this kind of thing, we recommend the following resources and glossaries:
- HedgeTrade Encyclopedia
- Blockchain.wtf Beginner and Intermediate Glossaries
- BlockGeeks Bitcoin Glossary
Building Your Blockchain Strategy
Blockchain is entering the real-world conversation. It’s no longer a hypothetical—new use cases are popping up every day and will enter your value chain sometime in the next few years. Financial services, healthcare, and even in the commercial fishing industry are already using blockchain to implement an airtight and secure verification system—who’s next?
Whether it’s adding trust to insurance, creating a loyalty program, or improving contracts, it’s important to know what’s going on with it. Over the next few months, we will continue to explore the basics of blockchain: Why it’s so secure, why it’s more than just money, and why you need to look at an initiative sooner rather than later.
