Bitcoin is an innovative approach to money. Therefore when you're learning about Bitcoin, you'll encounter many new words that will eventually become part of your vocabulary. Here's a list of words that will help you better understand the technical, cultural and financial aspects of Bitcoin:
A meme that originates from the Twitter handle: American_Hodl. The number is speculated to mean various metrics as sociated with Bitcoin and human appendages but the general consensus agrees that if one were to hold 6.15 BTC, they would obtain financial freedom and their ideal partner.
ASIC mining or ASIC miners refer to an application specific integrated circuit. It is a device that is engineered for the sole purpose of mining Bitcoin or other cryptocurrencies.
An altcoin is any cryptocurrency or token that is not Bitcoin. Examples of popular altcoins include: Ethereum, Litecoin, and Dogecoin.
Bech 32 address (Native SegWit)
Bech 32 or a Native SegWit address is a Bitcoin public address format that starts with a “bc1” rather than a SegWit address that starts with a “3”. Bech 32 allows for cheaper and faster transactions to occur on the Bitcoin network.
Bitcoin Improvement Protocol (BIP)
A BIP is a proposal document that helps improve or suggest new features and information for the Bitcoin source code. All BIPs may be found here.
A block connects all transactions that occur on the Bitcoin network. Each new block contains all recent transactions that are verified every 10 minutes by the miners. You may think of a block as a page within a ledger.
The blockchain is the entire transaction history of the Bitcoin network. It is a publicly available digital ledger that grows one block at a time every 10 minutes.
Block height refers to the amount of blocks that precede a block. For example, when someone refers to block height 661,403, they are referring to a specific block within the blockchain. It is estimated that about every 4 years, 210,000 blocks are mined.
The block reward is the amount of bitcoin that is mined every 10 minutes. A miner is rewarded a certain amount of bitcoin whenever a complex series of calculations are solved. Every 210,000 blocks that are mined, the block reward is cut in half. In 2009 the block reward was 50 bitcoin per block. After the 2020 halving, the current block reward is 6.25 bitcoin.
The Bitcoin ticker symbol on most exchanges is BTC.
Digital services like: banking, streaming, and email require company servers to store all user information and content. If software and data can be modified by a small group of people or entities, this would be a centralized product or service.
In the context of Bitcoin, a citadel is a self-sustaining and isolated utopia for Bitcoiners. The locations and styles may vary, but they all generally reject government intervention and are independent nations (may even be as small as a single household) that exchange commerce via the Bitcoin network. Examples of Bitcoin Citadels include: remote islands with ample farmland, large buildings carved into mountains, and luxurious bunkers in isolated and unforgiving forests.
Cold storage allows the user to store their bitcoin in a wallet that is not connected to the internet.
Once a transaction is added to a block, it is considered to be a confirmation. Every new block that is mined, is another confirmation for your transactions on the blockchain. The more confirmations, the less likely it is possible for the transaction to be reversed. Generally, at least 6 confirmations are needed before a transaction is settled.
Cryptocurrency or crypto is a general term that refers to digital currencies or tokens that can be sent and received over the internet. Cryptocurrencies or tokens vary in the degree of decentralization.
In computer science, the art of cryptography is used as a means to encrypt plain text information. This method secures communication or information being sent and received between two parties without the interference of nefarious parties.
A cypherpunk is someone who advocates the use of strong cryptography and privacy tools within technology to bring on social and political change for society.
In terms of Bitcoin and cryptocurrency, decentralized refers to the wide distribution of the network across the world without requiring a centralized server. This is the process of dispersing and distributing power away from centralized sources like banks, tech companies, or other large entities.
DLC stands for discreet log contract, which is a monetary contract between two parties. The contract is designed to redistribute their funds to each other based on preset conditions without revealing any details of those conditions to the blockchain.
Double-spending is a potential flaw within a digital currency system. This is when a dollar or token may be spent more than once. The token may be duplicated. Centralized authorities have the ability to change ledger entries while a decentralized digital currency requires consensus from other nodes to verify transactions.
Encryption converts or encodes plaintext (what humans can read) into cyphertext. This ensures the privacy of the sent message and is only read by the intended receiving party.
A Bitcoin or cryptocurrency exchange is a platform that allows buyers and sellers to exchange coins. The buyer or seller will usually pay a fee to use their services along with a miner fee to withdraw or send funds to the exchange.
Fiat is government issued money that is accepted as a form of payment for a product, good, or service. The circulating supply, creation, and destruction of fiat currencies are controlled by government and/or centralized private entities
FOMO stands for fear of missing out. This term is used when someone feels like they are missing out on an enjoyable social event or when the price of Bitcoin increases and a person only buys Bitcoin as a speculative bet.
FUD stands for fear, uncertainty, and doubt. This acronym is used when Bitcoiners witness mainstream outlets or people claiming false or unverified claims against the bullish case for Bitcoin.
This event cuts Bitcoin’s block reward in half for every 210,000 blocks that are mined. Each block takes roughly 10 minutes to mine and 210,000 blocks takes roughly 4 years. When Bitcoin was created in 2009, a block reward was 50 BTC. After the 2020 halving, the block reward is 6.25 BTC.
An identification number for a Bitcoin transaction.
The hash rate is an estimated measurement for how much processing power is being used to maintain the Bitcoin network. This processing power is used as a way to make the network more secure. The higher the hash rate, the higher the security.
Hodl is a misspelling of the word “Hold”. It is used as a meme within the community to stand for “hold on for dear life”.
Hot Storage or Hot Wallet
Hot storage or a hot wallet is when the private keys for a Bitcoin wallet are connected to the internet. Hot wallets are used when funds need to be moved quickly and will usually hold a small amount of Bitcoin.
A ledger refers to the recorded transactions that occur on the Bitcoin network. You may think of the blockchain as the ledger where all transaction records are written down.
The Lightning Network is a layer built on top of Bitcoin that transact smaller amounts of Bitcoin for instant transactions. On the Bitcoin layer (also known as on-chain), the first confirmation for a transaction takes about 10 minutes and then another five confirmations to secure the transaction adequately. With Lightning, transactions occur as fast as credit card payments.
The mempool is where all pending transactions are held until they are confirmed by a miner. You can think of the mempool as a waiting room for transactions waiting to be broadcast to the rest of the network.
A Bitcoin miner is a computer or specific hardware assigned to solve complex problems. Solving these puzzles requires a lot of computing power and once they are solved, the miner is rewarded with a certain amount of Bitcoin for doing so. The miner’s job also requires the verification of new transactions that must be added to the block they solve.
Multisig is a cold storage solution for securing the private keys to a wallet that holds Bitcoin. This requires two out of three (or three out of five) signatures to execute a transaction on the Bitcoin network.
Mining Difficulty (Difficulty Adjustment)
Mining difficulty is a measurement used to determine the difficulty of mining. This metric adjusts depending on the number of miners that are active on the network at given times.
Mining Pool (Pool)
A mining pool is a group of miners who pool their resources and hash rate (processing power) to mine a block of bitcoin. If the mining pool is successful, the block reward is distributed to all participating miners. This process increases the probability of successfully finding a block.
NgU is an acronym for the meme: “number go up”. This meme references Bitcoin’s price history and how the price always goes up and never retraces back down to the price it was during the previous 210,000 blocks.
Node or Full Node
Any computer with the Bitcoin Core software is a node that verifies all of the rules and blockchain data of the Bitcoin network.
Source code that may be updated, audited, and available to the public.
A paper wallet has the printed public and private address of a Bitcoin wallet. Funds may be sent to the public address by anyone. The funds may only be sweeped or sent from the wallet by the holder of the private key.
A passphrase is an advanced feature within a hardware wallet where the user may generate an extra word or phrase for their seed phrase. This method adds a layer of security for the user and makes it more difficult for a bad actor to retrieve the user’s stored funds.
Peer-to-peer refers to distributed networks that rely on computers acting as servers rather than requiring a centralized server. This type of architecture creates redundancy for a decentralized network where it cannot be shut down unless all computers are shut down. With a centralized network, only the main server would need to be shut down.
A private key is a 64 character string of letters and numbers that are required to send transactions from a Bitcoin wallet.
An example of a private key: E9873D79C6D87DC0FB6A5778633389_SAMPLE_PRIVATE_KEY_DO_NOT_IMPORT_F4453213303DA61F20BD67FC233AA33262
Proof of Work
Proof of work is a metric that requires a certain amount of computational power that can be easily verified by nodes. In terms of Bitcoin, miners require a lot of energy to solve complex puzzles to be rewarded for their efforts.
Proof of Stake
Proof of stake is very much similar (if not the same) to what the legacy system is based on. The more altcoins or tokens a person holds, the more mining power he or she has. By holding a certain amount of coins, one is able to earn interest off of their principal investment.
The public address is required to receive Bitcoin. You may think of the public address as the bank routing number and account number that another user may send funds to. A public address will have 34 characters.
An example of a public address:
A QR code is a machine-readable code. QR codes display an array of black and white squares that store an address or some form of data that can be read by cameras.
An example of a QR code
Replace By Fee (RBF)
RBF allows users to replace their original transactions by paying a higher fee while paying the original fee. This feature may only be executed before a miner is able to confirm the transaction. One may want to do this if the fee they firsted opted for is not being accepted by miners in a timely manner.
Bitcoin may be denominated in smaller units known as satoshis or sats for short. Named after Satoshi Nakamoto, the creator of Bitcoin, one satoshi is one hundred millionth of a Bitcoin. In other words, 1 bitcoin is equal to 100 million satoshis.
A seed phrase (also known as a backup phrase or recovery phrase) is a list of words that will recover all information and funds for a Bitcoin wallet. It is always important to back up a seed phrase by writing it down on a non-digital material. Having it stored offline increases it’s security and lowers the chance of it being stolen from a hacker.
SHA-256 is a member of the SHA-2 cryptographic hash functions designed by the NSA in 2001. SHA stands for Secure Hash Algorithm. Bitcoin mining uses SHA-256 as the Proof of work algorithm. SHA-256 is also used in the creation of bitcoin addresses to improve security and privacy.
Bitcoin uses the Elliptic Curve Digital Signature Algorithm (ECDSA). Your private key is used to create the signature and your public key is used to verify the signature. This allows anybody to verify your signature as long as they have your public key.
A transaction is an exchange of a product or service between two parties. In Bitcoin, transactions are transfers of bitcoin from one wallet to another.
A UTXO stands for unspent transaction output. It refers to the unspent bitcoin within a transaction. UTXOs are constantly being processed and are required for the beginning and end of a transaction. Every on-chain bitcoin transaction sends bitcoin to one or more addresses.
A bitcoin wallet balance is actually the sum of the UTXOs controlled by the wallet's private keys.
A Bitcoin wallet is where the private keys are stored and allows one to send bitcoin to any public address.