Get acquainted with twenty key bitcoin terms you’ll need to know as your business expands to facilitate the cryptocurrency industry
Blockchain is a revolutionary technological invention whereby people can send money digitally, and bitcoin, a digital asset that stands on top of the Bitcoin Blockchain, is one of the most significant decentralized cryptocurrencies bringing money into the internet age for Web 3.0. Significant developments over the last decade have brought us to the verge of a worldwide financial revolution, paving a path for new monetary systems.
The cryptocurrency space continues to develop rapidly with new trends such as NFTs (Non-Fungible Tokens) and DeFi (Decentralized Finance). Regulators worldwide are prioritizing conflicts of interest around crypto and crypto assets with an eye on how best to regulate the space. Businesses – banks and FIs and other fintechs that are not directly supporting crypto yet – should be ready to address digital asset risk mitigation, as regulators will require compliance even for those indirectly involved in the industry.
So what basic terminology do you need to know about bitcoin and the Bitcoin Blockchain? We’ve compiled a list of twenty essential bitcoin keywords and phrases.
The first thing to note is that we usually try to refer to the Bitcoin Blockchain with upper case letters and to bitcoin, the cryptocurrency, with all lower case letters.
1. What is the Bitcoin Blockchain?
The full list of mined blocks since the creation of the Bitcoin Blockchain.
2. What is a Block?
A group of transactions. Each block contains a reference to the previous block — this is how the chain of blockchain is formed. Mining is the process of adding blocks to the blockchain.
3. What is a Transaction?
A Bitcoin transaction is a transfer of Bitcoin value that is broadcasted to the network and collected into blocks. A transaction typically references previous unspent transaction outputs (UTXOs) as new transaction inputs and dedicates all input Bitcoin values to new outputs. Each transaction has a unique transaction hash (64 alphanumeric characters) and serves as a global transaction identifier in the Blockchain.
4. What is a Network?
Bitcoin uses a simple broadcast network to propagate transactions and blocks. All communications are done over TCP, an internet communication protocol.
5. What is a Satoshi?
The smallest unit of bitcoin currently available is. 1 Satoshi = 0.000 000 01 Bitcoin.
6. What is a Transaction Output ?
The output of a transaction contains two fields: a value field for transferring zero or more satoshis and a pubkey script for indicating what conditions must be fulfilled for those satoshis to be further spent. Typically, a pubkey script specifies the receiving Bitcoin address. This address is referred to as the output address.
7. What is Transaction Input?
The input of a transaction contains three fields: an outpoint, a signature script, and a sequence number. The outpoint references a previous output and the signature script allows it to be spent. The input value is therefore equal to the value of the corresponding output.
Typically, the signature script specifies the address that is used for the payment side of the transaction. This address is referred to as the input address.
8. What is a UTXO?
A UTXO is an unspent transaction output, or a transaction output that has not been spent yet. UTXOs play an important role in transaction verification. A transaction is considered valid only if all its inputs belong to the UTXO set.
9. What is a Hot Wallet?
A hot wallet is always connected to the internet; it allows you to store, send, and receive tokens. Hot wallets are connected with public and private keys that help facilitate transactions and act as security measures.
10. What is Cold Storage?
Storing cryptocurrency offline – not connected to the internet. Cold storage is the most secure way to store cryptocurrency.
11. What is a Bitcoin Client?
The term ‘Bitcoin client’ usually refers to the original Bitcoin software called Bitcoin-QT or Bitcoin Core which also acts as a bitcoin wallet. The term can also refer to any other Bitcoin program installed directly on a computer.
12. What is bitcoind or Bitcoin core?
The original Bitcoin client holds a complete copy of the Blockchain on a server. It can also act as a bitcoin wallet, but we disable wallet functionality for Crystal purposes (we don’t use it). It is the software one would install in order to run a Bitcoin node. There are other implementations of Bitcoin clients, but Bitcoind is the most popular one.
13. What is a Node?
A computer that runs Bitcoin software (e.g. Bitcoin Core) and is connected to the Bitcoin network (i.e. connected to the internet and allows other computers access to it). Nodes validate the transactions that go throughout the network and they are crucial to keeping Bitcoin secure and decentralized.
14. What is a Mempool?
A set of transactions in the Bitcoin network that a node is aware of. It is updated when a node receives new transactions from its peers or when a new block is added to the blockchain.
15. What is an Unconfirmed Transaction or a Transaction from the Mempool?
A transaction that has not received any confirmations yet. Some sellers accept zero-confirmation (“zero-conf”) transactions even though this is associated with a risk of double-spending by the buyer. These transactions can be found in the Bitcoin node’s mempool.
16. What is Double-spending?
The act of spending the same bitcoin twice. The risk of double-spending by the buyer is why it’s recommended to wait for 6 confirmations before considering a transaction valid. However, since it’s pretty hard to alter the blockchain and double-spend your money for small amounts of money, even 1 confirmation can be enough.
17. What is a Testnet?
A testing environment for Bitcoin. It’s an alternative blockchain that can be used to simulate Bitcoin in order to allow the development of Bitcoin applications.
18. What is Virgin bitcoin?
”New bitcoins” that haven’t been spent anywhere — they were just created as a reward for a miner’s work.
19. What is a Vanity Address?
A “custom” Bitcoin address that starts with human-readable text.
20. What is Distributed Ledger Technology?
Distributed ledger technology (DLT) – is the ethos behind blockchain technology and is designed to resist modification and fraud (such as double-spending). It is a protocol that enables the secure functioning of a decentralized digital database.
Bitcoin is a decentralized digital currency that is borderless, censorship-resistant, and free from third-party intermediation. The Bitcoin Blockchain represents a database of records that cannot be tampered with. The network enforces the concept of “original” digital documents, which makes each bitcoin a unique, uncopyable form of digital payment.
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