51% ATTACK
This could be described using the example of a ‘major shareholder’. Once a shareholderowns 51% of shares in a company they own it. In the bitcoin community, a 51% attack isa single miner or group having a controlling stake of the computing power in acryptocurrency network.This could enable them to issue transactions that could conflict with someone else’s,stop transactions going through, spend their currency multiple times over and preventother miners from mining.
ADDRESS
A bitcoin address is the presence that allows you to send and receive transactions aspart of the bitcoin network. It also acts as the public key to your bitcoins.
ALTCOIN
Altcoin is the name given to the group of ‘alternative’ cryptocurrencies separate tobitcoin. Examples of altcoins include Litecoin and Feathercoin.
AML
Bitcoin exchanges are subject to Anti-Money Laundering (AML) techniques. Thisensures that all transactions on the network are being carried out by genuine tradersand not those converting illegal funds.
ASIC
An Application Specific Integrated Circuit (ASIC) is designed specifically to process theSHA-256 hashing equation used to mine bitcoins.
ASIC MINER
An Application Specific Integrated Circuit miner is the holy grail of bitcoin mining – ableto calculate the SHA-256 equation far quicker than a CPU or GPU unit. ASIC miners arepurpose-built and connect to the network via a wireless link or Ethernet connection.
BITCOIN INVESTMENT TRUST
A sort of bitcoin syndicate, the Bitcoin Investment Trust invests exclusively in thiscryptocurrency, and uses secure protocols to keep them safe on behalf of members.This is one way to invest in bitcoin without purchasing the hardware required yourself.
BITCOIN PRICE INDEX (BPI)
The Bitcoin Price Index, devised by Coin Desk, shows the average bitcoin prices acrossthe leading global currency exchanges.
BITCOIN WHITEPAPER
The bible of the bitcoin network, this whitepaper was written by the currency’s‘founder’, Satoshi Nakamoto, in 2008. It gives a comprehensive description of thebitcoin protocol, and is a good read for newbies and experienced bitcoin traders alike.
BITPAY
One of the payment channels that processes bitcoin transactions on behalf ofmerchants.
BITCOIN WHITE PAPER
The origins of bitcoin can be found in this paper that was posted on bitcoin.org back in2008. The paper, titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, described thepeer-to-peer approach for generating ‘a system of electronic transactions withoutrelying on trust’. This was the genesis of the cryptocurrency.
BITSTAMP
BitStamp is one of the fastest-growing bitcoin exchange platforms around.
BLOCK CHAIN
This records all of the individual bitcoin ‘blocks’ that have been mined since theinception of the currency. The chain is designed so that each block contains the ‘DNA’ ofthe one preceding it, which secures the chain against fraudulent mining activity.
BLOCK REWARD
A reward is given to each miner who completes a transaction block. It can take the formof coins or transaction fees – Bitcoin currently rewards 25 coins for each completedblock. Once the threshold of blocks has been mined (which currently stands at 210,000blocks) the reward is halved.
BTC
BTC is the abbreviated version of bitcoin, similar to USD and GBP in traditionalcurrencies.
BUTTONWOOD
Buttonwood was a project designed to create a bitcoin exchange in New York’s UnionSquare. Named after the Buttonwood Agreement (upon which the New York StockExchange was formed). It was founded by bitcoin aficionado Josh Rossi.
CLIENT
This is the software program which connects a machine – whether a desktop computer,laptop or mobile device – to the bitcoin network. It may also be the home to yourbitcoin wallet.
CONFIRMATION
A confirmation is the successful hashing of a bitcoin transaction into the block. It cantake up to ten minutes, although larger transactions may require more than oneconfirmation, as more blocks need to be hashed and added to the block chain.Once another block is added to the chain the transaction will be confirmed again
COLOURED COINS
The creation of coloured coins is a proposed new feature for bitcoin, and one whichallow users to define their own attributes of the currency. The idea is that users couldmark a bitcoin as a physical asset, which could then be traded as a token for otherproperty.
CPU
This is the Central Processing Unit of a computer, and one that has been used in thepast to mine bitcoin – before it was usurped by ASIC and GPU set-ups. CPU’s are stillsometimes used to mine altcoins with less taxing hashing calculations.
COINBASE
CoinBase has two distinct meanings for the bitcoin community:1. A name used for the input of a bitcoin’s transaction. Once a bitcoin has been mined,the reward is recorded as a transaction using this input data.2. The name of a bitcoin wallet operator that offers payment processing formerchants, and acts as a ‘middle man’ in bitcoin exchanges.
COIN AGE
A coin’s age can be calculated by multiplying the currency amount by the period of timeit’s been owned.
CRYPTOCURRENCY
A cryptocurrency is one that is deemed legal tender and based on mathematicalformulas alone, rather than exchange rates.
CRYPTOGRAPHY
This is the name given to the process of using maths to create the codes used to concealinformation. This is the basis of the mathematical equation inherent in bitcoin mining.
DDOS
DDoS stands for Distributed Denial of Service, and is a cyber-attack used to drain theresources of a target. This is done by sending small amounts of network traffic to tie upthe target’s bandwidth – preventing it from providing its services to its clients. Bitcoinexchanges have been subject to sporadic DDoS attacks in the past.
DEFLATION
A deflation is experienced when the price of something decreases over time. Thishappens when the supply outweighs demand, or where there is only a finite amount ofcurrency around.
DIFFICULTY
Each cryptocurrency has a difficulty ‘rating’, which highlights how difficult it is to hash anew block. The lower the number, the harder it is to produce a hash value that fits theblock.Difficulty is fluid and can change based on the amount of computing power in thenetwork. So if large numbers of people left the network its difficulty would decrease. Ifa currency grows in popularity then its difficulty increases as computing powerexpands.
DOUBLE SPENDING
This is the immoral act of spending the same bitcoins twice. The user completes atransaction using their bitcoins and then makes a second trade from someone elseusing the same coins. The user must then convince the network that only onetransaction has taken place by hashing it in a block. This is why zero-confirmationtransactions are risky.
DUST TRANSACTION
This is a transaction that takes up space in the block chain but is ultimately worth verylittle. The developers of bitcoin are taking steps to minimise the amount of dusttransactions that take place by introducing a minimum transaction amount
SPV
The Simplified Payment Verification enables users to verify their transactions withoutthe need to download the significantly-sized full block chain. Instead, users simplydownload the block headers.
STALE
Once a bitcoin block has been hashed it becomes ‘stale’, and therefore can’t be hashedagain. This name is also given to a hashing job in a mining pool that has already beenfinished.
TAINT
When a particular bitcoin is held by two closely-related addresses it is the taint analysisthat determines the steps it took. This also identifies addresses known for tradingstolen coins.
TERAHASHES/SEC
The number of hashes possible per second measured in a trillion hashes (a Terahash).
TESTNET
This is a block chain used solely for testing.
TOR
Bitcoin traders and miners who want to conceal their identity often use this anonymousrouting protocol.
TRANSACTION BLOCK
The transaction block is the record of transactions which are then collated and hashed,and then added to the block chain.
TRANSACTION FEE
Some bitcoin transactions will have a small fee imposed on them when sent across thenetwork. This fee is awarded to the miner who has successfully hashed the block tomake the transaction a possibility.
UBTC
Another small denomination of bitcoin; a uBTC is a ‘microbitcoin’ (0.000001 BTC).
VANITY ADDRESS
A vanity address is the bitcoin answer to a personalised number plate. The string willhave a desired patter, such as a recognisable name.
VIRGIN BITCOIN
These are bitcoins offered as a reward to miners that have yet to be spent.
VOLATILITY
The fluctuations in price of an asset such as bitcoin are described as its volatility.
WALLET
In much the same way as you might store cash in a wallet, so to do bitcoin owners ineither an online or paper wallet. The wallet holds the keys to each bitcoin, keeping themsafe and free from fraudulent activity.
WIRE TRANSFER
A wire transfer is the preferred method of sending and/or receiving currency from abitcoin exchange. This transfer is conducted electronically, and can be secured to abank account pretty much anywhere on the globe.
ZERO COIN
An anonymous protocol designed to keep the identities of cryptocurrency exchangerssecret.
ZERO-CONFIRMATION TRANSACTION
Where a merchant agrees the sale of a product or service in return for a bitcoinpayment, yet the transaction cannot yet be confirmed by a miner or added to the chain.This is where ‘double spending’ can become a problem.