From $19,500 to just around $3,100! That’s how much the price of BTC has changed over just a year (from 2017-2018). Despite the downward trend in value, more people know about Bitcoin today than ever before.
In simple terms, Bitcoin is a cryptocurrency, but people don’t have much idea about how it works.
Also, people find it difficult to know about the Bitcoin terminology. In this article, we have compiled the list of most of the terminologies related to Bitcoin and what they mean.
Moreover, we will also answer some frequently asked questions about Bitcoin that will help you understand it better.
Common Bitcoin Terminology And Their Definitions
It is the foundation on which Bitcoin exists. Cryptography is a branch of mathematics that encrypts a message or data using some formula/method.
To retrieve the original message, the formula should be applied in reverse.
It generally means the distribution of power, functions and so on between entities rather than keeping it centralised within one person or organisation.
Decentralisation of Bitcoin means that it is neither owned nor controlled by any government or private bodies. All data regarding Bitcoin are generated and stored by the people using the currency.
A protocol refers to the rules and regulations governing how an event occurs.
Many people refer to “Bitcoin” as the cryptocurrency. Well, it’s not.
The word “Bitcoin” with a capital “B” refers to the protocol that makes the bitcoin currency possible.
So when you talk about Bitcoin, you are not talking about the cryptocurrency but the technology that makes the currency possible.
5. Bitcoin Wallet
A virtual wallet where you store the bitcoins you own. Your Bitcoin wallet will have a private key that authenticates you to it and also lets you make payments using the bitcoins in your wallet.
There are two types of Bitcoin wallets: hot wallets and cold wallets. We have already covered about hot and cold wallets in detail here.
6. Private Key
A private key is a secret value that authenticates a user to his/her bitcoins. It is necessary to have a private key to access bitcoins stored in a wallet and perform transactions using it.
7. Public Key
The public key is a 256-bit long value which points towards your Bitcoin wallet so that users can send bitcoins to you.
Even though public keys are a function of private keys, it does not provide access to the wallet and decoding the private key from the public key is a task that is impossible even by supercomputers.
8. Bitcoin Address
Bitcoin Address refers to a 160-bit string derived from your public key. Senders can use this address to transfer bitcoins to a wallet.
Bitcoin Address adds an extra layer of protection to your Bitcoin wallet as neither your public nor private key is accessible to anyone else.
Bitcoin users must generate a unique Bitcoin Address for each new transaction.
Blockchain refers to a publicly accessible record of Bitcoin transactions stored in chronological order.
A block in the blockchain is a set of Bitcoin transactions.
Each new block added to the same blockchain will have new transactions. But, there can be blocks in different systems having identical entries.
If you consider blockchain to be a notebook, then blocks can be regarded as pages with multiple transactions listed in each page.
11. Peer-to-Peer (P2P)
To ensure integrity and security, blockchain data are partially or entirely copied onto different systems.
P2P or Peer-to-Peer data sharing architecture makes this possible.
Each system connected within the Bitcoin network is a “peer” or “node”.
As multiple nodes will have the same data, there are very low risks of data corruption.
Mining is the process of adding completed Bitcoin transactions to the public ledger.
Miners are the people who dedicate computer hardware to get mining done.
Bitcoin miners get bitcoins as a reward when they successfully process a block of data.
13. Double Spending
Double spending means spending the same bitcoins twice.
As storage of Bitcoin transaction data follows a chronological order, the blockchain can prevent double spending from occurring and will validate each transaction before confirming it.
14. Transaction Confirmation
Once a transaction enters a block, the sender will get a Transaction Confirmation message.
Multiple transaction confirmation messages can appear if same transaction data enters multiple blocks.
A signature is what authenticates that you are the actual owner of your Bitcoin wallet and is to be present in each Bitcoin transaction.
Multisig stands for Multiple Signatures.
Multiple signatures for the same transaction makes sure that no single person can solely authorise Bitcoin transaction.
Multisig becomes helpful when multiple people are handling the same wallet.
Altcoin refers to any cryptocurrency that is not Bitcoin. For example Litecoin, Ethereum, Ripple.
Commonly Asked Questions Related To Bitcoin
Take a look at most common bitcoin queries asked by the users.
1. Who is behind Bitcoin?
Satoshi Nakamoto is the man behind Bitcoin and created it back in 2009. The name is not real and is a pseudonym which may represent an individual or a group of people.
2. How is Bitcoin different from common currency?
First and foremost, Bitcoin is a digital currency.
As Bitcoin is a decentralised currency, no government agencies or banks can freeze the bitcoins you own. Also, as Bitcoin transactions are available in multiple records, payment frauds and counterfeiting can be eliminated.
3. How and where to buy bitcoins?
You can buy bitcoins from online exchanges using fiat currency or altcoins.
4. How to join as Bitcoin miner?
Anyone can become a Bitcoin miner.
But the volume of Bitcoin transactions completed each second is so huge that dedicated and specific mining hardware becomes a requirement to complete the task.
Once the mining hardware is ready, you can then choose either to mine solo or join a mining pool. Mining resources from individual miners when combined form a powerful mining setup called “mining pool”.
In a mining pool, earnings will be shared equally among the miners.
5. How many bitcoins will ever get generated?
Only 21 million bitcoins will exist in the lifetime of bitcoins. About 12.5 million bitcoins have already made so far.
6. Is Bitcoin a Scam?
Bitcoin is not a scam as all transaction data are publicly available and anyone can verify it.
Moreover, no one including the founders is getting paid for any transactions done using Bitcoin.
7. Is Bitcoin Legal?
Whether Bitcoin is legal or not depends on the country where you are. Some countries like the US have legally recognised Bitcoin whereas some countries like China have not.
8. Are bitcoins Taxable?
Taxes on bitcoins depends on the country you live.
However, if your country charges taxes, then if you exchange Bitcoin for traditional currencies like Dollar or Euro, then you will have to pay taxes.
9. What Determines the Pricing of bitcoin?
No individual or organisation can determine bitcoin value.
Like any other commodity, the pricing of bitcoin primarily depends on the number of bitcoins that are available in the market and the overall demand for the bitcoin.
10. Are Bitcoin transactions anonymous?
Even though private key and Bitcoin address are public for every transaction, identities of involved parties in a Bitcoin transaction are anonymous.
We have tried to include some of the very basic yet essential Bitcoin terminologies and most frequently asked Bitcoin-related questions in this article.
We hope you, like it. However if there any other definitions, or terminologies that you think we should have covered here, feel free to let us know in the comment section below.