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complicated. There’s bound to be a load of stuff we’ve missed. Just know, this is only the
start. This guide will be updated on a monthly basis with all of the cool happenings in the
world of crypto. We’re writing it in plain English, because we want to make everything as
clear as possible. Besides, for all the crypto-wizards out there, you probably know it all
anyway, right?
It’s for anyone that wants to learn more, and maybe have a go at explaining it to their friends,
colleagues, relatives and fellow investors: for those that have been in crypto for a while and
want a simple de nition of the latest stuff, or the ones just getting into it, and who want to
get up to speed. So, nd your favourite easy chair, sit back, and relax. It’s about to get
technical, yo!
Airdrops
hold a certain amount of one coin, before you can receive another. It is seen by some as a PR
exercise, and by others as a viable option / alternative to ICOs for fairly distributing an asset.
Once received, these assets then become transferable and tradeable on the open market.
Airdrops can also occur in the form of a hard fork, where the original version of the
owner of the original cryptocurrency receives the new, forked version of cryptocurrency.
Atomic Swaps
exchange, which requires trading the original cryptocurrency i.e. XRP into a compatible
intermediary i.e. Bitcoin, and then trading this cryptocurrency into what you want to
purchase i.e. Ethos. This trade incurs fees, which would be negligible using an Atomic Swap.
Were you to currently attempt sending a cryptocurrency to an incompatible address, there is
a high likelihood that you would lose your funds, and they would be irrecoverable. See the
Addresses
to access these funds, which is an equally unique string that operates as a password or PIN
number. In conventional terms, your address can be seen as your account number and sort
code. Bitcoin addresses start with a ‘1’ or a ‘3’. Ethereum addresses start with an ‘0x’. It is
important to note, as per the de nition above on Atomic Swap technology, that sending a
cryptocurrency to an incompatible address is not advised, as it is likely you will lose the
funds. Unlike a centralized system, there is often no resource to protect your funds should
always send a small amount of value rst, to practice, and then proceed with the main
transaction.
Altcoins
Any category of cryptocurrency that isn’t Bitcoin. These alternative coins are made up of
currencies and tokens. Many present alternatives to Bitcoin, aiming to be faster and cheaper,
while many operate as access tokens for digital goods and services applications (DApps) that
operate on a blockchain. Many popular altcoins operate using Bitcoin’s core technology,
while others are completely unique. Others, such as Ethos, are built on the Ethereum
blockchain and are known to be ERC-20 compliant – a common standard for Ethereum based
coins. The original altcoin is considered by many to be Litecoin, as it was based on the Bitcoin
source code. As of 19th February 2018, there are 1,544 altcoins available on CoinMarketCap,
comprising 62.6% of the entire cryptocurrency market. Altcoins can be stored in compatible
ASICs – Application Specific Integrated Circuits
Microchips or processors designed and manufactured to perform the highly speci c task of
mining cryptocurrency. Bitcoin ASICs came into existence in 2013, vastly outperforming
existing technology at the time. Many consider the use of ASICs mining to be incompatible
those with a high degree of technical expertise and funding. Nonetheless, the majority of
Bitcoin ‘Proof of Work’ mining is now carried out by these types of processors, which perform
well, yet also consume considerable amounts of electricity. Therefore, more sustainable
alternatives to generating cryptocurrencies are being developed, including PoS and DPoS
protocols.
Bitcoin
The original cryptocurrency created by Satoshi Nakamoto in 2009. Allowing for near instant
transactions of value in a P2P way, it operates as an decentralized, and thus un-hackable and
immutable ledger of value stored on what is known as a blockchain. Bitcoin is not backed by
that attest to the uniqueness of any given transaction. Colloquially known as ‘The King of
Crypto’ and ‘Digital Gold’ it is the most liquid of all cryptocurrencies, worth $189.76bn in
terms of its total market cap, according to CoinMarketCap on 19th February 2018. Bitcoin
requires a large amount of computing power to operate, relying on what’s known as a Proof of
Work protocol. For more information, please refer to the ‘What is Bitcoin?’ article on the
Ethos website.
Blocks / Blockchain
access mechanism or functional utility, for a platform providing goods and services. As more
transactions take place on a ledger, new blocks are added to the chain containing the
recorded transaction data. There are different ways of generating and managing blockchains.
Some are mined, others are pre-minied. Each has a different amount of data it can store, and
there are large variations of speed in which the data can be transferred. Some blockchains are
managed centrally by specialized parties that run nodes in the network, and might more
accurately be termed distributed ledger technology, and others like the Bitcoin blockchain are
completely decentralized. There also exists hybrid systems, which aim to combine the
Block Height
Refers to the number of blocks that have been produced in a speci c blockchain, in the case
of blockchains which are mined i.e not pre-mined. Starting with what is referred to as a
‘genesis block’ (the rst block in a blockchain), these blocks can store and manage multiple
types of information like documentation data, yet popularly relay transactional values or
functions of utility. The block height on a transactional blockchain like Bitcoin can be
accessed publicly via a ‘block explorer’. The speed at which a particular block height is
reached depends on the dif culty and in ationary / de ationary model of the respective
blockchain.
Block Reward
hashed block on a blockchain. What this reward is will depend on the algorithmic policy of
the cryptocurrency: such variables include the age of the blockchain, hashing dif culty, and
therefore the in ationary model of said cryptocurrency. For instance, Bitcoin mining
currently awards 12.5 Bitcoins for each block that is successfully hashed. After a certain
period of time, rewards will decrease as the hashing dif culty is increased. Often, the block
reward halves when a certain number of blocks have been mined, every 210,000 in the case of
Bitcoin.
Centralized
Cold Storage
Additionally, one aspect of such devices is the opportunity for physical damage, loss or theft.
However, the advantages of such tools is that they are far less likely to be prone to software
theft, commonly known as hacking.
Consensus
De ned as any agreement by a given majority, often placed at 51%. If 51% of people, or
entities on a network, agree to a certain condition, be that a value transaction or change to
the system, the result is known as consensus. An important part of the cryptocurrency space,
consensus is required to verify the validity of digital transactions on a blockchain. It is also a
way of politically managing decentralized systems, for instance whether or not a hard fork
should occur.
Cryptocurrency
Any type of currency that is transferred via a blockchain, using decentralized and
cryptographic protocols. By using these protocols, the value of the data being transferred is
resistant to fraud, and is protected from negative features of traditional at currency, such as
counterfeiting. This transparency, coupled with its P2P and portable nature is considered one
of its many bene ts, in addition to the fact that it is theoretically unable to be interfered with
by centralized governments and organizations. As of 19th February, the most valuable
cryptocurrency in the world is Bitcoin. Other cryptocurrencies include Litecoin, Dash, ZCash,
Monero, and Nano.
Cryptojacking
and then the software activates whenever a user accesses a particular page on that website. It
is also possible to cryptojack via display ads on websites, using a similar technique by
individuals who are hired by the DAO’s members to encode elements that cannot be
performed autonomously. DAOs are not owned or governed by individuals. Instead, they
operate via network of distributed computers, with actions decided by consensus. In many
ways, a DAO is effective democratic, nancial system with safeguards in place to protect its
members. However they cannot be considered infallible or incorruptible, as proven by the
Decentralized
number of users of that network. ‘Logical decentralisation’ asks whether two halves of the
network could operate independently of one another, were you to split users and providers of
the network equally. Blockchains are politically decentralized, as no single entity controls
them. They are also architecturally decentralized, meaning they don’t exist on a central
server, resulting in a lack of central point of failure. However, they are logically centralized,
as there is agreement related to the operational behaviour of the system, for example that
users agree Bitcoin will only ever have a total supply of 21M coins. Therefore, anything that
de nitively breaks that rule (a hard fork) isn’t Bitcoin.
Software applications that run on top of dedicated, decentralized P2P networks. They differ
from smart contracts, and therefore are also different from DAOs. Any number of participants
from the provider and user sides may interact with these applications, and the function need
not be nancial, as is the case with a DAO. Like conventional, centralized applications, DApps
can be written in a variety of programming languages from Javascript and C# to PHP and
Java, and more besides. Ethereum is the most popular DApp platform at the time of writing,
primarily using a custom coding language called Solidity. The Ethos Universal Wallet is an
Ethereum DApp.
Difficulty
When creating blockchains through the process of hashing, the dif culty determines the
amount of computer power required to solve the cryptographic puzzle that adds a block to
the chain. Therefore, two factors determine the dif culty or hashpower required: the
parameters set by the cryptocurrency, and the number / power of computers on the network
trying to solve the puzzle. Typically, the dif culty parameter and reward mechanism of the
cryptocurrency is predetermined, so the variable affecting the dif culty is dependent on the
number / power of computers on the network. The
computer network’s hash power is improved by
using ASICs.
ERC-20
A certi able standard for tokens launched on the Ethereum network, that guarantees they
work in a predictable and secure way. This allows for the easy transfer of compatible tokens,
in the instance of an ICO for example, that would require the exchange of Ether. The bene t
of having this benchmark of compliance also means that wallets and exchanges only need to
apply a single contract address for Ethereum in order to manage multiple types of token.
ETH – Ether
According to the de nition on the Ethereum website, “Ether is a necessary element – a fuel –
for operating the distributed application platform Ethereum. It is a form of payment made by
the clients of the platform to the machines executing the requested operations. To put it
another way, Ether is the incentive ensuring that developers write quality applications
(wasteful code costs more), and that the network remains healthy (people are compensated
for their contributed resources)”. Developers who intend to build DApps that will use the
Ethereum blockchain require Ether, as do users interacting with its smart contracts. Using the
platform, transaction fees are measured based on the gas limit and gas price, ultimately paid
for in Ether.
Ethereum
The foremost DApp platform at the time of writing, proposed and founded by Vitalik Buterin
in 2013. Development was funded by an online crowdsale that took place between July and
August 2014. The system went live on 30th July 2015. Ethereum provides a Turing-complete
virtual machine, known as the Ethereum Virtual Machine (EVM), that allows for open-source,
public and blockchain based distributed computing, using smart contract functionality. The
DApps that can be built on the Ethereum platform range widely in use cases, from prediction
markets and identity systems, to games and social media platforms. Ethereum is the second
Emission
The speed at which certain cryptocurrencies are created and released, often through the use
of airdrops or staggered ICOs. Whether this speed slows or remains constant determines
whether the cryptocurrency is based on a de ationary or in ationary model, respectively.
Often, a cap will be placed on the emission, so that by default it becomes de ationary after
that point, due to physical loss or token burns. This cap is known as the maximum supply.
However, there are examples of cryptocurrencies that employ an in nite emission model, so
that they will continue to be created and released, though at a lower rate of emission. Such a
currency is inherently in ationary, in that the unit value of the currency decreases over time.
Emission rates to not necessarily speak to the quality of a cryptocurrency, however from an
investment perspective it is worth understanding the concept, as it is a parameter that may
dilute your portfolio over time.
and b) whether there is consensus related to the change. To clarify, soft forks are generally
seen as routine maintenance to improve issues related to the blockchain, such as security and
scalability. Much like when you download a patch for the operating system on your computer,
you are not fundamentally changing the main operating system. With a hard fork, the
operating system of a blockchain is being changed i.e. a new record of data begins. This
means the new version of the blockchain will disregard the old blockchain completely, and
becomes something fundamentally different. This new blockchain will then be maintained
independently from the previous one, and will be given a different name. Sometimes,
however, the older blockchain is given a different name, as was the case with Ethereum
Classic in 2016. After Ethereum was hard forked after the Genesis DAO hack of 2016, the new
version maintained the name Ethereum, while it was the old version that changed its name.
On various occasions, accidental hard forks have occurred that did not undergo a process of
network consensus. Hard forks regularly result in the resulting cryptocurrency being
delivered via airdrop to users that hold the ‘pre-fork’ version, as has been the case with
Bitcoin Cash, Bitcoin Gold and Bitcoin Diamond.
Gas
On the Ethereum platform, each transaction i.e.
transaction fails for any reason, the user still pays the gas. Gas is calculated by multiplying
the gas price or ‘gwei’. gwei is a mathematical term referring to a fraction, also known as a
’shannon’, de ned as 1 billionth of a whole. That’s 1:100,000,0000. A typical gas price is 20
gwei, but can be as high as 50 gwei if the Ethereum network is busy. 2 gwei is the minimum
required to perform a transaction. A simple USD calculation of your maximum gas price is $
cost of Ethereum / 1 billion x gas limit. If you are performing regular transactions on the
Ethereum network, it’s worth understanding this formula.
A computer program, which takes data and converts it into an alphanumeric sequence or
code. Hashing allows for faster retrieval of information related to the original data, because
hashes are typically shorter and therefore easier to compute. Hashes have the added bene t
of scrambling data, so that it becomes unreadable, secret and secure. The dif culty to crack a
hash function is therefore what de nes the security of a blockchain, as well as contributing to
its production.
Originally designed by the US Government’s National Security Agency in 2001, and released
under a royalty-free licence, SHA is considered one of the most digitally secure ways to
encrypt and protect information. It is used by Bitcoin as the basis of its Proof of Work
algorithm, a variation of the Hashcash function invented by British cryptographer Adam Back
in 1997. It’s also used in creating Bitcoin addresses, thereby improving security and privacy. It
is estimated there are as many solutions to SHA 256 as there are grains of sand on earth,
making the economics of trying to crack it using brute force techniques unviable. See the
section on ‘Proof of Work’ to learn more about the fundamentals of its application to
blockchain technology.
Simply the number of hashes a computer can produce in a second. A megahash is measured
Keys – Private and Public
Think as your private key as your digital ID, or PIN number. Like a conventional bank
account, it’s required to spend, withdraw or transfer funds, or carry out functions on the
account. A hash algorithm processes your private key, in order to generate your public key.
When you make a transfer, your public key is broadcast to the nodes on the blockchain
network. Via consensus, the network con rms the validity of that transfer, that is to say that
the private and public keys are compatible, and the entity that performed the transfer
actually owns the funds. Once con rmed, the transaction is sent to the recipient’s public
address. The addresses themselves are generated via the public key, and you can think of your
address as an account number and sort code. Although public keys and addresses are
generated from a private key, and both the public key and address are visible on the network,
trying to reverse the process to nd a private key is practically impossible. This is due to the
hashing algorithm on the network, which makes trying nd the key economically non-viable,
due to the cost of the hash power required, which would need to exceed the power of 51% of
the entire network. It is important to safeguard your private key. You can always regenerate
your public key and address from your private key, but if you lose your private key, you will
lose access to your account. See the ‘Mnemonic – Seed Phrase’ reference in this guide for
more information on how to remember and protect your private keys.
Lightning Network
Described in its whitepaper as “Scalable Off-Chain
Instant Payments”, the Lightning Network is a
second, with the average being around 7. Compare this to the Visa network, which can peak
around the 45,000 t/s range, and it’s clear there’s a scaling issue for Bitcoin as a global
payment method. Bitcoin Cash (BCH), a Bitcoin hard fork, aims to solve the problem by
increasing the amount of data a block can hold from 1MB to 8MB. By contrast, rather that
updating Bitcoin’s technology, the Lightning Network will achieve scalability by creating an
extra layer of technology that sits alongside the Bitcoin blockchain, in the form of hashed
timelock contracts, while still harnessing the same level of security in its transactions. One
potential issue is that BTC must be locked in these time locked contracts in order to
Miners are users, or nodes on a network, that perform the important task of creating
cryptocurrency, validating blockchain transactions, and adding them to the public ledger in
the form of new blocks. Miners are rewarded transaction fees for the work they carry out, as
well as a payment in the form of the blockchain’s cryptocurrency when hashing new blocks.
Miners are the entities that decide which version of a blockchain should be mined. The
services they provide allow for issuance of new cryptocurrency, and through decentralisation
also ensure the security of the blockchain. Anyone with the correct equipment and
technological understanding to engage with the process is able to, however due to the cost of
both the modern hardware (CPUs, GPUs and ASICs) and electricity required to run a mining
rig, in addition to the industrial competition for hash power, many are limited from doing so.
Due to these challenges, many miners collaborate in ‘mining pools’ in order to share
resources, and the rewards from the cryptocurrency they create.
rhyming words, abbreviations, a song, or even a journey through an imaginary place. When
creating a cryptocurrency wallet, a mnemonic phrase is sometimes generated in order to
provide an easier way to remember your private key, instead of having to memorize an
alphanumeric string. Also referred to as a ‘seed phrase’, it’s important to keep it somewhere
safe. As with any private key you hold, if you lose it means you’ll also lose access to your
cryptocurrency. Try not to keep your passwords anywhere that could be destroyed or stolen,
and if possible try to keep them separate from other details about your crypto-wallet. To be
highly secure, keeping your passwords away from internet connected devices is also advised.
Multi-signature
This means that more than one private key is
withhold funds until their delivery arrives. In centralized marketplaces like eBay, the escrow
service is at the discretion of eBay. There is a voting system to protect buyers, but ultimately
eBay has the nal say. Even in cryptocurrency environments, a form of escrow can be
deployed with a user acting as a middleman for both parties, however this system is still open
to corruption. With a multi-signature wallet, a buyer, seller and middleman can all have
private keys, with funds not released from the buyer until all parties agree that the delivery
took place. This gives all parties more control, with the only trust being placed on the wallet
provider. If the wallet itself is decentralized, the system becomes trustless.
Peer to Peer
involvement. The decentralized nature of P2P networks can make them more resilient to a
single point of failure. The larger a P2P network, the more resilient it becomes. However that
does not make it immune to failure, as the network will require nodes to connect users, which
could potentially be throttled or shut down using a denial of service (DDOS) attack.
A concept describing the economics of adding value to one cryptocurrency, by destroying the
availability of another. Put another way, provably removing liquidity from System A in
exchange for System B adds immediate value to System B. This can be done in a variety of
ways, typically by sending a cryptocurrency to a wallet, and then destroying the private keys
to that wallet. How this act is performed would be decided by consensus. Users that sent
value to the ‘burn wallet’ then receive an agreed amount of new cryptocurrency in exchange
for burning their old one. Such a process could be managed via a DAO. This model tends to
rely on burning Proof of Work currencies, such as Bitcoin, where there is demonstrable
economic resources i.e technical expertise, hardware costs and electricity, that went into
producing it. In short, PoB works as a practical application of the concept of ‘scarcity’, and is
an example of the economics of supply and demand, allowing for the ef cient transfer of
without doubt that the owner associated with that record is veri able.
decentralized network to work on problems that have demonstrable, real world value. There
exists a number of companies that are attempting to build globally networked
supercomputers, that harness the spare computing power of ordinary, non-technical users,
and reward them in cryptocurrency for solving problems on their machines. These problems
can range from analysis of weather systems and astronomy, to research into new drugs and
arti cial intelligence. By offsetting the spare hash power of their computers, participants in
the network can bene t from the receipt of a publicly tradable asset, and scienti c research
teams can access an ad hoc network of computers. For the latter party, this is usually cheaper
and easier to access than a traditional, centralized supercomputer, and arguably more
dynamic in the ways in which hash power can be managed, making it possible for multiple
research teams to use the network simultaneously.
Proof of Stake is an algorithm that aims to solve the intensive energy requirements required
network vote for ‘delegates’ who maintain the network, ‘forge’ new blocks on the blockchain,
and process transactions. Users can vote for these delegates, based on their value to the
network, and receive a proportion of the rewards that those delegates generate in the form of
new cryptocurrency, or transaction fees. Again, this system is not perfect, due to the semi-
centralisation of political power on the network, which may be open to abuse. However, many
developers are working on solving this model to make it as fair and secure as possible.
PoW – Proof of Work
An algorithm that rewards participants, known as miners, for solving a cryptographic puzzle.
At its heart, the bene ts of PoW are security and economy, in that any attack on the system
i.e. blockchain, would be expensive vs. the rewards one would receive from doing so. Bitcoin
is an example of a PoW blockchain and cryptocurrency in which dedicated software, powered
by energy intensive CPUs, GPUs and ASICs, use the SHA 256 hashing protocol to produce new
blocks. The value of Bitcoin and other PoW based cryptocurrencies is therefore derived from
the hardware and infrastructure costs associated with its production. Bitcoin’s PoW protocol
works by allowing miners to broadcast the computational work they have done to the
network, with the network then verifying that work. The work is veri ed because it is
represented as a unique block, which in itself is attached to a chain of unique blocks. These
blocks are unalterable by anyone, ensuring the validity and fungibility of the system.
Bitcoin’s PoW protocol is based on a system invented in 1997 by British cryptographer Adam
Back, who created an algorithm called Hashcash designed to limit email spam. By proving
that an email was created by a human, rather than a machine, the algorithm was able to limit
the economic returns of spammers who would use computers and bulk delivery, by increasing
their cost per email.
Raiden Network
The Raiden Network is to Ethereum what the Lightning Network is to Bitcoin. As per the
Raiden Network website, it is an in-development “off-chain scaling solution for performing
ERC20-compliant token transfers on the Ethereum blockchain, allowing for the secure
transfers of tokens between participants without the need for global consensus”. This is
achieved using ‘state channels’ combined with digitally signed and hash locked transfers
called ‘balance proofs’. As with Bitcoin’s Lightning Network, the bene ts are its ability to
perform scalable micro-payments, quickly, and with minimal fees. Gas costs on Ethereum are
not related to the size or value of the transaction being made. For mid-large transactions, gas
costs are less of a relative issue for the convenience the platform provides, however for
smaller transactions the gas cost can end up being a signi cant proportion of the overall
value of the transaction. Payments in the range of fractions of a $ cent can be transferred on
the Raiden Network, quickly, and with reduced cost to the sender, making it an effective
solution for day-to-day use. Yet users should also understand that networks like these require
value to be locked up effectively as ‘collateral’, in exchange for the bene t of instantly
transacting on the network.
Satoshi
Named after Satoshi Nakamoto, the anonymous individual or group that invented Bitcoin,
the satoshi represents one hundred millionth of a bitcoin. That’s 0.000000001 bitcoin. The
unit structure of bitcoins means 1 bitcoin (BTC) is equivalent to 1,000 millibitcoins (mBTC),
1,000,000 microbitcoins (μBTC), or 100,000,000 satoshis. Compare this structure to that of a
dollar, for example, which is only divisible by 100 (a cent) and it’s clear that it allows for far
greater exibility as a unit of value. However, due to current costs associated with processing
Bitcoin, sending or exchanging less that a certain value becomes uneconomical for the BTC
network or its service providers, so that the practicality of sending single satoshis is currently
non-viable. Many service providers, such as wallets and exchanges, set a minimum amount of
BTC that must be sent to clear a balance. These small values that cannot be processed by
current systems are commonly referred to as ‘dust’. It is thought that novel technologies such
as the Lightning Network may solve the issue of sending these fractional amounts.
Scalability
Scalability with regards to a blockchain generally references its speed. When discussing
Bitcoin, for example, it is usually the 1MB block size that is brought into question; a
parameter designed to limit the occurrence of spam attacks on the early network, yet which
has provided usability issues due to network overload as the cryptocurrency becomes more
popular. It’s also the case that all transactions on the network must be con rmed by
consensus, via globally distributed computers, which in themselves have limits in terms of
processing power. Similarly, Ethereum has faced scaling issues for similar reasons, in that all
smart contracts and transactions must run through the Ethereum Virtual Machine (EVM).
Solutions are being developed, such as Bitcoin’s Lightning Network and Ethereum’s Raiden
Network, in addition to a range of solutions like SegWit, sidechains and sharding. However, it
remains one of the largest challenges facing the development of blockchain technology, and
Segregated Witness
First proposed by Dr. Peter Wiulle, Segregated Witness (SegWit) is a scaling solution for
Bitcoin. It aims to solve the issues inherent to a 1MB block size, and therefore the speed of
transactions on the network. When a transaction happens on Bitcoin’s blockchain, the
process of con rming that a sender has enough funds in their balance happens on the
blockchain itself. This reference is known as a signature. This signature takes up space on the
blockchain, accounting for 65% of the information stored, and it is this additional
information that is enough to slow the network. New records are made on the Bitcoin
blockchain every 10 minutes, so by segregating the transaction signatures via SegWit and
managing them separately, space is freed up, allowing for a higher throughput of recordings
and transactions on the network. In order for this to take place, 95% of miners running nodes
on the Bitcoin network must agree to the change, by switching to a new Bitcore Core client
for a period of at least two weeks. Segwit has been a very controversial proposal within the
Bitcoin community due to differing political views on how Bitcoin should scale, which led to
the Bitcoin/Bitcoin Cash hard fork.
Similar to what SegWit would do for Bitcoin transaction speed were it implemented,
Simpli ed Payment Veri cation (SVP) does for the handling of transaction data in a Bitcoin
wallet. If you want to receive BTC, you need a wallet to receive the funds. When your wallet
receives a transaction, it needs to con rm it’s valid i.e. the BTC is real, and has not been
spent elsewhere. How does it do this? Typically, wallets need to check the entire blockchain
to con rm that the BTC is available to be spent.
This requires downloading and updating the
entire blockchain, which is computationally
intensive. Assuming you wanted to control your
management of a BTC wallet on lower-powered devices, like mobile phones, which would
otherwise struggle computationally to check the entire blockchain.
Smart Contracts
the terms of the agreement. Therefore, in addition to their programmable and automated
nature they maintain advantages over traditional contracts. In the event of a disagreement
between the parties of a traditional contract, it may require a judge or some other centralized
party to con rm a certain event took place, and then order that the terms be executed. This
party may be open to corruption, based on a bias towards a party within the contract. With a
smart contract, both the terms and the execution are built into the same, impartial program
designed around the original agreement. To quote Vitalik Buterin, Co-Founder of Ethereum,
which as of 19th February 2018 is the foremost smart contracts platform in existence, “…any
contract has its own internal memory containing a code. When an item participates in a
transaction, the code gets executed. It may work with data from the memory and create new
transactions. Thus one may encode any kind of rules or any sequence of events that have to
happen should the rules [be] observed. Programmable contracts managed and protected by
blockchain may apply to diverse interactions between parties”. Such interactions can range
broadly in terms of real applications. These include decentralized exchanges and prediction
markets, to wallets and Decentralized Autonomous Organizations (DAOs), the latter being a
method by which funds in the form of cryptocurrency from multiple, globally distributed
parties may simultaneously be allocated within in the same smart contract.
Trustless
value system like at currency. Fiat currency is backed by a national government, which
determines issuance of the currency itself, and also a range of nancial elements that affect
the value of that currency: interest, in ation, debt and trade agreements with other nations,
in addition to political control of the economy and interactions with the private sector, by
which the value of the currency is backed. These aspects are generally outside of the direct
control of the users of the currency, despite being able to decide (within democratic systems)
which government is in charge. Therefore trust must be placed in this third party, which
includes co-participants in the process of choosing a government and the private sector, to
not debase or dilute the value of that currency. With a trustless currency, such as one based
on blockchain, it is the P2P nature that determines a currency’s value. A currency is as
valuable as the market says it is, without intervention by government. Of course, the value of
that currency can be affected by exterior actors, such as private interest and the economy at
large, but the system itself cannot be altered from within, without consensus of its users.
Additionally, there is greatly reduced potential for fraud and counterfeiting with
cryptocurrencies, because transactions are (outside of privacy coins) visible on the
blockchain itself, which requires independent veri cation at scale in order for a transaction
to complete. This overall lack of centralized dependence means that, in theory, these
currencies become trustless. A user can transfer value to another user, without a government
or bank being able to take control of the funds, and the only basis by which the value of that
currency can be determined is based on bartering with other users.
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