This chapter covers the Bitcoin Glossary, which defines over 50 Bitcoin terms. It explains the different terms used in Bitcoin, such as address, altcoin, ASIC, Asic miner, Bitcoin Price Index (BPI), Bitcoin Whitepaper, Block Chain, Block Reward, BTC, Bitcoin Client, Confirmation, Coloured Coins, Coinbase, Coin Age, Cryptocurrency, Cryptography, Double Spending, Dust Transaction, ECDSA, Escrow, Faucet, Fiat Currency, Fork, Genesis Block, GPU, Hash, Hash Rate, Input, Litecoin, Megahashes/SEC, Market Order, MBTC, Micro-Transaction, Mining, Node, Orphan Block, Output, Paper Wallet, Pool, PP Coin, Private Key, Proof Of Work, Public Key, QR Code, Ripple, Satoshi, Scrypt, Signature, SHA-256, SPV, Transaction Block, Transaction Fee, UBTC, Volatility, and Wire Transfer. It also explains how to prevent double spending, how to mine Bitcoins, and how to create a secure digital signature. Finally, it provides a brief overview of the various exchanges available for Bitcoin trading. Understanding these terms is essential to understanding and using the Bitcoin system.
Bitcoin Glossary Terms
What is Bitcoin?
Bitcoin is a digital currency created in 2009 by an anonymous person or group of people using the alias Satoshi Nakamoto. Bitcoin is a decentralized form of money, meaning it is not controlled or regulated by any central authority, such as a government or bank. Instead, it relies on a peer-to-peer network of participants who all maintain a collective ledger of all transactions, called the blockchain.
Bitcoin is a cryptocurrency, meaning it uses cryptography to secure and verify transactions. It is also the first example of a new type of digital money known as a cryptocurrency.
What is a Bitcoin Address?
A Bitcoin address is the public key of a Bitcoin wallet. It is a unique identifier that allows users to receive and send Bitcoin. Each Bitcoin address consists of 26-35 alphanumeric characters, beginning with the number 1 or 3.
What is an Altcoin?
An altcoin is an alternative cryptocurrency to Bitcoin. Altcoins are created to improve upon Bitcoin, either by being faster, cheaper, or more secure. Examples of altcoins include Ethereum, Litecoin, and PPcoin.
What is an ASIC Miner?
An ASIC miner is a mining hardware specifically tailored to mining Bitcoin. This mining hardware is designed to process the SHA-256 hashing equation required to mine Bitcoin faster than a CPU or a GPU. ASIC miners are custom-built and connect to the network through a wireless or Ethernet connection.
What is the Bitcoin Price Index (BPI)?
The Bitcoin Price Index (BPI) is an index designed by Coin Desk which shows the average Bitcoin prices across the top global currency exchanges. This index provides a reliable source of data for those tracking the price of Bitcoin.
What is the Bitcoin Whitepaper?
The Bitcoin Whitepaper is an important document in the Bitcoin ecosystem. It was submitted by the currency’s mysterious founder, Satoshi Nakamoto, in 2008. This whitepaper provides a detailed description of the Bitcoin protocol and is a great reference for newbies and experienced people alike.
What is the Blockchain?
The blockchain is a chain of blocks which contain records of all Bitcoin transactions that have been mined since the start of the currency. The blockchain is designed such that each block contains the hash of the preceding block, making it secure against counterfeit mining operations.
What is a Block Reward?
A block reward is a reward given to a miner who successfully completes a transaction block. This reward can be in the form of coins or transaction fees. Currently, the Bitcoin network rewards 25 coins for each completed block. This reward is halved once the threshold of blocks has been mined, which is currently set at 210,000 blocks. After the next halving, the reward will be 12.5 coins for mining one block.
What is BTC?
BTC is the abbreviation of Bitcoin, similar to USD and GBP for US dollar and Great British Pound.
What is a Bitcoin Client?
A Bitcoin Client is the software program that connects a device, such as a desktop computer, laptop, or mobile phone, to the Bitcoin network.
What is Confirmation?
Confirmation is the successful hashing of a transaction into a block of the blockchain. Generally, it takes up to ten minutes for a transaction to be confirmed, although larger transactions may require up to six confirmations.
What are Coloured Coins?
Coloured coins are a proposed new feature of Bitcoin which allows users to define their own attributes of the currency. It is expected that users can mark a Bitcoin as a physical asset, which can be exchanged as a token for other property.
What is Coinbase?
Coinbase is a Bitcoin wallet operator that offers payment processing for merchants and acts as an intermediary in Bitcoin exchanges.
What is Coin Age?
Coin age is a measurement of how long a certain amount of Bitcoin has been owned. It is calculated by multiplying the amount of Bitcoin by the period of time it has been owned.
What is Cryptocurrency?
Cryptocurrency is a form of digital money which is considered legal tender by consensus. Cryptocurrency is secured by using cryptography based on mathematical formulas.
What is Cryptography?
Cryptography is the field of mathematics which uses algorithms and formulas to create codes that encrypt or decrypt information.
What is Double Spending?
Double spending is a criminal act in which someone spends the same Bitcoin more than once. It is possible for someone to make a transaction using their Bitcoin, and then make a second transaction with someone else using the same Bitcoin. Confirmation is necessary to validate a transaction and prevent double spend, so zero-confirmation transactions are risky.
What is a Dust Transaction?
A dust transaction is a transaction with a record on the blockchain but is worth very little. To reduce the number of dust transactions, a minimum transaction amount is being introduced.
What is ECDSA?
ECDSA stands for Elliptic Curve Digital Signature Algorithm. It is used in the Bitcoin protocol to sign transactions.
What is Escrow?
Escrow is a third party online wallet which stores funds securely during a transaction between two parties. It is used in cases where two parties cannot transact Bitcoin until certain conditions are met, and want to ensure that their money is not stolen digitally.
What is a Faucet?
A faucet is a method of mining a certain number of coins when launching a new cryptocurrency, and then giving these away in order to promote interest in the new currency. There are several Bitcoin faucet sites which give away tiny amounts of Bitcoin to promote them.
What is Fiat Currency? Fiat currency is another name for token money used across the world which has been declared legal tender by governments and central banks. Fiat currency is not backed by a physical commodity.
What is a Fork?
A fork in a blockchain is said to occur when one group of miners starts hashing a different set of transaction blocks. It can also happen when a new version of the Bitcoin client is introduced. A fork is successful when it becomes the longer version of the chain. What is the Genesis Block? The genesis block is the original block in a chain.
What is a GPU? A GPU is a graphical processing unit, as found in standard PC graphics cards. As GPUs are designed to process huge amounts of data at faster speeds in pixel-heavy computer games, they are also perfect for processing calculations required in cryptocurrency mining.
What is a Hash?
A hash is the mathematical processing done during Bitcoin mining. It is a complex process which makes the currency secure and renders decryption difficult and alteration of the output detectable.
What is Hash Rate?
Hash rate counts the number of hash calculations done in a second. This generally indicates how successful and fast a mining operation is.
What is an Input?
An input is the origin of a Bitcoin transaction, generally a Bitcoin address, unless it is a generation transaction, meaning that the Bitcoin has been newly-mined.
What is Litecoin? Litecoin is a type of alternative cryptocurrency which uses the Scrypt hashing formula.
What are Megahashes/SEC?
Megahashes/SEC is the number of hashes per second measured in millions of hashes (a Megahash).
What is a Market Order?
A market order can be placed at an exchange when buying or selling Bitcoin instantly, and at the prevailing market rate.
What is MBTC?
MBTC is a small amount: one thousandth of a Bitcoin (0.001 BTC).
What is a Micro-Transaction?
A micro-transaction is paying a very small amount as part of a transaction online. This is hard to do under traditional payment systems, such as paying for a bag of snacks with a credit card.
What is Mining?
Mining is the process of minting new Bitcoin by validating blocks of outstanding transactions and solving cryptographic equations using hashing algorithms.
What is a Node?
A node is any connected computer in the Bitcoin network which relays transactions to other computers.
What is an Orphan Block?
An orphan block is a block which was part of a discarded fork. It is not part of the valid blockchain.
What is an Output?
An output is the final address of a Bitcoin transaction. It is quite possible for there to be many outputs for a single transaction.
What is a Paper Wallet?
A paper wallet is a physical record of public Bitcoin addresses and their private keys. It can be a piece of paper, and presents a safer way to store Bitcoin which cannot be hacked or corrupted.
What is a Pool?
A pool is a group of miners working together to mine a block, and then share the reward. Mining pools increase the chances of successfully mining a block.
What is PP Coin?
PP Coin, also known as PeerCoin or P2P Coin, is an altcoin which uses a ‘proof of stake’ calculation in addition to proof of work for validating work done.
What is a Private Key?
A private key is important for keeping Bitcoin safe. It is unique to each account and should only be known by the owner. It is usually a string which signs a digital communication hashed with the corresponding public key.
What is Proof of Work?
Proof of work is the calculation used to give rewards for mining work done in Bitcoin. It takes a lot of time and effort to hash a block successfully, and this is considered proof of work and rewarded appropriately.
What is a Public Key?
A public key is a Bitcoin address, which is public or known or accessible to everyone. When a public key is hashed with a private key it makes a digital communication secure.
What is a QR Code?
A QR Code is a graphic which contains a data sequence. QR codes are scanned by mobile phones and other devices and are used in encoding Bitcoin addresses and in facilitating Bitcoin transactions.
What is Ripple?
Ripple is a payment network on which users exchange any currency. Payments are done on an ‘IOU’ basis and are based on trust. The network consists of nodes and gateways operated by authorized people.
What is Satoshi?
Satoshi is the name of the creator of Bitcoin, and is also the smallest denomination of Bitcoin: 1 sat = 0.00000001 BTC.
What is Scrypt?
Scrypt is a proof of work system meant for altcoin miners. It is relatively simple compared to SHA-256, which is why altcoins using Scrypt are mined more than those using CPU and GPU set-ups.
What is a Signature? When private and public keys are hashed together, they make a digital signature which authenticates the originating address of a Bitcoin transaction.
What is SHA-256?
SHA-256 is the standard cryptographic equation used in the proof of work system of Bitcoin mining.
What is SPV?
Simplified Payment Verification (SPV) makes it possible for users to verify their transactions without downloading the full blockchain, which is massive in size. Instead, users can download just the block headers.
What is a Transaction Block?
A transaction block is the record of transactions which are collated and hashed, and then appended to the blockchain.
What is a Transaction Fee?
Some Bitcoin transactions will be charged a fee when sent across the network. This fee is paid to the miner who has successfully hashed the block containing that transaction.
What is UBTC?
UBTC is another very small denomination of Bitcoin: 1 uBTC = 0.000001 BTC.
What is Volatility?
Volatility is the fluctuations in the price of Bitcoin. What is a Wire Transfer?
A wire transfer is a method of transferring Bitcoin currency to and from a Bitcoin exchange. This transfer is done electronically and can be secured to a bank account anywhere in the world.
What is a Zero-Confirmation Transaction?
A zero-confirmation transaction is a transaction where a vendor sells a product or service in return for a Bitcoin payment, yet the transaction cannot yet be confirmed by a miner or added to the chain. This is when double spending can happen.