Let's dive deeper into each of these concepts:
Blockchain
- A decentralized, digital ledger that records transactions across a network of computers.
- Consists of "blocks" that contain transaction data, linked together through cryptographic hashes.
- Blockchain technology enables secure, transparent, and tamper-proof data storage.
Cryptographic Algorithms
- Mathematical equations that secure transactions and control the creation of new units.
- Common algorithms include:
- SHA-256 (Secure Hash Algorithm 256)
- ECDSA (Elliptic Curve Digital Signature Algorithm)
- AES (Advanced Encryption Standard)
- These algorithms ensure the integrity and security of transactions.
Decentralization
- Cryptocurrencies operate independently of central banks and governments.
- Decentralized networks rely on nodes (computers) to validate and relay transactions.
- Decentralization promotes:
- Censorship resistance
- Increased security
- Improved transparency
Mining
- The process of verifying transactions and adding them to the blockchain.
- Miners compete to solve complex mathematical puzzles, which requires significant computational power.
- The first miner to solve the puzzle gets to add a new block of transactions to the blockchain and is rewarded with newly minted cryptocurrency.
Wallets
- Software programs that store, send, and receive cryptocurrencies.
- Types of wallets:
- Desktop wallets (e.g., Electrum, Bitcoin Core)
- Mobile wallets (e.g., Coinbase, Blockchain)
- Hardware wallets (e.g., Ledger, Trezor)
- Paper wallets (physical documents containing private keys)
Private Keys
- Unique codes used to access and manage cryptocurrency wallets.
- Private keys are typically:
- 256-bit numbers (for Bitcoin and other cryptocurrencies)
- Generated randomly when creating a wallet
- Stored securely to prevent unauthorized access
Public Keys
- Addresses derived from private keys, used to receive cryptocurrencies.
- Public keys are typically:
- 34-character strings (for Bitcoin)
- Generated using the private key and a one-way cryptographic function
- Shared publicly to receive cryptocurrency payments
Tokens
- Digital assets issued on top of another blockchain, often used for specific purposes.
- Types of tokens:
- Utility tokens (e.g., Filecoin, BAT)
- Security tokens (e.g., dividend-paying tokens)
- NFTs (Non-Fungible Tokens, e.g., art, collectibles)
Forks
- Changes to a blockchain's protocol, resulting in a new version of the blockchain.
- Types of forks:
- Hard fork (e.g., Bitcoin Cash forked from Bitcoin)
- Soft fork (e.g., a temporary change to the Bitcoin protocol)
- Chain split (e.g., Ethereum Classic forked from Ethereum)
Smart Contracts
- Self-executing contracts with the terms of the agreement written directly into lines of code.
- Smart contracts are typically:
- Stored and replicated on the blockchain
- Executed automatically when conditions are met
- Used for various applications, such as supply chain management, voting systems, and decentralized finance (DeFi)
Enjoy