Glossary

51% attack

A 51% attack is where one entity gains control of a majority of the hash rate on the Bitcoin network, and causes network disruption

authenticator app

An application that a user links to an online account that generates rotating one-time passwords. Used for 2 factor authentication and generally considered more secure than text-message based 2FA.

address

A Bitcoin invoice address, or simply invoice, is an identifier of 26-35 alphanumeric characters, beginning with the number 1, 3 or bc1 that represents a possible destination for a bitcoin payment

BIP

Bitcoin Improvement Proposals. A set of proposals that members of the Bitcoin community have submitted to improve bitcoin.

BIP141 - SegWit

Introduces the concept of Segregated Witness (SegWit), a solution to the Bitcoin scaling problem. It separates the transaction signatures from the transaction data, allowing more transactions to fit within a single block. Addresses start with a "3"

BIP173 - Native SegWit

Proposes a new format for Bitcoin addresses, known as bech32 or SegWit addresses. These addresses start with "bc1" and are more efficient and less prone to errors compared to legacy address formats.

BIP32

Introduces the concept of Hierarchical Deterministic Wallets (HD Wallets), where a single seed can generate a tree of key pairs (public/private). This is fundamental for modern multi-address wallets.

BIP39

Describes the implementation of a mnemonic phrase - a group of easy-to-remember words - for generating deterministic wallets. The mnemonic code, typically a 12, 18, or 24-word phrase, can be used to derive an infinite number of keys and addresses.

bip39 seedphrase

An additional passphrase that a user can set up as part of a cryptocurrency wallet with their seed phrase. If set up, the user must have the passphrase in addition to the seed words in order to spend cryptocurrency. Increases security in the event a seed phrase is compromised.

BIP44

Builds on BIP32 and BIP39, proposing a structure for multi-account hierarchy for HD wallets. This structure is widely adopted, allowing for easy backup and organization of multiple accounts and coins within a single wallet.

BIP70

Proposes a Payment Protocol that standardizes the communication between a merchant and customer, enhancing the payment process's security and user experience.

Bitcoin

Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. It operates on a technology called blockchain.

bitcoin

bitcoin with a lowercase ‘b’ is the name of the currency unit (the coin)

block

A grouping of transactions, marked with a timestamp, and a fingerprint of the previous block. The block header is hashed to produce a proof of work, thereby validating the transactions. Valid blocks are added to the main blockchain by network consensus.

Blockchain

A list of validated blocks, each linking to its predecessor all the way to the genesis block

Byzantine Generals Problem (BGP)

A reliable computer system must be able to cope with the failure of one or more of its components. A failed component may exhibit a type of behavior that is often overlooked—namely, sending conflicting information to different parts of the system. The problem of coping with this type of failure is expressed abstractly as the Byzantine Generals Problem.

centralized

A network where a central entity is necessary to provide parts of the offered services, such as coordination and discovery

client

Bitcoin software that manages connections and operations on the Bitcoin network

coinbase transaction

The first transaction in a block. Always created by a miner, it includes a single coinbase. Not to be confused with Coinbase the company.

cold wallet (cold storage)

Cold storage in the context of Bitcoin refers to storing bitcoin offline and spending without the private keys controlling them ever being online

consensus

The decision of which chain to follow is called consensus

cryptography

The practice of securing communications in the presence of third parties or adversaries. In the context of cryptocurrencies, cryptography is used to secure transactions, control the creation of new units, secure user ownership of coins, and verify the transfer of assets.

Custodial Wallet

A wallet where the private keys are held by a third party or centralized entity

Dust

A very small amount of cryptocurrency that is sometimes left over in a wallet. Sending them out may be more expensive that the amount actually being sent that the amount left over is sometimes referred to as dust.

digital signature

A digital signature algorithm is a mathematical way to show the ‘authenticity’ of a digital message.

difficulty target

A difficulty at which all the computation in the network will find blocks approximately every 10 minutes

difficulty

Difficulty is a measure of how difficult it is to find a hash below a given target

decentralized

A network where no central entity controls, or is necessary to provide, parts of the offered services, such as coordination and discovery

ERC-20

ERC-20 stands for Ethereum Request for Comments 20. It is a standard protocol used for the creation and implementation of tokens on the Ethereum blockchain. Many of the tokens issued on Ethereum follow the ERC-20 standard.

fork

Fork, also known as an accidental fork, occurs when two or more blocks have the same block height, forking the blockchain. Typically occurs when two or more miners find blocks at nearly the same time. Can also happen as part of an attack.

fees

The sender of a transaction often includes a fee to the network for processing the requested transaction.

genesis block

The first block in the blockchain, used to initialize the cryptocurrency.

hash rate

Refers to the computational power or processing speed of a cryptocurrency network's mining machines (computers). It represents the total number of hash calculations that the network can perform in a given time, typically measured in hashes per second (H/s), kilohashes per second (KH/s), megahashes per second (MH/s), gigahashes per second (GH/s), terahashes per second (TH/s), or even higher.

hot wallet

A hot wallet refers to a Bitcoin wallet that is online and connected in some way to the Internet. It is a term that refers to bitcoin that are not being kept in cold storage.

hash functions

"Cryptographic hash functions are mathematical operations run on digital data; by comparing the computed ""hash"" (the output from execution of the algorithm) to a known and expected hash value, a person can determine the data's integrity. A one-way hash function generates an output that is practically impossible to reverse without knowing the input data. Bitcoin uses SHA-256 and RIPEMD-160 hash functions."

immutability

The state of not changing, or being unable to be changed

miners

Refers to an individual, group, or entity that participates in the process of cryptocurrency mining. Miners are essential contributors to the security, validation, and integrity of decentralized blockchain networks. Their primary role is to verify and add new transactions to the blockchain while competing to solve mathematical puzzles, in order to create new blocks and earn rewards.

multisignature

Multisignature (multisig) refers to requiring more than one key to authorize a bitcoin transaction.

Non-Custodial Wallet

A type of cryptocurrency wallet where the user has exclusive control over their private keys

non-fungible token (NFT)

A type of digital asset that represents ownership or proof of authenticity of a unique item or piece of content. Unlike cryptocurrencies, NFTs are indivisible and cannot be exchanged on a one-to-one basis due to their unique properties.

node

Any computer that connects to the Bitcoin network is called a node. Nodes that fully verify all of the rules of Bitcoin are called full nodes or full clients.

password manager

A dedicated application that allows users to generate and store passwords for use in online logins and applications. Password managers are typically secured with a single strong password + Multi-factor Authentication (MFA) thus allowing users to more easily create strong, dissimilar passwords across the web without the need to memorize or record them individually.

private seed

A private seed in Bitcoin (BTC) and other crypto based digital assets is a 12 or 24 mnemonic phrase generated by your wallet that's used to create your private key for wallet access and transaction signing. It is vital for wallet recovery if you lose access and needs to be kept private and secure.

passphrase

A secret set of characters (numbers, letters, symbols) used to access an account. Often used for online accounts. Passphrases can also be used as an additional layer on top of a cryptocurrency wallet seed phrase.

peer-to-peer (P2P)

A peer-to-peer network is a decentralized network where participants interact directly with each other (peers) without the need for intermediaries. Cryptocurrencies often utilize P2P networks for transaction verification and consensus.

public key

The public key is used to receive funds, similar to a bank account number. Digital signatures can be validated against the public key without revealing the private key.

proof-of-work (PoW)

Satoshi states that the integrity of the chain of blocks is protected by a requirement to contribute computing power. This proof that the computer is working and putting forth effort, known as proof-of-work, is necessary to build blocks into the future, as well as to modify the past should anyone attempt to do so. The longest chain represents the majority decision, or in other words the greatest proof-of-work.

private key

A private key in the context of Bitcoin is a secret number that allows bitcoin to be spent. Every Bitcoin wallet contains one or more private keys, which are saved in the wallet file.

pooled mining

Pooled mining is a mining approach where multiple generating clients contribute to the generation of a block, and then split the block reward according to the contributed processing power

Staking

Participating in a proof-of-stake (PoS) system to support operations like validating transactions and creating new blocks, often in exchange for rewards.

soft fork

A type of blockchain fork that introduces a backward-compatible change to the protocol, allowing nodes that have not upgraded to still follow the new rules. In a soft fork, the new rules are a subset of the old rules, making it possible for nodes with the old software to continue operating without disruption.

Satoshi Nakamoto

Satoshi Nakamoto is the name used by the person or people who designed Bitcoin and created its original reference implementation, Bitcoin Core. As a part of the implementation, they also devised the first blockchain database. In the process they were the first to solve the double-spending problem for digital currency. Their real identity remains unknown.

satoshi

A satoshi is the smallest denomination of bitcoin that can be recorded on the blockchain. It is the equivalent of 0.00000001 bitcoin and is named after the creator of Bitcoin, Satoshi Nakamoto.

seed phrase

A seed phrase is a list of words which stores all the information needed to recover bitcoin funds on-chain. Wallet software will typically generate a seed phrase and instruct the user to write it down on paper. If the user's computer breaks or their hard drive becomes corrupted, they can download the same wallet software again and use the seed words to get their bitcoin back.

two factor authentication (2FA)

A "second step" needed to log into an online account, in addition to the user's passphrase. 2FA usually takes the form of a short "one time password" consisting of numbers and sometimes letters. 2FA is "something you have" where a password is "something you know".

transaction

A transfer of bitcoin from one address to another. More precisely, a transaction is a signed data structure expressing a transfer of value. Transactions are transmitted over the Bitcoin network, collected by miners, and included into blocks, made permanent on the blockchain.

timestamp server

Satoshi writes in the white paper that “the timestamp proves that the data must have existed at the time...to get into the hash. Each timestamp includes the previous timestamp in its hash.” The timestamps form a chain, and each new timestamp reinforces the ones before it.

unspent transaction output (UTXO)

UTXO is an unspent transaction output that can be spent as an input in a new transaction.

wallet import format (WIF)

WIF or Wallet Import Format is a data interchange format designed to allow exporting and importing a single private key with a flag indicating whether or not it uses a compressed public key.

wallet

A wallet is a collection of addresses and keys, and the software that manages them. Wallets are NOT always on a mobile device, but for this course we will use this icon to represent a Bitcoin wallet.