Bitcoin Glossary of Key Terms

Cryptocurrency Glossary

Bitcoin and cryptocurrency can be confusing. Here is your guide to some of the key terms and concepts underpinning this exciting space.

Altcoin

A form of cryptocurrency that has the same decentralized, peer-to-peer principles as bitcoin, but which uses its own blockchain and has its own rules of operation.

Bitcoin

A form of digital currency created in 2009, that is created and distributed on a peer-to-peer basis.

It has no central bank - transactions are conducted directly between individuals. Bitcoin is the most popular kind of cryptocurrency.

Blockchain

A digital file distributed to everyone participating in a cryptocurrency network. The blockchain acts as a kind of general ledger, keeping track of all the transactions that happen in the network. Everyone can look at the blockchain to see what transactions have happened on the network, and the blockchain is sealed using cryptography so that no one can tamper with it.

Cryptocurrency

The broad name for digital currencies that use blockchain technology to work on a peer-to-peer basis. Cryptocurrencies don't need a bank to carry out transactions between individuals. The nature of the blockchain means that individuals can transact between each other, even if they don't trust each other. The cryptocurrency network keeps track of all the transactions and ensures that no one tries to renege on a transaction.

Cryptocurrency 2.0

Also known as a decentralized app, a cryptocurrency 2.0 project uses the blockchain for something other than simply creating and sending money. They typically involve decentralized versions of online services that were previously operated by a trusted third party. 

Cryptography

A branch of mathematics that deals with ciphers and encryption.

Cryptographers spend their time writing and solving codes that can be used to protect data and to validate its authenticity.

Dogecoin

An altcoin first started as a joke in late 2013. Dogecoin, which features a Japanese fighting dog as its mascot, gained a broad international following and quickly grew to have a multi-million dollar market capitalization. 

Hash

A cryptographic hash is a mathematical function that takes a file and produces a relative shortcode that can be used to identify that file. A hash has a couple of key properties:

  • It is unique. Only a particular file can produce a particular hash, and two different files will never produce the same hash.
  • It cannot be reversed. You can't work out what a file was by looking at its hash.

Hashing is used to prove that a set of data has not been tampered with. It is what makes bitcoin mining possible. 

Mining

The act of producing units of a cryptocurrency (such as bitcoins) through some kind of effort. The effort is required so that people can't just create infinite amounts of the digital currency, which would devalue it. In bitcoin, mining requires computing power. 

Peer-to-Peer

Typically, online applications are provided by a central party that organizes all the transactions.

Your bank runs its own computers, and all the customers log into the bank's computer to handle their transactions. If Bob wants to send money to Alice, he asks the bank to do it, and the bank controls everything. In a peer-to-peer arrangement, technology cuts out the middleman, meaning that people deal directly with each other. Bob would send the money directly to Alice, and there wouldn't be any bank involved at all.