Congratulations on making it to the final part of Breaking Down the Block in Blockchain. If you’re just now tuning in, please take some time to read through part one and part two before you engrave the following advanced terms to memory.
Although there are an endless amount of blockchain and crypto terms out there, we’ve finished laying the groundwork so you can confidently continue to explore this new and exciting technology. But without further ado, here are the last eight terms to the Breaking Down the Block in Blockchain series.
Have you ever heard “The whole is greater than the sum of its parts?”
A node is a participant (computer) in the network. This participation can occur in three ways: by keeping a shallow copy of the blockchain (light client), by keeping a full copy of the blockchain (full node), or by mining (also full nodes).
The Gold Rush has gone digital
Cryptocurrency mining is the process of verifying and adding transactions to the blockchain, as well as releasing new coins or tokens. Miners – using a computer, a special program, and mathematical skills – work to solve a difficult puzzle that allows them to place the next block in return for cryptocurrency.
- Block Reward
Cha-ching! Getting paid to solve math problems
Block reward is the amount a crypto miner receives for verifying and processing transactions of a block. The block reward for Bitcoin started at 50 BTC in block one, but it cuts in half every 210,000 blocks. It takes an average of four years to mine 210,000 blocks. The reward per block is now 12.5 BTC or, if the price was $10K USD per Bitcoin, $125K USD.
- Cryptographic Hash Function
More unique than a hashtag
A cryptographic hash function is a string of random alphanumeric characters that uniquely identify a piece of data. You can hash any data including a file, message, password, etc. and the hash value cannot be traced back to the piece of data. On a blockchain, all transactions are run through a hashing algorithm (Bitcoin uses SHA-256). Those hashes are then used to verify that the transactions have not been tampered with or modified. Because each hash is unique, the hash of the tampered file would not match the hash of the original file.
- Proof of Work
When your math teachers’ favorite words, “show your work,” actually pays off
Proof of Work and Proof of Stake are both methods of verifying the authenticity of transactions. In a Proof of Work system, miners compete to solve complex mathematical problems to create new blocks. The reward is given to the first miner who solves the problem.
- Proof of Stake
The new, eco-friendly way of solving and creating new blocks
In a Proof of Stake system, the creator of a new block is chosen depending on his or her wealth (also defined as stake.) There is no block reward, but the miner keeps the transaction fee associated with the block. More blockchain networks are employing this system because it reduces economic and ecological costs of mining and improves security.
- Hard Fork
Take me back to the days when I could use wired earbuds with my iPhone
A Hard Fork is a change to the software protocol that renders older versions invalid or creates new independent versions. It is necessary when changing defining parameters such as block size or difficulty of problem for miners. This requires all or a large portion of nodes to upgrade to the newer version.
- Soft Fork
But at least we can still use older iPhone chargers with the new iPhone
A Soft Fork can still work with older versions of the software. If the new protocol implements a cosmetic change, or adds a function that does not affect structure, then new blocks can be accepted by old nodes. This requires only a majority of miners to upgrade to the newer version.
This marks the end of our crypto journey. I hope you learned the fundamentals behind what makes blockchain tick.