A lot of terms get thrown around, and for anyone who is new to crypto currency, things can get a little confusing. I’m sure I’m going to leave some terms out so please post any that I’ve missed in the comments below!
A Bitcoin Address is like a physical address in the real world or perhaps more similar to an email address, which is virtual. Basically, it is the method by which Bitcoin transactions are conducted. Money is sent from one Bitcoin Address to another Bitcoin Address. However, unlike other systems, a Bitcoin Address can be used once and then thrown away so you can create a new one.
The word Bitcoin – when capitalized – refers to the overall concept of Bitcoin as well as the peer-to-peer network as a whole. When the word is not capitalized, it refers to a single unit – i.e. I have 10 bitcoins. The term is occasionally abbreviated as either BTC (more common) or XBT (less common).
A Bitcoin block is a record of transactions that are grouped together. Every ten minutes – on average – a new block of transactions is added to the block chain after being verified by the process of BItcoin Mining. It’s important to note that blocks are added to the block chain in sequential order and are never reversed.
4. Block Chain
The block chain refers to all the individual blocks put together in chronological order. This is the backbone of the Bitcoin system and contains records of every single transaction on the Bitcoin network – all in sequential order. The block chain is used to help verify future Bitcoin transactions. Blocks added to the block chain must match up with the block previous as well as the next block added to the block chain. This helps prevent double spending and other problems.
This is the abbreviation for a single bitcoin. It’s similar to the way USD refers to US dollars and other abbreviations used for other currencies around the world. Some people also use XBT, but BTC is more commonly used.
A confirmation is just what it sounds like – a confirmation that a transaction has been processed by the Bitcoin network. Once a transaction is confirmed, it’s not possible for it to be reversed. This causes some problems (no rollbacks of fraudulent transactions, for example), but it’s also a way to make sure other problems don’t happen. It’s important to note that the more confirmation you have of a transaction, the less chance there is of a reversal of the transaction on the network.
This is a branch of mathematics that deals with complex math problems that are used to encrypt or decrypt data. This is the basis of Bitcoin on many levels and why it’s known as a cryptocurrency by some.
8. Double Spend
This refers to the act of someone trying to spend the same Bitcoin for two different transactions by sending it to two recipients at the same time. The way Bitcoin is set up prevents this from happening because it’s too computationally difficult to do this currently.
9. Hash Rate
The hash rate refers to the amount of processing power the Bitcoin network is currently using at any given moment in time.
Bitcoin mining is a term that describes the process of solving math problems in order to verify transactions. The reward for calculating the right answer is a set number of bitcoins that are released into the network.
P2P refers to a peer-to-peer network. The technology was used by music and file sharing sites originally, but other uses of setting up a peer-to-peer network have been come up with over the years, including the Bitcoin network. In this system, there’s no central server as each node or person becomes part of the network as a whole.
12. Private Key
A private key is a hash that is generated to allow you to send and receive bitcoins from other members of the network. This is a string of numbers that shouldn’t be shared with anyone else.
Basically, a cryptographic signature is a mathematical way for someone to prove ownership of some digital bits. In this case, it’s tied to someone’s Bitcoin Wallet.
A Bitcoin Wallet is similar to a physical wallet in the real world. It’s a place for people to store the bitcoins that they own. The term also refers to the Bitcoin Client, which must be installed to become part of the Bitcoin network.