Bitcoin – Glossary

In this chapter, we shall learn bitcoin glossary which describes over 50 bitcoin terms.

Address

A bitcoin address allows us to send and receive bitcoins on the bitcoin network. It is also the public key or address that is used to transact in bitcoins.

Altcoin

Altcoin is a group of ‘alternate’ cryptocurrencies other than bitcoins. Examples of altcoins include Ethereum, Litecoin and PPcoin.

Asic

An Application Specific Integrated Circuit (ASIC) is built specially to process the SHA- 256 hashing equations that are used in mining bitcoins.

Asic miner

An ASIC miner is the latest mining hardware used in bitcoin mining. It is used to calculate the SHA-256 equation faster than a CPU or a GPU. ASIC miners are custom-built and connect to the network through a wireless or Ethernet connection.

Bitcoin Price Index (BPI)

The Bitcoin Price Index, designed by Coin Desk, shows the average bitcoin prices across the top global currency exchanges.

Bitcoin Whitepaper

The Bitcoin Whitepaper dubbed as the Bible of the Bitcoin ecosystem, was submitted by the currency’s mysterious founder, Satoshi Nakamoto, in 2008. It gives a detailed description of the bitcoin protocol, and is a good reference material for newbies and experienced people alike.

Block Chain

This chain contains the records of all bitcoin ‘blocks’ that have been mined since the start of the currency. The chain is designed such that each block contains the hash of the preceding block, which makes the chain secure against counterfeit mining operations.

Block Reward

A reward is given to each miner who completes a transaction block. It can be in the form of coins or transaction fees; Bitcoin network currently rewards 25 coins for each completed block. Once the threshold of blocks has been mined (which currently stands at 210,000 blocks) the reward is halved; such an event as described above is called halving. The next halving is due to take place in 2020. Then the reward would become 12.5 coins for mining one block.

BTC

BTC is the abbreviation of bitcoin, similar to USD and GBP for US dollar and Great.

Bitcoin Client

This is the software program that connects a device, whether a desktop computer, laptop or mobile phone to the bitcoin network.

Confirmation

A confirmation of a transaction is its successful hashing into the block of a blockchain. It can take up to ten minutes, though larger transactions may require up to 6 confirmations.

Coloured Coins

Coloured coins is a proposed new feature of bitcoins that allows users to define their own attributes of the currency. It is intended that users could mark a bitcoin as a physical asset, which could then be exchanged as a token for other property.

Coinbase

The name of a bitcoin wallet operator that offers payment processing for merchants, and acts as an intermediary in bitcoin exchanges.

Coin Age

A coin’s age is calculated by the product of the currency amount and the period of time it has been owned.

Cryptocurrency

A cryptocurrency is considered legal tender by consensus and is secured by using cryptography based on mathematical formulas.

Cryptography

It is the field where math formulas and algorithms are used to create the codes that encrypt and decrypt information.

Double Spending

This is the criminal act of spending the same bitcoins more than once. The user completes a transaction using his bitcoins and then makes a second transaction with some other party using the same bitcoins. So confirmation is necessary to validate a transaction and prevent double spend. So zero-confirmation transactions are risky as they could involve double spending.

Dust Transaction

This is a transaction that has a record in the block chain but has very little worth. Steps are being taken to minimise the number of dust transactions that take place by introducing a minimum transaction amount.

ECDSA

ECDSA is the name of a code and an abbreviation for Elliptic Curve Digital Signature Algorithm. It is used in the Bitcoin protocol to sign transactions.

Escrow

An escrow is a kind of third party online wallet that stores funds securely during a transaction between two parties. It is used in cases where two parties cannot transact bitcoins till certain conditions are met, and want to ensure that their money is not ‘stolen’ digitally.

Faucet

A faucet is the 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 that give away very small amounts of bitcoins to promote them

Fiat Currency

A Fiat currency is another name for token money used across the world that has been declared legal tender by governments and central banks and is not backed by a physical commodity.

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 deemed successful if it becomes the longer version of the chain.

Genesis Block

The original block in a chain.

GPU

This is a graphical processing unit, as found in standard PC graphics card. As GPUs are designed to process huge data at faster speeds in pixel-heavy computer games, they are also perfect for processing calculations required in cryptocurrency mining.

Hash

A hash is the mathematical processing done during bitcoin mining. It is a complex process that makes the currency secure and renders decryption very difficult and alteration of the output detectable.

Hash Rate

Hash rate counts the number of hash calculations done in a second. This generally indicates how fast and successful a mining operation is.

Input

Input shows where a bitcoin transaction has originated, and is generally a bitcoin address, unless it is a generation transaction meaning that the bitcoin has been newly-mined.

Litecoin

It is a type of alternate crypto currency that uses the Scrypt hashing formula.

Megahashes/SEC

It is the number of hashes per second measured in millions of hashes (a Megahash).

Market Order

A market order can be placed at an exchange when buying or selling bitcoins instantly, and at the prevailing market rate.

MBTC

A small amount: one thousandth of a bitcoin (0.001 BTC).

Micro-Transaction

Paying a very small amount as part of a transaction online, these are hard to execute under traditional payment systems. It is like paying for a bag of snack with a credit card.

Mining

Mining can be done by anyone who wants to mint some new bitcoins for his wallet. For this he should validate a block of outstanding transactions and solve cryptographic equations using some hashing algorithms.

Node

Every connected computer in the bitcoin network that relays transactions to other computers is called a node.

Orphan Block

Any block that was part of a discarded fork is known as an orphan block. This is not part of the valid blockchain.

Output

The output is the final address of a bitcoin transaction. It is quite possible that there can many outputs for a single transaction.

Paper Wallet

This 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 bitcoins that cannot be hacked or corrupted.

Pool

A group of miners working in tandem is called a pool. These miners pool their work together to mine a block, and then share the reward accordingly. Mining pools improve the chances of successfully mining a block.

PP Coin

PP coin is sometimes known as peer coin or P2P coin. This is an altcoin that uses a ‘proof of stake’ calculation apart from proof of work for validation of work done.

Private Key

The security of private key is important in keeping bitcoins safe. The private key of an account is unique, and only the owner should know the private key. It is usually a string that signs a digital communication hashed with corresponding public key.

Proof Of Work

This calculation is used to give reward for mining work done in bitcoins. It does take a lot of time and effort to hash a block successfully, and this is considered as a proof of work which is rewarded appropriately.

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.

QR Code

A QR Code is a graphic that 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.

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.

Satoshi

Satoshi, the name of the creator of bitcoin, is also the smallest denomination of bitcoin: 1 sat = 0.00000001 BTC.

Scrypt

A proof of work system meant for altcoin miners; it is relatively simple as compared to SHA-256; that is why altcoins using Scrypt are mined more than those using CPU and GPU set-ups.

Signature

When private and public keys are hashed together, they make a digital signature that authenticates the originating address of a bitcoin transaction.

SHA-256

It is the standard cryptographic equation that is used in the proof of work system of bitcoin mining.

SPV

The Simplified Payment Verification makes it possible for users to verify their transactions without downloading the massively-sized full block chain. Here users make by simply downloading the block headers only.

Transaction Block

The transaction block is the record of transactions which are collated and hashed, and then appended to the block chain.

Transaction Fee

Some bitcoin transactions will be charged a small fee when sent across the network. This fee is paid to the miner who has successfully hashed the block that contains that transaction.

UBTC

Another very small denomination of bitcoin; a uBTC is a ‘microbitcoin’

1 uBTC = 0.000001 BTC

Volatilit Y

The fluctuations in price of bitcoin are defined as its volatility.

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.

Zero-Confirmation Transaction

It 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 where ‘double spending’ can happen.