Altcoin is the name given to the group of ‘alternative’ cryptocurrencies separate to bitcoin. Examples of altcoins include Litecoin and Feathercoin.
Bitcoin exchanges are subject to Anti-Money Laundering (AML) techniques. This ensures that all transactions on the network are being carried out by genuine traders and not those converting illegal funds.
An Application Specific Integrated Circuit (ASIC) is designed specifically to process the SHA-256 hashing equation used to mine bitcoins.
An Application Specific Integrated Circuit miner is the holy grail of bitcoin mining – able to calculate the SHA-256 equation far quicker than a CPU or GPU unit. ASIC miners are purpose-built and connect to the network via a wireless link or Ethernet connection.
A bitcoin address is the presence that allows you to send and receive transactions as part of the bitcoin network. It also acts as the public key to your bitcoins.
BITCOIN INVESTMENT TRUST
A sort of bitcoin syndicate, the Bitcoin Investment Trust invests exclusively in this cryptocurrency, 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 across the leading global currency exchanges.
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 the bitcoin protocol, and is a good read for newbies and experienced bitcoin traders alike.
One of the payment channels that processes bitcoin transactions on behalf of merchants.
BITCOIN WHITE PAPER
The origins of bitcoin can be found in this paper that was posted on bitcoin.org back in 2008. The paper, titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, described the peer-to-peer approach for generating ‘a system of electronic transactions without relying on trust’. This was the genesis of the cryptocurrency.
BitStamp is one of the fastest-growing bitcoin exchange platforms around.
This records all of the individual bitcoin ‘blocks’ that have been mined since the inception of the currency. The chain is designed so that each block contains the ‘DNA’ of the one preceding it, which secures the chain against fraudulent mining activity.
A reward is given to each miner who completes a transaction block. It can take the form of coins or transaction fees – Bitcoin currently rewards 25 coins for each completed block. Once the threshold of blocks has been mined (which currently stands at 210,000 blocks) the reward is halved.
BTC is the abbreviated version of bitcoin, similar to USD and GBP in traditional currencies.
Buttonwood was a project designed to create a bitcoin exchange in New York’s Union Square. Named after the Buttonwood Agreement (upon which the New York Stock Exchange was formed). It was founded by bitcoin aficionado Josh Rossi.
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 your bitcoin wallet.
A confirmation is the successful hashing of a bitcoin transaction into the block. It can take up to ten minutes, although larger transactions may require more than one confirmation, 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.
The creation of colored coins is a proposed new feature for bitcoin, and one which allow users to define their own attributes of the currency. The idea is that users could mark a bitcoin as a physical asset, which could then be traded as a token for other property.
This is the Central Processing Unit of a computer, and one that has been used in the past to mine bitcoin – before it was usurped by ASIC and GPU set-ups. CPU’s are still sometimes used to mine altcoins with less taxing hashing calculations.
A coin’s age can be calculated by multiplying the currency amount by the period of time it’s been owned.
A cryptocurrency is one that is deemed legal tender and based on mathematical formulas alone, rather than exchange rates.
This is the name given to the process of using maths to create the codes used to conceal information. This is the basis of the mathematical equation inherent in bitcoin mining.
DDoS stands for Distributed Denial of Service, and is a cyber-attack used to drain the resources of a target. This is done by sending small amounts of network traffic to tie up the target’s bandwidth – preventing it from providing its services to its clients. Bitcoin exchanges have been subject to sporadic DDoS attacks in the past.
A deflation is experienced when the price of something decreases over time. This happens when the supply outweighs demand, or where there is only a finite amount of currency around.
Each cryptocurrency has a difficulty ‘rating’, which highlights how difficult it is to hash a new block. The lower the number, the harder it is to produce a hash value that fits the block.
Difficulty is fluid and can change based on the amount of computing power in the network. So if large numbers of people left the network its difficulty would decrease. If a currency grows in popularity then its difficulty increases as computing power expands.
This is the immoral act of spending the same bitcoins twice. The user completes a transaction using their bitcoins and then makes a second trade from someone else using the same coins. The user must then convince the network that only one transaction has taken place by hashing it in a block. This is why zero-confirmation transactions are risky.
This is a transaction that takes up space in the block chain but is ultimately worth very little. The developers of bitcoin are taking steps to minimise the amount of dust transactions that take place by introducing a minimum transaction amount.
ECDSA stands for Elliptic Curve Digital Signature Algorithm, and is the formula in the Bitcoin protocol used to sign transactions.
An escrow is a type of online wallet that holds funds securely to protect them during a transaction. It is used where two parties cannot exchange bitcoins in public, and want the added reassurance that their currency cannot be ‘stolen’ digitally.
An exchange is where users can come together and swap different cryptocurrencies. A bitcoin exchange will generally see its users swap bitcoin for traditional ‘fiat’ currencies.
A faucet is the method of mining a pre-defined number of coins when launching a new cryptocurrency, and then giving these away in order to kick-start interest.
A popular altcoin based on the Scrypt algorithm, and one that is thus suitable for CPU and GPU rigs.
A Fiat currency is another name for money used across the world that has a value inferred by its owner. This is commonly used in money laundering and illegal activities.
This is the Financial Crimes Enforcement Network, a US Treasury Department agency created to impose regulations on bitcoin exchanges.
When one set of miners starts hashing a different set of transaction blocks it is known as a ‘fork’. This can be a malicious tactic or undertaken accidentally. It can even be a deliberate ploy where the bitcoin development team introduces a new version of the client. A fork is considered successful if it goes on to become the longer version of the chain.
A Field Programmable Gate Array is another form of processing chip that can be tailored to bitcoin mining. As these are sold in larger numbers ‘off the shelf’ and then re-configured after sale, they are usually far cheaper to buy than ASIC chips, although they are less effective.
Another type of cryptocurrency created by Silvio Gessell, and founded on the principle of being inflation-free.
The original block in a chain.
This is the measurement that determines how quickly your machine can mine – it is the number of hashtag attempts possible per second, measures in a billion hashes (a Gigahash).
This is a graphical processing unit, as found in your standard PC graphics card. As a GPU is designed specifically to render polygons in pixel-heavy computer games, they are also perfect for the calculations required in cryptocurrency mining.
A hash is the mathematical process required in bitcoin mining. It is complex – to protect the sanctity of the currency – and hard to decipher and alter the output.
The number of hash calculations that can be performed per second. This generally dictates how successful a miner is likely to be.
The opposite of deflation: as the value of money drops, the price of goods and services increases exponentially. This gives consumers less purchasing power, so there’s more motivation to spend a currency quicker.
This is where a bitcoin transaction starts, and will be denoted by a bitcoin address. That is unless it is a generation transaction of a newly-mined bitcoin.
The number of hashes calculated per second in thousands of hashes (a Kilohash).
This is Know Your Client, a regulation that forces financial institutions to thoroughly vet the people they do business with to ensure they are legit.
Utilizing leverage in foreign currency trading enables you to multiply your ‘real funds’ and achieve significant profit. Leverage can be used by a trader to essentially lend another person funds, which they can then earn back in commission.
A former giant of the digital currency processing world, Liberty Reserve was shut down by the US government after it was found to be money laundering.
A type of altcoin that uses the Scrypt hashing formula.
Liquidity ensures that the price of a good stays similar amongst all trades, ensuring that it is easy to buy and sell. If there’s a decent-sized community of traders then the price will remain stable and ‘liquid’. An illiquid market results in extreme price fluctuations, ad makes it harder to value a good.
A margin call will take place when an exchange believes a trader does not have sufficient funds to cover their leveraged trades.
The number of hashes possible per second measured in millions of hashes (a Megahash).
A market order can be placed at an exchange when you want to buy or sell bitcoins instantly, and at the going market rate.
A miniscule amount: one thousandth of a bitcoin (0.001 BTC).
Paying a minute amount as part of a transaction online, these are hard to carry out under conventional payment systems. Imagine paying for a bag of crisps with your credit card.
Mining can be undertaken by anyone wanted to generate some new bitcoins for their wallet. You must solve cryptographic equations using the relevant algorithm.
The art of mixing in your bitcoins with another person’s, and then sending you back the same amount but with different inputs and outputs. This is a measure that helps protect the privacy of your account, as your currency cannot be traced back to you.
This was perhaps the original bitcoin exchange back in 2010, and was certainly the most popular at the time. Based in Japan, Mt. Gox has subsequently gone into administration and closed.
Namecoin is a unique altcoin that provides an alternative to standard Domain Name Systems (DNS). Users can utilise .bit domains – only accessible via proxy servers – by paying with Namecoin.
Each computer that is connected to the bitcoin network and relays transactions to others is considered a node.
A nonce is the random set of data used as an input when hashing a block. The nonce is the part that tries to fit the numerical parameters enforced by the difficulty of bitcoin. A different nonce is used for each attempt at hashing.
Any block that was part of a fork that has since been discarded is known as an orphan block. This is not part of the valid chain.
A trader-to-trader exchange that doesn’t employ the services of a central mediator.
The output is the destination address of a bitcoin transaction. There can often be more than one output for each transaction.
P2P, or Peer-to-Peer, interactions happen between two or more users in a network.
This is a physical recognition of your public bitcoin addresses and their private keys. Your wallet can literally be a sheet of paper, and presents a safer way to store bitcoins that cannot be hacked or corrupted.
The collective name for a group of miners. These users will work together to mine a block, and then share the reward out accordingly. Mining pools increase your chances of successfully completing a block.
Sometimes known as peer coin or P2P coin, this is an altcoin that uses a ‘proof of stake’ calculation alongside proof of work.
A pre-mine is an operation carried out by a cryptocurrency’s founder prior to it ‘going live’.
Primecoin uses a proof-of-work calculation to calculate prime numbers, and was founded by Sunny King.
The private key is crucial to keeping your bitcoins safe. This is unique to you, and only you should know your private key. It takes the form of a string that signs a digital communication once hashed with your public key.
The Payment Service Provider (PSP) offers processing services for merchants who accept bitcoin as a currency.
PUMP AND DUMP
This is a naughty tactic that artificially bumps up the price of an asset that has been purchased cheaply, with the aim of selling it on at a profit. The aggressive publicity causes others to buy it, which then of course forces up its value.
Process nodes are present in nanometers, which are produced during the chip fabrication process. The smaller the node the more effective it is.
PROOF OF STAKE
The proof of stake is an alternative to proof of work, and calculates the amount of a currency you can mine based on your existing stake in it.
PROOF OF WORK
This calculation links mining ability to computer power. It takes a good amount of time and effort to hash a block successfully, and this is seen as a proof of work.
A public key is a bitcoin address, the information of which is accessible to all. When hashed with a private key it secures a digital communication.
A QR Code is a 2D graphic that contains a sequence of data. These codes can be scanned by mobile phones, and are used to encode bitcoin addresses and to facilitate physical bitcoin exchanges.
Ripple is a payment network on which users can transfer any currency. Payments are on an ‘IOU’ basis and based on trust. The network is made up of nodes and gateways operated by an official authority.
Satoshi, which is the name of the creator of bitcoin, is also the smallest denomination available at 0.00000001 BTC.
Satoshi was the original creator of the Bitcoin Protocol back in 2008. He left the project in 2010.
Scamcoins use pump and dump and pre-mining together in order to make money for the creator. A Scamcoin is an altcoin developed purely for its profit-making potential.
A proof of work system designed for altcoin miners, and one that is slightly-less complex and more forgiving than SHA-256; hence why altcoins utilising Scrypt are more widely mined by those with CPU and GPU set-ups.
When private and public keys are hashed together they create a digital signature, which proves which address a bitcoin transaction came from.
Silk Road was an online marketplace that generally traded cryptocurrencies for illicit purchases. It was closed down in 2013 after it owner, Ross Ulbricht, was arrested.
This is the Single European Payments Area; which is an EU-led agreement to make transferring funds between member states easier – and thus make bitcoin exchanges go a bit smoother.
The standard cryptographic equation used in the proof of work system of mining bitcoin.
The Simplified Payment Verification enables users to verify their transactions without the need to download the significantly-sized full block chain. Instead, users simply download the block headers.
Once a bitcoin block has been hashed it becomes ‘stale’, and therefore can’t be hashed again. This name is also given to a hashing job in a mining pool that has already been finished.
When a particular bitcoin is held by two closely-related addresses it is the taint analysis that determines the steps it took. This also identifies addresses known for trading stolen coins.
The number of hashes possible per second measured in a trillion hashes (a Terahash).
This is a block chain used solely for testing.
Bitcoin traders and miners who want to conceal their identity often use this anonymous routing protocol.
The transaction block is the record of transactions which are then collated and hashed, and then added to the block chain.
Some bitcoin transactions will have a small fee imposed on them when sent across the network. This fee is awarded to the miner who has successfully hashed the block to make the transaction a possibility.
Another small denomination of bitcoin; a uBTC is a ‘microbitcoin’ (0.000001 BTC).
A vanity address is the bitcoin answer to a personalised number plate. The string will have a desired patter, such as a recognisable name.
These are bitcoins offered as a reward to miners that have yet to be spent.
The fluctuations in price of an asset such as bitcoin are described as its volatility.
In much the same way as you might store cash in a wallet, so to do bitcoin owners in either an online or paper wallet. The wallet holds the keys to each bitcoin, keeping them safe and free from fraudulent activity.
A wire transfer is the preferred method of sending and/or receiving currency from a bitcoin exchange. This transfer is conducted electronically, and can be secured to a bank account pretty much anywhere on the globe.
An anonymous protocol designed to keep the identities of cryptocurrency exchangers secret.
Where a merchant agrees the sale of a product or service in return for a bitcoin payment, yet the transaction cannot yet be confirmed by a miner or added to the chain. This is where ‘double spending’ can become a problem.