Chapter 7: The Bitcoin Vocabulary

Below, you will find the most popular terms that are used within the trading and investing in Bitcoin and cryptocurrency.

  • Address: The Bitcoin address is similar to the usual email address you are probably familiar with. It is generated on registration with a particular wallet you are creating. It combines alphabets with numbers. It is the single information needed to carry out a transaction, and it is peculiar to an individual.
  • Bit: This is the common unit used to designate a subunit of a Bitcoin. Estimated 1000000 bit is equal to 1 Bitcoin. This unit is used as a small denomination in the Bitcoin world.
  • Bitcoin: Note that this concept has two meanings. When it is capitalized, it is used to describe the concept of Bitcoin digital currency and the entire network of operations. Without capitalization, it is used to describe the unit of an account, e.g., 0.01 btc.
  • Block: This is a record in the Blockchain that contains and confirms many waiting transactions. Approximately every 10 minutes, on an average, a new block for a transaction is added to the Blockchain through mining activities.
  • Blockchain: Blockchain is a public ledger or record of Bitcoin transactions in sequential order. It is shared between all Bitcoin users. It is used to verify the stability of Bitcoin transactions and to prevent double spending.
  • BTC: This is a common unit used to represent one Bitcoin.
  • Confirmation: This represents a single transaction that has been processed by the network and is not likely be reversed. Transactions are confirmed when they have been included in a block and subsequent blocks. It is worth noting that a single confirmation is secured for low-value transactions. However, when a larger amount is being conducted, it makes more sense to wait for more than 8 confirmations. This will reduce the possibility of reversal.
  • Cryptography: This is the branch of mathematics which aids the creation of mathematical proofs that provide high levels of security. State of the art banking and commerce have begun using cryptography. In the world of digital currency, it helps to make sure that unauthorized users are prevented from spending from another user’s wallet.
  • Double Spend: This refers to instances where some dubious users try to spend their Bitcoins on two different recipients simultaneously. Blockchain, which is highly secured with cryptography, will create a consensus on the network regarding which of the two transactions will be confirmed and considered valid while invalidating the other.
  • Hash Rate: This is the unit for measuring the processing power of the Bitcoin network. To secure itself, the Bitcoin network creates thorough mathematical operations. So, when the network reaches a hash rate of 10 Th/s, it culminates 10 trillion calculations per second. This means that when the hash rate is high, the network creates a more secure connection.
  • Mining: This is a process that involves making computer hardware perform mathematical calculations for the Bitcoin network to confirm transactions and secure it. Miners earn their reward from the small transaction fees incurred per transaction confirmed and the new Bitcoins created. Mining is a competitive market and rewards are divided according to how many calculations are correctly completed.
  • P2P: The acronym means Peer-to-Peer. It refers to systems that work like an organized collective by allowing individuals to interact directly with others without an intermediary. Here, one user broadcasts the transactions of other users without a third party involved.
  • Private Key: This is a secret piece of data that affirms your qualification to spend Bitcoins from a specified wallet through a cryptographic signature. This key is stored on the computer for cold wallet users and on remote servers for online wallets users. This key should be kept safe from unauthorized users.
  • Signature: This is a mathematical mechanism that gives someone proof of ownership to a wallet. In Bitcoin, private key and signature are linked together by an extremely complicated mechanism to ensure security.
  • Wallet: Bitcoin wallet is loosely equivalent to the physical wallet or bank account on the Bitcoin network. This wallet is secured by private key and signature ensuring ownership to a peculiar user.The private key allows users to spend the Bitcoins allocated to it in the Blockchain. Each Bitcoin wallet can show you the total balance of all your Bitcoins. It controls and lets users pay a specified amount to another user.

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