Crypto 101: Bitcoin jargon you should know about

BTC is the ticker symbol of Bitcoin and is usually used as a short term for Bitcoin. You’ll see this symbol a lot in exchange sites that show the market capitalization, volume and circulating supply of each cryptocurrency. This is comparable to the symbols used to designate certain companies and stocks on stock markets.

Bitcoin transactions are recorded in a public ledger or database that stores information in blocks called a blockchain. Each block contains data that is then ‘chained’ together with the previous block using a hash and timestamp.

This process is what makes decentralized blockchains immutable, meaning once the data is recorded it can no longer be tampered with or changed. This makes transactions in Bitcoin permanent and accessible to anyone who wishes to view it. Additionally, no person or group of people is in control of a decentralized blockchain, allowing all users to gain access.

Alternative Coin or Altcoin is the term used to describe cryptocurrencies other than Bitcoin. Since Bitcoin is the first digital asset in the market, newly developed cryptocurrencies after Bitcoin obtained this nickname including stablecoins and utility tokens.

Here are some other types of altcoins:
Stablecoins – These altcoins provide price stability to users by tying their value to real-world commodities known as reserve assets which include gold, Euro, US dollars and more.
Utility tokens – These altcoins contribute to the capitalization or financing of ventures for startups, businesses, companies or organizations. They are distributed during a company’s Initial Coin Offering (ICO). They can help if a company desires to produce a voucher that can be used to gain access to its services in the future.

Initial Coin Offering, or commonly known as ICOs, is a way for companies to raise funds to create new coins or apps. People who are interested in the project can invest in the offering and receive new coins created by the company.

The token can then be used in the company’s product or services as a native currency. ICO is mostly utilized by crypto startups that want to sell products and services in the cryptocurrency industry.

Additionally, before an ICO is initiated, the company that wants to create a new coin or app normally writes a whitepaper containing the information of what the project is about and how much money is needed. It will also include other important details such as the total number of tokens and what type of currency is supported.

If the funds raised fall short of the company’s minimum requirements the ICO is considered unsuccessful and the money can be returned to those who invested in the project.

Crypto users can purchase Bitcoin and other cryptocurrencies through exchange platforms by using fiat currencies or altcoins. These exchanges act as a marketplace between sellers and buyers to purchase and sell cryptocurrencies.

When a trader wants to trade, they must pay a currency conversion fee, which is similar to the fee charged by institutional banks when they exchange money. Crypto exchange fees, on the other hand, are significantly lower than those charged by regular financial institutions.

To begin transacting in a crypto exchange, you have to register with the exchange first and then go through a series of verification processes to ensure the safety of your account. After that, you must deposit funds into your account to start trading.

In Greek, the word ‘crypto’ means in secret or concealed, which describes the anonymous nature of cryptography. Cryptography is a set of codes used to protect the information and communication of users. This programming language allows decentralized exchange between users without the interference of third parties.

With this, restricted access is implemented and only the sender and intended recipient can view the message’s contents.

In the crypto sphere, decentralization happens when the power to transfer assets is given to a distributed network. This kind of mechanism aims to eliminate the presence of participants who can run the risk of controlling the network performance.

Just like with Bitcoin, traders don’t have to go through rigorous processes to make transactions and there’s no third party involved, allowing transparency between parties. Because there are no intermediaries, transaction costs are cheaper than in regulated markets.

Also known as ‘Hold on For Dear Life’, HODL is a term used to describe the buy and hold strategy in Bitcoin and other cryptocurrencies. When a person HODLs their assets, it means they’re holding on to them for the long-term until it appreciates and they can sell it for a higher price.

The term HODL started when a drunk post from a person named GameKyubii, who was ranting about his poor trading skills. In the post, he said that ‘I AM HODLING’, which referred to his decision about holding his Bitcoin assets in a wallet because he doesn’t know how to trade.

After purchasing Bitcoin, it’s important to place them in a wallet to keep them secure. With crypto wallets, you can keep your private keys and passwords safe. A private key is a type of advanced encryption that enables you to access your cryptocurrency.

There are a lot of crypto wallets you can choose from and they come in the forms of hardware, software, paper, desktop and mobile wallets. Here are their differences:

–Hardware wallets – Also known as cold wallets, hardware wallets allow you to store your crypto funds in a device similar to a USB that you can plug in devices.
–Software wallets – As the name suggests, this type of wallet is usually downloaded as an app. Since it’s connected to the internet, you can easily access your funds. Using any device such as mobile phones and tablets, you can open your wallet any time and any day.
–Paper wallets – These are printed wallets where your QR code and private keys are stored. Since it’s made of paper, this wallet requires safekeeping.
–Desktop wallets – This type of wallet can be downloaded to your desktop computers. Like software wallets, this wallet has to be connected to the internet to allow you to access your funds.
–Mobile wallets – This type of wallet can be accessed using your mobile device. You’ll find a wide selection of this wallet available for iOS and Android.

Nodes are in charge of validating transactions and storing them in blocks within the blockchain. It keeps the blockchain functional and ensures that it’s robust enough to carry out its duty of verifying blocks of information. Each node’s device is assigned a unique identifier that allows it to be differentiated from other nodes in the network.

A Bitcoin address is a virtual location with a unique identifier that allows users to send cryptocurrencies. Bitcoin wallets have private keys and these keys correspond to the Bitcoin wallet’s address.

In essence, this address functions as the point of origin where the funds can be transferred. Usually, a Bitcoin address is made up of at least 26-35 alphanumeric characters to ensure that it can’t be easily deciphered.

In other words, if you wish to give Bitcoins to someone, you will send them using your Bitcoin address to that person’s Bitcoin address, much like an email.

In any centralized system, there’s a central administrator that manages and updates the database in the network. They are solely responsible for preserving legitimate records and performing various activities such as adding, removing, and updating data.

In the case of decentralized systems like Bitcoin, there’s no central administrator. Due to the lack of central authority to determine which transactions are genuine and not, the network of nodes must come to an agreement based solely on software and algorithms. This agreement is what is known as network consensus.

There are different types of consensus mechanisms used in cryptocurrencies which includes the Proof of Work (PoW) and Proof of Stake (PoS). Learn more about them below:

Proof of Work (PoW)
Proof of work (PoW) is a type of consensus mechanism that requires members of a network or participant nodes to solve complex mathematical problems to facilitate and add new transactions to the blockchain. However, this requires enormous amounts of high energy and a longer processing time.
Fortunately, despite the longer processing time, altering any aspect of the blockchain is difficult since changing any part of the blockchain would involve re-mining all subsequent blocks. This prevents tampering with the system that has already been set up.

Proof of Stake (PoS)
Proof of Stake (PoS) is a consensu mechanism that allows miners to mine or validate block transactions according to the number of coins they stake in the network. This makes a miner with a large number of coins have more opportunities to process transactions. Compared to PoW, PoS requires low energy and low cost with each transaction having a capacity of 1 megabyte when a transaction is initiated.

Bitcoin mining is the process of creating new Bitcoins by solving an algorithmic puzzle and including them in circulation. During mining, miners are rewarded with a certain amount ofBitcoin for completing transactions and adding them to the blockchain.

Miners compete with one another to solve complex mathematical problems with the use of high-powered computers within the ledger.

The first miner to solve the problem is permitted to approve the transaction and receive small amounts of Bitcoin. Every time a miner solves the algorithmic problems and confirms the transaction, the data is posted to the public blockchain ledger. With mining, miners can be incentivized for their hard work in maintaining the blockchain.

A miner is an individual that verifies transactions to add blocks to the blockchain. They are considered the auditors within a blockchain that verify transactions. In that blockchain, a miner must complete 1MB worth of processes. The miner who solves the problem and adds the block to the network is automatically rewarded.

A mining pool is a group of miners who share their computational resources to successfully mine cryptocurrency. Once they do, the reward will be divided amongst the participants in the pool. Most of the time, the rewards that they receive depend on the agreed terms, their relative contributions and each miner’s processing capacity.

With mining pools, there’s a decrease in electricity cost from each individual while increasing the probability of profitability since a group of people are working together.

Smart contracts are digital agreements that run on the blockchain. For a smart contract to execute, all the terms and conditions agreed on by the two parties involved must be fulfilled.

For instance, you and a friend made a bet whether the team you’re rooting for will win the game or not. When you deposit your bets in a temporary crypto wallet, the smart contract will verify if the team won or not. The winnings will automatically be transferred to the person who won the bet.

There can be as many conditions as necessary within a smart contract to ensure that the task is executed correctly.

Satoshi Nakamoto is a term you’ll often hear associated with Bitcoin. In 2008, a mysterious group of people or person called Satoshi Nakamoto published a whitepaper that contained the information on a digital asset that can be exchanged through a peer-to-peer network without the need for third parties to approve transactions.

Over the years, a lot of people have come forward claiming that they’re the infamous creator of Bitcoin. However, the true identity has never been verified due to a lack of proof.