Cryptocurrency Terminology

Bit: A bit is a common unit used to designate a sub-unit of a cryptocurrency – 1,000,000 bits is equal to 1 bitcoin (BTC or ). So, one bit would be worth 0.000001 BTC.

Bitcoin:  Bitcoin is a decentralized digital currency without a central bank or single administrator, that can be sent from user to user over the internet on the peer-to-peer Bitcoin network.  Transactions are verified and recorded in a public ledger called a blockchain.  There will only ever be 21 million bitcoins, therefore, it cannot be artificially inflated or manipulated in any way. Often abbreviated BTC or XBT.

bitcoin: Bitcoin with capitalization, is used when describing the concept of Bitcoin, or the entire network itself, e.g. “I was learning about the Bitcoin protocol today”; bitcoin without capitalization is used to describe bitcoins for the currency itself, e.g., “I bought ten bitcoins today”.

Block: A block is a record in the blockchain that contains and confirms many waiting transactions. If the blockchain is thought of as a ledger book, a block is like one page from the book.

Blockchain: A digital file distributed to everyone participating in a cryptocurrency network. The blockchain acts as a kind of general ledger, keeping track of all the transactions that happen in the network. Everyone can look at the blockchain to see what transactions have happened on the network, and the blockchain is sealed using cryptography so that no one can tamper with it.

Block Reward:  This term refers to the “reward” that the miner receives for successfully hashing a transaction block.

BTC:  The common and generally accepted abbreviation for bitcoin stemming from the early days of Bitcoin.

Cold Storage:  A way of holding cryptocurrency tokens offline or disconnected from the internet. By using cold storage, cryptocurrency investors aim to prevent hackers from being able to access their holdings via traditional means.

Confirmation: Confirmation means that a transaction has been processed by the network and is highly unlikely to be reversed. Transactions receive a confirmation when they are included in a block and for each subsequent block.  Each confirmation exponentially decreases the risk of a reversed transaction.   

Cryptography: Cryptography is the branch of mathematics that lets us create mathematical proofs that provide high levels of security. Online commerce and banking already use cryptography. In the case of cryptocurrency, cryptography is used to make it impossible for anybody to spend funds from another user’s wallet or to corrupt the block chain. It can also be used to encrypt a wallet so that it cannot be used without a password.

Cryptocurrency:  Cryptocurrency is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don’t have a central issuing or regulating authority, instead using a decentralized system based on blockchain technology to record transactions and issue new units. May be purchased in whole or fractional quantities.

Decentralized: Without a central authority or controlling party. Bitcoin and Ethereum are examples of a decentralized network with no company, government, or individual who is in control of it.

Decentralized Finance (DeFi): An emerging financial technology based on secure distributed ledgers, similar to those used by cryptocurrencies. The system removes the control banks and institutions have on money, financial products, and financial services.

Digital Currency:  A form of currency, money, or money-like asset that exists only in digital or electronic form and that can operate independently of a central bank.

Ethereum: Ethereum is a decentralized, open-source blockchain platform created to support smart contracts and secure financial transactions. Ethereum’s native cryptocurrency is Ether (ETH) or simply Ethereum.

Ether: Ether is the transactional token that facilitates operations on the Ethereum network. While Ether can be thought of as the cryptocurrency of the Ethereum network, metaphorically speaking, it is more accurate to refer to it as the “fuel” of the network.

Hash: A cryptographic hash is a mathematical function that takes a file and produces a relatively short code that can be used to identify that file. A hash has a couple of key properties:

  • It is unique. Only a particular file can produce a particular hash, and two different files will never produce the same hash.
  • It cannot be reversed. You can’t work out what a file was by looking at its hash.
  • Hashing is used to prove that a set of data has not been tampered with. A hash is the backbone of the blockchain network.

Halving:  The number of Bitcoins generated per block is decreased by 50% every four years. This is called “halving.” The final halving will take place in the year 2140.

Hash Rate:  The hash rate is a measure of the total computational power being used by a cryptocurrency network to process transactions in a blockchain.  It can also be a measure of how fast a cryptocurrency miner’s machines complete these computations.

Ledger:  A record-keeping or storage system similar to a database of bank records. The ledger maintains participants’ identities anonymously, their respective cryptocurrency balances, and a record of all the genuine transactions executed between network participants.  In a distributed ledger there is no central administrator and data is replicated across the entire network.

Mining: Mining is the process of making computer hardware do mathematical calculations on a blockchain network to confirm transactions and increase security. As a reward for their services, miners can collect transaction fees for the transactions they confirm, along with newly created coins. Mining is a specialized and competitive market where the rewards are divided up according to how much calculation is done.

Multi-Signature: Also called multi-sig. A cryptocurrency transaction requires signatures from multiple parties before it can be executed.

Open-Source: Software whose code is made publicly available and that is free to distribute. Bitcoin and Ethereum are examples of open-source software platforms.

Peer-to-peer (also P2P):  Refers to systems that work like an organized collective by allowing each individual to interact directly with the others. In the case of Bitcoin, the network is built in such a way that each user is broadcasting the transactions of other users. And, crucially, no bank is required as a third party.

Private Key: A private key is a string of digits and letters that proves your right to send cryptocurrency from a specific wallet through a cryptographic signature. Private keys must never be revealed as they allow you to spend cryptocurrency from their respective wallet.

Public Key: A public key is a string of digits and letters generated by a trusted, designated authority, that is provided to someone who wants to send you cryptocurrency.  You can search the blockchain using your public key to verify the status of transactions.

QR Code:  A digital representation of a bitcoin public or private key that is easy to scan by digital cameras. QR codes are similar to barcodes found on physical products in that they are a machine-friendly way to embody a piece of data.

Signature: A cryptographic signature is a mathematical mechanism that allows someone to prove ownership. In the case of Bitcoin, a Bitcoin wallet and its private key(s) are linked by some mathematical magic. When your Bitcoin software signs a transaction with the appropriate private key, the whole network can see that the signature matches the bitcoins being spent. However, there is no way for the world to guess your private key to steal your bitcoins.

Satoshi:  The smallest denomination of bitcoin, equivalent to 100 millionth of a bitcoin.  Also, the first name of Bitcoin creator, Satoshi Nakamoto.

Satoshi Nakamoto:  The pseudonym of the person or persons who developed and are credited with creating Bitcoin.  While several people have claimed to be Satoshi, the true identity has never been verified nor revealed.

Smart contracts: A term used to describe computer code that automatically executes all or parts of an agreement and is stored on a blockchain-based platform, such as Ethereum.

Token: A specific type of virtual currency that represents a digital asset.  They may run on their own blockchain (to serve as units of cryptocurrency) or be built to run on other cryptocurrencies’ blockchains. They can also be traded or held like any other cryptocurrency.

Transaction Fee: Some transactions that occur in the blockchain contain transaction fees. These transaction fees are paid to the miner that hashes the block in question. A typical bitcoin fee amount is .0001 BTC

Virtual currency:  Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency (i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance), but it does not have legal tender status in  the U.S. Cryptocurrency is a type of virtual currency that utilizes cryptography to validate and secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.

Wallet:  A device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions, keeping your crypto safe and accessible.  They also allow for the sending and receiving of cryptocurrency transactions.

Wallet address:  A unique series of letters and numbers required for sending and receiving cryptocurrencies, which is used on the blockchain to verify transactions.

XBT:  A new abbreviation for Bitcoin that is starting to come into use and reflects its growing legitimacy as an international currency.  See also BTC.

Skip to content