Terms & Definitions

Terms & Definition

Asymmetric Encryption—A type of encryption involving two keys, a private key and a public key. Text that is encrypted with the private key must be decrypted with the public key and vice versa. The public key is easily derived from the private key but the reverse is nearly impossible.

Bitcoin Address—A long series of digits to which the block chain will associate bitcoins. It is the hash output of the public key. Any bitcoins it contains can only be transferred to another Bitcoin address by the person who owns its corresponding private key.

Block—A chunk of data that contains several Bitcoin transactions that miners work on creating.

Block Chain—The Bitcoin block chain is shared via a peer-to-peer network between all miners and interested nodes (computers). It contains all the blocks since the creation of Bitcoin on January 3rd, 2009.

BTC—The acronym representing Bitcoin currency.

Cryptography—The study of techniques by which communications are secured.

Cryptographic Hash—An algorithm that creates a fixed-length series of numbers from an input having an arbitrary length. The algorithm’s output can be defined as the equivalent of the “fingerprint” of a document.

Distributed File Sharing—A system in which files are shared across multiple computers which act as both consumers and providers of information.

Encryption—The process of encoding messages or information in such a way that only authorized parties can read or access them.

Elliptic Curve Cryptography—A public-key cryptography based on the algebraic structure of elliptic curves over a finite number of elements (finite fields). Elliptic curves are also used in several integer factorization algorithms that have applications in cryptography.

Elliptic Curve Digital Signature Algorithm (ECDSA) In cryptography, the Elliptic Curve Digital Signature Algorithm (ECDSA) offers a variant of the Digital Signature Algorithm (DSA), which employs elliptic curve cryptography.

Genesis Block—The very first block of the block chain.

Hash, Hash Function—Hash is the fixed-length output of a cryptographic algorithm, or hash function. Hash is a document’s “fingerprint”, where the document, which may be of any length, is the text being encoded by the hash function.

Hexadecimal Number System—Whereas the decimal numbering system is based on 10, the hexadecimal system is based is 16, and the system employs the symbols 0 through 9 to represent the numbers 0 through 9 and the symbols A, B, C, D, E, and F (either in lower case or upper case) to represent the numbers 10 through 15. Hexadecimal numbers are prefixed by 0x, and so decimal 16 is 0x10 in hexadecimal, decimal 17 is 0x11, and so on.

Ledger—In accounting, this is the principal book or computer file for recording and totaling monetary transactions by account. It includes a beginning balance, debits, credits, and an ending balance.

Message Digest—The output of a cryptographic hash function.

Miners—Initially called nodes, these are devices with specialized hardware that compete in creating the next block and so collecting the rewards associated with it. Rewards are composed of new bitcoins the protocol allows miners to create along with the sum of all transaction fees contained in that block.

Nonce—A number within a block that a miner increments until he or another miner obtains the message digest with the characteristics required by the Bitcoin protocol to constitute “winning” that block.

Open Source Software—Software code (blue print) that is shared and available for anyone to see, inspect, and modify so as to be able to reproduce the programs themselves.

Peer-to-Peer network—A decentralized and distributed network architecture where individual nodes (computers) in the network act as both suppliers and consumers of resources. This is in contrast with a centralized client-server model where clients request resources from the server.

Proof-of-Work—This is like a “contest” in which each miner competes. The first miner to obtain a “nonce” that generates the message digest with the characteristics defined by the Bitcoin protocol as a “win”.

Protocol—An established procedure that miners and clients must follow. It is dictated by the Bitcoin open source software which all miners run.

SHA256—One type of cryptographic hash algorithm. It is currently used by the Bitcoin software.

Satoshi—The smallest denomination of Bitcoin. It is equivalent to 10-8 bitcoin, and so there are 100,000,000 satoshis in 1 bitcoin.

Transaction fee—This is the cost that senders of bitcoins pay miners to include their transactions in the next block chain.

Wallet—The software that contains a list of Bitcoin addresses and their corresponding private keys.