An Easy Explanation of Terms around Cryptocurrencies
Do you feel like a dunce whenever the conversation turns to a digital currency like Bitcoin and its variants, and the terminology flies fast and furious?
Never fear. We’re here to offer a concise explanation for those cryptic terms. By the time you make it to the end of this article, you’ll be able to drop words like blockchain, the latest fork, and the security benefits of P2P like you were born to it. Let’s get started.
Serves the same function as the street address for your house. This online string of alphanumeric characters known as your Bitcoin address is a unique identifier where digital currency payments go in and out and where your cryptocurrency stash is held. A wallet address is the public part of the system and can be seen by others, sort of like a PayPal email address.
Altcoin refers to any cryptocurrency that is not Bitcoin. Bitcoin is far and away the most used and accepted form of cryptocurrency, though others like Litecoin and Ethereum are doing their best to change that. Altcoin refers to any cryptocurrency that is not Bitcoin.
Serious Bitcoin miners use an ASIC (Application-Specific Integrated Circuit) to earn payments by addressing the math puzzles that verify Bitcoin use. Designed to solve the single algorithm associated with Bitcoin transactions, this type of equipment goes above and beyond a standard desktop or laptop can accomplish. Some currencies are beginning to target this advantage by changing up the problem.
A decentralised data system that uses cryptography as the primary means of allowing people and computers from anywhere to work together rather than allowing a single entity to assert control. Blockchain technology lies at the heart of Bitcoin and other digital currencies. The blockchain is the ledger of financial transactions and grows through the addition of new data blocks representing transactions.
The files of data that make up the blockchain. Think of a block as the cyber equivalent of pages in a ledger. Once affixed to the blockchain and secured by various forms of cryptography, these blocks are set in stone and unable to be altered by any man, woman, or child.
An important concept! This is how Bitcoin miners get paid for their work in verifying transactions by solving or hashing, to use a technical term, the math equation related to a particular block. The reward is currently set at 12.5 bitcoins per block mined, but keep in mind the code specifies that every 210,000 blocks mined that reward would be cut in half.
CRYPTOCURRENCY / DIGITAL CURRENCY
A medium of exchange that exists only in the digital world. A cryptocurrency is powered by blockchain technology. Assets are created and verified by cryptographic algorithms. Though Bitcoin is the best known, there are dozens of others of varying levels of popularity.
The singular feature that makes cryptocurrency such a big deal. As opposed to previous practices that kept a centralised ledger, a distributed ledger synchronises its data across thousands or even millions of separate computers, with each containing an up-to-date, complete version. This technique offers a BIG security advantage.
A play off the “fork in the road” idea that signifies a physical change in direction. In cryptocurrency terms, a fork represents a permanent shift in the operating rules of the current blockchain. Forks are implemented by the development team in response to a 51% attack, bug in the program, or merely to invoke new rules for the cryptocurrency.
This is a system of diminishing rewards built into Bitcoin by inventor Satoshi Nakamoto. It simply reduces the potential payout by half for mining a block every 210,000 blocks. The reward was 50 bitcoins for the first 210,000. It dropped to 25 at that point, then will drop once more to 12.5 when the next 210,000 level is reached.
Refers to the speed at which a block is discovered, and the attached math equation solved to verify the transaction. An ASIC system is the current leader in solving these problems the fastest.
The process of discovering and solving a block’s associated equation. When the algorithm is solved, the miner earns a reward, which is given in the cryptocurrency of the blockchain. For example, mining a Bitcoin block results in a Bitcoin payout.
Nodes are the computers that comprise a cryptocurrency network. Depending upon the popularity of the particular currency, there might be dozens, thousands, or even millions of nodes on a network. These nodes do the heavy-lifting of validating transactions and storing the most recent copy of the full blockchain.
An acronym for the phrase “peer-to-peer,” P2P is an easy way to describe the decentralised nature of a cryptocurrency. P2P technology allows all the nodes on a network to transmit data back and forth without the necessity of any central direction like a bank or government. Until cryptocurrencies incorporated this idea, not much was happening to move the idea of digital currency forward on a large scale.
A signature is how you prove that you own a digital wallet. While the identity of the wallet owner is not a secret, no transaction may be initiated into or out of it without presentation of a signature (or private key), which is a mathematical representation that verifies to the entire network that you are the rightful wallet owner. For all practical purposes, the actual signature is undiscoverable to anyone but the owner and network computers.
More than half the computing power on a network is controlled by one person or group working together. This allows total network control and allows the individual or group to:
#1. Halt mining
#2. Stop or manipulate transactions
#3. Use the same coin over and over
Obviously, this is not a good thing for the cryptocurrency community at large.