Stories

A GLOSSARY OF TERMS FOR BITCOIN AND CRYPTOCURRENCY

Bitcoin – The most widely known form of cryptocurrency. To acquire bitcoin, one must acquire an address that represents a set amount of Bitcoin, and keep it in a digital wallet along with a customized, long password.To make sure each bitcoin can’t be spent on multiple transactions at once, each transaction becomes valid only after it is logged into the official record, known as “blockchain.” Bitcoin users compete to be the one to upload the transactions into the blockchain, by being the first to complete a computational challenge on their computer, known as a hash. Winners of the Bitcoin Hash are rewarded with freshly minted bitcoin.

Block – A record of all transactions for which Bitcoin has changed hands during a recent period of time, currently about 10 minutes.The block record is validated by the Bitcoin user community, with one person uploading it into the official record (blockchain) that is maintained and available to all users.

Blockchain -– The official record of all transactions recognized by the user community. In the case of Bitcoin (whose creator invented the blockchain) the blockchain resides on the computers of all users, so someone who wants to buy or sell something using bitcoin can quickly ascertain if the person on the other side is the recognized owner of that bitcoin address. Since its invention by Bitcoin creator Satoshi Nakamoto, blockchain has grown to be used to speed up and record other types of transactions that require a publicly acknowledged transfer of ownership—including a service called Filecoin where users can “rent” extra storage space on their computer to others. Proponents say blockchains are faster and cheaper than alternative ways of recording such transactions, but they have not yet achieved widespread adoption.

Cryptocurrency – A form of digital funds that includes Bitcoin, Ripple, Filecoin, Kodak Coin, and others. Used primarily for digital transactions, cryptocurrency is typically generated independently from any central bank, is encrypted, and its value is determined by its users—not gold or some other “hard” asset. Users keep their currency, in the case of bitcoin and many others, via a digital address to which only they have the password.

Digital Wallet – A computer-based place to keep your bitcoin or other cryptocurrency so you can spend or receive it.

Exchange – An online location which enables people to “buy” bitcoin, Ripple, or other currencies, or to sell their cryptocurrency holdings for another cryptocurrency or traditional cash. Those who run exchanges charge fees for this service.

Hash – New bitcoin is introduced into circulation —known as “mining”—through computational competitions known as hashes. The winner of each competition wins the right to upload the most recent batch of transactions (the block) into the blockchain, and also wins bitcoin. In the early days of Bitcoin, winners of the Hash won 50 bitcoin. Nowadays they win 1 bitcoin if they win the Hash.

Initial Coin Offering (ICO) – A hybrid of (1) “initial public offerings” (a method of selling brand new publicly traded stocks) and (2) voluntary-donation sites called crowdfunding.New cryptocurrencies such as Ethereum and other projects have used ICOs to get their currency into “circulation.” Regulators are on high alert as ICOs are essentially unregulated and very susceptible to hype and fraud.

Photo courtesy Antana/Flickr Commons