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Crypto Key Terms - March 13

Double-spending problem: Given that digital information is so easily reproduced, once a digital currency is spent, how do you record this definitively? How can you prevent it getting spent more than once? This had been a longstanding concern with digital currencies. Blockchain technology was invented to prevent double-spending without requiring a central trusted authority such as a bank.

EIP: An acronym for “Ethereum Improvement Proposal,” which is typically followed by the assignment number of the standard (ex: “EIP-20”), and which refers to a protocols and specifications design document for the Ethereum network. EIPs are typically related to core functionality of the Ethereum network, as opposed to application layer specifications.

Layer 1 blockchain: Describes a blockchain network that is the fundamental blockchain network in its relevant ecosystem for on-chain transactions. As a defining feature, Layer 1 networks can validate and finalize transactions without the need for another network (e.g., the Bitcoin or Ethereum networks). Developers can create Layer 2 networks atop of Layer 1 networks, often done to improve transaction efficiencies or speed. The Bitcoin Lightning Network is an example of a Layer 2 network.

Nonce: In cryptography, an arbitrary string of numbers that can only be used once. The nonce is an important concept in proof-of-work mining, as used by Bitcoin, for example.

Permissioned: A DLT system where only pre-authorized nodes can finalize transactions into the ledger. Consortium blockchains are permissioned systems.

Permissionless: A DLT system where all nodes can access, submit and be selected to finalize transactions into the ledger.

Soft fork: Unlike a hard fork, in a soft fork, the fork is a software upgrade that is backwards compatible, i.e., existing nodes will recognize the new code and still be able to function on the network, but cannot take advantage of the new features on offer. Because of this reduced functionality, soft forks incentivize those who have not upgraded to upgrade.

What words are you adding to your vocab? Let us know in the comments!

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