Glossary of Terms
The world of digital currencies can be confusing, especially if you aren’t familiar with all the terminology.
Is there something we haven’t covered? Let us know and we’ll add it to the list!
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- Address – The cyber designation, and only information needed, to be paid in Bitcoin. Optimally each address should be used only once for a single transaction.
- Altcoin – Term used to describe lesser-known cryptocurrencies (i.e. non-bitcoin cryptocurrencies).
- ASIC – Acronym for Application Specific Integrated Circuit. These single-task designed silicon chips process SHA-256 hashing problems in order to validate transactions and mine new bitcoins.
- ASIC miner – Hardware housing Application Specific Integrated Circuit chips and used to mine for bitcoins. Such devices may connect directly to a computer or to a network with use of an ethernet cable or wireless link
- Bit – A common unit used to designate a single sub-unit of a bitcoin. 1,000,000 bits is equivalent to 1 bitcoin.
- Block – A block is a permanent record of data stored in the blockchain, acting like a page or ledger. Each block contains and confirms pending transactions. Roughly every 10 minutes, on average, a new block along with the transactions it contains is added to the blockchain through mining.
- Blockchain – A transparent public record of every bitcoin transaction in chronological order that is shared by every bitcoin participant. The blockchain verifies the authenticity and permanence of all Bitcoin transactions and prevents double-spending.
- BTC – The official abbreviated form of the word ‘bitcoin’.
- Cryptocurrency – A form of non-tangible currency that is produced by mathematical problem-solving based on cryptology.
- Cryptography – A branch of mathematics utilized by cryptocurrencies that employ mathematical proofs in order to allow high levels of security. In the case of Bitcoin, cryptography ensures that others are unable to spend funds from another user’s wallet or to corrupt the blockchain.
- DDoS – Abbreviated form of Distributed Denial of Service. A DDoS attack utilizes many computers under the control of an attacker to deplete the resources of a primary target. In the past, some Bitcoin exchanges have come under DDoS attacks.
- Double spending – The act of spending the same bitcoins twice. Blockchain and bitcoin mining exist in order to confirm all transactions and thus prevent such fraud. Nevertheless, users accepting zero-confirmation transactions remain vulnerable to double spending.
- Exchange – A central platform for exchanging different forms of currencies and assets. Typically, bitcoin exchanges are used to exchange cryptocurrency for traditional monetary units.
- Fiat currency – A currency with no intrinsic value but deemed to have worth because a government has declared it to be so. The word ‘Fiat’ comes from Latin, meaning ‘Let it be done’.
- FinCEN – An agency within the U.S. Treasury Department, The Financial Crimes Enforcement Network defines its mission as ‘to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities’. FinCEN has been the primary group in the U.S. to impose regulations on exchanges trading in bitcoin.
- Fork – A change of the Bitcoin protocol that is not backward-compatible. A blockchain fork occurs when nodes running the new version of the protocol create a separate blockchain incompatible with the older software.
- Genesis block – The original block in the blockchain.
- Hash – An algorithm that takes a variable amount of data and converts it into a shorter, fixed length and fixed piece of data.
- Hash rate – The number of hashes a bitcoin miner can perform in a set period of time (usually a second).
- KYC – Know Your Client, or Know Your Customer. KYC guidelines mandate that financial institutions must vet potential clients to ensure that they are legitimate and can verify their identities.
- Liquidity – The market’s ability to buy and/or sell an asset combined with the extent to which pricing remains relatively stable and consistent between transactions.
- mBTC – A bitcoin metric of 1 thousandth of a bitcoin (0.001 BTC).
- Mining – The process of generating new bitcoins through the mathematical process of solving cryptographic problems using computing hardware.
- Multisig – A contracted term for Multi-signature addresses that allow multiple users to partially seed an address with a public key. The ability to access funds from such an address requires multiple signers to access the account. As a result, multisig addresses are much more resilient to theft. (See An Introduction to MultiSig Wallets)
- Node – Refers to a computer running a full-client blockchain. It serves to share blocks and transactions across the network using the client-to-client infrastructure.
- P2P– Peer-to-peer (P2P) refers to direct, decentralized cryptocurrency interactions between two parties or more. No bank or other financial institution is required as a third party.
- Paper wallet – A hard copy containing bitcoin wallet information such as bitcoin addresses and their corresponding private keys. Paper wallets are often used to store bitcoins securely in a non-software capacity. (See An Introduction to Paper Wallets)
- Private key – A cryptographic signature that allows the user to access and move bitcoins from a specific wallet.
- PSP – Payment Service Provider. PSPs act as bitcoin agents for merchants that accept online payments.
- Public key – A publicly known alphanumeric string that acts as a bitcoin address when hashed with a private key to sign a digital communication. This is the key that you can share with other people to receive bitcoins.
- QR code – A Quick Response code is a two-dimensional block image containing a black-and-white pattern representing a sequence of data. The images are scannable and are often used to encode bitcoin addresses.
- Satoshi – The smallest sub-unit of a bitcoin currently available (0.00000001 BTC).
- Satoshi Nakamoto – The pseudonym used by the original inventor of the Bitcoin protocol.
- Signature – A mathematical sequence produced by the hashing of private and public keys together, proving that a bitcoin transaction came from a particular address.
- SEPA – Single European Payment Area. SEPA was designed as a European Union payment integration agreement that would make it easier to transfer funds between nations in Euros.
- Transaction block – A compilation of bitcoin transactions that are collected into a block and then hashed and added to the blockchain.
- Transaction fee – A small service charge added onto some transactions. The fee is paid to the miner that hashes the block containing the transaction.
- Volatility – Market volatility reflects the measurement of price movement over a period of time for a traded financial asset, including bitcoin.
- Wallet – The conceptual cyber equivalent of a physical wallet on the Bitcoin network. A wallet contains the private keys associated with the bitcoin address.
- Wire transfer – Electronically transferring funds from person to person. A wire transfer is often used to send and retrieve traditional (‘fiat’) currency from bitcoin exchanges.