Easy to understand - terms, key concepts, and Frequently Asked Questions about Bitcoins and Altcoin economics.
What is a bitcoin:
The average person needs to simply understand that Bitcoin (a cryptocurrency) is a digital currency in which transactions can be performed without the need for a central bank.
There are many different types of bitcoin, other then the orginal bitcoin (BTC). These other bitcoins are also called altcoins. The one primary used, sold and traded is the bitcoin (BTC).
Historical Note: Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. It is now grown into a worldwide currency for exchanging services, goods, and other forms of currency.
What is bitcoin wallet:
Bitcoin wallet is what allows you to transact with other users. It gives you ownership of a Bitcoin balance so that you can send and receive bitcoins.
It is a personal bank of sorts, some online bitcoin wallets are becoming more like paypal and easy for the average person to use.
Beginners - should use - CoinBase very easy to use, much like an online bank account and paypal.
Advanced Info on Bitcoin wallet:
Online wallet: CoinBase is an online wallet - your bitcoin secure digital keys are kept on a secure web accessed facility similar to an online bank or paypal.
Computer wallet or Desktop wallet: is a software on your computer designed to keep your bitcoin secure digital keys safe and useable for buying, selling and trading with others.
Mobile wallet: is a software on your phone or mobile device designed to keep your bitcoin secure digital keys safe and useable for buying, selling and trading with other from that device.
Hardware wallet: is a device the is designed to keep your bitcoin secure digital keys safe and useable for buying, selling and trading with other from that device.
Paper wallet: is where you have a service or software generated a bitcoin address for you and create an image containing two QR codes. 1st one is the public address that you can use to receive bitcoins; the 2nd QR Code image is the private key, which you can use to spend bitcoins stored at that address. This partly old school design is to keep your bitcoin secure digital keys safe and useable for buying, selling and trading with other from that device.
Bitcoin wallet are they safe to use?
- Like a real wallet they have similar risks but if you manage them correctly they can be as safe as your wallet or bank account.
If you have a desk wallet or app wallet - then sometimes backup to a third party file storage such as drop box - free cloud file storage.
If using online wallet - CoinBase will soon have a new product called VAULT a more secure version of CoinBase for long term storage of bitcoins.
Bitcoin trade is it anonymous?
One side of the coin suggests bitcoin is entirely anonymous. On the other side, it is completely transparent and trackable.
Due to this fact of some entities are trying to police and track the bitcoin chain - bitcoin is now more often cited as being pseudonymous.
This reality is becoming more realized as some newer companies are emerging with the goal of controversially tracking suspect transactions and providing that information to intelligence agencies and local police.
To counter this, ideas are being tested developed in the bitcoin community to take anonymity further, such as Coin Mixing, Stealth Addresses, and Merge Avoidance techniques.
What is a bitcoin exchange:
A market where people online can buy, sell, and trade in bitcoin and other cryptocurrencies called in general as altcoins.
The markets is more like the stock exchange with values of bitcoin changing each day.
It is a standard way for someone to buy, sell or trade in bitcoin for cash or other types of altcoins.
Our list of recommended Bitcoin exchanges
What is a Fiat money:
A form of currency (money) that sets its value from government regulation or law.
example: This american 1 dollar bill is fiat money.
The 1 dollar bill has no real value, other then the government that printed it stating by its own laws it is worth 1 dollar.
Historical Note: China Yuan dynasty is the earliest recorded form of fiat money.
What is a Commodity money:
A form of currency which is valued on its actual substance, or a note that states the amount of said substance.
A gold coin - is value is the current cost of gold equal to the weight of it.
A note for 100 barrels of oil has a value of current cost of oil by barrel x 100.
Commodity money is the earliest form of advance bartering or trade.
More Advanced Bitcoin Terms:
Bitcoin address is similar to a physical address or an email. It is the only information you need to provide for someone to pay you with Bitcoin. An important difference, however, is that each address should only be used for a single transaction.
block is a record in the block chain that contains and confirms many waiting transactions. Roughly every 10 minutes, on average, a new block including transactions is appended to the block chain through mining.
block chain is a public record of Bitcoin transactions in chronological order. The block chain is shared between all Bitcoin users. It is used to verify the permanence of Bitcoin transactions and to prevent double spending.
BTC is the common unit of Bitcoin currency. It can be used in a similar way to USD for US dollar instead of B⃦ or $.
Confirmation means that a transaction has been processed by the network and is highly unlikely to be reversed. Transactions receive a confirmation when they are included in a block and for each subsequent block. Even a single confirmation can be considered secure for low value transactions, although for larger amounts like 1000 US$, it makes sense to wait for 6 confirmations or more. Each confirmation exponentially decreases the risk of a reversed transaction.
Cryptography is the branch of mathematics that lets us create mathematical proofs that provide high levels of security. Online commerce and banking already uses cryptography. In the case of Bitcoin, 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.
Double Spending - If a malicious user tries to spend their bitcoins to two different recipients at the same time, this is double spending. Bitcoin mining and the block chain are there to create a consensus on the network about which of the two transactions will confirm and be considered valid.
Hash rate is the measuring unit of the processing power of the Bitcoin network. The Bitcoin network must make intensive mathematical operations for security purposes. When the network reached a hash rate of 10 Th/s, it meant it could make 10 trillion calculations per second.
Hash rate denominations
- 1 kH/s is 1,000 (one thousand) hashes per second
- 1 MH/s is 1,000,000 (one million) hashes per second.
- 1 GH/s is 1,000,000,000 (one billion) hashes per second.
- 1 TH/s is 1,000,000,000,000 (one trillion) hashes per second.
- 1 PH/s is 1,000,000,000,000,000 (one quadrillion) hashes per second.
- 1 MH/s = 1,000 kH/s
- 1 GH/s = 1,000 MH/s = 1,000,000 kH/s
- 1 TH/s = 1,000 GH/s = 1,000,000 MH/s = 1,000,000,000 kH/s
Bitcoin mining is the process of making computer hardware do mathematical calculations for the Bitcoin network to confirm transactions and increase security. As a reward for their services, Bitcoin miners can collect transaction fees for the transactions they confirm, along with newly created bitcoins. Mining is a specialized and competitive market where the rewards are divided up according to how much calculation is done. Not all Bitcoin users do Bitcoin mining, and it is not an easy way to make money.
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 hard-earned bitcoins
Peer-to-peer 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 is a secret piece of data that proves your right to spend bitcoins from a specific wallet through a cryptographic signature. Your private key(s) are stored in your computer if you use a software wallet; they are stored on some remote servers if you use a web wallet. Private keys must never be revealed as they allow you to spend bitcoins for their respective Bitcoin wallet.
Proof of Stake: A system run by the people A unique technology called Proof of Stake. Instead of verifying and securing the network with large calculations like other digital currencies, uses verification of the peoples' coins to secure the network and process transactions. The Proof of Stake system makes the Coin operate much faster than nearly all other digital currencies. No more waiting on your money. Proof of Stake also ensures that BlackCoin remains decentralized; no one person or group can gain control of the network. Holders normally receive a % compounded yearly interest for their part in keeping the network secure through a process called staking.