Glossary

Altcoin

Alternative crypto currency which differs from Bitcoin and the established crypto currencies (mainly Ethereum) regarding implementation and other characteristics.

 

Bitcoin

First concrete application of the blockchain concept based on the work of Satoshi Nakamoto. It revolves around a decentralized (distributed) database which allows the management of different accounts as well as the processing of transactions between them.

Blockchain

Technology for sharing information through a distributed database which is secured through a highly sophisticated cryptographic technology. The process of reaching consensus in the distributed database uses the initial concept “Proof of Work”. The general definition of blockchain has its origin in the 2008 whitepaper of Satoshi Nakamoto itself based on older works such as eCash.  Bitcoin is the result of directly implementing the concept introduced in the whitepaper. Since then numerous other possibilities to apply the technology have been conceptualized or already developed.

Delegated Proof of Stake

It is a version derived from the Proof of Stake (PoS) concept and is aiming at remedy its main weakness: The tendency of hoarding coins in the network nodes in order to improve the weight of their votes during the creation of the next block and hence potentially taking control of the blockchain. The delegated PoS concept stipulates that network nodes delegate their vote to super nodes and only those have the right to validate a new block. The super note votes publicly, which means if it votes erroneously the delegated vote can be revoked through voting on redistribution.  The algorithm also includes a functionality which ensures that the block size increases automatically each time a super note rejects (ignores) a transaction. As the super nodes are remunerated per validation and a larger block increase this processing time leading to fewer validations in the same time period the super nodes are incentivized not to reject transactions.

 

Ethereum

Blockchain alternative which was originally introduced in 2013 by Vitalik Buterin and financed by one of the first ICOs ever in 2014. It is in operation since 2015. It aims at providing a virtual distributed computer in order to expand the blockchain concept onto any other kind of application. Numerous applications have since been built based on Ethereum, especially Smart  Contracts and Decentralized Autonomous Organizations (DOA).

 

Exchange

Platform to exchange crypto currencuies against one another (or also against physical currencies like Euro or US dollar) on an organized trading hub similar to a stock exchange enabling demand and supply to determine the price. The exchanges will soon be developed enough to allow for margin trading (leverage effect) as well as the trade of derivatives (futures and options). On most platforms the user has one wallet for each traded currency. The public and private keys are stored on the platform which may lead to security issues. Certain platforms are  based on a decentralized approach which lets the user only store their public keys granting the protection of the wallet (and hence the private keys). Example: Shape Shift.

Nem

Altoin, founded in March 2015 with its own blockchain (non-fork) based on the consensus principle of Proof of Importance (PoI).

 

Proof of Importance

Concept for reaching consensus during blockchain validation which aims at resolving either existing or predicted problems of Proof of Work (PoW) and Proof of Stake (PoS). These are for PoW especially the high consumption of computing power, and for PoS the excessive accumulation of coins. Proof of Importance uses the reputation of a node which is calculated based on its participation within the network. This type of blockchain is used in NEM.

 

Proof of Stake

Concept which aims at replacing the PoW concept due to the problems encountered when attempting to scale it, as well as its enormous resource requirements (during mining).  It requires that every participant in the system votes on the correct version of the blockchain and is at risk of losing a portion of its coin balance (i.e. a stake) if it (accidentally or deliberately) votes for a wrong version.

Proof of Work

Proof of Work (PoW) is the initially in the bitcoin whitepaper introduced concept for validating transactions (block) by linking it to solving a mathematical problem which solution can only be found by trial-and-error (brute force). The PoW concept ensures the safeguarding of the historic transaction data.

Token

Special type of altcoin which is mined through the intelligent contract type Smart Contact based on existing blockchain technology (mainly Ethereum).  In the majority of cases, possession of the token grants the right to use a particular resource (e.g. computing power, data storage) or certifies the ownership of a particular asset (tangible or intangible). The token are an important part of Initial Coin Offerings (ICO) which is used to raise capital.

Wallet

Virtual wallet (online oder offline) which enables the user to store the public (and potentially also private) keys of his/her portfolio as well as to interact with the blockchain. The balances in crypto currencies (coins) are not stored in the portfolio but in the blockchain itself.