The Cryptocurrency world is huge and keeps growing and growing every single day, one way to understand it, is to learn the basic words and topics it talks about on the internet, some terms are difficult tu understand but others are product of knowledge of people who work within this market niche, in this article we are going to learn some basic glossary about the cryptocurrency digital world.
51% attack – One of the ways to disrupt a cryptocurrency’s blockchain is to control more than 51% of the network. This requires massive computing power and while possible on paper, the resources, coordination and finances required to do this would make it almost impossible to achieve. In this case, a 51% attack is only theoretical.
Address – a string of alphanumeric characters that represent a destination or origin from when and to cryptocurrencies are sent – all addresses are unique.
Airdrop – A method of distributing cryptocurrency amongst a population, first attempted with Auroracoin in early 2014.
Algorithm – a set of mathematical instructions or rules that need to be followed in problem solving. For example, there exists various algorithms to solve a rubix cube. If the algorithm is applied correctly, the outcome is that the cube is solved.
Altcoin – (Alternative coin) – A collective name given to all other cryptocurrencies that are not bitcoin. These include Ethereum, Golem, MOnero, Ripple, Dash, Litecoin, Dogecoin, Reddcoin, StratisCoin, Blackcoin, yocoin and MANY MANY others. There are over 700 recognized cryptocurrencies, tokens and assets today.
AML – Anti-Money Laundering laws are a series of regulations designed to prevent money being converted from criminal activity to what appear to be legitimate assets.
Angel Investor – A wealthy individual who provides startup businesses with capital in exchange for debt or equity in the business.
Arbitrage – The generation of risk free profits by trading between markets which have different prices for the same asset.
ASIC – A computer processing chip that is designed to perform 1 function and 1 function only. Most modern computers have multi-thread CPU’s that allow the computer to complete a range of tasks all at the same time, whereas an ASIC computer focusses only on 1 function. In the crypto space, an ASIC computer is used to mine Bitcoin.
ASIC Miner – A computer that contains an Application Specific Integrated Circuit chip that are used to mine for bitcoins. They may connect directly to a computer or network wirelessly or with the use of an ethernet cable.
Bear Trap – This is a manipulation of a stock or commodity by investors. Traders who “set” the bear trap do so by selling stock until it fools other investors into thinking its upward trend in value has stopped, or is dropping. Those who fall into the bear trap will often sell at that time, fearing a further drop in value. At that point, the investors who set the trap will buy at the low price and will release the trap—which is essentially a false bear market. Once the bear trap is released, the value will even out, or even climb.
Bear market – A market that is in a downtrend (prices are going down) The term relates to the direction that a bear attacks. (Bears attack by swiping downwards with their claws.)
Bit – A unit of information expressed as either a 0 or 1 in binary notation. Bit is also used regarding Bitcoin as a common unit used to designate a sub-unit of a bitcoin – 1,000,000 bits is equal to 1 bitcoin. This unit is more convenient for pricing tips, goods and services.
Bitcoin – Bitcoin was founded in 2009 and is the most widely used crypto currency. It was supposedly created by the mysterious Satoshi Nakamoto, whose true identity is unknown and has yet to be verified. Bitcoin is not controlled by a centralized government or agency. The Bitcoin network is designed to mathematically generate no more than 21 million Bitcoins and was designed regulate itself to deal with inflation.
Bitcoin Protocol – The open source, cryptographic protocol which operates on the Bitcoin network, setting the “rules” for how the network runs.
Bitcoin Network – The decentralised, peer-to-peer network which maintains the blockchain. This is what processes all Bitcoin transactions.
Bitcoin (unit of currency) – 100,000,000 satoshis. A unit of the decentralised, digital currency which can be traded for goods and services. Bitcoin also functions as a reserve currency for the altcoin ecosystem.
BitcoinQT – Bitcoin QT is an open source software client used by your computer.It contains a copy of the blockchain and once installed it turns your computer into a node in the Bitcoin Network. Also acts as a “desktop wallet”.
Bitcoin Days Destroyed – An estimate for the “velocity of money” within the Bitcoin network. This is used because it gives greater weight to bitcoins that have not been spent for a long time, and better represents the level of economic activity taking place with bitcoin than total transaction volume per day.
Block – Blocks are digital files where data pertaining to a cryptocurrency network is permanently recorded. A block records some or all of the most recent transactions that have not yet entered any prior blocks. Thus a block is like a page of a ledger or record book. Each time a block is ‘completed’, it gives way to the next block in the blockchain. A block is thus a permanent store of records which, once written, cannot be altered or removed.
Blockchain – A series of linked databases which form the backbone of the Bitcoin backbone. It is a digital ledger in which transactions made in bitcoin are recorded chronologically and publicly.
Block explorer – a search engine for a cryptocurrency, block explorers allow you to query transactions, addresses and other information.
Block height – the number of completed blocks in the blockchain.
Block reward – The coins that are paid to the computer (or pool of computers that finds a working hash to complete a block in the mining process of cryptocurrencies.
Bollinger Bands – Bands that use historical data in a market to indicate possibly volatility.
BTC – BTC is a common unit used to designate one bitcoin.
Bull Market – A market that is in an uptrend. (Prices are going up) The term relates to the direction in which a bull attacks (horns low to the ground, a bull strikes upwards)
Confirmation – All transactions on the blockchain need to be verified by all nodes – each verification of the transaction is called a confirmation.
Consensus – Consensus is achieved when all participants of the network agree on the validity of the transactions, ensuring that databases are exact copies of each other.
Crypto Currency – A cryptocurrency is a digital or virtual currency that uses advanced cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
Cryptography – The process of using codes and ciphers to encrypt and decrypt sensitive information, messages or data.
Dapp – decentralized application that exists on a blockchain. Dapps are renowned for having proven 100% uptime.
Darksend – Darksend is Darkcoin’s decentralized mixing implementation, which was designed to give users of Darkcoin greater transactional privacy/anonymity.
DAO – Decentralised Autonomous Organizations – A blockchain technology inspires organization or corporation that exists and operates without human intervention.
DDoS – Abbreviation for Distributed Denial of Service. A DDoS is a cyber attack utilizing many different computers to tie up the resources of a website or web service. Some Bitcoin exchanges have come under DDoS attacks.
DDos Attack – An attack on a server or network intended to suspend or interrupt the services it provides. Stands for “distributed denial of service” attack. This is done by overwhelming it with traffic from multiple sources.
Deepweb – The content online not indexed by search engines making it difficult to access. The majority of content on the internet resides on the deepweb and can be accessed using a program called TOR. This is also where illegal sites such as Silk Road exist.
Deflation – A decrease in the general price level of goods in an economy. Traditionally this has taken place when a currency’s demand collapses, however it is a natural property of bitcoin.
Demurrage – Certain currencies penalise users for hoarding, this is done via demurrage, where a fee is charged for holding unspent coins. This fee increases as time passes.
Desktop Wallet – A wallet that stores the private keys on your computer, which allow the spending and management of your bitcoins.
Deterministic Wallet – A wallet based on a system of deriving multiple keys from a single starting point known as a seed. This seed is all that is needed to restore a wallet if it is lost and can allow the creation of public addresses without the knowledge of the private key.
Difficulty – A measure of the amount of computing power required to solve the hash of a block. This is what increases to counteract increasing network hashrate in order to maintain a 10 minute confirmation time; re-adjusts every 2016 blocks.
Double Spending – The act of spending the same bitcoins twice. The blockchain plus bitcoin mining exist to confirm all transactions and to prevent such fraud.
Dust Transactions – Transactions so small that they are considered “spam” by the network. They are not relayed to stop people accidentally or deliberately clogging the blockchain.
Escrow – The practice of having a third party act as an intermediary in a transaction. This third party holds the funds on and sends them off when the transaction is completed.
ETF – Acronym for “Exchange Traded Fund”. These are investment funds traded on stock markets that track the price index of an underlying asset.
Exchange – A central platform for exchanging different forms of cryptocurrencies and. Typically, bitcoin exchanges are used to exchange cryptocurrency for traditional monetary units.
Faucet – A website which gives away free bitcoins or other cryptocurrency to any IP address that connects to them.
Fiat Currency – Fiat currency is money that a government has declared legal tender by fiat (order or decree). It is not backed up by any physical or tangle commodity (something that can be bought or sold). It’s value is strictly established by supply and demand. The US Dollar, British Pound, Euro, etc. are fiat currencies which became so after the abolishment of the gold standard.
FOMO – Fear Of Missing Out – A mindset that causes people to purchase a stock based on the premise that they may miss out on a good thing.
Fork – a split resulting in a new (updated) version of the original cryptocurrency. Happens when there is a major update that requires a new version of software to be implemented.
FUD – Fear, Uncertainty and Doubt – Rumours and misinformation that can have an affect on a stock or a crypto that causes people to sell their holdings. Sometimes distributed deliberately to cause confusion and lend an advantage to those who start the spread of information.
Frictionless – In reference to payment systems, a system is “frictionless” when there are zero transaction costs or restraints on trading.
Genesis Block – The first block in the blockchain.
GPU – Acronym for “graphics processing unit” is a specialised processor originally designed for the high graphics requirements of computer games. These are also used to mine cryptocurrency since they outperform CPUs.
Halving – Every 4 years, the “reward” for successfully mining a block of bitcoin is reduced by half. This is referred to as “Halving”. For instance, the initial reward for mining a BitCoin Block was 50 BitCoins, which was reduced to 25 in 2012 after the first “halving” and half again to 12.25 bitcoins after the next halving. This mechanism ensures a finite amount of coins are created for a crypto currency. The actual time span is not 4 years, but rather the amount of time taken to mine 210 000 blocks.
Hard Fork – A complete change to the protocol used for a particular cryptocurrency. It is a complete divergence from the previous software version of the Blockchain for a cryptocurrency, and nodes running previous versions will no longer be accepted by the newest version.
Hash – A hash is a mathematical process that converts inputted data into a fixed length string, usually 32 characters. In the world of bitcoin, a hash must follow certain rules and formats and is formulated using very specific information, and must contain the previous hash and block information within itself together with some “dummy data” (a nonce) to produce a randomised hash. Not all hashes will be accepted. Even the slightest modification of the original input data would result in a completely different hash. A hash is “rehashed” thousands of times over per second until a suitable hash is found. The hash is created by the computers trying to find a suitable hash out of hundreds of thousands. Once a hash is created, it is then stored at the end of the blockchain. The computer that is responsible for submitting a working hash is allocated a reward in the form of bitcoin.
Hash Rate – This is the measuring unit of the processing power of the whole Bitcoin network. The network must make difficult mathematical operations for the purpose of security. For example, when we speak about a hashrate of 1 Th/s, it means you are producing 1 trillion calculations per second.
Inflation – An increase in the general price level of goods in an economy.
Inputs – This is a reference to an output of a previous transaction. Inputs to an address are added up, and this amount determines the amount a wallet can spend in outputs.
Kimoto Gravity Well – A mining difficulty readjustment algorithm, which was created in 2013 for Megacoin, an altcoin. The well allows difficulty readjustment to occur every block, instead of every 2016 blocks for Bitcoin. This was done as a response to concern about multi pool mining schemes.
KYC – Acronym for “Know Your Customer”, used to describe a series of laws and regulations which require businesses to know the identity of their customers.
Laundry – Also known as a “mixing service”, they combine funds from various users and redistribute them, making tracing the bitcoins back to their original source very difficult by mixing their “taint”.
Leverage – Often used to describe trading with borrowed capital (margin) in order to increase the potential return of an investment. Trading with “borrowed” bitcoins/money.
Litecoin – One of the first notable “altcoins”. Created by Bobby Lee to be a “silver to bitcoin’s gold”. Litecoin uses the Scrypt mining algorithm instead of SHA256, has a 2.5 minute confirmation times, and has a total coin supply of 84 million coins.
Liquidity – The availability of an asset to be bought and sold easily, without affecting its market price.
Liquidity Swap – As a financial instrument on cryptocurrency exchanges, liquidity swaps are contracts where investors offer loans to others to trade with in exchange for a set return.
Margin Trading – The trading of assets or securities bought with borrowed money. A trader usually contributes an initial amount which is then used as collateral for their debt.
Market Order – A buy or sell order which gets executed at whatever the market price is at the time.
Merged Mining – This allows a miner to work on multiple blockchains simultaneously, contributing to the hash rate (and thus security) of both currencies being mined. E.g. Namecoin has implemented merged mining with Bitcoin.
Micro-transaction – A financial transaction involving small to tiny sums of money. Traditionally amounts under a dollar have been impractical due to transaction fees, however, cryptocurrencies have potential to change this.
mBTC – A bitcoin metric of 1 thousandth of a bitcoin (0.001 BTC).
Mining – Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released. Anyone with access to the internet and suitable hardware can participate in mining. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle or algorithm. The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin. (Source: Investopedia.com).
Mining Algorithm – The algorithm used by a cryptocurrency to sign transactions, these vary across different cryptocurrencies. Bitcoin’s mining algorithm is SHA256, whilst Litecoin & Dogecoin’s are Scrypt.
Miner – A computer participating in any cryptocurrency network performing proof of work. This is usually done to receive block rewards.
Mining Pool – A group of miners who have decided to combine their computing power for mining. This allows rewards to be distributed more consistently between participants in the pool.
Mining Contract – A method of investing in bitcoin mining hardware, allowing anyone to rent out a pre-specified amount of hashing power, for an agreed amount of time. The mining service takes care of hardware maintenance, hosting and electricity costs, making it simpler for investors.
Minting – The process of rewarding users in proof of stake coins. New coins are minted as the reward for verifying transactions in a block.
Mixing Service – See “laundry”
Mobile Wallet – A wallet which runs a “mobile client”, allowing people to have bitcoin wallets on their phones and tablet computers and pay on the go.
Money Laundering – The act of trying to “clean” money earned from criminal activity by converting these profits to what appear to be legitimate assets.
Mt. Gox – A bitcoin exchange based in Japan that collapsed in February 2014 due to poor security practices and incompetent management. Managed by Mark Karpeles.
Multisig – or multisignature refers to having more than one signature to approve a transaction. This form of security is beneficial for a company receiving money into their BTC wallet. If a company wants to keep it so that one employee doesn’t have sole access to a transaction, multisig allows for a transaction to be verified by two separate employees before it’s complete.
Namecoin – An altcoin which implemented a distributed DNS (domain name system) amongst other features. This distributed DNS helps people using the .bit domain to resist internet censorship. Can also be used to refer to the unit of currency NMC.
Network Effect – The increase in value of a good or service that occurs when its use becomes more widespread.
NFC – Acronym for “Near Field Communication”, a low power, short range method of wireless communication. This can be used to build upon RFID systems and is what contactless smart cards (oyster cards) and payment systems (paypass) use. Most recently implemented in the Apple Pay app.
Node – A computer that connects to a cryptocurrency network and helps to verify the Blockchain’s accuracy.
Nonce – A random number used once when a miner attempts to hash a transaction block. The parameters of these numbers are set by the “difficulty”.
Off Blockchain Transactions – Exchanges of value which occur off the blockchain between trusted parties. These occur because they are quicker and do not bloat the blockchain.
Orphaned Block – A valid block which is discarded by the network after the blockchain has “forked” and then re-achieved consensus on a single blockchain again. This usually happens after two miners simultaneously solve a block, temporarily resulting in two valid blocks in the blockchain.
Open Source – The practice of sharing the source code for a piece of computer software, allowing it to be distributed and altered by anyone.
OTC exchange – Stands for “Over the Counter”. These exchanges are places where trading is done directly between the two parties involved in the transaction, allowing traders to escape some of the limitations set by trading on formalised exchanges.
Output – The part of the transaction which contains instructions for the sending of bitcoin.
Paper wallet – A form of “cold storage” where the private keys are printed onto a piece of paper and stored offline.
Peercoin – The first cryptocurrency to implement “Proof Of Stake” alongside Proof Of Work.
P2P – Peer to Peer Network is another way of saying Peer-to-Peer. Peer-to-peer has become a very large focus of blockchain as one of the biggest selling points is decentralization. Nearly every interaction on the blockchain can be fulfilled P2P, or without a centralized variable like a store, bank or notary.
Pre-mining – The mining of a cryptocurrency by its developers before it is released to the public. This can be done with good intentions, however it is also strongly associated with scamcoins.
Price Bubble – An economic cycle in which the price of a security or asset will surge unsustainably, and then crash as a selloff occurs. This is usually caused by speculation, and has been observable in bitcoin’s past prices. When done deliberately, this is known as a “Pump and Dump”
Private Key – A secret series of letters and numbers kept by the owner of the crypto currency that allows it to be spent by the owner. This should be kept secret at all times.
Proof of Burn – This is a method of “burning” one Proof of Work cryptocurrency in order to receive a different cryptocurrency. This is a form of “bootstrapping” one cryptocurrency off another, and is done by sending coins to a verifiable unspendable address.
Proof of Existence – A service provided through the blockchain that allows anyone to anonymously and securely store a proof of existence for any document they choose online. This allows people to prove that a document existed at a certain point in time and demonstrate their ownership of it, without fear of that proof being taken from them.
Proof of Stake – An alternative to Proof of Work, providing an alternative method for deciding who signs transactions into the blockchain. In Proof of Stake, the resource held by the “miner” is their stake in the currency. So someone holding 10% of a proof of stake currency is equivalent to controlling 10% of the network hash rate of a Proof of Work currency.
Proof of Work – This is the type of mining algorithm Bitcoin uses, and is a method of determining who signs transactions in the blockchain. The Proof of Work scheme used by bitcoin is SHA256, a cryptographic hashing function.
Proof of Work, Proof of Stake – Proof of work and proof of stake are 2 algorithms for reaching consensus across a blockchain – To ensure the safety, security, incorruptibility and anonymity of cryptocurrencies being traded without the need for a centralized database or bank, there needs to be a way prove your work (PoW) or prove that you have a stake (PoS)
Public Key – A unique address consisting of numbers and letters that you give out to receive crypto currencies.
Pump and Dump – A form of market manipulation usually performed on small market cap stocks (or cryptocurrencies). This occurs when traders artificially inflate the assets price and then exit their positions, causing a price collapse.
Quantitative easing – A form of monetary policy where a Central Bank purchases government securities with cash which did not exist before, in order to increase the money supply and lower interest rates.
QR code – Acronym for “Quick Response” code, these are 2d barcodes which can have data encoded onto them.
Remittance – A sum of money being sent, usually internationally, as a payment or gift.
Ripple – An alternative payment network to Bitcoin based on similar cryptography. The ripple network uses XRP as currency, and is capable of sending any asset type.
Satoshi – The smallest unit of a bitcoin currently available (0.00000001BTC).
Satoshi Nakamoto – The mysterious creator of Bitcoin. Known to possess over a million bitcoins, his/her/their/its identity is still unknown.
Scamcoin – Coins created as get rich quick schemes by their developers. These coins usually have certain properties, such as being clones of an existing coin and being pre-mined.
Scrypt – An alternative Proof of Work scheme to SHA256. This mining algorithm is used by Litecoin, Dogecoin and many other cryptocurrencies. Originally touted as being “ASIC resistant” due to its heavier memory requirements, ASICs have now been released for mining Scrypt.
Seed – The private key used in a “deterministic wallet”
Self executing contract – Also known as “smart contracts” these are protocols that facilitate or enforce the obligations of a contract without the need for human intervention.
Segwit (Segregated Witness) – an improvement to the core way Bitcoin handles transactions in order to make the Bitcoin network approve more transactions with each block.
Sidechain – These are theroetical, independent blockchains which are “two way pegged” to the Bitcoin blockchain. These can have their own unique features and can have bitcoins sent to and from them.
Signature – Is the mathematical operation that lets someone prove their sole ownership over their wallet, coin, data or on. An example is how a Bitcoin wallet may have a public address, but only a private key can verify with the whole network that a signature matches and a transaction is valid. These are only known to the owner and are basically mathematically impossible to uncover.
Silk Road – The online marketplace where drugs and other illicit items could be traded for Bitcoin. Accessible through “TOR”, Silk Road was shut down in October 2013 by the FBI.
Smart Contract – A two way smart contract is an unalterable agreement stored on the blockchain that has specific logic operations akin to a real world contract. Once signed, it can never be altered. A smart contract can be used to define certain computational benchmarks or barriers that have to be met in turn for money or data to be deposited or even be used to verify things such as land rights.
Speculator – An individual who speculates on the price of bitcoin or any other form of asset. Aiming to make profits by buying and selling at different prices.
SPV – Acronym for “Simplified Payment Verification”, this allows mobile clients to make payments without needing a copy of the entire blockchain.
Stale Block – A block that has already been solved and thus cannot offer miners any reward for further work on it.
Soft Fork – A change to the operating protocol for a cryptocurrency that is backward compatible, so older nodes that don’t upgrade will still function.
Taint – A measure of correlation between two addresses, this is used in attempts to track a coin’s history.
TCP/IP – Acronyms stand for “Transmission Control Protocol”/“Internet Protocol” and is the connection protocol used by the internet.
Testnet – An alternative blockchain on which developers can test and experiment with changes to a cryptocurrency without the risk of damaging or interfering with the real blockchain.
Timestamp – A proof that a piece of data existed at a certain point in time. For Bitcoin this is the cryptographic proof of when transactions have taken place.
TOR – Stands for “The Onion Router” and is a free web browser designed to protect users anonymity and resist censorship. Allowing them to surf the web anonymously and access sites on the “deepweb”.
Total Coin Supply – For many cryptocurrencies, there is a limit on the total number of coins that will ever come into existence, bitcoin’s total supply is capped at 21 million coins.
Transaction Block – A group of transactions that are collected and hashed on the Bitcoin network by being added to the blockchain.
Transaction Fee – An amount of money users can choose to deduct from their transaction when sending money. This is optional and used to give miners incentive to quickly process their transaction, since they receive the fee as a reward for doing so.
Vanity Address – A bitcoin address which contains a desired word/pattern or sequence of numbers. Kind of like a customised number plate.
Velocity of Money – The velocity of money is an indicator of how quickly money received is then spent again. For bitcoin, we use “bitcoin days destroyed” to measure its velocity, this can indicate whether people are hoarding or spending their bitcoins.
Venture Capitalist – Can refer to an individual or organisation that provide initial funding for start-up business ventures that cannot access public funding. This money is known as “seed funding”, and is usually exchanged for equity in the start-up.
Virgin Bitcoin – A bitcoin that has been received by a miner as a block reward, and thus has never been “spent” before.
Volatility – A measure of fluctuations in price of a financial instrument over time. High volatility in bitcoin is seen as risky since its shifting value discourages people from spending or accepting it.
Wallet – A storage facility for cryptocurrencies. There are a number of different kinds of wallets; web wallets, desktop wallets, hardware wallets, mobile wallets, paper wallets and brain wallets.
Whitepaper – A report or guide made to understand an issue or help decision making. Satoshi Nakamoto released the whitepaper on Bitcoin, titled “Bitcoin: A Peer-to-Peer Electronic Cash System” in late 2008.
Wire Transfer – An electronic method of transferring money from one party to another.
Zerocoin – A project aimed at implementing true anonymity into the Bitcoin network.
Zero Confirmation transaction – A bitcoin transaction that has been relayed to nodes in the Bitcoin network but has not yet been incorporated into a block. Also known as “unconfirmed transactions”.
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