Blockchain Terms

Nancy Muorah
6 min readSep 17, 2022

What we now know

  • Distributed Ledger Technology

¹Defined as a digital system
² Peer-to-Peer
³ Data not located on a central data store
⁴ Decentralized network

Distributed Ledger Technology
Distributed Ledger Technology

Distributed ledger has emerged as an umbrella term used to describe technologies which distribute records of information among all those using it, whether permissioned or permissionless, and independent of their consensus mechanisms or data structure.

  • Blockchain

¹ Decentralized database
² Encryption, immutability, duplicated and distributed
³ Chain of blocks
⁴ Distributed ledger technology
⁵ Validation

Blockchain

Blockchain network are public infrastructures that collectively maintain a shared and distributed ledger, where immutable and encrypted copies of the information are stored on every computer in the network. The network stores all the information in cryptographically secured data pieces called block and each block is connected to the one before and after it forming a chronological chain of data. Each additional block strengthen the verification of the previous block and hence the entire blockchain making the blockchain immutable.

  • Block

¹ Hashed transactions
² Permanent store of records
³ Cannot be altered or removed
⁴ Unique identifier called hash value

Block

In a blockchain network, transactions are recorded in batches of data called “blocks” that are “hashed”. This cryptographic hash creates a digital fingerprint of the block. Each block includes the hash of the prior block, thereby linking one block with another into a chain of blocks. If data in one block is altered, the hash value of the block and all subsequent blocks will change and every node in the network will know that the data has been tampered with.

  • Transactions

¹ Data committed to the blockchain
² Most important part of a blockchain
³ Global ledger of transactions

Instead of a bank validating financial transactions, all computers in the network check their copies of the ledger for validity of the transaction, and collectively confirm transactions by majority consensus. No user is trusted more than any other. Instead of a single trusted third party validating transactions through their servers with authority(single vote), a P2P network of computers running the blockchain protocol validates transactions by consensus (majority vote).

  • Bitcoin

¹ Decentralized digital currency
² You can buy sell and exchanged directly
³ No intermediary like a bank
⁴ Cryptographic proof instead of trust
⁵ First implementation of blockchain tech

Bitcoin has consolidated itself as the most robust, most secure, best store of value, and the safest protocol between all cryptocurrencies.

  • Blockchain Consensus Algorithm:

¹ Procedure for peers to reach agreement
² Decide the present state of a distributed ledger

Consensus

Consensus mechanisms allow for distributed control. they are based on the combination of economic incentives and cryptography. it uses a reward mechanism designed in a way that it is economically infeasible to cheat the network. It makes it exceedingly difficult to falsify the blockchain.

  • Proof of Work (PoW) Consensus

¹ Used by miners to confirm transactions
² Used to produce new blocks
³ Miners compete against each other
⁴ Miners receive reward

Proof-of-Work

Proof-of-work is the consensus mechanism used by the Bitcoin network that steers collective action of an unknown set of anonymous network actors. Miners who successfully create a block are rewarded.

  • Proof of Stake (PoS) Consensus

¹ Amount a person holds matters
² Prove ownership of a cryptocurrency amount
³ Validation of transactions

Proof of stake

The consensus mechanism requires you to own a minimum amount of network tokens to be eligible to validate transactions.

  • Other types of consensus used in blockchain

¹ Proof of Elapsed Time (PoET)
² Proof of Capacity
³ Proof of Authority (PoA)
⁴ Proof of Activity
⁵ Proof of Burn
⁶ Proof of weight
⁷ Proof of importance

  • Smart Contract platform

¹ Programs stored on the blockchain
² Store data on the blockchain
³ Autonomously executing codes
⁴ No intermediary’s involvement
⁵ Automate execution of an agreement

Smart Contract

Smart contracts is a piece of software that is processed by a distributed ledger. It is a right management tool that can formalize and execute agreements between untrusted participants over the internet and comes with inbuilt compliance and controlling

  • Transaction Types

¹ Cryptocurrency Transfer Transaction
² Coinbase Transaction
³ Smart Contract Deployment Transaction
⁴ Smart Contract Interaction Transaction
⁵ Token Transfer Transaction.

  • Cryptocurrency Transfer Transaction

¹Messages, like email
² Signed messages using cryptography
³ Initiated by an externally-owned account

  • Coinbase Transaction

¹First transaction in a block
² Created by miners
³ Miners use it for collection of reward

  • Smart Contract Interaction Transaction:

¹After deploying a smart contract
² Used to interact with a smart contract
³ Calls a function on the smart contract

It allows for a simple way to serialize calls and transactions to an onchain contract.

  • Token Transfer Transaction

¹ Transfer tokens
² ERC20 token
³ Type of smart contract interaction transaction

  • Transaction Fields

¹ from: senderAddress
² to: contractAddress
³ nonce: nonce
⁴ gas: estimatedGas
⁵ data: function identifier plus parameters

  • Gas

¹ Price to execute a transaction
² Pay for sending tokens
³ Pay for interacting with a smart contract
⁴ Payment is calculated as gas

  • Gas units

¹ Measures work being done
² Smallest type of work done
³ Deterministic

  • Gas price

¹ Amount spent on each unit of gas
² Amount paid to miners
³ Market price

  • Gas fee

¹ Payment made by users
² Price of computing energy
³ Gas fee = gas unit * gas price

Gas fee are essentially the transaction fee people pay to submit a transaction to the block.

  • Gas limit

¹ Maximum amount of gas
² Spent on a transaction

  • Gas used

¹ Gas used during execution
² Cost calculated afterward
³ Difference returned to the sender

  • Layer 1 blockchain

¹ Underlying main blockchain architecture
²Solutions implemented on base protocol blockchain
³ Responsible for its own consensus
⁴ Only aware of its own network

Layer 1’s are blockchains that process and finalize transactions on their own.

  • Layer 2 blockchain

¹ Built on top of L1
² Aware of its own network
³ Utilize consensus of L1
⁴ Aware of the L1

Layer 2’s are third party integrations used in conjunction with layer 1’s to increase scalability and transaction.

  • Merged mining

¹ Same miners
² Mines RSK(The most profitable merged mining platform on bitcoin) and Bitcoin simultaneously
³ Both chains use same proof of work algorithm
⁴ Double SHA-256

Merged mining is a technique that allows bitcoin miners to mine other cryptocurrencies simultaneously with nearly zero marginal cost.

  • RSK

¹ Most secured smart contract platform in the world
² Adds value to the network
³ Enable smart contracts secured by the bitcoin
⁴ Help grow the Bitcoin ecosystem

Rootstock

curated from Blockchain user course-RSK and Token economy.

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