Do you remember when you were first learning to read? I remember my experience very vividly. My mother handed me my first book when I was three years old, it was Green Eggs and Ham by Dr. Seuss. We would sit down on the couch in the living room and spend a couple hours a day, sounding out the words from the pages until it became second nature. Once I was able to read aloud on my own, my mother played the role of being a reference. If I had forgotten the meaning of a word or phrase she would be there to help. This piece is intended to be that, a reference for commonly used words in the realm of cryptocurrency. Feel free to save this page as one of your bookmarks incase you need to refresh.
Commonly Used Words
I will be addressing the important terms you need to know to get started with cryptocurrencies. As we advance further there will be many other terms to learn, but this will be a good start. The layout I have provided below will go like this:
Word
- Definition of the word - from a specific source
- Examples (image, text or both) to simplify the comprehension of the word
Address/or Public Key
A bitcoin address looks like 1DSrfJdB2AnWaFNgSbv3MZC2m74996JafV . It consists of a string of letters and numbers starting with a “1” (number one). Just like you ask others to send an email to your email address, you would ask others to send you bitcoin to your bitcoin address. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
Like the definition states it is a way to receive payments. Its alien looking characteristics which are a series of random letters and numbers can be daunting, but note that each address is unique. Thankfully by the use of QR Codes (more details below) the user can scan the address instead of having to manually type in each character.
Bitcoin
The name of the currency unit (the coin), the network, and the software. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
The name of the first cryptocurrency to ever exist. For a more detailed description you can view the previous post by clicking here.
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. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
A great way to visualize this is to imagine a group of people waiting in line to ride a rollercoaster. In this example, the people that are waiting are the pending transactions that were just broadcasted from a smart phone, laptop, etc. With each transaction there are fees which determines where in line they will be. If the fee was higher than average they would be first in line to ride the rollercoaster when it returns. The ones that are currently riding the rollercoaster are the transactions that made it into a new block and are being propagated across the network. As soon as the riders get off, the next group of transactions are about to get on board continuing to add more blocks to the blockchain.
Blockchain
A list of validated blocks, each linking to its predecessor all the way to the genesis block. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
Referring to the example above, the blockchain would be all the people that have been on the rollercoaster since it had began running, making an entire history of all the riders from day one.
Cold Storage
Keeping a reserve of Bitcoins offline. This is often a necessary security precaution, especially dealing with large amounts of Bitcoin. - https://en.bitcoin.it/wiki/Cold_storage
If you plan to invest in bitcoin, or any cryptocurrency, cold storage is your best friend. It comes in many forms ranging from hardware devices, offline computers and even pieces of paper. They are incredibly handy when you don't want to hold large amounts on your phone, laptop, or a centralized exchange.
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. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
We can refer back to our rollercoaster example. For every group of people that finished riding the rollercoaster, they would count as a plus one confirmation. In other words, if you just got off the ride each set of riders after you would increase your amount of confirmations.
Cryptography
The practice and study of techniques for secure communication in the presence of third parties called adversaries. https://en.wikipedia.org/wiki/Cryptography
Cryptography is the key component of what allows cryptocurrency to exist. In its modern form, it consists of advanced mathematics, computer science, and electrical engineering, creating messaging systems that prevent any sort of third party interference.
Decentralization
The process of redistributing or dispersing functions, powers, people or things away from a central location or authority. - https://en.wikipedia.org/wiki/Decentralization
The best representation of this term is shown in the image above. Majority of the systems running today are based on the A model, which is Centralization. If for some reason the central point fails, like a hack on a server, then everything that depends upon that server will also fail, which could be stolen identities or funds. Looking at the B model which is Decentralization, the responsibilities are more dispersed making it less likely for a problem to occur.
Exchanges
An exchange, is an organized market where (especially) tradable securities, commodities, foreign exchange, futures, and options contracts are sold and bought. -https://en.wikipedia.org/wiki/Exchange_(organized_market)
Like having a trading account, this one is dedicated for cryptocurrency and other digital assets. In this space particularly there are two forms and they are centralized exchanges and decentralized exchanges. In the future we will be going over the pros and cons of each.
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. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
In order to send funds to another address you have to pay a fee. Some wallets give you the option to choose your fee, which I don't recommend, mainly because it might not get added to the next block causing more problems for you down the road. I would suggest to keep it at "high priority" to guarantee that the transaction was successful. When comparing the prices to other money transfer systems it is not nearly as much as some critics may say.
Hardware Wallets
A special type of bitcoin wallet which stores the user's private keys in a secure hardware device. - https://en.bitcoin.it/wiki/Hardware_wallet
The definition above summarized it perfectly. In my opinion, it is the best way to store your cryptocurrency when it comes to cold storage.
Genesis Block
The first block in the blockchain, used to initialize the cryptocurrency. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
Referring to the rollercoaster example, it would be the very first ride.
Miner
A network node that finds valid proof of work for new blocks, by repeated hashing. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
Miners play an important role because they are the ones who set the timestamps for the pending transactions that are being broadcasted. They use sophisticated hardware to compete with other miners to organize which transaction comes first.
Network
A peer-to-peer network that propagates transactions and blocks to every bitcoin node on the network.- Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
In other words, a series of computers running the same software who are sharing the agreed upon blocks to the others who haven't received them yet.
Open-Source Software
Computer software with its source code made available with a license in which the copyright holder provides the rights to study, change, and distribute the software to anyone and for any purpose. - https://en.wikipedia.org/wiki/Open-source_software
Open-source software allows all walks of life to have the ability to audit the software, check for bugs, make improvements and redistribute, depending on what license is applied to it. Later on we will be diving deeper on the importance of this topic.
QR Code
Scanning this QR Code will take you to the Continental Computerphile Website.
(abbreviated from Quick Response Code) is the trademark for a type of matrix barcode (or two-dimensional barcode) first designed for the automotive industry in Japan. A QR code uses four standardized encoding modes (numeric, alphanumeric, byte/binary, and kanji) to efficiently store data; extensions may also be used. - https://en.wikipedia.org/wiki/QR_code
QR Codes have become popular in consumer advertising, especially in Asia. In cryptocurrency it's used for both the Public and Private Keys making it much easier to send, receive, withdrawal and verify ownership of addresses.
Reward/or Block 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 12BTC per block. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
In exchange for the work that a miner provides a set amount of bitcoin is issued every 10 minutes.
Secret Key/or Private Key
The secret number that unlocks bitcoins sent to the corresponding address. A secret key looks like 5J76sF8L5jTtzE96r66Sf8cka9y44wdpJjMwCxR3tzLh3ibVPxh. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
A Private Key can be considered as a PIN number to a debit card. You would never want to give this information out. The reason why it is so important is because cryptocurrency transactions only move in one direction. Meaning there is NO WAY to retrieve your funds if you made a mistake or somebody obtained your private key. As a rule of thumb, "Always double check the address you are sending to and protect your private key if you have a large amount." This is why I highly recommend having a hardware wallet.
Wallet
Software that holds all your bitcoin addresses and secret keys. Use it to send, receive,
and store your bitcoin. - Quick Glossary of Mastering Bitcoin: Unlocking Digital Cryptocurrencies
The wallet is where all the magic happens. You can send, receive payments, add addresses, and many other special features depending on who is developing the wallet and what cryptocurrency you are using.
As I mentioned before these terms are necessary to grasp the complex nature of cryptocurrency. Once we get more comfortable with using these words we can then make our way into understanding more advanced concepts, but for now this will do.