August 1st 2017 is an important date for Cryptocurrencies as that’s the target date for Bitcoin’s software upgrade.
The success or challenges that may arise during the upgrade will have a substantial impact on the price and future value of these Digital currencies including Ethereum. Our research team compiled and explained in simple words some of the most common terms you might encounter when reading about this important even. Another good read is “7 Things Investors Have To Know About The Upcoming Bitcoin Fork” published by Investinghaven.
A modification made to the software protocol, used for instance to add new transaction types and only requiring the miners and users to understand the new transaction type. Soft forks are backward-compatible so the older blocks will not be rejected by the upgraded nodes which eliminates the risk of a network or chain split.
The visual below from Investopedia clarifies the process:
A permanent divergence from the previous version of the blockchain. Nodes running previous versions of the software will no longer be able to validate the Blocks created by the upgraded nodes.
Another great visual from Investopedia:
Is when miners send themselves a transaction including a bit of unrelated data. Depending on the context, the added data can mean 2 things:
- Miners signaling intent and sending information or a message to other users.
- Miners supporting an action (software upgrade…) and the signal is like a vote on the proposal. With this type of signalling, there is a pre-defined threshold and once it’s achieved, the upgrade is triggered.
User activated fork
A new process intended to force miners to activate SegWit by having users and businesses run a software. Once that software is run, miners have to upgrade to SegWit or the chain gets broken”.
Miner activated fork
Miners triggering the activation of a software upgrade once the majority required is attained. Within the Bitcoin network, miners are considered Full nodes and the technical language used is usually “Nodes signalling”.
Nodes are computers connected to the Bitcoin Network. Nodes are crucial to the Bitcoin network since it is a peer-to-peer network and the more there are, the more secure the network is. Nodes come in 2 types: Full Nodes running and enforcing the Bitcoin rules 100% and lightweight nodes that do not check the whole chain.
A ledger means a “Collection of financial accounts of a particular type”. A distributed ledger is no different as it collects the completed blocks (transactions) in a chronological order. For Cryptocurrencies, this ledger collects the transactions in a digital format and the information is public.
Blocks are secure records stored in the distributed Ledger and confirming past and ongoing transactions. They are also called Block chains.
The visual below is from Bitcoin’s developer resources.
We will quote the very clear and concise explanation provided by Wikipedia. A mathematical scheme for demonstrating the authenticity of digital messages or documents. A valid digital signature gives a recipient reason to believe that the message was created by a known sender (authentication), that the sender cannot deny having sent the message (non-repudiation), and that the message was not altered in transit (integrity).
The process of adding these blocks into the database (distributed ledger) through the process of mining. Miners verify the transaction and transform the block through specific mathematical formulas into a unique Hash. A hash seals the transaction and adds it to the Ledger.
To clarify a general misunderstanding, let’s re-iterate how your owned Bitcoins are stored in the Block chain and that information is made public through the public Ledger. The “wallet” is somehow an intermediary software to help owners sign their transactions with their private key rather than having to memorize or type it each time they carry a transaction. It’s also a way to track and visualize the digital coins you own.
The secret and confidential number allowing the holder of a bitcoin to use his cryptocoin.
BIPs – Bitcoin improvement proposals
According to Amir Taaki, author of the first BIP, a Bitcoin Improvement Proposal is:
” A design document providing information to the Bitcoin community, or describing a new feature for Bitcoin or its processes or environment”
“We intend BIPs to be the primary mechanisms for proposing new features, for collecting community input on an issue, and for documenting the design decisions that have gone into Bitcoin. The BIP author is responsible for building consensus within the community and documenting dissenting opinions.”
For more details on BIPs, this page provides literally a list of every BIP out there.
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