Alt-Coin

Taxonomy

“Alt-coin” is a commonly used term to refer to any cryptoasset in existence that is not Bitcoin. This term exists because Bitcoin was the first cryptocurrency and to this day is the cryptoasset with the largest market cap (worth the most money). Because of this position of dominance held by Bitcoin, many people, especially Bitcoin maximalists (people who believe that Bitcoin is the only cryptoasset of value), refer to all of the other cryptoassets as “alt-coins” as a way to lump them all together and minimize their existence. In reality, the only common point between all of the so-called alt-coins is that they are not Bitcoin. Because of the lack of specificity, we don’t think alt-coin is a great term. With that said, because alt-coin is the most common term to refer to the entire crypto market excluding Bitcoin, we will use it.

Application

Taxonomy

On a basic level, an application is the action of putting something into operation. A good example is a canvas made for painting. In order to use a canvas for its intended purpose (put it into operation) a person applies paint to it. Speaking in computer terms, the canvas would be called a platform and the painting on it would be an application. Today this word is commonly used to refer to computer (or phone) applications. An example of a common modern computer platform is Windows 10. Common applications for Windows 10 are Microsoft Word, Photoshop, and Google Chrome. A common cell phone platform is Android, common applications for this platform include Instagram, Whatsapp, and Google Maps. Applications are how we put our technology to use. The most popular applications for Bitcoin are as a digital currency or as a digital store of value.

Asymmetric Encryption

Taxonomy

Encryption is the science that enables digital items to be protected by a password. Standard encryption works well when only one person needs access to whatever is password protected. When multiple people need access to encrypted information, because sharing passwords is unsafe, a different type of encryption is needed. This type of encryption is called asymmetric encryption.

Asymmetric encryption works like a mailbox locked with a key. Anyone can deposit mail into the mailbox, but to get mail out, a key is required. Digitally, the mailbox is referred to as a “public key” and the key required to unlock it is the “private key”. These two keys are mathematically linked so that any information sent to a public key can always be unlocked with its unique private key.

Asymmetric encryption is one of the properties which makes cryptocurrencies the world’s most secure way to transact. It is what allows any user to have a shareable public key and address to which anyone can send funds and also a private key making the user the only one able to spend these funds.

To demonstrate how this works, let’s imagine that I live in California and my mother, father, and sister all live in North Carolina. Father’s day is coming up and I want to buy my dad some pottery made by his favorite local artist. This artist has no online shop and I can’t go to his store myself so I’ll have to have my mom or sister go in and buy it using my credit card number. I’m not easily accessible by phone, so they can’t just call me while they are in the shop to get my credit card number. The logical thing to do is the email them my credit card number so one of them can do it at their leisure. The problem with this is that emails get hacked all the time, what if my credit card number ends up in the wrong hands?

Instead of sending the credit card via an unencrypted message, I use my mom and sisters public keys to create an encrypted message containing my credit card information. Once they receive this message they can easily decrypt this message by unlocking it with their private key. This ensures that even if one of our emails were to be hacked, nobody would have my credit card information without also having access to one of our private keys!

If you are still confused or curious about this asymmetric encryption, here is a good YouTube video on the topic: https://www.youtube.com/watch?v=AQDCe585Lnc.

Bitcoin

Taxonomy

Bitcoin (with a capital B) is free open source computer software used for creating and maintaining the Bitcoin blockchain. The Bitcoin blockchain stores the world’s first and most popular cryptoasset known as bitcoin with a lowercase b. When a person downloads the Bitcoin software on their computer or smartphone, they can then send and receive “bitcoins” (with a lowercase b), which are the currency or units of exchange for the network created by computers running the Bitcoin software.
When a person owns bitcoin, they do not own a physical coin, nor do they own some sort of digital coin that they download to their computer, they own an exclusive association to specific entry on a single, distributed, worldwide ledger known as the Bitcoin blockchain. They can prove their exclusive association to this ledger entry, or “transaction” using cryptography. This ability to prove association to transactions on this ledger allows for a person to exclusively “own” bitcoin on the shared bitcoin blockchain. Everyone in the world can view and verify this ownership.

Blockchain

Taxonomy

A blockchain is a huge digital ledger that is created by grouping transactions (edits to this ledger) into “blocks” (groups of transactions) and linking them to the previous “blocks” (edits to the ledger) to prove their validity.

The first and most well known blockchain is the Bitcoin blockchain. The Bitcoin blockchain is permissionless meaning that anyone who pays a fee is allowed to make an edit to the ledger (send a transaction), no exceptions. Once an edit is suggested (a transaction is sent), a peer to peer network of computers works on solving a math problem involving all of the previous blocks (the full ledger), and a couple of other variables. This math problem proves that the suggested edits are in fact valid and confirms those transactions.

This specific type of math problem that all of the computers on the bitcoin network are working on solving is called a cryptographic hash function. To solve this math problem a huge amount of computational power is required, which means that it is impossible to solve the problem without owning lots of expensive computers that use lots of electricity. The requirement to use lots of computational power in order to solve the math problem (cryptographic hash function) is know as proof of work, often abbreviated to PoW. The requirement of PoW to solve the math problem makes it very expensive to make an unauthorized edit to the ledger, so expensive that it would never be worth anyone’s effort to try. Because unauthorized edits to the ledger are effectively impossible, when this network of computers solves this math problem, the latest block (group) of transactions are proved valid and are added to the blockchain permanently. In other words, transactions added to the blockchain are impossible to remove or change.

When we reference “blockchain” in this guide, it will be referring to any of the many technologies that work in this manner. In other words, a technology that operates across a neutral peer to peer network and that is made secure through proof of work and cryptography. If a technology does not meet these requirements, it is not a blockchain, or at least not the type this guide it referring to.

Centralization

Taxonomy

Centralization is a way to organize a system. This organizational strategy is a lot like it sounds; it involves taking all the information and power required to operate a system and putting it in one central place. An example of a centralized system is the human body. The brain is at the center of this system and has power over it. Without the brain, the human body doesn’t work. Because all of the power in a centralized system is kept in one place, the whole system is vulnerable to an attack on that central point.

Cryptoasset

Taxonomy

Cryptoasset is a broad term for any digital token which is recorded on a blockchain. This term is more open than the term cryptocurrency and more appropriate because all kinds of non currency based assets can also be recorded on most blockchains. The term cryptocurrency can be misleading because it automatically makes people think of money. Because of its flexibility, cryptoasset is the largest umbrella term to refer to well over 2000 new digital tokens that are currently bought and sold.

Cryptocurrency

Taxonomy

A cryptocurrency (or crypto currency) is a controversial digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrency is a kind of digital currency, virtual currency or alternative currency. Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems. The decentralized control of each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database

Cryptocurrency

Taxonomy

A cryptocurrency is a digital token which is intended to be used as a digital currency. Cryptocurrencies exist on blockchains and their ownership can be proved using cryptography. Sometimes cryptocurrencies are designed as simple digital cash, while other times they serve more complex purposes. Because of the ambiguity of the term cryptocurrency, the broader term cryptoasset is usually more appropriate when in doubt.

Cryptography

Taxonomy

While at first it can be a frightening term, cryptography is our friend, and most people use it on a daily basis. Put simply, cryptography is the science of secure communication. This science involves taking information and scrambling it so that it can only be read by its intended recipient. Cryptography involves encryption and decryption. When you create a password for something, you are “encrypting” whatever information this password unlocks. When you type in the password to unlock something, you are “decrypting” this information. Without cryptography it would be very easy for our sensitive information to be modified and stolen.
As it relates to the blockchain, cryptography is what allows people to prove ownership of transactions on the blockchain. In the context of a blockchain, a specific type of encryption known as “asymmetric” encryption is used. The exact details of how this works is explained in the guide.