15 Blockchain Concepts Everyone Should Know (Explained Simply — PLUS Quiz)
By: Blox The Friendly Fox
Tags: Blockchain, Education, Crypto, Bitcoin, Cryptocurrency

Hi, I’m Blox the Friendly Fox, and I’ll be your teacher for today.

I got the nickname “Blox” from my forest friends after talking incessantly for hours and hours about the potential of the blockchain (but that’s a story for another lesson).

Today we’re going to cover 15 blockchain concepts that everyone should know. For each, I’ll give you:

a simple definition ✅

my take on the concept 🦊💬 (this is “Blox Teaches Blockchain,” after all)

a more thorough explanation for the geeks 🤓

P.S. If you haven’t seen it already, I’ve created a quiz here to test your knowledge of these concepts. Check it out:

👉 Blox’s Blockchain Basics Quiz (o’ fun)!

Let’s get right into today’s lesson!

1) What is a block?

🦊💬 A block is just like it sounds. It’s like attaching a new piece of Lego to the top of your tower. The piece of Lego is the block, and that block contains a record of information.

Put simply:

✅ A block is a record of verified transaction data which is added to the end of the blockchain.

For the 🤓:

“A block is the ‘current’ part of a blockchain, which records some or all of the recent transactions. Once completed, a block goes into the blockchain as a permanent database. Each time a block gets completed, a new one is generated. There is a countless number of such blocks in the blockchain, connected to each other (like links in a chain) in proper linear, chronological order. Every block contains a hash of the previous block. The blockchain has complete information about different user addresses and their balances right from the genesis block to the most recently completed block.”

Source: Investopedia.com

2) What is blockchain?

🦊💬 If a block is a piece of Lego, a blockchain is the crazy Lego tower you created as a kid. Only it contains really important data. Imagine your tower was so awesome that you donated it to a museum, where it was publically owned and everyone could see it when they wanted to. And not only that, but they could add to it at will.

Put simply:

✅ A blockchain is a digital, often decentralized, public ledger on a peer-to-peer network.

For the 🤓:

“Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.

Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.”

Source: Blockgeeks.com

3) What are the benefits of blockchain technology?

🦊💬 Imagine the rest of the world is still on dial-up, and you have Wi-Fi. That’s the power of the blockchain.

Put simply:

✅ Some of the benefits of blockchain technology include greater transparency, increased speed & efficiency, and enhanced security.

For the 🤓:

“Blockchain technology represents a fundamental shift in how data can be shared, in an open and transparent method. At the core of blockchain’s appeal is the guarantee to all parties involved that the data they send and receive cannot be changed or tampered with — as well as being error-free. While this may sound like it has its main significance at a technical level, there are high-level business ramifications that executives should not ignore, such as the ability to prevent data leaks and ensure safe transfers of financial or medical data.

Blockchain technology allows data to be recorded in a manner that prevents any possible tampering, which enhances both the security and the transparency of the data. In light of the increasingly massive amount of data being processed today, the addition of this new technology enables greater security and governance. By outlining the advantages of blockchain and how it can blend seamlessly into an existing big data environment, we can see why blockchain is an important advance.”

Source: Hortonworks.com

4) What is a node in blockchain?

🦊💬 A blockchain node is like a station on an assembly line. It receives some input, operates on it, and then gives an output.

Put simply:

✅ A node is any computer electronic device with an internet connection and an IP address in part of a blockchain network. A node works to maintain a copy of a blockchain and process transactions.

For the 🤓:

“Nodes are the individual parts of the larger data structure that is a blockchain. As the owners of nodes willingly contribute their computing resources to store and validate transactions they have the chance to collect the transaction fees and earn a reward in the underlying cryptocurrency for doing so. This is known as mining or forging.

A node can either be a communication endpoint or a point of communication redistribution, linking to other nodes. Every node on the network is considered equal, however certain nodes have different roles in the manner in which they support the network. For example, not all nodes will store a full copy of a blockchain or validate transactions.”

Source: Lisk.io

5) What is a blockchain miner?

🦊💬 The simplest way to think of a blockchain miner is like a diamond miner. It requires effort and power to mine, and through the process, new valuable resources are slowly released.

Put simply:

✅ A miner is a computer that verifies and processes transactions on the blockchain, receiving a reward for doing so.

For the 🤓:

“These group outstanding transactions into blocks and add them to the blockchain. How do they do this? By solving a complex mathematical puzzle that is part of the bitcoin program, and including the answer in the block. The puzzle that needs solving is to find a number that, when combined with the data in the block and passed through a hash function, produces a result that is within a certain range. This is much harder than it sounds.

(For trivia lovers, this number is called a “nonce”, which is a concatenation of “number used once.” In the case of bitcoin, the nonce is an integer between 0 and 4,294,967,296.)”

Source: Coindesk.com

6) What is blockchain mining and what functions does it serve?

🦊💬 Blockchain mining is appropriately named; it’s similar to actual mining in that valuable resources are buried in the protocol, and just need to be “dug out.”

Put simply:

✅ Blockchain mining involves verifying, or securing, transactions and releasing new currency.

For the 🤓:

“Bitcoin mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function.

The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a “subsidy” of newly created coins.

This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.”

Source: Bitcoinmining.com

7) Who was the creator of bitcoin?

🦊💬 Accept that just like The Man in the Iron Mask or Jack the Ripper — we just may never know who the creator of bitcoin “Satoshi Nakamoto” actually is.

Put simply:

✅ The creator of bitcoin was “Satoshi Nakamoto,” or at least that was the name or pseudonym used by the unknown person or group who developed bitcoin, wrote the bitcoin white paper, and released bitcoin’s first iteration to the world.

For the 🤓:

“While we may not know who he (or she) was, we know what he did. Satoshi Nakamoto was the inventor of the bitcoin protocol, publishing a paper via the Cryptography Mailing List in November 2008.

He then released the first version of the bitcoin software client in 2009, and participated with othevrs on the project via mailing lists, until he finally began to fade from the community toward the end of 2010.

Nakamoto worked with people on the open-source team, but took care never to reveal anything personal about himself, and the last anyone heard from him was in the spring of 2011, when he said that he had “moved on to other things”.”

Source: Coindesk.com

8) What is a sidechain?

🦊💬 A sidechain is kind of like a dog house attached to your main house using the most modern technology. You feed your dog through a small latch door, only the food dish is programmed to open at a given time. The dog is highly intelligent and knows how to return it when he’s done, all by using the same technology.

Put simply:

✅ A sidechain is a separate blockchain that is attached to its parent blockchain using a two-way peg.

For the 🤓:

“A sidechain is a separate blockchain that is attached to its parent blockchain using a two-way peg. The two-way peg enables interchangeability of assets at a predetermined rate between the parent blockchain and the sidechain. The original blockchain is usually referred to as the ‘main chain’ and all additional blockchains are referred to as ‘sidechains’. The blockchain platform Ardor refers to its sidechains as ‘childchains’.

A user on the parent chain first has to send their coins to an output address, where the coins become locked so the user is unable to spend them elsewhere. Once the transaction has been completed, a confirmation is communicated across the chains followed by a waiting period for extra security. After the waiting period, the equivalent number of coins is released on the sidechain, allowing the user to access and spend them there. The reverse happens when moving back from a sidechain to the main chain.”

Source: Hackernoon.com

9) What does P2P stand for?

🦊💬 Think of P2P as like being on public Wi-Fi, but the opposite. There is no central server or modem. There is no lag as too many people join. In fact, the more users that join, the network actually speeds up.

Put simply:

✅ P2P means Peer to Peer, and it’s a major component of blockchain technology, helping make it so secure.

For the 🤓:

“In a P2P network, the user utilizes and provides the foundation of the network at the same time, although providing the resources is entirely voluntary. Each peer (a “peer” being a computer system on the network) is considered equal and are commonly referred to as nodes. A peer makes a portion of computing resources such as disk storage, processing power or network bandwidth, directly available to other participants without the need for any central coordination by servers or stable hosts.

Despite all nodes being equal, they can take on different roles within the blockchain ecosystem, such as that of a miner or a “full node”. In the case of a full node, the whole blockchain is copied onto a single device, while the device is connected to the network. What this means is that the information stored on a blockchain cannot be lost or destroyed because to do so would mean having to destroy every single full node on the network. Therefore, as long as a single node with a copy of a blockchain exists, all the records will remain intact, providing the possibility to rebuild that network.”

Source: Lisk.io

10) What is a DApp?

🦊💬 Think of DApps as apps that are liberated. It’s like jail-breaking your iPhone. There is no centralized power controlling the apps anymore.

Put simply:

✅ DApp is a an abbreviation meaning “decentralized application.” Whereas apps run their code on centralized servers, a DApp is decentralized, open source piece of software that utilizes blockchain technology.

For the 🤓:

“As the concept is still in its infancy, there might not be one definition of what a Dapp is. However, there are noticeable common features of Dapps:

Open Source. Ideally, it should be governed by autonomy and all changes must be decided by the consensus, or a majority, of its users. Its code base should be available for scrutiny.

Decentralized. All records of the application’s operation must be stored on a public and decentralized blockchain to avoid pitfalls of centralization.

Incentivized. Validators of the blockchain should be incentivized by rewarding them accordingly with cryptographic tokens.

Protocol. The application community must agree on a cryptographic algorithm to show proof of value. For example, Bitcoin uses Proof of Work (PoW) and Ethereum is currently using PoW with plans for a hybrid PoW/Proof of Stake (PoS)5 in the future.”

Source: Blockgeeks.com

11) What is a fork in cryptocurrency?

🦊💬 Imagine you were walking back out of the forest with your friend, and came to a fork in the road. You disagree about which way you come from and both of you are so adamant about the direction that you end up splitting off.

Put simply:

✅ A fork is when a blockchain splits in two for a number of reasons, creating two separate versions of code.

For the 🤓:

“A hard fork is when a single cryptocurrency splits in two. It occurs when a cryptocurrency’s existing code is changed, resulting in both an old and new version. Meanwhile, a soft fork is essentially the same thing, but the idea is that only one blockchain (and thus one coin) will remain valid as users adopt the update. So both fork types create a split, but a hard fork is meant to create two blockchain/coins, and a soft fork is meant to result in one. Segwit was a soft fork, Bitcoin Cash, Bitcoin Gold, and Segwit2x are all hard forks.”

Source: Cryptocurrencyfacts.com

12) Where can I buy cryptocurrency? What is a cryptocurrency exchange? What are the major exchanges?

🦊💬 Think of crypto exchanges just like you would a market in the olden days — you go there to buy, sell and exchange wares. There are bigger markets, and smaller markets. Some vendors take gold, some take silver. Some only do trades.

Put simply:

✅ A cryptocurrency exchange is an online platforms where you can go to exchange cryptocurrencies or buy cryptocurrencies in exchange for fiat currencies. Some of the more popular cryptocurrency exchanges (to name only a few) include Binance, Coinbase, Bitfinex and Kraken.

For the 🤓:

“Businesses that allow customers to trade digital currencies for other assets, such as conventional fiat money, or different digital currencies. They can be market makers that typically take the bid/ask spreads as transaction commissions for their services or simply charge fees as a matching platform.

Digital currenty exhances may be brick-and-mortar businesses, exchanging traditional payment methods and digital currencies, or strictly online businesses, exchanging electronically transferred money and digital currencies.”

Source: Tokenmarket.net

13) What are smart contracts?

🦊💬 Imagine you had a dispute with a roommate over unpaid bills. A smart contract is simply like an automated courtroom—but instead of hiring a lawyer, showing up in court, presenting your case and the whole nine years, it’s a contract that is programmed to automatically make a decision about who deserves what after certain conditions are met. No judge needed, no need to consult a lawyer if you don’t get paid. The obligations of the contract are automatically enforced. Winning!

Put simply:

✅ A smart contract is a programmed computer protocol that executes the terms of a contract when triggered by given events.

For the 🤓:

“While a standard contract outlines the terms of a relationship (usually one enforceable by law), a smart contract enforces a relationship with cryptographic code.

Put differently, smart contracts are programs that execute exactly as they are set up to by their creators.

First conceived in 1993, the idea was originally described by computer scientist and cryptographer Nick Szabo as a kind of digital vending machine. In his famous example, he described how users could input data or value, and receive a finite item from a machine, in this case a real-world snack or a soft drink.

In a simple example, ethereum users can send 10 ether to a friend on a certain date using a smart contract.

Source: Coindesk.com

14) What is Proof of Stake (PoS)?

🦊💬 Think of Proof of Stake like a lottery where your odds increase as you invest more money in tickets. The more skin in the game you have, the higher chance of winning there is.

Put simply:

✅ Proof of Stake (PoS) is the name of a protocol for block verification in which mining power is allocated based on ownership of cryptocurrency.

For the 🤓:

“Unlike the proof of work system, in which the user validates transactions and creates new blocks by performing a certain amount of computational work, a proof of stake system requires the user to show ownership of a certain number of cryptocurrency units.

The creator of a new block is chosen in a pseudo-random way, depending on the user’s wealth, also defined as ‘stake’. In the proof of stake system, blocks are said to be ‘forged’ or ‘minted’, not mined. Users who validate transactions and create new blocks in this system are referred to as forgers.”

Source: Hackernoon.com

15) Where do you store cryptocurrency?

🦊💬 You store cryptocurrency just like you do regular money — in a wallet. Only there is no need to carry around dirty papers or heavy coins, since everything is virtual, just like an online bank account.

Put simply:

✅ Cryptocurrencies are stored on a wallet. This wallet could be part of an exchange or on your own private ledger.

For the 🤓:

“A cryptocurrency holder uses their private key to access their wallet. This private key is all that is needed to access a wallet, so if it falls into the wrong hands, it’s likely that the funds it contains will disappear forever. A public address is provided to other cryptocurrency users in order to receive funds, and is generally provided as text or as a QR code.

Cryptocurrency wallets are specific to the cryptocurrency that is stored inside them. Put simply, a cryptocurrency wallet allows a crypto holder to “become their own bank”. It’s important to remember, however, that becoming your own bank leaves you responsible for the security of your own capital.”

Source: Cryptobriefing.com