Understanding cryptocurrency: quick glossary related to cryptocurrency

This quick glossary contains many of the terms used in relation to bitcoin. The terms in the glossary works for other types of crypto currencies too.

Bitcoin

The name of the currency unit (the coin), the network, and the software.

Address

A bitcoin address looks like 1DSrfJdB2AnWaFNgSbv3MZC2m74996JafV. It consists of a string of letters and numbers. It’s really an encoded base58check version of a public key 160-bit hash. Just as you ask others to send an email to your email address, you would ask others to send you bitcoin to one of your bitcoin addresses.

Wallet

Software that holds all your bitcoin addresses and secret keys. Use it to send, receive, and store your bitcoin.

Block

A grouping of transactions, marked with a timestamp, and a fingerprint of the previous block. The block header is hashed to produce a proof of work, thereby validating the transactions. Valid blocks are added to the main blockchain by network consensus.

Blockchain

A list of validated blocks, each linking to its predecessor all the way to the genesis block.

Genesis block

The first block in the blockchain, used to initialize the cryptocurrency.

Transaction

In simple terms, a transfer of bitcoin from one address to another. More precisely, a transaction is a signed data structure expressing a transfer of value. Transactions are transmitted over the bitcoin network, collected by miners, and included into blocks, made permanent on the blockchain.

Confirmations

Once a transaction is included in a block, it has one confirmation. As soon as another block is mined on the same blockchain, the transaction has two confirmations, and so on. Six or more confirmations is considered sufficient proof that a transaction cannot be reversed.

Mempool

The bitcoin Mempool (memory pool) is a collection of all transaction data in a block that have been verified by bitcoin nodes, but are not yet confirmed.

Multisignature

Multisignature (multisig) refers to requiring more than one key to authorize a bitcoin transaction.

Fees

The sender of a transaction often includes a fee to the network for processing the requested transaction. Most transactions require a minimum fee of 0.5 mBTC.

Double-spending

Double spending is the result of successfully spending some money more than once. Bitcoin protects against double-spending by verifying each transaction added to the block chain to ensure that the inputs for the transaction had not previously already been spent.

Network

A peer-to-peer network that propagates transactions and blocks to every bitcoin node on the network.

Miner

A network node that finds valid proof of work for new blocks, by repeated hashing.

Hash

A digital fingerprint of some binary input.

SHA

The Secure Hash Algorithm or SHA is a family of cryptographic hash functions published by the National Institute of Standards and Technology (NIST).

Proof-of-Stake

Proof-of-Stake (PoS) is a method by which a cryptocurrency blockchain network aims to achieve distributed consensus. Proof-of-Stake asks users to prove ownership of a certain amount of currency (their “stake” in the currency).

Proof-of-Work

A piece of data that requires significant computation to find. In bitcoin, miners must find a numeric solution to the SHA256 algorithm that meets a network-wide target, the difficulty target.

Reward

An amount included in each new block as a reward by the network to the miner who found the Proof-of-Work solution. It is currently 12.5 BTC per block.

Difficulty

A network-wide setting that controls how much computation is required to produce a proof of work.

Difficulty retargeting

A network-wide recalculation of the difficulty that occurs once every 2,016 blocks and considers the hashing power of the previous 2,016 blocks.

Fork

Fork, also known as accidental fork, occurs when two or more blocks have the same block height, forking the block chain. Typically occurs when two or more miners find blocks at nearly the same time. Can also happen as part of an attack.

Hard fork

Hard fork, also known as Hard-Forking Change, is a permanent divergence in the blockchain, commonly occurs when non-upgraded nodes can’t validate blocks created by upgraded nodes that follow newer consensus rules. Not to be confused with fork, soft fork, software fork or Git fork.

Soft fork

soft fork or Soft-Forking Change is a temporary fork in the blockchain which commonly occurs when miners using non-upgraded nodes don’t follow a new consensus rule their nodes don’t know about. Not to be confused with fork, hard fork, software fork or Git fork.

Satoshi

A satoshi is the smallest denomination of bitcoin that can be recorded on the blockchain. It is the equivalent of 0.00000001 bitcoin and is named after the creator of Bitcoin, Satoshi Nakamoto.

Satoshi Nakamoto

Satoshi Nakamoto is the name used by the person or people who designed Bitcoin and created its original reference implementation, Bitcoin Core. As a part of the implementation, they also devised the first blockchain database. In the process they were the first to solve the double-spending problem for digital currency. Their real identity remains unknown.

Appendix

EastShore’s series of tutorials on the basics of cryptocurrency:

* Source: Mastering Bitcoin, 2nd Edition, by Andreas M. Antonopoulos, Published by O’Reilly Media, Inc., 2017