Bitcoin is said to provide a revolutionary approach to buying and selling goods and services, and it is becoming increasingly popular as time goes by. With new methods and practices, of course, comes new jargon. Bitcoin terminology, therefore, plays an important role in understanding the concept and currency as a whole. Many are trading, purchasing, and using cryptocurrency already. Others, however, are completely unfamiliar with the subject. No matter your grasp of it, or lack thereof, participating in some form will always lead you to encounter the same set of commonly used terms. For beginners aiming to use bitcoin, whether to learn how to trade or simply use it as a form of cash, the best place to start is by learning bitcoin terminology.
The Basics of Bitcoin Terminology
Every subject has a list of more ordinary and commonly used words and phrases. Bitcoin terminology is much the same. There are some ideas that you have to know and others that you can scrape by without understanding. The below list of related terminology details and explains jargon, without which you will be completely lost. Get to know them and make them part of your vocabulary for ease of use.
Satoshi Nakamoto is the pseudonym for the person or group of people who created bitcoin, although their real identity is still unknown. Nakamoto posted an academic paper to a cryptography mailing list in 2008. The paper detailed a peer-to-peer digital cash system based on a blockchain. This was the inception of the popular cryptocurrencies we utilise today. When users refer to a “satoshi”, they refer to the smallest unit of a bitcoin. One singular coin contains 100 million satoshis. Therefore one satoshi = 0.0000001 bitcoin.
Bitcoin is the world’s first and most popular decentralised electronic currency. There is, however, a slight difference in meaning when the word is capitalised versus when it isn’t. The word is capitalised when referring to the entire concept or the network itself. On the other hand, when written without capitalisation, this refers to the currency unit.
This is used as an abbreviation for the actual currency and is commonly used to represent one coin.
Blockchain can be thought of as a public, digital ledger. The technology allows users to keep track of information unalterable and transparently. A computer network stores and adds information in the form of blocks to a chain. When each block is added, it becomes unchangeable and can only be added after being unanimously verified by participants. For Bitcoin users, the blockchain is publicly available to anyone. The currency blockchain records every BTC transaction since the currency began. Records are kept in chronological order.
Cryptography is a genre of math which, in the context of bitcoin terminology, serves as a way to ensure the system’s security. Cryptography makes it impossible for malicious actors to use currency from another user’s wallet or corrupt the blockchain in some way. It is used to encrypt and decrypt information. The Bitcoin system uses addresses, wallets, hash functions, and more.
In the most basic terms, double spending is when you use the same BTC twice. A malicious participant on the blockchain may send the same coin to two different users before either transaction is confirmed. Since the blockchain requires all transactions to be verified by miners, double spending is prevented. Both transactions will appear on the blockchain, but the miner will only verify the first and declare the second invalid.
This is a big one in bitcoin terminology, as it is one of the things that has led to BTC being so widely acclaimed. The network on which the currency runs is decentralised, which means that no central authority runs the network. Participants on the network speak to each other directly rather than through a bank or a broker. In other words, users communicate and send each other information instead of requesting the information from an organisation that keeps it private.
Peer To Peer (P2P)
P2P follows from decentralisation. A peer-to-peer network is where users communicate directly rather than on a central server. The system works like an organised collective. In the case of Bitcoin, the network has been constructed so that each user transmits the transactions of all other users.
Coins are released into the market through a process of mining. Mining is completing complex mathematical problems to validate and verify transactions on the blockchain and create new blocks. This requires powerful computers. Once the mathematical puzzle is solved, the reward is the release of a new BTC. Those performing these tasks are called miners.
Bitcoin blockchain participants each have a public key as an account number. It is a combination of letters and numbers, which allows you to receive BTC. A public address is a cryptographic hash of the public key. This is the only information you need to provide to somebody who needs to pay you in BTC.
Similar to how the public key functions as your account number, the private key functions as your password or ATM pin. You are the only one who knows this alphanumeric string of characters, and it should stay that way. The private key lets you send and access coins from your wallet through a cryptographic signature.
This is one of the simplest parts of bitcoin terminology, yet it is quite important. Essentially, it is a digital equivalent of a normal wallet. In it, you can store and receive the currency safely. It contains your private key, so you can spend the coins. You can have more than one wallet if you please; each will show you the balance of the coin it holds.
More Complex Points in Bitcoin Terminology
While the basics may get you by, a list of terminology without some more complex words and phrases is insufficient. Awareness of more complicated ideas will put you drastically ahead of most people learning the subject and some who think they already know it. To help you delve deeper into the subject, and become more fluent, below is a list of bitcoin terminology slightly less straightforward. These are words and phrases that go below the surface level of understanding.
The hash rate measures the processing power of the mining network. When miners verify transactions and ensure the blockchain is secure, their hardware performs intensive computational operations. These operations are output in hashes per second. For example, when a network reaches a hash rate of 10 Th/s, it can compute 10 trillion calculations per second.
In bitcoin terminology, this is the specific hash function that miners make use of to secure transactions.
Cold storage is essentially the storage of private keys and BTC in any manner that is not connected to the internet. Examples of cold storage are USB drives and computers which are offline. Important to note for your bitcoin terminology needs is that cold storage has an opposite called hot storage. This is one where you store the same information. However, you need to be connected to the internet to access it.
In bitcoin terminology, when miners successfully mine a block on the network, a block reward incentivises them to ensure the network is secure. It is part of a coinbase transaction and can encompass transaction fees. Approximately every four years, the block reward is halved.
The total amount of BTC that can ever exist is 21 million. In other words, the creation of the currency is capped at 21 million. Since they are not infinite, they are considered to be rare. For this reason, the number of BTC generated per block is decreased by 50% every four years. This process is called halving. The last halving is expected to occur in 2140.
This represents a public or private key that digital cameras can scan. It works similarly to a barcode on an item you purchase in the store.
BIP (Bitcoin Improvement Proposal)
The BIP is a document circulated to all members of the Bitcoin community. Its purpose is to provide information or outline new features for the crypto. Suggestions, new features, and design alterations are submitted as a BIP. The user who submits it must build consensus among participants.
Learn Bitcoin Terminology and Get Ahead
For many, learning about BTC seems like a tedious and cumbersome task. The intricacies of the subject seem to discourage many from using it. However, once you understand bitcoin terminology, these intricacies will surely be less complex. Keep the bitcoin glossary by your side; you can’t go wrong.