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Cryptocurrency Glossary

Since cryptocurrency is new, it is creating a new lexicon of terms. In order to stay on top of trends, you need to become current with the terms.

Altcoin

General term for cryptocurrencies other than bitcoin.

Bitcoin

The first decentralized digital currency, created by Satoshi Nakamoto in 2009. Transactions using bitcoin are made directly between people, with no intermediary or centralized overseeing body, like a bank or other financial institution. They cannot be blocked or frozen. The entire history of a Bitcoin’s transactions are recorded in a public ledger called a blockchain.

Bitcoin address

The code used to send bitcoins from one person to another, just like an email address is necessary in order to receive email, or a postal address is necessary to receive mail. A Bitcoin address is actually a public key corresponding to the private key needed to sign a transaction on behalf of this address.

Block

Every transaction using a cryptocurrency is recorded in a block, which functions as a ledger. When organized in a linear sequence, blocks form blockchains - the heart of most cryptocurrencies.

Blockchain

The database of all bitcoin transactions, listed in chronological order. The use of blockchains to record transactions solved the problem of double-spending, which had stymied all previous attempts to create a digital currency. Blockchain is also referred to as a technology in its own right that has numerous applications separate from cryptocurrencies.

Brain Wallet

A form of private key storage held solely in a person’s mind. This is based on the concept of storing information in one’s mind by memorizing a mnemonic recovery phrase. If the recovery phrase or private key is forgotten, the Bitcoins are lost forever.

Central ledger

A central authority keeping track of all transactions, such as a bank or other traditional financial institution. As the central authority, the bank has the power to freeze accounts or reject transactions. With cryptocurrency, there is no need for a central ledger and the control it wields over commerce.

Cold Storage, Cold Wallet

A cryptocurrency wallet not stored by any piece of software. For example, a private key written on a piece of paper.

Consensus

The specific set of rules accepted by the members of a network that govern what will be acceptable for the creation of a new transaction block. A change in the rules can lead to a soft fork or even a hard fork, which could establish a whole new blockchain and a new coin.

Cryptocurrency

Another word for digital, decentralized currency. The prefix "crypto" refers to the secure protocols that protect the currency from unauthorized access.

Distributed ledger

The database of transactions shared across a network, updated constantly through consensus decisions so each member (node) has an exact copy. The distribution of the data throughout the network helps protect it from cyber-attack and fraud, as it would be easy to detect a difference from one copy to another. The blockchain is a distributed ledger.

Double Spend

Because digital currency can be reproduced easily, there was a risk that the same coins could be spent more than once. With the advent of bitcoin, however, the double spend problem was solved through the use of blockchain. All bitcoin transactions must be recorded in a shared public ledger so that ownership of the coins can be verified before a transaction is completed, thus preventing double spend.

Fork

A hard fork is a split that results in one cryptocurrency becoming two different currencies. Since the blockchain requires consensus within a network, a disagreement over protocol rules could result in a new blockchain with a new set of protocols alongside the old one. The new chain would serve as an independent coin. A soft fork involves software updates that render previously valid transactions as invalid and in need of an upgrade, but new additions continue to be valid and accepted by the network.

Hash Rate

The rate at which the bitcoin network is capable of making computer calculations. A higher hash rate has a better chance of successful Bitcoin mining.

HODL

a slang term and Internet meme that is used in the Bitcoin community when referring to holding the cryptocurrency rather than selling it. It originated in a December 2013 post on the Bitcoin Forum message board by an apparently inebriated user who posted with a typo in the subject, "I AM HODLING."

ICO

An Initial Coin Offering is a form of crowdfunding used by companies to raise money for ventures, equivalent to an IPO from the start-up world. Investors receive tokens which are equivalent to stock shares. Investors generally believe in the product and/or expect that the price of the coin will rise. The process bypasses the highly regulated banking system and general frenzy associated with raising money for a new venture.

Lightning Network

A proposed solution to the limit on the number of transactions a bitcoin network can reasonably handle. The lightning network allows two members of a peer-to-peer network to make direct payments through an open channel between them, reducing the load on the blockchain.

Miner

A person, a device or an organization involved in creating new digital coins, confirming transactions, and voting for protocol changes.

Mining

The process of new coins entering the crypto economy. This process is done by harnessing computer power on behalf of a bitcoin network on the blockchain. In many crytocurrencies including Bitcoin, mining is also used to validate transactions and prevent double-spend. The process allows the miner to charge a transaction fee, earning a portion of the bitcoins transacted.

Multisig

A multi-signature system that would add a layer of security by requiring more than one signature on cryptocurrency transactions. For example, a large company that accepts bitcoin payments may choose a multisig system among authorized employees so that no one employee has authority over the company's bitcoin wallet.

Node

Each member of blockchain network is a node.

P2P

Peer-to-peer is the basic mode of transactions in cryptocurrencies. It indicates that the exchange takes place between equals, with no institutions such as banks necessary to approve the transaction.

Private Key

The secret data that allows people to generate a digital signature for a piece of information. In the case of Bitcoin, it confirms ownership of the coins. The private key is stored safely in a bitcoin wallet. If anyone gains access to a private key, they also gain access to the coins that are connected to it. If the private key is lost, access to the bitcoins is lost as well.

Public Key

The data used for encryption that is paired with the private key. Anything encrypted with a public key can only be decrypted with the corresponding private key. Alternatively, a digital signature requires a private key to generate, but can be easily validated with a public key. For example, an encrypted message designed to be read by only one person will use that person's public key to encrypt it. It will then be decrypted only with that person's private key. With bitcoins, the public key is used to send coins to a bitcoin address to ensure that only the owner of the address can access the coins.

Satoshi

A minimal currency unit of Bitcoin. In Bitcoin protocol, one Satoshi is 10^-8 of a Bitcoin, or 10 nanoBTC.

Signature or Digital Signature

A mechanism that allows a recipient of an encrypted message to know that the message was sent from a particular person and that the person cannot deny having sent it. It also ensures the recipient that the message had not been tampered with. In a bitcoin transaction, the signature allows the entire network to see that bitcoins sent are owned by the sender.

Segwit

A Segregated Witness is a soft fork that helps reduce the size of a block by breaking transactions into two parts, removing the unlocking signature data (known as the witness) and appending it separately to the end. The smaller block size helps speed transactions.

Smart contract

Contracts that are digitally equipped to verify and enforce the terms of the contracts so that there is no need for third party enforcement. They reduce transaction costs and eliminate the reliance on a legal system to uphold, judge and enforce contracts.

Wallet

A program, device or a form of persistent storage that keeps the private keys that are needed to access the Bitcoins owned by the holder of the wallet. A Bitcoin wallet can be a local app, an online service, a piece of paper (see Paper Wallet) or even a random generator seed numbers remembered by a person (see Brain Wallet).

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