Bitcoin Glossary

A

TermExplanation
AddressA Bitcoin address is similar to a physical address or an email. It is the only information you need to provide for someone to pay you with Bitcoin. An important difference, however, is that each address should only be used for a single transaction.
AltcoinThe collective name for cryptocurrencies offered as alternatives to bitcoin. Litecoin, Feathercoin and PPcoin are all altcoins.
AMLAnti-Money Laundering techniques are used to stop people converting illegally obtained funds, to appear as though they have been earned legally. AML mechanisms can be legal or technical in nature. Regulators frequently apply AML techniques to bitcoin exchanges.
ASICAn Application Specific Integrated Circuit is a silicon chip specifically designed to do a single task. In the case of bitcoin, they are designed to process SHA-256 hashing problems to mine new bitcoins.
ASIC minerA piece of equipment containing an ASIC chip, configured to mine for bitcoins. They can come in the form of boards that plug into a backplane, devices with a USB connector, or standalone devices including all of the necessary software, that connect to a network via a wireless link or ethernet cable.

B

TermExplanation
BitBit is a common unit used to designate a sub-unit of a bitcoin - 1,000,000 bits is equal to 1 bitcoin (BTC or B⃦). This unit is usually more convenient for pricing tips, goods and services.
BitcoinBitcoin - with capitalization, is used when describing the concept of Bitcoin, or the entire network itself. e.g. "I was learning about the Bitcoin protocol today."
bitcoin - without capitalization, is used to describe bitcoins as a unit of account. e.g. "I sent ten bitcoins today."; it is also often abbreviated BTC or XBT.
BlockA block is a record in the block chain that contains and confirms many waiting transactions. Roughly every 10 minutes, on average, a new block including transactions is appended to the block chain through mining.
Block ChainThe block chain is a public record of Bitcoin transactions in chronological order. The block chain is shared between all Bitcoin users. It is used to verify the permanence of Bitcoin transactions and to prevent double spending.
BTCBTC is a common unit used to designate one bitcoin (B⃦).
Bitcoin ATMA bitcoin ATM is a physical machine that allows a customer to buy bitcoin with cash. There are many manufacturers, some of which enable users to sell bitcoin for cash. They are also sometimes called 'BTMs' or 'Bitcoin AVMS'. CoinDesk maintains a worldwide map of operational bitcoin atm machines and a list of manufacturers.
Bitcoin Investment TrustThis private, open-ended trust invests exclusively in bitcoins and uses a state-of-the-art protocol to store them safely on behalf of its shareholders.

It provides a way for people to invest in bitcoin without having to purchase and safely store the digital currency themselves.
Bitcoin Sentiment Index (BSI)The Bitcoin Sentiment Index is a measure of whether individuals feel the digital currency's prospects are increasing or decreasing on any given day, and is powered by data collected by Qriously.
Bitcoin Market Potential Index (BMPI)The Bitcoin Market Potential Index (BMPI) uses a data set to rank the potential utility of bitcoin across 177 countries. It attempts to show which markets have the greatest potential for bitcoin adoption.
Bitcoin WhitepaperThe bitcoin whitepaper was written by 'Satoshi Nakamoto’ and posted to a Cryptography Mailing list in 2008. The paper describes the bitcoin protocol in detail, and is well worth a read. Satoshi Nakamoto followed this by releasing the bitcoin code in 2009.
BitPayA payment processor for bitcoins, which works with merchants, enabling them to take bitcoins as payment.
Bitcoin white paperIn November 2008, a paper, authored (probably pseudonymously) by Satoshi Nakamoto, was posted on the newly created Bitcoin.org website with the title 'Bitcoin: A Peer-to-Peer Electronic Cash System’. The eight-page document described methods of using a peer-to-peer network to generate "a system for electronic transactions without relying on trust" and laid down the working principles of the cryptocurrency.
BitStampAn exchange for bitcoins that has been gaining in popularity. Read the latest Bitstamp news.
Block rewardThe reward given to a miner which has successfully hashed a transaction block. This can be a mixture of coins and transaction fees, depending on the policy used by the cryptocurrency in question, and whether all of the coins have already been successfully mined. Bitcoin currently awards 25 bitcoins for each block. The block reward halves when a certain number of blocks have been mined. In bitcoin’s case, the threshold is every 210,000 blocks.
ButtonwoodA project founded by bitcoin enthusiast Josh Rossi, to form a public outcry bitcoin exchange in New York's Union Square. Named after the Buttonwood agreement, which formed the basis for the New York Stock Exchange in 1792.

C

TermExplanation
ConfirmationConfirmation means that a transaction has been processed by the network and is highly unlikely to be reversed. Transactions receive a confirmation when they are included in a block and for each subsequent block. Even a single confirmation can be considered secure for low value transactions, although for larger amounts like 1000 US$, it makes sense to wait for 6 confirmations or more. Each confirmation exponentially decreases the risk of a reversed transaction.
CryptographyCryptography is the branch of mathematics that lets us create mathematical proofs that provide high levels of security. Online commerce and banking already uses cryptography. In the case of Bitcoin, cryptography is used to make it impossible for anybody to spend funds from another user's wallet or to corrupt the block chain. It can also be used to encrypt a wallet, so that it cannot be used without a password.
CircleCircle is an exchange and wallet service, offering users worldwide the chance to store, send, receive and exchange bitcoins.
ClientA software program running on a desktop or laptop computer, or mobile device. It connects to the bitcoin network and forwards transactions. It may also include a bitcoin wallet (see node).
ConfirmationThe act of hashing a bitcoin transaction successfully into a transaction block, and cementing its validity. A single confirmation will take around 10 minutes, which is the average length of time for a transaction block to be hashed. However, some more sensitive or larger transactions may require multiple confirmations, meaning that more blocks must be hashed and added to the blockchain after the transaction’s block has been hashed. Each time another block is added to the blockchain after the transaction’s block, the transaction is confirmed again.
Colored coinsA proposed add-on function for bitcoin that would enable bitcoin users to give them additional attributes. These attributes could be user-defined, enabling you to mark a bitcoin as a share of stock, or a physical asset. This would enable bitcoins to be traded as tokens for other property.
CPUCentral Processing Unit – the 'brain' of a computer. In the early days, these were used to hash bitcoin transactions, but are now no longer powerful enough. They are still sometimes used to hash transactions for altcoins.
CoinbaseAnother name for the input used in a bitcoin’s generation transaction. When a bitcoin is mined, it doesn't come from another bitcoin user, but is generated as a reward for the miner. That reward is recorded as a transaction, but instead of another user's bitcoin address, some arbitrary data is used as the input.

Coinbase is also the name of a bitcoin wallet service that also offers payment processing services for merchants and acts as an intermediary for purchasing bitcoins from exchanges.
Coin ageThe age of a coin, defined as the currency amount multiplied by the holding period.
CryptocurrencyA form of currency based on mathematics alone. Instead of fiat currency, which is printed, cryptocurrency is produced by solving mathematical problems based on cryptography.
CryptographyThe use of mathematics to create codes and ciphers that can be used to conceal information. Used as the basis for the mathematical problems used to verify and secure bitcoin transactions.

D

TermExplanation
Double SpendIf a malicious user tries to spend their bitcoins to two different recipients at the same time, this is double spending. Bitcoin mining and the block chain are there to create a consensus on the network about which of the two transactions will confirm and be considered valid.
DDoSA distributed denial of service attack uses large numbers of computers under an attacker’s control to drain the resources of a central target. They often send small amounts of network traffic across the Internet to tie up computing and bandwidth resources at the target, which prevents it from providing services to legitimate users. Bitcoin exchanges have sometimes been hit with DDoS attacks.
DeflationThe reduction of prices in an economy over time. It happens when the supply of a good or service increases faster than the supply of money, or when the supply of money is finite, and decreases. This leads to more goods or services per unit of currency, meaning that less currency is needed to purchase them. This carries some downsides. When people expect prices to fall, it causes them to stop spending and hoard money, in the hope that their money will go further later. This can depress an economy.
DifficultyThis number determines how difficult it is to hash a new block. It is related to the maximum allowed number in a given numerical portion of a transaction block’s hash. The lower the number, the more difficult it is to produce a hash value that fits it. Difficulty varies based on the amount of computing power used by miners on the bitcoin network. If large numbers of miners leave a network, the difficulty would decrease. Thus far, however, bitcoin’s growing popularity has attracted more computing power to the network, meaning that the difficulty has increased.
Double spendingThe act of spending bitcoins twice. It happens when someone makes a transaction using bitcoins, and then makes a second purchase from someone else, using the same bitcoins. They then convince the rest of the network to confirm only one of the transactions by hashing it in a block. Double spending is not easy to do, thanks to the way that the bitcoin network operates, but it is nevertheless a risk run by those accepting zero-confirmation transactions.
Dust transactionA transaction for an extremely small amount of bitcoins, which offers little financial value, but takes up space in the blockchain. The bitcoin developer team has taken efforts to eliminate dust transactions by increasing the minimum transaction amount that will be relayed by the network.

E

TermExplanation
ECDSAThe Elliptic Curve Digital Signature Algorithm is the lightweight cryptographic algorithm used to sign transactions in the Bitcoin protocol.
EscrowThe act of holding funds or assets in a third-party account to protect them during an asynchronous transaction. If Bob wants to send money to Alice in exchange for a file, but they cannot conduct the exchange in person, then how can they trust each other to send the money and file to each other at the same time? Instead, Bob sends the money to Eve, a trusted party who holds the funds until Bob confirms that he has received the file from Alice. She then sends Alice the money.
ExchangeA central resource for exchanging different forms of money and other assets. Bitcoin exchanges are typically used to exchange the cryptocurrency for other, typically fiat, currencies.

F

TermExplanation
FaucetA technique used when first launching an altcoin. A set number of coins are pre-mined, and given away for free, to encourage people to take interest in the coin and begin mining it themselves.
Fiat currencyA currency, conjured out of thin air, which only has value because people say it does. Constantly under close scrutiny by regulators due to its known application in money laundering and terrorist activities. Not to be confused with bitcoin.
FinCENThe Financial Crimes Enforcement Network, an agency within the US Treasury Department. FinCEN has thus far been the main organization to impose regulations on exchanges trading in bitcoin.
ForkThe creation of an alternative ongoing version of the blockchain, typically because one set of miners begins hashing a different set of transaction blocks from another. It can be caused maliciously, by a group of miners gaining too much control over the network (see 51% attack), accidentally, thanks to a bug in the system, or intentionally, when a core development team decides to introduce substantial new features into a new version of a client. A fork is successful if it becomes the longest version of the blockchain, as defined by difficulty.
FPGAA Field Programmable Gate Array is a processing chip that can be configured with custom functions after it has been fabricated. Think of it as a blank silicon slate on which instructions can be written. Because FPGAs can be produced en masse and configured after fabrication, manufacturers benefit from economies of scale, making them cheaper than ASIC chips. However, they are usually far slower.
FreicoinA cryptocurrency based on the inflation-free principles outlined by the economist Silvio Gessell.

G

TermExplanation
Genesis blockThe very first block in the block chain.
Gigahashes/secThe number of hashing attempts possible in a given second, measured in billions of hashes (thousands of Megahashes).
GPUGraphical Processing Unit. A silicon chip specifically designed for the complex mathematical calculations needed to render millions of polygons in modern computer game graphics. They are also well suited to the cryptographic calculations needed in cryptocurrency mining.

H

TermExplanation
Hash RateThe hash rate is the measuring unit of the processing power of the Bitcoin network. The Bitcoin network must make intensive mathematical operations for security purposes. When the network reached a hash rate of 10 Th/s, it meant it could make 10 trillion calculations per second.
HashA mathematical process that takes a variable amount of data and produces a shorter, fixed-length output. A hashing function has two important characteristics. Firstly, it is mathematically difficult to work out what the original input was by looking at the output. Secondly, changing even the tiniest part of the input will produce an entirely different output.

I

TermExplanation
InflationWhen the value of money drops over time, causing prices for goods to increase. The result is a drop in purchasing power. Effects include less motivation to hoard money, and more motivation to spend it quickly while the prices of goods are still low.
InputThe part of a bitcoin transaction denoting where the bitcoin payment has come from. Typically, this will be a bitcoin address, unless the transaction is a generation transaction, meaning that the bitcoin has been freshly mined (see Coinbase).

J

TermExplanation

K

TermExplanation
Kilohashes/secThe number of hashing attempts possible in a given second, measured in thousands of hashes.
KYCKnow Your Client/Customer rules force financial institutions to vet the people they are doing business with, ensuring that they are legitimate.

L

TermExplanation
LeverageIn foreign currency trading, leverage multiplies the real funds in your account by a given factor, enabling you to make trades that result in significant profit. By giving leverage to a trader, the trading exchange is effectively lending them money, in the hope that it will earn back more than it loaned in commission. Leverage is also known as a margin requirement.
Liberty ReserveA centralized digital currency payment processor based in Costa Rica. It was shut down by the US government, after it was found guilty of money laundering.
LitecoinAn altcoin based on the Scrypt proof of work. Read Litecoin news to find out more.
LiquidityThe ability to buy and sell an asset easily, with pricing that stays roughly similar between trades. A suitably large community of buyers and sellers is important for liquidity. The result of an illiquid market is price volatility, and the inability to easily determine the value of an asset.

M

TermExplanation
MiningBitcoin mining is the process of making computer hardware do mathematical calculations for the Bitcoin network to confirm transactions and increase security. As a reward for their services, Bitcoin miners can collect transaction fees for the transactions they confirm, along with newly created bitcoins. Mining is a specialized and competitive market where the rewards are divided up according to how much calculation is done. Not all Bitcoin users do Bitcoin mining, and it is not an easy way to make money.
Margin callThe act of calling in a margin requirement. An exchange will issue a margin call when it feels that a trader does not have sufficient funds to cover a leveraged trading position.
Megahashes/secThe number of hashing attempts possible in a given second, measured in millions of hashes (thousands of Kilohashes).
Market orderAn instruction given to an exchange, asking it to buy or sell an asset at the going market rate. In a bitcoin exchange, you would place a market order if you simply wanted to buy or sell bitcoins immediately, rather than holding them until a set market condition is triggered to try and make a profit.
mBTC1 thousandth of a bitcoin (0.001 BTC).
MicrotransactionPaying a tiny amount for an asset or service, primarily online. Micro-transactions are difficult to perform under conventional payment systems, because of the heavy commissions involved. It is difficult to pay two cents to read an online article using your credit card, for example.
MiningThe act of generating new bitcoins by solving cryptographic problems using computing hardware.
Mixing serviceA service that mixes your bitcoins with someone else's, sending you back bitcoins with different inputs and outputs from the ones that you sent to it. A mixing service (also known as a tumbler) preserves your privacy because it stops people tracing a particular bitcoin to you. It also has the potential to be used for money laundering.
Mt. GoxOne of the first bitcoin exchanges, and at one time the most popular. Mt. Gox has since gone into administration. Based in Japan, the exchange was started by Jed McCaleb in 2010. Read the latest Mt. Gox news.
MultisigMulti-signature addresses allow multiple parties to partially seed an address with a public key. When someone wants to spend some of the bitcoins, they need some of these people to sign their transaction in addition to themselves. The needed number of signatures is agreed at the start when people create the address. Services using multi-signature addresses have a much greater resistance to theft. Read more about Multisig here.

N

TermExplanation
NamecoinAn altcoin designed to provide an alternative to the traditional domain name system (DNS). Users can register .bit domains, accessible via proxy servers, by paying with namecoins.
NodeA computer connected to the bitcoin network using a client that relays transactions to others (see client). If you'd like to run a bitcoin node, then bitcoin.org offers a comprehensive guide.
NonceA random string of data used as an input when hashing a transaction block. A nonce is used to try and produce a digest that fits the numerical parameters set by the bitcoin difficulty. A different nonce will be used with each hashing attempt, meaning that billions of nonces are generated when attempting to hash each transaction block.

O

TermExplanation
Orphan blockA block which is not a part of the valid blockchain, but which was instead part of a fork that was discarded.
OTC exchangeAn exchange in which traders make deals with each other directly, rather than relying on a central exchange to mediate between them.
OutputThe destination address for a bitcoin transaction. There can be multiple outputs for a single transaction.

P

TermExplanation
P2PPeer-to-peer refers to systems that work like an organized collective by allowing each individual to interact directly with the others. In the case of Bitcoin, the network is built in such a way that each user is broadcasting the transactions of other users. And, crucially, no bank is required as a third party.
Private KeyA private key is a secret piece of data that proves your right to spend bitcoins from a specific wallet through a cryptographic signature. Your private key(s) are stored in your computer if you use a software wallet; they are stored on some remote servers if you use a web wallet. Private keys must never be revealed as they allow you to spend bitcoins for their respective Bitcoin wallet.
Paper walletA printed sheet containing one or more public bitcoin addresses and their corresponding private keys. Often used to store bitcoins securely, instead of using software wallets, which can be corrupted, or web wallets, which can be hacked or simply disappear. A useful form of cold bitcoin storage.
PoolA collection of mining clients which collectively mine a block, and then split the reward between them. Mining pools are a useful way to increase your probability of successfully mining a block as the difficulty rises.
PPCoinAKA Peercoin or P2P coin. An altcoin using the proof of stake mechanism in conjunction with proof of work. Based on a paper produced by Sunny King and Scott Nadal.
Pre-miningThe mining of coins by a cryptocurrency’s founder before that coin has been announced and details released to others who may wish to mine the coin. Pre-mining is a common technique used with scamcoins, although not all pre-mined coins are scamcoins (see Scamcoins).
PrimecoinDeveloped by Sunny King, Primecoin uses a proof of work system to calculate prime numbers.
Private keyAn alphanumeric string kept secret by the user, and designed to sign a digital communication when hashed with a public key. In the case of bitcoin, this string is a private key designed to work with a public key. The public key is a bitcoin address (see Bitcoin address).
PSPPayment Service Provider. The PSP offers payment processing services for merchants who wish to accept payments online.
Pump and dumpInflating the value of a financial asset that has been produced or acquired cheaply, using aggressive publicity and often misleading statements. The publicity causes others to acquire the asset, forcing up its value. When the value is high enough, the perpetrator sells their assets, cashing in and flooding the market, which causes the value to crash.
Process nodeThe size of a transistor in nanometers, produced during a chip fabrication process. Smaller process nodes are more efficient.
Proof of stakeAn alternative to proof of work, in which your existing stake in a currency (the amount of that currency that you hold) is used to calculate the amount of that currency that you can mine.
Proof of workA system that ties mining capability to computational power. Blocks must be hashed, which is in itself an easy computational process, but an additional variable is added to the hashing process to make it more difficult. When a block is successfully hashed, the hashing must have taken some time and computational effort. Thus, a hashed block is considered proof of work.
Public keyAn alphanumeric string which is publicly known, and which is hashed with another, privately held string to sign a digital communication. In the case of bitcoin, the public key is a bitcoin address.

Q

TermExplanation
QR codeA two-dimensional graphical block containing a monochromatic pattern representing a sequence of data. QR codes are designed to be scanned by cameras, including those found in mobile phones, and are frequently used to encode bitcoin addresses.

R

TermExplanation
RippleA payment network that can be used to transfer any currency (including ad hoc currencies that have been created by users). The network consists of payment nodes and gateways operated by authorities. Payments are made using a series of IOUs, and the network is based on trust relationships.

S

TermExplanation
SignatureA cryptographic signature is a mathematical mechanism that allows someone to prove ownership. In the case of Bitcoin, a Bitcoin wallet and its private key(s) are linked by some mathematical magic. When your Bitcoin software signs a transaction with the appropriate private key, the whole network can see that the signature matches the bitcoins being spent. However, there is no way for the world to guess your private key to steal your hard-earned bitcoins.
SatoshiThe smallest subdivision of a bitcoin currently available (0.00000001 BTC).
Satoshi NakamotoThe name used by the original inventor of the Bitcoin protocol, who withdrew from the project at the end of 2010.
ScamcoinAn altcoin produced with the sole purpose of making money for the originator. Scamcoins frequently use pump and dump techniques and pre-mining together.
ScryptAn alternative proof of work system to SHA-256, designed to be particularly friendly to CPU and GPU miners, while offering little advantage to ASIC miners.
SignatureA digital digest produced by hashing private and public keys together to prove that a bitcoin transaction came from a particular address.
Silk RoadAn underground online marketplace, generally used for illicit purchases, often with cryptocurrencies such as bitcoin. Silk Road was shut down in early October 2013 by the FBI after owner Ross Ulbricht was arrested. Ulbricht was later convicted on money laundering and drug distribution charges.
SEPAThe Single European Payments Area. A payment integration agreement within the European Union, designed to make it easier to transfer funds between different banks and nations in euros.
SHA-256The cryptographic function used as the basis for bitcoin’s proof of work system.
SPVSimplified Payment Verification. A feature of the Bitcoin protocol that enables nodes to verify payments without downloading the full blockchain. Instead, they need only download block headers.
StaleWhen a bitcoin block is successfully hashed, any others attempting to hash it may as well stop, because it is now ‘stale'. They would simply be repeating work that someone else has already done, for no reward. The term is also used in mining pools to describe a share of a hashing job that has already been completed.

T

TermExplanation
TaintAn analysis of how closely related two addresses are when they have both held a particular bitcoin. A taint analysis could be used to determine how many steps it took for bitcoins to move from an address known for stolen coins, to the current address.
Terahashes/secThe number of hashing attempts possible in a given second, measured in trillions of hashes (thousands of Gigahashes).
TestnetAn alternative bitcoin blockchain, used purely for testing purposes.
TORAn anonymous routing protocol, used by people wanting to hide their identity online.
Transaction blockA collection of transactions on the bitcoin network, gathered into a block that can then be hashed and added to the blockchain.
Transaction feeA small fee imposed on some transactions sent across the bitcoin network. The transaction fee is awarded to the miner that successfully hashes the block containing the relevant transaction.

U

TermExplanation

V

TermExplanation
Vanity addressA bitcoin address with a desirable pattern, such as a name.
Virgin bitcoinBitcoins purchased as a reward for mining a block. These have not yet been spent anywhere.
VolatilityThe measurement of price movements over time for a traded financial asset (including bitcoin).

W

TermExplanation
WalletA Bitcoin wallet is loosely the equivalent of a physical wallet on the Bitcoin network. The wallet actually contains your private key(s) which allow you to spend the bitcoins allocated to it in the block chain. Each Bitcoin wallet can show you the total balance of all bitcoins it controls and lets you pay a specific amount to a specific person, just like a real wallet. This is different to credit cards where you are charged by the merchant.A method of storing bitcoins for later use. A wallet holds the private keys associated with bitcoin addresses. The blockchain is the record of the bitcoin amounts associated with those addresses.
Wire transferElectronically transferring money from one person to another. Commonly used to send and retrieve fiat currency from bitcoin exchanges.

X

TermExplanation

Y

TermExplanation

Z

TermExplanation
ZerocoinA protocol designed to make cryptocurrency transactions truly anonymous.
Zero-confirmation transactionA transaction in which the merchant is happy to provide a product or service before the bitcoin’s transmission has been confirmed by a miner and added to the blockchain. It can carry a risk of double spending.