9 Jargons in Blockchain That You Wish Someone Could Explain Better

Most people find that blockchain is a complicated technical maze that they are reluctant to navigate in order to truly understand the benefits it can bring. Here we aim to unravel the true meanings of the jargons that you commonly encounter with blockchain especially in the context of ticketing. This article is meant for non-techies and we try our utmost best to use analogies to everyday things and if there are more jargons you need help with, please let us know.

 

Blockchain or Distributed Ledger System (DLT)

Let’s start with blockchain a.k.a distributed ledger system (DLT), a.k.a a gigantic Excel spreadsheet running on a worldwide network consists of computer servers or mining machines (later on that). Imagine everyone in the world is sharing a huge global spreadsheet (226.6 gigabytes in size as of the end of June 2019 for Bitcoin) and they dump all sort of data into its rows and columns. That’s the simplest way someone can imagine a piece of blockchain.

“A gigantic Excel spreadsheet running on a worldwide network consists of computer servers.”

A more accurate description is data is stored in chunks of blocks and they are chained together – hence the word “blockchain.” In a spreadsheet, data is stored from top to bottom in rows. In blockchain, data is stored side-by-side but in different blocks. You can imagine like multiple spreadsheets inside an Excel file. Another way to let our imagination loose is “shoeboxes that are chained together in one line” and you could store data in each box (like your cash, secret love letters, etc).

 

Cryptocurrency – Coin, Token

Cryptocurrency isn’t digital money like PayPal or online banking. It’s not a system that uses the Internet to transfer money or a digital representation of US dollars or Euros. It is in fact, another currency by itself just like USD. But it can only live in the digital world which is the blockchain network. So, Bitcoin is a virtual money or currency that you could also use to buy things. The most physical way to touch or feel Bitcoin is a Bitcoin debit card. There’s no such thing as Bitcoin in cash notes or physical coins (not to be confused with Bitcoin Cash, which is another type of cryptocurrency).

Cryptocurrency isn’t digital money like PayPal or online banking.

Why the name cryptocurrency? Because it uses cryptography (a form of digital encryption, just like the one you use every day to store your username and password) to securely operate this digital money on the Internet.

But what’s the difference between coin and token? Coin is a cryptocurrency that is used as money in the blockchain – to buy and sell things. Token is for you to use things – like a subway ticket to use the subway or an event ticket to watch your favorite idol. Token can also be utilized to gain access to something such as a privilege. Such as you must have 1,000 pieces of BOSS tokens to access the Good Ol’ Bosses VIP club.  You can use it to vote too. Say, you are given one voting token and to vote yes, you need to deposit your token into blockchain account A (called a digital wallet) and to say no, send the token to account B. The account that ended up with the most tokens within the time period specified wins.

The confusing part here is that a coin can also be a token. Because each token is like a piece of digital asset that could have a monetary value. The best-known token that is also a coin is Ethereum. The official name is Ether token but that name has been lost in blockchain space and people don’t really use that name anymore. You use Ethereum token to access the Ethereum blockchain network to run blockchain programs called smart contract. Which brings us to the next jargon.

 

Smart Contract

Think of a smart contract like a software program that sits inside your smartphone (iOS or Android) or your PC operating system (Windows 10 or Mac). But instead, it sits inside the blockchain and does specific functions. The functions are programmed by the smart contract programmer (just like your software or app developer) to do just about anything that you want as long as blockchain allows it just like your smartphone. You can’t ask your smartphone to float because it just doesn’t have the necessary features to do that. But if you want your app to send you a notification to your smartphone to remind you to bring an umbrella if it predicts it’s going to be rainy, you can do the same with a smart contract. Except that you don’t ask it to do such a rudimentary task because it costs money to deploy or run a smart contract in a blockchain. See item below for more explanation about gas or transaction fees.

The beauty of smart contract is that it could run by itself without any human intervention.

The word “smart contract” means an intelligent program that has been coded and agreed to do certain tasks just like in a contract between two parties. If something happens, do this or that. A simple task in a smart contract would be to send tokens or cryptocurrency from my account to your account. So, if input in the smart contract my wallet address (the “From” field) which contains the cryptocurrency and your wallet address (the “To” field) and also the amount of cryptocurrency I want to send to you, it will duly transfer my cryptocurrency to your wallet once I pressed the Send button.

The beauty of smart contract is that it could run by itself without any human intervention. Which gave rise to organizations like DAO (decentralized autonomous organization) which aims to be an autonomous company that doesn’t need a CEO or a working team to operate (well, sort of). Because most tasks are governed by the smart contract. For example, if all the wallet holders (like members of an organization) agree to vote to buy a new Ferrari for the CEO and the program states if it receives a minimum of 51 percent vote of “yes”, it will be approved. But still, we need someone to go and buy the Ferrari, which explains my “sort of” above.

The true power of smart contract can be unleashed when most of the operations are done within the smart contract and blockchain. Such as storing event data in a smart contract. This event smart contract could issue tickets called ticket tokens (similar to a blockchain token) and each ticket token contains all the details of the event (name, date, time, venue, seat number). The smart contract also controls how many ticket tokens can be or are issued, to whom it is issued, to whom it can be transferred to, has the ticket been used and more. It could even store a virtual copy of the ticket inside the blockchain permanent forever!

 

Decentralization

This is probably the most popular jargon buzzing around the blockchain fraternity and to understand this concept you have to learn about the history of blockchain. Blockchain was invented to power the world’s first cryptocurrency – Bitcoin. Bitcoin was created during the 2007/8 financial crisis where larger-than-life banks went bust. So, this guy named Satoshi Nakamoto (he’s not a real guy, by the way, just an online nickname) wanted to find a way to circumvent these untrustworthy financial institutions by running a stand-alone banking system without any banks, or intermediary. When you have no third-party who takes care of your money, you have no problem with a financial collapse.

Thus, from a centralization standpoint where banks and central banks manage our money, now we have a decentralized system where no one has a final say in what we should or should not do with our money. Then, who are making the decisions behind Bitcoin, you might wonder. Non-profit foundations like the Bitcoin Foundation takes care of matters about Bitcoin (in a way) and blockchain miners or stakeholders (here stakeholders are people who own lots of a particular cryptocurrency, not company shareholders).

Now we have a decentralized system where no one has a final say in what we should or should not do with our money.

So, most blockchain platforms are decentralized but not all, which adds to its complexity. A blockchain network is not necessarily be decentralized. Because a company (or even a person) could afford to fork a blockchain system and create their own blockchain and run it all by themselves. A good example is Hyperledger. You could run your own Hyperledger within your own organization for your own internal use. But why do you want to do that? Read on…

 

Immutability

One of the cornerstones of blockchain proliferation is in its inherent characteristic of being immutable – once data is stored inside a blockchain, it cannot be changed or erased. Imagine that I’m trying to send you $100 online and after you confirmed that you received it I erased the transaction. This could not happen in the blockchain.

If there’s a need for you to store some data permanently without any modification, blockchain should be your option.

Therefore, if there’s a need for you to store some data permanently without any modification, blockchain should be your option. Think about notarizing documents or storing digital assets on the Internet that would last forever such as unique digital ticket stubs. These are some ideas of blockchain use cases.

 

Wallet

This is NOT Apple Wallet or Google Pay. It’s like your online bank account where it has a unique number that represents a “place” that you store your money in a bank. A cryptocurrency wallet has a unique number like 3LtPiKg1qZxWqVoJENTE6jGJhMFM5tPgxp which is my actual Bitcoin wallet. By the way, blockchain wallet and cryptocurrency wallet are used interchangeably in most context. A blockchain wallet typically could store a variety of coins or tokens. You could store your blockchain tokens such as ticket tokens for events that you’re going to attend.

It’s like your online bank account where it has a unique number.

The confusion that most might have is which wallet should I use? Because there’re so many of them out there. You could have a wallet in the form of an app, desktop software, an online account on a website or even a hardware device. Software wallet is always free (for app, desktop) and you have to pay for a hardware wallet (which looks like a USB flash drive or a credit card) except for paper wallet – basically a wallet written on paper with your wallet number and access details on it such as private key, which is like your wallet password. Hardware wallet (a.k.a cold wallet like putting your coins in the freezer) is the most secure and software is less secure. One hardware wallet is depicted in the image below, called Ledger Nano S. But unless you have thousands of dollars sitting in your wallet, software wallet is good enough for most cases.

 

Blockchain hardware wallet
Photo credit: Motokoka

 

Gas or Transaction Fees

You must have heard of the word “gas” when you tried to transfer a coin or token to someone from your cryptocurrency/blockchain wallet. The term gas is used in Ethereum blockchain but it is generally known as transaction fees. Think of “gas” as the gas for your car. It is something that powers the blockchain network just like your car. Well, aren’t that servers and electricity, you might say. Yes, absolutely. But who pays for the work to manage the servers and the electricity bills? In the online world today, we tend to take for granted the websites and apps that we use for free like Google, YouTube, Facebook, Whatsapp. Behind the scenes, these tech companies are paying the bills to serve you those free online content and services.

Think of “gas” as the gas for your car. It is something that powers the blockchain network just like your car.

But in the blockchain world, there’s no single entity that manages the network or servers. People around the world chip in their PCs or servers at home or office and pays the electricity that powers them.  Are they doing it for free? Of course not! Just like the tech giants who don’t actually serve you for free, these blockchain network operators, if you will, are paid with gas fees. So, if you wish to send 1 Bitcoin to your mom’s wallet, you have to send just slightly more than 1 Bitcoin (like 1.0000000000001) and that little “1” that the end is going to be paid to the person that runs the Bitcoin server.  That little delivery cost is usually very minute like USD0.50 or less. But it can be more if want the transfer to be faster. Just like paying extra for delivery charges to Amazon to get your goods tomorrow.

 

Mining

In short, mining is a process of doing heavy computerization work to earn cryptocurrency. Just like real-life miners mining for gold. Mining in blockchain is actually the process of creating blocks inside the blockchain. Like creating lots of sheets in a global Excel file shared by everyone.

Like creating lots of sheets in a global Excel file shared by everyone.

These blocks are used to store data such as cryptocurrency transactions. Miners use special computer hardware machines to create (or mine) the blocks because it’s more efficient that way. Image below shows examples of mining machines.

 

Crypto mining machines
Photo credit: rebcenter-moscow

 

But why is mining sucking so much electricity? Because miners are competing in a winner takes all race to create the next block. The race is called Proof of Work (PoW) which to explain it would need another long article altogether. They are basically competing to solve a super difficult mathematical equation that only supercomputers can do it. Thus, they use torrent amount of energy to power these advanced computers. This is also where the term Proof of Work is derived from – you gotta prove that you are actually working in order to earn the precious cryptocurrency like Bitcoin. But the good news is this is changing and other new improved blockchains don’t need miners to compete anymore and to waste energy.

 

Fork or Forking

This is not a jargon that is important to know but I reckon you might be curious about the meaning. Forking is a way for someone to make a copy of an existing software and modifies it to call it their own. It’s like taking the DNA of a crop and genetically alter its DNA to make a super crop that produces more yield, something that people are already doing. You can very much do the same with blockchain, thanks to the open-source movement. Open-source allows people to build software that comes with its DNA blueprint (called source codes) so that we can modify its functions and behavior. You could, for instance, take the source codes of Bitcoin and create a new cryptocurrency called Buttcoin.

But you can’t modify Windows 10 or Photoshop because those software programs are not open-source which means you cannot see its DNA because Microsoft and Adobe just don’t want you to make your own copy of their precious software.

 

Send Us More Jargons to Bust

If you need better explanations for other blockchain jargons that we didn’t cover, please inform us and we will update this article and duly add them on our list.