Bitcoin is either the future of money as we know it or a volatile investment that will explode and disappear within the next few years. Whatever you believe it can’t be denied that Bitcoin is attracting more and more people every day.
Bitcoin is also surprisingly simple, it might not be quite as simple as going into a shop or ordering online with your debit card but you don’t have to be a technical genius to use Bitcoin either.
In fact, one of the only problems people have with understanding Bitcoin is the terminology involved. Once you’ve got an understanding of the terminology involved with buying, selling and trading Bitcoin it’s actually surprisingly simple.
And we can help you get to grips with Bitcoin with our in-depth Bitcoin dictionary, we’ll outline all the main terms and explain exactly what they mean.
When using Bitcoin your address is your identifying marker, you’ll need to give your address to anyone you want to buy, sell or trade Bitcoins with. Each address is limited to a single transaction and it will change each time.
A block chain is a record of your transactions, it’s important to remember that your block chains are public so anyone can see them. Block chains grow as you make more and more transactions and they can also be downloaded.
Blocks are the components that are used to build block chains, every transaction (whether it’s buying, selling or trading) is a block and together they form block chains. The Genesis Block is the name of the very first block released.
Bitcoins are a digital currency and this comes with its benefits and risks, the most notable risk is that Bitcoins could be hacked or stolen. It’s rare but can happen and many people who have Bitcoins use cold storage security methods to keep their Bitcoins safe. Cold storage security methods can vary but some common examples are a USB stick, hardware wallet or a computer disconnected from the internet.
Double spending is the term used to describe what happens when you try to send Bitcoins to two people at once since blocks take ten minutes to mine people could try to buy two things at once using the same Bitcoins. However double spending is very rare as once a transaction is verified it will be impossible to spend the Bitcoins again.
You might have already have heard of escrow, escrow is basically a third party that holds the money until a service has been completed. And it will release the funds to the recipient once the service is completed and verified. Escrow services can also be used to hold Bitcoins as well.
Bitcoin is a finite currency and less and less Bitcoins are being produced each year, halving is the name of the process which reduces the Bitcoin rewards after every 4 years. The rewards for verifying a transaction was originally 50 BTC, then it fell to 25 BTC and it is now currently 12.5 BTC. Halving will continue till it falls to 1 BTC, which is estimated to happen in 2040.
This is a term you will probably see a lot when researching Bitcoin, mining is the process which verifies transactions. Effectively mining is what builds your blocks every time you want to spend Bitcoins. Mining is completed by other users who collect a mining fee once the work is done.
Mining pools are services that allow Bitcoin miners to work together to build blocks and verify transactions. When working together in a mining pool any Bitcoins awarded will be split between all the miners involved.
Nodes is the collective term for computers and people who validate transactions and in turn create blockchains. Nodes come in two types lightweight and full nodes, nodes are essential for the validation of transactions so they’re an essential part of how Bitcoin operates.
A private key is a series of 256 numbers which are auto-generated and connected to your virtual wallet. If you have more than one wallet then you can have multiple private keys, a private key must never be shown to anyone as if your private key in uncovered you could easily lose your Bitcoins.
Named after the given name for the creator of Bitcoin Satoshi Nakamoto a Satoshi is a unit of Bitcoin currency. A Satoshi is one hundred-millionth of a single Bitcoin, which is currently the smallest available currency that can be traded/ spent.
Transaction fees are commonplace in lots of other online payment methods however when it comes to Bitcoin transaction fees aren’t compulsory. Instead, you can create a transaction fee to attract more miners so your transaction will be processed faster. But because miners will receive Bitcoins for completing a transaction anyway offering a transaction fee isn’t usually needed, but it is always an option.
A web wallet (sometimes referred to as a virtual wallet) is a web service that allows you to store, trade and receive Bitcoins. If you want to use Bitcoins you will need a web wallet, web wallets are available from a variety of sources including Bitcoin exchange sites but people can also build their own. However more seasoned Bitcoin traders recommend against holding too many Bitcoins in a single wallet as a security precaution.
Is This Everything I Need To Know?
Our Bitcoin dictionary doesn’t cover absolutely everything, but it does cover all the main terms you’re likely to see. Bitcoin might seem complex but after a week or so it will become much easier to understand and our dictionary will help you when you come across a term you’re not familiar with.
However, because Bitcoin is a digital currency new features and sites are springing up all the time related to Bitcoin, so the terminology dictionary is expanding all the time. So, if you are serious about using Bitcoin then make sure you keep up to date with all the latest news and if you’re ever a little lost our dictionary is always here for you to refer to.