As financial technology increasingly enters the daily lives of millions, some of its more technical terminology remains obscure.
Here is a deep dive into frequently exchanged ‘buzz words’ in cryptocurrencies and blockchain, a sub-sector of the fintech world.
CRYPTOCURRENCY: A digital currency that relies on cryptography to validate and secure transactions. There are different types of cryptocurrencies - bitcoin and ethereum are among the best known.
BITCOIN: A digital - or crypto - currency that enables payment in a decentralized peer-to-peer (P2P) network not governed by any central authority or middleman.
BLOCKCHAIN: Software that first emerged as the system underpinning bitcoin. Also known as distributed ledger technology (DLT), it is a shared record of information that is maintained and updated by a network of computers rather than a central authority. It is protected and secured by advanced cryptography.
DISTRIBUTED LEDGER TECHNOLOGY: A term often used interchangeably with “blockchain,” even though technically blockchain describes the public ledger powering bitcoin.
MINING: The process through which transactions are verified and added to the blockchain and new bitcoins are created.
MINERS: Term used to describe the devices or the people that own the devices that validate bitcoin transactions. They get rewarded for the computing power consumed during mining with the bitcoins created in the process.
PUBLIC LEDGER: A distributed ledger that is open to everyone on the internet. Bitcoin’s blockchain is a public ledger.
PERMISSIONED LEDGER: A distributed ledger that requires permission in order to be accessed. The ledger is maintained only by a limited number of parties. This is the kind of blockchain technology that large corporations, such as banks, are more likely to use because of data privacy needs.
DOUBLE SPEND: A successful bitcoin transaction that is sent to two different recipients simultaneously. Essentially as if the same dollar bill could be spent twice. Bitcoin’s blockchain is the system that should prevent this from happening.
ALTCOIN: A cryptocurrency different, or alternative, to Bitcoin.
ETHEREUM: A type of blockchain network. The bitcoin and Ethereum blockchains differ primarily in purpose and capability. While the bitcoin blockchain is used to track ownership of the digital currency bitcoin, the Ethereum blockchain can be used to build decentralized applications. The virtual currency associated with Ethereum is called Ether.
HARD FORK: When a blockchain splits into two ledgers creating a new digital currency.
BITCOIN CASH: An alt-coin clone of bitcoin that was created in August 2017 when a group of Chinese miners initiated a fork of bitcoin’s blockchain.
BLOCK: A part of the blockchain where a number of transactions are recorded. It’s like a page in a ledger book. Unlike a page on a ledger book, however, once completed a block cannot be modified.
GENESIS BLOCK: The first block in a new blockchain.
HASH RATE: The speed of a bitcoin transaction.
SMART CONTRACTS: Software that runs on blockchain technology and can automatically enforce the terms of an agreement. A “smart bond”, for example would automatically make interest payments to investors.
ICO: Initial Coin Offering, or a token sale. The process or event in which funds are raised for a new cryptocurrency venture and contributors receive tokens in return.
DISTRIBUTED APPLICATION: Software that runs on multiple computers on a given network at the same time.
ORACLES: A data feed, usually a third party service, that provides information for use in smart contracts.
NODES: Connection points for the transmission of data.
DIGITAL WALLET: software that allows users to make electronic payments, purchases and store their cryptocurrencies online.
PRIVATE KEYS: A form of cryptography that allows users to access their cryptocurrency and is essential part of its security.
HARDWARE SECURITY MODULES: Or HSM. It is a device that secures data such as digital private keys in a very secure fashion.
Compiled by Anna Irrera and Maria Caspani