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MIT CISR Blockchain Glossary

These definitions give a high-level understanding of core blockchain and distributed ledger technology terms and concepts. Teams can use the glossary to begin educating business executives, and also to level-set so that all participants in a project have a shared and agreed-upon understanding of blockchain basics.

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Bitcoin – a digital asset or token (cryptocurrency) to allow peer-to-peer payments and remove middlemen. Created in 2009 following the publication of a white paper outlining the concept (produced by one or more people publishing under the pseudonym Satoshi Nakamoto), bitcoin is currently the largest implementation of blockchain technology in the world.

Block – a set of transactions that have been bundled together and confirmed as valid. A new block gets attached to the previous block, forming the blockchain. The first block in a chain is called the “genesis” block. Blocks that are created but for one reason or another aren’t attached to the chain are called “orphan” blocks.

Blockchain – from a technical perspective, a blockchain is a trail of transaction blocks that have been linked to together in an immutable way. More generally, blockchain is a label for the subset of distributed ledger technologies that create the chain and transact on it, including distributed ledgers, consensus protocols, and tokens/digital assets. Smart contracts (see definition below) are often included when discussing blockchains but aren’t required for the core implementation.

Consensus protocol – the algorithm used to validate transactions and blocks. Consensus may rely on cryptography and a percentage of participant votes (nodes) to validate a block. Consensus protocols must also provide a mechanism for resolving block conflicts. At the other end of the spectrum, in some privately owned blockchains the owner may decide that only the transacting parties and one other node are required to validate. The amount of time and computing power necessary to run a blockchain vary significantly based on the consensus type and percentage of nodes required.

Cryptocurrency – the generic term for any digital asset or token that can be mined, purchased, or transacted. The most famous cryptocurrency is Bitcoin and others include Ethereum, NEO, and Litecoin, among over one thousand others.

Cryptography – the method of using mathematical cyphers (codes) to protect transactions as they are being stored or shared. Cryptography is also used to prove ownership and authenticity by means of a digital signature. A digital signature is generated by encrypting data with the private key of the signing person. The produced digital signature can be verified by decrypting it with the public key of the signing person.

Distributed ledger technology (DLT) – a record of transactions where multiple parties have identical copies of the same data. Blockchain is a subset of DLT. In public DLT systems there may be no central party responsible for the integrity of the data, and this is instead allocated to trusted algorithms and cryptography that assure the immutability of data.

Governance – the mechanism for defining and enforcing the rules that manage the blockchain, such as decisions about consensus protocols, resolving conflicts, and determining which participants are miners and which voting nodes. When designing a blockchain, the creator must decide if all governance functions happen “on chain,” or if some governance functions happen “off chain.” For example, in a private blockchain the rules of who can join are often enforced off chain because access must be requested and isn’t automatically granted.

Mining – In blockchains that use a Proof of Work consensus protocol, miners are nodes (see definition below) that use specialized computers to solve cryptographic ciphers/puzzles in order to be the first to validate transactions and create the next block. These computers are called miners because in the Bitcoin blockchain, the winner of the race to solve the cipher is rewarded with the bitcoin that is created. In essence, the miner creates a bitcoin, just like a traditional miner digs minerals out of the ground. In blockchains that don’t use Proof of Work, the term “miner” denotes nodes that can validate transactions and blocks, even if they’re not creating their own token reward and are rewarded some other way (such as by being paid with a pre-existing token).

Node – one of the computing participants in a blockchain. A node can be a full participant, i.e. have a complete copy of the entire data set, act as a miner, and have the ability to validate transactions and blocks. A node can be non-voting, used only to keep a copy of the distributed ledger, such as a regulator for supervisory purposes. In some cases, a network may practice data sharding, where certain nodes have only a partial data set.

Permissioned blockchain – a private blockchain implementation where a user must gain permission from a governing body (for example, a company or other owner of the blockchain) in order to join the network. In a permissioned blockchain, users are typically known to each other as well as to the governing body.

Permissionless blockchain – a public blockchain implementation where there is no barrier to entry for users, miners, and nodes. No centralized governing body gives permission or determines who can join or not, so participation is based only on the user’s decision to join and the rules built into the system. Users in a permissionless blockchain are often anonymous.

Proofs – consensus protocols or algorithms used to determine which node is allowed to be the first to validate a transaction and a block. Proof of Work (PoW) involves the miner being the first to solve a set of cryptographic puzzles. Proof of Stake (PoS) involves demonstrating a significant vested interest in the transactions involved (for example, owning a significant number of tokens that a particular blockchain uses.) Zero-knowledge proofs involve being able to validate a transaction without any knowledge of the underlying data (for example, validating a person’s identity on a blockchain without seeing the person’s identity information.)

Smart contracts – Broadly speaking, smart contracts are the code used to execute programmed logic with the data available by means of a DLT system. For example, if a firm wanted to automate its real estate sales process, then a smart contract could be used to automatically transfer the title of a house from the buyer to the seller on the condition that the correct amount of currency has been transferred from the seller to the buyer. More narrowly, many blockchain developers believe smart contracts can replace off-chain legal contracts, and that all legal aspects can be coded into the blockchain.

Token – a digital asset used in a blockchain transaction. A token can be native to the blockchain, such as a cryptocurrency, or it can be a digitized version of an off-chain asset such as the title to a house.