100 Key Terms for Understanding Blockchain for Social Impact

To alleviate some of the confusion surrounding blockchain technology, it’s vital to build a common lexicon of terms. Doing so will support understanding and innovation. In this spirit, New America created a list of key terms to serve as a resource and reference for the governance and social impact leaders working with this new technology. These terms have been written to be accessible and concise. A deeper explanation of many of these terms is included in other sections of the Blueprint for Blockchain and Social Innovation. As the technology continues to evolve so will this list. We welcome your feedback at bta@newamerica.org and will try to incorporate additional views from the community.

51% Attack: An attack on a network blockchain which allows the attacker to create fraudulent transactions. This is possible by means of controlling more than 50 percent of the network’s mining or consensus-making power.

Accountability: The condition of an outcome being attributable to an individual's decisions or actions. By attaching record updates to individual identities, blockchain enables users to analyze who made a specific change, and hold them responsible for those changes.

Anchoring: An auditing mechanism used by some private blockchains that involves periodically storing a cryptographic fingerprint (called a hash) of all of the data on a private chain on a public platform (like Bitcoin or Ethereum). This applies the mining power that protects the public blockchain to the private blockchain, making the private blockchain more secure.

Append-Only: A quality of a database such that users can only write to, but not delete from the data. This is a key characteristic of blockchains.

Artificial Intelligence (AI): The study and development of computer systems that can perform “intelligent” tasks, such as speech recognition and decision-making. Machine learning is a type of artificial intelligence whereby computers use pattern recognition to predict answers based on a set of given examples. Blockchain technology may complement artificial intelligence by securely storing sensitive data, efficiently solving cryptography algorithms, and providing new data sources for machine learning.

Auditability: The degree of ease or difficulty that the outcome of a process can be verified by independent validators. The transparency of blockchain records enables third parties to verify the integrity of data.

Authentication: A method by which a person or machine can prove its identity, such as with a username and password or a digital signature. Authentication ensures that access to data or programs is restricted to an approved set of users.

Authorization: The process by which a person or machine determines what actions another machine or person can take. Users may have different privileges, such as reading data or writing information on the blockchain, based on their set of permissions.

Biometric Authentication: A form of authentication that uses body measurements (like fingerprints, iris scans etc.) as a means of identifying and granting access to individuals. Incorporating biometric systems into blockchain authentication processes has enabled some vulnerable communities, such as refugees and homeless populations to establish elements of their identity. Another use of biometric authentication in blockchain-based solutions is to add an additional layer of security for users.

Bitcoin (BTC): Bitcoin (BTC): The word “Bitcoin” refers to both a cryptocurrency and the blockchain that manages it. It was created in 2009, following publication of a white paper outlining the key parameters of the system. The paper was authored pseudonymously by Satoshi Nakamoto in 2008.¹

Block: The foundational element of blockchain data structure. Transactions are grouped together into blocks and then and cryptographically linked in a chain to the preceding block. By linking blocks together into a blockchain, data becomes very difficult to change or delete.

Block Reward: A prescribed number of cryptocurrency tokens awarded to the node that successfully mines a block in a blockchain. These provide economic incentive for nodes to participate in a blockchain and form part of the consensus mechanism.

Censorship Resistance: A quality of blockchains that makes it difficult for a single entity to permanently prevent another party that is part of the network from posting data to a blockchain.

Consensus: A state of agreement which nodes reach regarding the status of new data that has been proposed to the blockchain.

Consensus mechanism: A fault-tolerant mechanism that is used in blockchain systems to achieve the necessary agreement on a single data value or a single state of the network within a peer-to-peer system.

Proof of Authority (PoA): A type of consensus mechanism used in private blockchains in which predetermined nodes are delegated validating authority.

Proof of Stake (PoS): A type of consensus mechanism used in blockchains that is based on a miner’s existing token/cryptocurrency holdings. It has been positioned as a potential solution to the sustainability challenges of Proof of Work, but disproportionately empowers large cryptocurrency holders.

Proof of Work (PoW): A type of consensus mechanism used in blockchains that is based on the computing power that a miner contributes to a particular blockchain. Particularly when deployed in large networks such as the Bitcoin blockchain, PoW protocols are extremely secure. However, the amount of electricity required to power PoW blockchains has raised questions about their long-term sustainability.

Consortium Blockchain: A private blockchain where the consensus process is controlled by a pre-selected set of nodes, whose ownership is distributed among multiple organizations or individuals. This provides some of the efficiency and security available through public blockchains while enabling the higher levels of control of private blockchains.

Cryptocurrency: A type of digital currency, created using cryptographic techniques, which is used within a particular blockchain ecosystem.

Cryptography: A term used to describe the creation and use of protocols, algorithms, and codes to keep information confidential and to make changes to data evident as well as to authenticate users.

Decentralized Application (“DApp”): A smart contract or series of smart contracts with an unbound number of participants that may or may not involve digital assets. They are used to accomplish a goal (like sharing files) on a peer-to-peer network and can be more resilient than applications run on centralized databases as they do not have a single point of failure.²

Decentralization: The transfer of administrative control away from a single authority to other centers of control, typically through some degree of autonomy. The decentralized structure of blockchain makes it more secure and efficient when compared to other types of centralized databases.

Decryption: The conversion of coded, encrypted information, usually using computer algorithms.

Differential Privacy: A term coined by Cynthia Dwork in 2005 that describes a system which reduces the privacy loss when private information is used in a statistical data set. Public blockchains may benefit from differential privacy measures by allowing open data analysis without compromising user confidentiality.

Digital Signature: The application of a private key on a blockchain transaction, which provides a unique signature that proves the identity of the transacting party. Anyone with a corresponding public key, the signature, and the document, can verify that the document was “signed” by the owner of the private key. Digital signatures encrypt data between two parties, as well as prove the identity of those two parties.

Digital Wallet: A software designed to hold credentials for processing online transactions, such as public and private keys. Digital wallet addresses are cryptographically related to public and private keys, enabling users to direct payments or validate identity using their digital wallet addresses.

Disintermediation: The process of reducing or removing intermediaries in transactions.

Distributed Ledger Technology (DLT): A distributed database that exists across multiple locations in a peer-to-peer network. DLTs require a consensus mechanism to sequence, approve and synchronize changes that are broadcast to the network. Blockchains are a type of DLT, but not all DLTs are blockchains. A few examples of DLTs include R3 Corda, Hashgraph, and Tangle.

Double Spending: The attempt to spend the same resource (like a bitcoin) twice. Bitcoin was the first form of digital currency to solve the double spending problem, making it a viable currency substitute.

Efficiency: The quality of minimizing resource waste while achieving objectives. An example is data interoperability, which helps government fulfill their obligations at lower costs. Blockchain solutions can also be scaled easily and enable organizations to leapfrog in technological progress.

Ether: The main cryptocurrency used on the Ethereum blockchain.

Ethereum (ETH): A public blockchain platform designed by the Ethereum Foundation and released in 2015.

Encryption: The conversion of information into code, usually using computer algorithms. Encryption is typically used to prevent unauthorized access to data.

ERC20: The Ethereum Request for Comments 20 is the official protocol used to build applications on the Ethereum blockchain. ERC20 defines the protocols needed in order for a token to be considered an ERC20 token.

Exchange: A digital marketplace where traders can buy or sell cryptocurrencies and other blockchain tokens for fiat currency. Due to their centralized storage of private keys and fiat currencies, they have been the target of high profile hacks, such as Mt. Gox in 2013 and Bitfinex in 2016.

Fault Tolerance: The ability of a database to continue to function despite the failure of multiple nodes in its network.

Financial Inclusion: The provision of useful and affordable financial products and services that meet the needs of individuals and businesses.

Fork: A split in a blockchain, typically involving a change to the underlying protocol. Following a fork, members of a network choose which set of protocols to follow.

Hard Fork: A fork that fundamentally changes underlying blockchain software, creating an updated blockchain and legacy blockchain that run parallel and contain diverging blocks.

Soft Fork: A fork that upgrades blockchain software so that the original blockchain will accept transactions from both legacy and updated notes, while a new blockchain accepts only upgraded nodes. The software upgrade is only adopted if the majority of nodes update, otherwise it will fail and the original blockchain continues.

Friction: The total costs, both financial and non-financial, associated with a transaction or the movement of data and resources.

Gas: A fee charged by nodes on the Ethereum network to process a transaction or smart contract. Denoted in Ether, it economizes the computing power on the Ethereum network to ensure its efficiency.

Hash: A unique string of letters and numbers of prescribed length produced by a hash function that represents any unique piece of data. Any changes to underlying data will significantly change the hash output, contributing to the append-only nature of a blockchain.

Hashing: The act of taking an arbitrary amount of information, applying an algorithm (or “hash function”), and producing an output of fixed length. It can also reproduce the original information from the hash output.

Hybrid Blockchain: A type of blockchain that combines elements of private and public chains. These typically take one of two forms: a private blockchain built on a public platform like Ethereum (sometimes called a “side chain”), or a private chain that is “anchored” to a public platform.

Hyperledger: An open source blockchain project that provides software and tools for the creation and modification of mostly private blockchains.

Immutability: The quality of permanence or the inability to change. While often used to describe data within a blockchain, many argue that blockchain data is not immutable, but rather highly tamper resistant and can be changed under rare circumstances.

Initial Coin Offering (ICO): A process by which a portion of a particular protocol’s cryptocurrency or tokens are sold to early backers in exchange for either fiat currency or a more established cryptocurrency. These funds can be used for a variety of purposes. ICOs are seen as being subject to less stringent regulation than initial public offerings (IPOs), but the process is under scrutiny from regulators.

Intermediary: A third party that serves to coordinate or facilitate exchange between two or more entities. Blockchains use algorithms to instill trust within an exchange, and may remove the need for many intermediaries.

Internet of Things (IoT): The network created by the connection of everyday devices (refrigerators or cars, for example) via the use of the internet and embedded computers. Autonomous coordination between devices promises to yield large efficiency gains. Blockchain technology has been suggested as a way to secure IoT systems from cyber threats while efficiently exchanging information and autonomously executing tasks through smart contracts.

Interoperability: The ability of different protocols, databases, and software to communicate, exchange, and use information. As blockchain solutions scale across industries and geographies, ensuring that disparate systems can communicate with one another will be central to blockchain scalability.

Latency: The amount of time it takes data to propagate across and be stored by a network (used to describe the speed of a particular network). For many blockchains, there is a direct relationship between network security and latency.

Litecoin (LTC): A cryptocurrency derived from Bitcoin. Its most notable differences are the increased block creation rate, which decreases transaction time but creates more orphaned blocks, and its use of the Scrypt algorithm for its proof of work consensus mechanism, which relies more heavily on computer RAM for processing rather than processor power.

Metadata: The information that helps organize and locate data within a system, such as the timestamp of a sent message.

Miner: The process of adding transaction records to a public blockchain. Miners solve a difficult mathematical problem using a cryptographic algorithm. This results in a solution called the Proof Of Work, which ensures that a miner did in fact solve the problem. Miners are usually rewarded for finding successful solutions with digital currency.

Multichain: An open-source blockchain platform created by Coin Sciences that enables organizations to create custom blockchains using a series of modular components and setting to fulfill certain organizational needs.

MultiSignature: A technology that adds security to transactions by requiring more than one key to authorize a transaction. As such, single points of failure can be eliminated by ensuring that funds can be accessed even if a single key is compromised. It provides insurance to digital asset holders while preserving the security of public key cryptography. It is often abbreviated as “MultiSig.”

Network: An interconnected system of two or more digital devices that can exchange data.

Node: An alternative term for a computer that is a member of a network, blockchain or distributed ledger.

Full Node: A node that stores a full copy of a blockchain database and can act as a validator. See also “lite node” and “validator.”

Lite Node (Lite Client): A node that stores only the portion of a blockchain database that is relevant to its owner. This is in contrast to Full Nodes, which store the entire database.

Off-chain: A type of data resulting from real-world events or physical processes that take place outside of the confines of a blockchain, and is not governed by its protocol.

On-chain: A type of data resulting from digital processes that take place within of the confines of a blockchain, and is governed by its protocol.

Open Source: A classification of software for which the source code is freely available, operates independently of other software, and which can be modified and improved upon by virtually any party. Open source software can be easily audited by other experts, and provides stakeholders with transparency in how the underlying code functions.

Openness: The degree of ease or difficulty for a node to join a network.

Oracle: A source of external data to a blockchain that can be used to triggersmart contract executions when predefined conditions are met. This is because smart contracts on a blockchain cannot automatically access data outside of their network. For example, the Associated Press or Weather.com could serve as an oracle for rainfall data used to determine the payout of a smart contract for crop insurance.

Peer-to-Peer Network: A network that allows participating parties to exchange information without relying on a central node or actor as a relay.

Permission: The access required to perform a task, such as reading or writing data. Blockchains vary in how open they are to individuals using, processing and building on them. Permissionless blockchains allow anyone to create new block and contribute to the network. Private or permissioned blockchains require access privileges.

Personally Identifiable Information (PII): The information that can be used to identify, locate, or contact an individual. While some blockchain configurations provide more secure methods of storing PII than centralized databases, some argue that the transparent nature of some blockchains could jeopardize individual privacy.

Pilot: A test of a protocol in the field to determine whether it is technically and economically viable to produce, uncovers bugs with the underlying code, and ultimately determines whether it is likely to successfully scale. Frequently used interchangeably with proof of concept (PoC).

Prefix: Otherwise known as the “longest chain”, the prefix is considered the consensus view of a blockchain network at any one time.

Private Blockchain: A blockchain in which a single entity, or group of entities, that is typically already part of the network, select what nodes have the ability to read, write, and validate data added to the chain. Data is typically visible only to those allowed into the network.

Private Key: A long string of randomly generated alphanumeric characters that is cryptographically linked to a public key and functions as a secret password to generate a signature that can be used to authorize transactions and authenticate data. A private key is unique to one party.

Proof of Concept (PoC): Frequently used interchangeably with pilot. However, a proof of concept (PoC) is the act of demonstrating that a design concept or plan is feasible, a pilot is focused on testing. A PoC is usually small in scale, and sometimes incomplete.

Protocol: 1) An alternative name for a particular blockchain or distributed ledger; 2) A difficult to change rule or set of rules that defines the terms by which a blockchain or other type of DLT operate.

Pseudonymity: The means of identifying a party on a blockchain using a false name. While blockchains are frequently referred to as providing anonymity, pseudonymity is more precise, since parties do have identifiers.

Public blockchain: A blockchain in which read, write, and validate permissions are theoretically open to anyone with access to the Internet and the appropriate hardware. Data is typically visible to anyone who joins the network.

Public Key: A long string of randomly generated alphanumeric characters that is cryptographically linked to a private key and functions as a form of address or alias. This is also known as an “address.”

Public Key Cryptography: A cryptographic method used to securely exchange information without revealing the information itself. Also referred to as public key encryption or asymmetric encryption.

Resiliency: The capacity to maintain the capacity to function despite challenges. Blockchain's decentralization and consensus mechanism protect the network from challenges like node failure and malicious actors.

Right to be Forgotten: A digital privacy right for online personal information. According to the European Union’s General Data Protection Regulation (GDPR), any individual can file a claim for the correction or removal of their personal data (or personally identifiable information) from public sources if the information is no longer necessary for the purposes it was collected for or if the person has not given consent for data storage or processing.

Ripple (XRP): A controversial cryptocurrency that is now commonly used by the financial service sector to settle large asset transfers and pay remittances. Ripple sacrifices the "trustless" environment of typical blockchains for transaction speed and current stability, giving rise to the critique that it is not a true cryptocurrency.

Scalability: The capability of a system, organization or process to sustain or increase its performance and accommodate growth. For example, a blockchain solution can be designed as a proof-of-concept (smaller in scope), but the design can account for the potential to scale to serve larger populations in the future.

Security: The ability to ensure continued access and integrity of data despite threats. Blockchain networks safeguard data by preventing single points of failure and leverage cryptography to ensure unauthorized additions to the ledger are noticed and rejected by the network.

Self-Sovereign Identity: A new conceptualization of identity based on blockchain. It enables individuals to maintain control of individual identity information and allows institutions and organizations to authenticate access to services based on identity attributes rather than full identity information.

SHA-256: A cryptographic hash function created by the NSA which is used in the Proof of Work algorithm and in the creation of public and private keys on certain blockchains.

Sharding: A technical term used to describe the partitioning of a database into smaller parts. Sharding can be used to build a scalable database and is necessary if a dataset is too large to be stored in a single database.

Side Chain: A type of hybrid blockchain in which a private blockchain is attached to a larger, public blockchain.

Smart Contract: A program written onto a blockchain that performs a specific task once predetermined conditions are met. Once rules and penalties are agreed to by its parties, a smart contract becomes a self-executing and self-enforcing contract. For example, a smart contract can hold upfront payments for produce in escrow for farmers to ensure fair and equitable payment throughout the year. See also, Oracle.

Tamper Resistance: Used to describe the quality of blockchains that makes data encoded in them hard to change and makes changes, when executed, evident.

Token: A type of cryptographically secured asset used for different applications on blockchains (it may or may not have monetary value). These can either be used as an endemic currency within the platform, or represent assets in the real world such as electricity, financial credit, or physical space in a shipping container. Also referred to as a “coin”.

Tokenization: The conversion of the rights to a real world asset (digital or physical) into a digital token that can be transferred between parties via blockchain.³

Transaction: An exchange of value or data in a blockchain network. The exchanged data can be the actual unencrypted information, an encrypted version, or a digital signature that represents the data while the data itself is held off-chain.

Transaction Fees: The fees that network members pay to incentivize miners to verify transactions and include said data or transaction in their block. They are also used to explain one of the benefits of disintermediation: transaction fees garnered by intermediaries can be reduced or eliminated.

Transparency: The ability for citizens or stakeholders to monitor and understand actions taken by their government or company. Certain blockchains enable anyone to access data and information about who adds data to the ledger, providing stakeholders with information to facilitate participation in decision-making.

Two-Factor Authentication: A security measure in which an individual must demonstrate something they know, such as a password, and something they own, such as a phone, to prove their identity.

Valid: A block or transaction that is aligned with the rules established by a particular protocol.

Validation: The process by which nodes within a blockchain ensure that a transaction adheres to a set of rules previously established by a blockchain’s protocol. By determining if data is valid or not, a blockchain maintains accuracy and cleanliness as more uses append information over time.

Validator: A node that stores a full copy of a blockchain ledger and is authorized to validate data from other nodes in a blockchain network.

Zero Knowledge Proof: A method of verifying that a transacting party knows a piece of information without revealing what that information is. This enables two untrusted parties to persuade each other without sacrificing secrecy. Zero proof knowledge can be used to verify a person’s identity without jeopardizing confidentiality, such as verifying eligibility for social benefits without revealing personal information.