Cryptocurrency Terminology

Cryptocurrency Terminology: 51% Attack, ASIC, Blockchain, Cipher, Consensus, CPU/GPU Mining, Faucet, Genesis Block, Hashing Algorithm, Pooled Mining, Solo Mining, SHA256, X11, X13, X15, X17, Scrypt, Neoscrypt

A 51% attack is a known design flaw in the Bitcoin software. Hypothetically, if a single entity contributed the majority of the network’s mining hashrate, they would have full control of the network and would be able to manipulate the public ledger (blockchain) at will. Since the network is free and open, if someone were to have enough computational power (which would be extremely costly), there is no Bitcoin authority to stop them from doing things like preventing transactions from gaining confirmations, reversing transactions or allowing double-spending. Although feasible in theory, the current network mining difficulty levels have risen to such heights that not even large governments could amass enough computing power to mount a 51% attack. Cryptocurrencies using proof-of-stake as their consensus protocol are not vulnerable to this kind of attack.

ASIC (application-specific integrated circuit) is an integrated circuit customised for a particular use, rather than general-purpose use. In the world of cryptocurrencies, ASICs are frequently deployed for “mining” in order to accelerate the increasingly difficult task of generating new cryptocoins. Certain newer cryptocurrencies have tried to circumvent the ASIC effect by deploying improved hashing algorithms or enabling multi-hashing functions to increase the mining difficulty, but ASICs continue to evolve and adapt to newer technologies, especially if a coin’s value rises high enough to make ASIC-powered mining profitable.

The blockchain, perhaps the most symbolic term introduced by the Bitcoin phenomenon, is nothing more than a public ledger of all Bitcoin transactions that have ever been executed. This file is constantly growing as blocks of completed transactions are added to it in a chronological order. The transactions are validated and relayed by a network of connected computers, each of which keeps a copy of the file. As the blockchain contains complete information about the addresses and their balances right from the initial (genesis) block to the most recently completed block, the file is large, standing at over 27 gigabytes as of January 2015, just six years after the introduction of Bitcoin.

In simple terms, a cipher is a way of scrambling written text to make it unrecognisable to all except those who have the information (“key”) to decipher the text. In cryptography, cipher is another word for algorithm, a series of well-defined steps which perform encryption or decryption. Some of the oldest ciphers include substitution ciphers (which substitutes one letter for another) and transposition ciphers (which changes the order of the letters of the original message). In today’s world of interconnected computers, industrial espionage and government snooping, ciphers are much more complex.

A person discovering Bitcoin for the first time is likely to encounter the word consensus on a regular basis. By design, Bitcoin does not have a central authority that checks and confirms the transactions performed; instead, all the confirmations are done automatically, in blocks of transactions, by the computer nodes connecting to the Bitcoin network. Once enough nodes confirm the block, consensus is reached and the transaction block confirmed. In Bitcoin, this generally takes about 10 minutes. Although some altcoins have implemented much faster confirmation times, Bitcoin developers insist that, by design, the process of reaching consensus necessarily takes time.

In the early days of Bitcoin all coin generation (or “mining“) was performed using CPUs (central processing units) found in most desktop and laptop computers. As this process required constant, highly intense data-crunching, it often triggered the loud CPU fan, consumed enormous amount of electricity and, in extreme cases, even damaged the computer. In the subsequent years CPU mining was superseded by much more efficient GPU mining which used the graphics card’s processing unit instead of the CPU. Nowadays, the only way to profitably mine Bitcoin is to employ specialist hardware called ASIC.

A cryptocoin faucet is a website that gives out small amounts of coins for free. The reasons for the giveaway vary – from spreading the awareness for the coin to allowing the users test their client software. Some third-party faucets give out coins with the sole purpose of making money from advertising by attracting high volumes of traffic to their websites. To combat fraud and automated access via scripts, the visitors on some faucet sites may need to demonstrate that they are human by answering a captcha or by playing a simple game.

The genesis block is the first block of a blockchain, a cryptocurrency’s ledger of transactions. It is assigned the value of 0. The genesis block may contain a text message written by the developer of the software; for example Bitcoin’s genesis block famously includes a variable called “coinbase” which reads (in encrypted form): “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. This refers to a newspaper headline, published on the day of Bitcoin’s launch, revealing Satoshi Nakamoto’s indignation over the way politicians handled the financial crisis that engulfed much of the banking and financial world at the time.

A hashing algorithm (also known as “hash function“) is an algorithm that can be used to map digital data of arbitrary size to digital data of fixed size, with slight differences in input data producing very big differences in output data. The values returned by a hash function are called hash values, hash codes, hash sums, or simply hashes. A cryptographic hash function allows one to easily verify that some input data matches a stored hash value, but makes it hard to reconstruct the data from the hash alone. Bitcoin uses SHA-256 (one of the SHA-2 set of cryptographic hash functions) as its hashing algorithm. However, newer cryptocurrencies tend prefer “scrypt” as their hashing algorithm to counter the rise of specialist SHA-2 accelerator chips known as ASIC.

Pooled mining is a method of generating bitcoins (and other cryptocoins) where multiple users work together by pooling their computing resources, then split the block reward according to the contributed processing power. Mining in pools began when the difficulty for bitcoin mining increased to the point where it could take years for an individual miner to generate a block. The solution was for miners to pool their resources, usually through websites designed specifically for this purpose, so they could generate blocks faster.

SHA, which stands for Secure Hash Algorithm, is a family of cryptographic hash functions. Of the four members of this family, SHA-0 and SHA-1 have been deprecated due to unspecified flaws and weaknesses. SHA-2 comprises of SHA-256 (used by Bitcoin and many other Bitcoin forks) and SHA-512. The most recent addition to the SHA family is SHA-3, a hash function also known as Keccak, chosen in 2012 after a public competition.

In the early days of Bitcoin, anybody running the Bitcoin software was able to “mine” coins. However, as the difficulty of mining increased, coin generation has become the domain of specialist miners, large farms of highly specialist and expensive computer systems. Newer cryptocurrencies have been trying to prevent this by repeated hashing of blockchain transactions, thus making it harder and more processor and memory intensive to build specialist hardware for mining cryptocoins. These “multi-hashings” have become known as X11, X13, X15, X17, etc, with the number behind the X representing simply the number of algorithms used.

source: http://cryptocoin.cc/ccres.php?resource=terminology

Cryptocurrency Terminology