May 25, 2022

Online Hyme

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Important Terms Related To Bitcoin and Cryptocurrency

3 min read
Cryptocurrency Bitcoin Important Terms Onlinehyme

Bitcoin is a collection of concepts and technologies that form the basis of a digital money ecosystem. Units of currency called bitcoins are used to store and transmit value among participants in the bitcoin network.

The bitcoin system, unlike traditional banking and payment systems, is based on decentralized trust.

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Bitcoin users communicate with each other using the bitcoin protocol primarily via the Internet, although other transport networks can also be used. The bitcoin protocol stack, available as open source software, can be run on a wide range of computing devices, including laptops and smartphones, making the technology easily accessible.

This article contains many of the terms used in relation to bitcoin.

address (aka public key)
A bitcoin address looks like bc1q277klnfgk9x2uxvpnmfc4882y7scg52356m89j – they consist of a string of letters and numbers. 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.

bip
Bitcoin Improvement Proposals. A set of proposals that members of the bitcoin community have submitted to improve bitcoin. For example BIP0021 is a proposal to improve the bitcoin URI scheme.

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

block
A grouping of transactions, marked with a timestamp, and a fingerprint of the previous block. The block header is hashed to find 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.

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 etc. Six or more confirmations is considered sufficient proof that a transaction cannot be reversed.

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

difficulty target
A difficulty at which all the computation in the network will find blocks approximately every 10 minutes.

difficulty re-targeting
A network-wide re-calculation of the difficulty which occurs once every 2106 blocks and considers the hashing power of the previous 2106 blocks.

fees
The sender of a transaction often includes a fee to the network for processing their requested transaction. Most transactions require some kind of minimum fee.

hash
A digital fingerprint of some binary input.

genesis block
The first block in the blockchain, used to initialize the crypto-currency

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

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

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.

secret key (aka private key)
The secret number that unlocks bitcoins sent to the corresponding address. A secret key looks like 5J76sF8L5jTtzE96r66Sf8cka9y44wdpJjMwCxR3tzLh3ibVPxh

transaction
In simple terms, a transfer of bitcoins 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.

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

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