ORIGIN
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network of computers. It was created by an anonymous person or group using the pseudonym Satoshi Nakamoto in 2008, who published a white paper describing the design and principles of Bitcoin. Bitcoin transactions are recorded in a public ledger called the blockchain, which ensures their validity and prevents double-spending. Bitcoin can be used to buy goods and services online, as well as to store and transfer value.The history of Bitcoin Is influenced by the social and technological currents that preceded its invention, such as the ideas of cryptography, digital cash, and libertarianism. Some of the pioneers of these fields include David Chaum, Wei Dai, Nick Szabo, and Hal Finney. Bitcoin was also inspired by the 2008 financial crisis, which exposed the flaws and risks of the traditional banking system.The first bitcoin transaction occurred on January 12, 2009, when Satoshi Nakamoto sent 10 bitcoins to Hal Finney. Since then, Bitcoin has undergone rapid growth and adoption, attracting users, developers, investors, and regulators from all over the world. Bitcoin has also faced various challenges and controversies, such as technical issues, security breaches, forks, scams, bans, and regulations.Bitcoin is still evolving and improving, with new features and innovations being proposed and implemented by the community. Some of the current and future developments include the Lightning Network, SegWit, Taproot, and Schnorr signatures²⁴. Bitcoin is also influencing the creation and adoption of other cryptocurrencies and blockchain-based applications.
BELOW IS A GLOSSARY OF SOME GENERAL TERMS YOU WILL HEAR IN THE CRYPTO COMMUNITY.
BITCOIN
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network of computers. It was created by an anonymous person or group using the pseudonym Satoshi Nakamoto in 2008. Bitcoin transactions are recorded in a public ledger called the blockchain, which ensures their validity and prevents double-spending. Bitcoin can be used to buy goods and services online, as well as to store and transfer value.
BLOCKCHAIN
A blockchain is a distributed database that stores a chronological sequence of transactions. Each transaction is verified by the network nodes and added to a new block, which is then linked to the previous block, forming a chain. The blockchain is immutable, meaning that once a block is added, it cannot be altered or deleted. The blockchain is the underlying technology that powers Bitcoin and other cryptocurrencies.
CRYPTOGRAPHY
Cryptography is the science of securing information using mathematical techniques. Cryptography is used to encrypt and decrypt data, as well as to generate digital signatures and hash functions. Cryptography is essential for ensuring the security and integrity of Bitcoin and other cryptocurrencies.
MINING
Mining is the process of creating new bitcoins by solving complex mathematical problems. Miners use specialized hardware to compete for the right to add a new block to the blockchain and receive a reward in bitcoins. Mining also secures the network by validating transactions and preventing attacks.
WALLET
A wallet is a software or hardware device that stores the private keys that allow users to access and spend their bitcoins. A wallet can also generate new bitcoin addresses and display the balance and transaction history of the user. There are different types of wallets, such as desktop, mobile, web, hardware, and paper wallets.
ADDRESS
An address is a string of letters and numbers that represents a destination for bitcoin payments. An address can be generated by a wallet or by other means, and can be displayed as a QR code for easy scanning. An address is also known as a public key, which is derived from a private key that is used to sign transactions.
TRANSACTION
A transaction is a transfer of value between bitcoin addresses. A transaction consists of inputs and outputs, where inputs are the sources of bitcoins and outputs are the destinations. A transaction also has a fee, which is paid to the miners for including the transaction in a block. A transaction is broadcasted to the network and recorded in the blockchain.
NODE
A node is a computer that connects to the Bitcoin network and validates transactions and blocks. Nodes can be full nodes or light nodes, depending on how much of the blockchain data they store and verify. Full nodes store the entire blockchain and enforce all the rules of the network, while light nodes only store a subset of the data and rely on other nodes for verification.
PRIVATE KEY
A private key is a secret piece of data that allows a user to access and spend their bitcoins. A private key is mathematically related to a public key, which is used to generate a bitcoin address. A private key should be kept secure and confidential, as anyone who knows it can spend the bitcoins associated with it.
PUBLIC KEY
A public key is a piece of data that is derived from a private key using a cryptographic algorithm. A public key can be used to verify the authenticity and integrity of a digital signature generated by the corresponding private key. A public key is also used to generate a bitcoin address, which is a hashed version of the public key.
SATOSHI
A satoshi is the smallest unit of bitcoin, equivalent to 0.00000001 BTC. It is named after Satoshi Nakamoto, the pseudonym of the creator of Bitcoin. A satoshi can also refer to a person who owns a small amount of bitcoin, or a supporter of Bitcoin.
SegWIT (Segregated Witness)
SegWit is a protocol upgrade that was activated on the Bitcoin network in 2017. SegWit separates the signature data from the transaction data, thus reducing the size of each transaction and increasing the capacity of the network. SegWit also fixes a bug called transaction malleability, which enables the implementation of second-layer solutions such as the Lightning Network.
UTXO (Unspent Transaction Output)
A UTXO is an output of a bitcoin transaction that has not been spent by another transaction. UTXOs are the basic units of bitcoin accounting, as each transaction consumes one or more UTXOs as inputs and creates one or more UTXOs as outputs. The sum of all UTXOs in the network represents the total supply of bitcoins.
LIGHTNING NETWORK
The Lightning Network is a second-layer solution that enables fast and cheap transactions on top of the Bitcoin network. The Lightning Network consists of a network of payment channels that allow users to send and receive bitcoins without broadcasting every transaction to the blockchain, thus reducing congestion and fees. The Lightning Network also enables cross-chain atomic swaps, which allow users to exchange bitcoins for other cryptocurrencies without intermediaries.
HALVING
A halving is an event that occurs every 210,000 blocks (approximately every four years) on the Bitcoin network, where the block reward for miners is reduced by 50%. The halving is designed to control the inflation of bitcoins and ensure a predictable and limited supply of 21 million bitcoins. The last halving occurred in May 2020, when the block reward was reduced from 12.5 to 6.25 bitcoins.
FORK
A fork is a change in the rules or software of the Bitcoin network that results in the creation of a new version of the blockchain. A fork can be either hard or soft, depending on whether it is compatible with the previous version or not. A hard fork creates a permanent split in the network, resulting in two separate blockchains and cryptocurrencies. A soft fork is a temporary divergence in the network, where only a subset of nodes follow the new rules, but eventually converge with the rest of the network.
SegWIT2X
SegWit2x was a proposed hard fork that aimed to increase the block size limit from 1 MB to 2 MB, in addition to implementing SegWit. SegWit2x was supported by a majority of miners and businesses, but faced strong opposition from the Bitcoin Core developers and the community. SegWit2x was scheduled to occur in November 2017, but was cancelled due to lack of consensus and support.
TAPROOT
Taproot is a proposed soft fork that aims to improve the privacy, scalability, and functionality of the Bitcoin network. Taproot introduces a new signature scheme called Schnorr signatures, which enable the aggregation and hiding of multiple signatures and scripts. Taproot also enables the use of MAST (Merkelized Abstract Syntax Trees), which allow complex smart contracts to be executed more efficiently and privately.
FIAT CURRENCY
Fiat currency is a legal tender issued by a government or central authority that is not backed by any physical commodity, such as gold or silver. Fiat currency derives its value from the trust and acceptance of the people who use it. Most modern currencies, such as the US dollar, the euro, and the yen, are fiat currencies.
HARD CAP
A hard cap is a fixed limit on the total supply of a cryptocurrency that can ever be created. Bitcoin has a hard cap of 21 million bitcoins, which is expected to be reached around the year 2140. A hard cap ensures that the currency will not suffer from inflation and will retain its scarcity and value.
HASH
A hash is a fixed-length output of a hash function, which is a mathematical function that transforms any input data into a seemingly random output. Hashes are used
to secure and verify data on the Bitcoin network, such as transactions and blocks. Hashes are also used to generate public keys from private keys, and bitcoin addresses from public keys.
KYC (KNOW YOUR CUSTOMER)
Know Your Customer (KYC) is a set of regulations and procedures that require businesses to verify the identity of their customers before providing them with certain services. KYC rules often apply to bitcoin exchanges and other platforms that deal with cryptocurrencies, as a way to prevent money laundering, fraud, and terrorist financing.
MULTISIG (MULTISIGNATURE)
Multisig is a feature that allows a bitcoin transaction to require more than one signature to be valid. Multisig transactions can be used to create more secure and complex scenarios, such as escrow services, joint accounts, and corporate governance. Multisig transactions are also known as P2SH (Pay to Script Hash) transactions, as they use a special type of bitcoin address that starts with a 3.
NONCE
A nonce is a random number that is used in Bitcoin mining as part of the proof-of-work algorithm. A nonce is added to the header of a block and then hashed along with the rest of the data. The resulting hash must meet a certain difficulty target in order for the block to be valid. Miners have to try many different nonces until they find one that produces a valid hash.
PROOF-OF-WORK (PoW)
Proof-of-work is a consensus mechanism that requires miners to expend computational power to solve complex mathematical problems in order to create new blocks and validate transactions. Proof-of-work ensures that the network is secure and resistant to attacks, as anyone who wants to alter the blockchain would have to redo the work for all the subsequent blocks. Proof-of-work is also used to generate new bitcoins through mining.
PROOF-OF-STAKE (PoS)
Proof-of-stake is an alternative consensus mechanism that does not require miners to use computational power, but instead relies on the amount of coins that they stake as a collateral. Proof-of-stake aims to reduce the energy consumption and environmental impact of proof-of-work, as well as to increase the security and decentralization of the network. Proof-of-stake is used by some cryptocurrencies, such as Ethereum 2.0, but not by Bitcoin.
SMART CONTRACT
A smart contract is a self-executing agreement that is encoded on the blockchain and triggered by predefined conditions. Smart contracts can facilitate various types of transactions, such as escrow, crowdfunding, voting, and governance, without the need for intermediaries or trust. Smart contracts are not native to Bitcoin, but can be implemented using certain features, such as multisig and timelock.
TIMELOCK
A timelock is a feature that allows a transaction or a script to specify a future time or block height before which the transaction or the script cannot be executed. Timelocks can be used to create delayed payments, refund mechanisms, or conditional transactions. Timeclock's are also essential for the functioning of the Lightning Network, as they prevent users from broadcasting outdated channel states.
WHITE PAPER
A white paper is a document that describes the technical details, design, and vision of a project or a protocol. The Bitcoin white paper was published by Satoshi Nakamoto in 2008, under the title “Bitcoin: A Peer-to-Peer Electronic Cash System”. The Bitcoin white paper is considered the foundational document of Bitcoin and the blockchain technology.
SIGNATURE
A signature is a piece of data that proves that a message or a transaction was created by a specific private key. A signature can be verified by anyone using the corresponding public key, without revealing the private key. Signatures are used to authenticate and authorize bitcoin transactions and messages.
SCRIPT
A script is a simple programming language that is used to specify the conditions for spending bitcoins. A script is embedded in each input and output of a transaction, and is executed by the nodes to validate the transaction. Scripts can be used to create various types of transactions, such as multisig, timelock, or atomic swap.
OP_RETURN
OP_RETURN is a special type of script opcode that marks an output as provably unspendable, thus allowing the insertion of arbitrary data into the blockchain. OP_RETURN outputs can be used to store metadata, such as timestamps, certificates, or messages, without bloating the UTXO set. OP_RETURN outputs are limited to 80 bytes of data.
NODE
A node is a computer that connects to the Bitcoin network and validates transactions and blocks. Nodes can be full nodes or light nodes, depending on how much of the blockchain data they store and verify. Full nodes store the entire blockchain and enforce all the rules of the network, while light nodes only store a subset of the data and rely on other nodes for verification.
DUST
Dust is a term used to describe very small amounts of bitcoins that are not worth spending, due to the high transaction fees. Dust is usually created as a result of change outputs or poorly constructed transactions. Dust can also be used to spam the network or to deanonymize users by linking their addresses.
FEE
A fee is a voluntary amount of bitcoins that a user pays to the miners for including their transaction in a block. Fees are determined by the size and priority of the transaction, as well as the supply and demand of the network. Fees incentivize the miners to process transactions faster and more securely, as well as to cover their operational costs.
MEMPOOL
The mempool is a collection of unconfirmed transactions that are waiting to be included in a block. The mempool is maintained by each node individually, and can vary in size and content. Transactions in the mempool are prioritized by their fees and age, and are selected by the miners when they create a new block.