Crypto Dictionary

 

A Glossary For All The Bitcoin & Cryptocurrency Lingo

A – B – C – D – EF – G – HI – J – K – LMN – O – P – Q – R – S – T – U – V – W – X – Y – Z

A

Public Address (Public Key)

The digital location of your ‘storage space’ for your given Bitcoins & other similar cryptocurrencies. It acts as a physical address when ordering a product: you give the address aka PUBLIC key to the person/company who you chose to deliver the cryptocurrency on your ‘doorstep.’ Also, when you want to pay with Bitcoin, you have to know the recipient public address which most of the time is either a QR code or a 25 to 34 random character long sequence. Most addresses though are 33 or 34 characters long. DO NOT CONFUSE PUBLIC KEY WITH PRIVATE KEY!!! (see private key definition here.)

ASIC

An Application-Specific Integrated Circuit or ASIC is a specialized piece of computing hardware customized for Bitcoin & Cryptocurrency mining. The hardware can ONLY be used for mining, nothing else. ASICs were initially created to solve the power-consumption problem posed by the high-end GPU video cards. Compared to GPU-mining, ASIC-mining is much more efficient both power-consumption-wise and computing-processing-wise.

E

Bitcoin ETF

A Bitcoin Exchange-Trade Fund or ETF is a Bitcoin-based investment fund that is regulated therefore traded on major stock exchanges. In other words, IF regulated, Bitcoin becomes a stock, a tradeable and quite liquid asset available to all small and big investors and stock traders.

F

Transaction Fees

When sending digital currencies from one wallet to another, a user may incentivize the miners to include his or her transaction in the block. That incentive is called a transaction fee. Most of today’s wallets have the option to customize the fee. If you want a fast transaction, you may have to increase the fee or use what many wallets call the ‘Priority’ option. If you aren’t in a hurry or the mempool size isn’t an issue, you can comfortably use a ‘Regular’ fee.

Hard Fork

A major upgrade/rule change of the blockchain in which previous otherwise invalid blocks and transactions are made valid or vice-versa. In a hard fork scenario, a node must upgrade to recognize the new blocks as valid, thus isn’t backward compatible. If some of the nodes don’t upgrade the running software, they start rejecting new blocks, creating a blockchain split or fork. This is how Bitcoin Cash and Bitcoin Gold were created: their respective development teams changed the rules and only a handful of nodes upgraded and accepted the new blocks – bigger blocks in BCH case and different PoW algorithm in BTG case – as valid. Most of the Bitcoin nodes however refused those blocks, thus a split happened. To better understand the process, we at CryptoHQ recommend watching the following video:

Soft Fork

An upgrade/rule change of the blockchain that is backward compatible. In other words, there is no need for the nodes to upgrade to accept the new blocks as valid. Older versions of the software will continue to recognize new blocks as valid, so no split will actually happen. Nevertheless, for a soft fork to be successful, the majority of miners have to upgrade their software to ‘enforce’ the new rules. To better understand the process of ‘forkology’, we at CryptoHQ recommend watching the following video:

Bitcoin Futures

A contract between two parties that derives its value from the performance of Bitcoin. In this particular contract, the two parties agree to buy or sell a specified amount of Bitcoins at a predetermined future price and date. At the specified delivery date, the buyer must purchase/the seller must sell respectively the agreed Bitcoins at an already agreed forward price. Depending on the Bitcoin price in the future, the trader may profit or lose.

H

Halving

Halving is the process of reducing the incentives that usually come with mining. For example, in Bitcoin case, when the network first launched, in early 2009, the reward for producing a correct Proof-of-Work was 50 BTC. Roughly four years later, the initial reward was halved to 25 BTC. We are currently in the third phase with the block reward set at 12.5 BTC. The halving happens every 210,000 blocks or approximately every four years. Check the Bitcoin Block Reward Halving countdown here.

Hardware Wallet

Special cryptocurrency wallet that stores the private key securely on a hardware USB-type device. The most important feature is that the hardware wallet is immune computer malware. The most popular hardware wallets to date (November 2017) are Ledger and Trezor. Both support a wide variety of cryptocurrencies and utility tokens.

I

Initial Coin Offering

An Initial Coin Offering or ICO is a new crowdfunding system developed within the cryptocurrency space. In this new system, the team behind an ICO project promises pre-mined tokens or coins to the potential investors in exchange for their investment. Most of ICOs are unregulated therefore their legal terms avoid the term ‘investment’ replacing it with ‘contribution’ and ‘donation.’ As a consequence, since the team has basically no obligations towards the investors, many question marks are raised whether any given ICO is legitimate or not. DO INVEST CAREFULLY!!! Do an extensive research prior to any kind of ICO investment and bear in mind the market is mostly speculative in nature.

L

Lightning Network

Project initially developed for the Bitcoin community that claims to help the number one digital currency scale and truly support mainstream adoption. The Lightning Network is a payment layer built on top of the Bitcoin blockchain that supports off-chain payment channels. When two parties decide to communicate via Lightning Network, they open a channel and start making transactions instantaneous without ever touching the blockchain. Only once the channel is closed, all the transactions are bundled into one and broadcasted on the network.

M

Mempool

All unconfirmed transactions that haven’t been included in the blockchain yet.

Mining

The process of participating in a cryptocurrency’s Proof-of-Work system. A miner is a user that invests in specialized hardware and consumes a great deal of power to ‘mine’ a specific cryptocurrency. ‘Mining’ involves using all the computing resources necessary to solve the puzzle aka produce the PoW. Whenever a miner finds the answer to the puzzle, he can add a block of transactions to the blockchain and can also claim valuable incentives – the block reward plus, in many cases, all the transaction fees from that block.

Minting

The process of participating in a cryptocurrency’s Proof-of-Stake system. As opposed to the Proof-of-Work system, a user mints NOT mines a block of transactions staking a portion of his wealth in the process. The stake assures the entire network the user plays by the rules. The chosen ‘minter’ gets to add the block to the blockchain and also claims the block reward plus all the transaction fees included in the block.

N

Satoshi Nakamoto

The creator of Bitcoin and the author of the notorious whitepaper Bitcoin: A Peer-to-Peer Electronic Cash System. Satoshi Nakamoto is just an Internet alias that corresponds in English with John Smith – very common first and last names in Japan and the US, respectively. The real identity of Satoshi Nakamoto is currently unknown.

Node

Any computer connected to a cryptocurrency network.

Full Node

In many cases, the backbone of a cryptocurrency network. Full nodes have a full copy of the blockchain stored on their hard-drive. They download every block and listen to any transaction broadcasted on the network. They also verify if the blocks and transactions respect the general rules of the cryptocurrency. Anyone can become a full node and support their favorite cryptocurrency by downloading the FULL blockchain. However, some cryptocurrencies are more resource-intensive than others. For example, to run a Bitcoin Full Node, a user needs at least 156 GB of storage space (as of November 2017) plus at least 2 GB or RAM and a good Internet connection. As a comparison, in Litecoin’s case, the user needs much less storage space – around 10 GB.

P

Private Key

THE MOST IMPORTANT SEQUENCE OF CHARACTERS FOR ANY CRYPTOCURRENCY USER! In the cryptocurrency world, the private key acts like a signature, it is unique, unforgeable, and essential to moving cryptocurrencies from one location or address to another. Without the private key, a transaction is NOT valid. Only if you have the private keys of your coins, you actually OWN those coins. BE VERY CAREFUL WHEN USING THE PRIVATE KEYS! Avoid centralized exchanges as you don’t control the wallets’ private keys and use secure methods to move your cryptocurrencies from one place to another. Methods like hardware wallets or more advanced Do-It-Yourself cold storage wallets.

Proof-of-Stake (POS)

A system that achieves the same purpose as the Proof-of-Work: users in a network compete among themselves to add blocks of transactions to the blockchain and claim the incentive aka block reward. Nevertheless, the users don’t have to find a solution to a cryptographic puzzle that usually requires specialized and very expensive hardware plus very high electricity bills. In the PoS case, the user adding the block is chosen via random algorithms and based on their stake. To participate in the PoS system, a user must stake a portion of his wealth – commonly, the native cryptocurrency coins of that blockchain – and if he/she doesn’t play by the rules, his stake is forfeited. As opposed to PoW, a user only needs an average computer that can be online 24/7, plus a good Internet connection. Most of his/her investment is made via his/her stake.

Proof-of-Work (POW)

In Bitcoin and a handful of other cryptocurrencies, Proof-of-Work or PoW is a piece of data, a cryptographic puzzle which is difficult to solve and quite easy to verify. The solve the puzzle, one must invest in expensive specialized hardware and consume a great amount of electricity. The cryptographic puzzle aka PoW is random and has a low probability of being solved because a lot of trial and error is required. In the cryptocurrency world, whoever solves the puzzle is given an incentive to encourage him to continue supporting the network and play by the rules. Whenever a PoW is solved, a block of transactions is added to the blockchain by the one who successfully solved it.

S

Securities and Exchange Commission (SEC)

The financial regulator in the United States responsible for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation’s stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.

Segregated Witness (SegWit)

A hard fork that changes the transaction format of Bitcoin and other similar cryptocurrencies. With SegWit, a transaction is split into two segments (segregated) removing the signature (witness data) from the original structure and ‘appending’ it as a separate structure at the end. Because of the new format, a SegWit transaction is roughly half the size of a traditional one. SegWit also permits the implementation of other important features and layers like the Lightning Network.

Seed

A readable private key used by some cryptocurrency wallets. Usually, the seed is a sequence of English words. Make sure you write the seed down OFFLINE on a piece of paper!!! Don’t use a text file as he or she who knows the seed of your cryptocurrency wallet also owns the funds in it.

Cold Storage

A hardware device usually used for storing cryptocurrencies that was never connected to the Internet or any other vulnerable network.

W

Whitepaper

In today’s ICO environment, a whitepaper is an official document issued by the team behind the ICO that presents the project as a whole. Initially, a whitepaper had the sole purpose of presenting a problem the world is facing and giving a viable solution. It was also meant as a technical alternative where the presented problem doesn’t exist anymore. However, as time went by and the ICO craze crept in, the whitepaper slowly but surely became just a marketing brochure trying to convince the reader to invest in the project.

Wallet

A digital location where you can store your cryptocurrencies much like a physical wallet. Any wallet has one or a set of private keys and whoever owns and controls them, controls the cryptocurrencies inside the wallet. Usually, the private keys come in form of a SEED or a JSON file for example containing the private key. The wallet also has a public address that can be used to receive funds. The private key is essential when you want to move your cryptocurrencies away from the wallet.