Ever been reading about Bitcoin, blockchain or cryptocurrency and hit a word you don’t fully understand?
If the answer’s yes – you’re definitely not alone, cryptocurrency is a big and exceptionally technical area – and sometimes there’s just no getting around those bits of jargon.
We’ve pulled some of the best out of 100+ cryptocurrency articles and blog posts, then done our best to offer some insight into what they mean – always in plain English!
A wallet address is the location to which you send your currency payment – a little like an email or physical address.
This is a collective term for currency types that are not Bitcoin.
This is a non-typical type of mining that is often frowned upon by the cryptocurrency community. ASIC stands for Application Specific Integrated Circuit and is a chip that’s dedicated to running just one process – in this case, the process needed solve blockchain problems and ‘mine’ new coins.
This is a small fraction of a Bitcoin – 1,000,000 bits equals one Bitcoin – and since the huge value of one coin, it’s useful to talk in bits for smaller transactions.
Bitcoin is the original cryptocurrency created in 2009 and generally seen as the benchmark against which other cryptocurrencies and technologies are compared.
A block is a record in the blockchain that contains the detail of a number of transactions.
This is the underpinning technological concept that Bitcoin and many altcoins is based on. It is a distributed ledger system that records all previous transactions and creates algorithms that need to be solved to confirm future transactions. It is shared across all node computers worldwide to ensure security and a consensus approach to verifying every transaction.
Depending when a transaction occurred depends on its block height – i.e. the number of blocks that proceeded it in the blockchain.
A broker is a company who facilitates the trading of cryptocurrencies – a place where you can buy or sell. This review of CEX.IO will give you an idea of what they do in a little more depth.
BTC is the abbreviated term for Bitcoin – and can normally be seen in currency exchanges alongside more recognised terms like GBP and USD.
When node computers solve the algorithm that authenticates a pending transaction as legitimate it becomes ‘confirmed’. Confirmed transactions are distributed throughout the blockchain and are therefore included in a block.
This is a mathematical term for coding a message or instruction to keep it secure. Bitcoin, the blockchain and financial organisations in general tend to use cryptographic security to prevent mishandling and fraud.
This is a ledger or record of monetary transactions that is not held centrally – instead, shared across many node computers around the world. Creating many copies of the ledger creates the need for a ‘consensus’ between all copies of the ledger – thus ensuring that transactions, when complete, correspond with the currency and its rules overall.
Users occasionally try to send their Bitcoin code to two wallets at the same time – hence, double spending. The consensus nature of the blockchain prevents one of the transactions from being confirmed.
When a currency requires changes to its underlying rules – usually relating to how a consensus is found – it is subject to what is known as a ‘fork’. When a fork occurs, the currency may split into two different currencies and their trade value impacted.
The hashrate is the speed at which ‘mining’ problems are solved by node computers – thus impacting how quickly transactions are verified.
For blockchain based cryptocurrencies to grow high powered computers are required to solve the mathematical problems that stand in the way. When these are solved, the blockchain grows and the node computer (or computers) is rewarded – usually with Bitcoin or the appropriate currency.
A node is a mining computer that is connected to the currency network. It will be working to validate transaction and holds a copy of the blockchain which it will amend and redistribute upon the successful solving of validation algorithms.
This is a shortened version of the term ‘peer to peer’ – i.e. a transaction directly between two users without the need for a ‘middleman’ service like a bank or shop. P2P networks started with file sharing services like Napster – and have developed into the more sophisticated systems of today – with blockchain tech at the height of the concept.
Proof of Work
This is the concept the powers the growth of the blockchain. A Proof of Work is a piece of algorithm data that is exceptionally difficult to create but when passed to other nodes on the network can be easily verified. It takes a huge amount of computing power (and therefore money) to create Proof of Work – meaning it is becoming an increasingly concerning topic in the Bitcoin world – especially given the community’s leaning toward non-elite distributed power.
This attitude has pushed the currency toward exploring alternative methods – such as Proof of Stake.
Proof of Stake
An alternative to Proof of Work, this method of validating transactions requires less computational work and relies instead on the prover to show ownership of a certain amount of currency or stake in the chain.
This is the number that’s generated through cryptographic means to represent the amount of Bitcoin or other currency that’s being transmitted. With this key, another person or system can authorise the currency as their own and place it in their wallet.
Smart contracts are seen as alternative to Bitcoin’s way of operating – and underpin currencies like Ethereum. Rather than codes that signify ownership of an amount of currency, a contract is created that requires input from both parties. It’s sometimes termed a ‘if this, then that’ way of working – for example, if this [amount of money is transferred], then that [product is sent in return]. Only when the first part of the contract is met and confirmed by the blockchain that the second action takes place.
A wallet is a device, service or piece of software in which currency private keys are held.