Bitcionary: Bitcoin Basics Explained

The Bitcoin world is complex and difficult to navigate, especially for the non-techie, non-nerds among us. In light of this, Cryptocity brings you the Beginners Bitcoin Dictionary, or Bitcionary, complete with our simple explanations for key Bitcoin lingo.

Bitcoin keychain
Bitcoin and the blockchain. Photo by BTC Keychain, Flickr

Bitcoin

  • It’s a digital currency. This means that, unlike sterling or dollars, it does not come in a physical form but instead is created via a process called mining (see below) and stored electronically in special digital wallets.
  • It’s decentralised. Bitcoin is not controlled by a central authority such as a central bank or a middleman. As yet, it is unregulated. This means that Bitcoin users aren’t lumbered with all the costs charged by banks for holding and transferring their currency. However, it also means that users don’t have the guarantees that a typical bank customer might have if things go wrong, as happened when the Bitcoin exchange Mt. Gox collapsed.
  • It’s anonymous – sort of. Anyone can hold a Bitcoin address without that being directly linked to their name or address.
  • It’s transparent. At the same time, the Bitcoin network stores the details of all transactions made into a huge public ledger called the blockchain. On the blockchain you can see all the transactions and how much Bitcoin is held at various addresses – however you cannot see who owns that address.
  • It’s finite. According to Bitcoin protocol, only 21 million bitcoins will ever be created.

Blockchain

  • It’s a public ledger. The blockchain is a master list of all the Bitcoin transactions ever made.
  • It’s always growing. As transactions are made, blocks are added to this chain in chronological order.
  • It has other non-financial potential. Experts and techies are getting excited about some of the potential uses that the blockchain can have that don’t necessarily include Bitcoin. For example, due to the transparent nature of the blockchain, you can create ‘smart contracts‘ with the technology.

Altcoins

Bitcoin wallet
Bitcoin Wallet by Tiger Pixel, Flickr

Wallet

  • It’s a digital storage system. Just like a wallet which you hold your cash in, it’s a place to keep your Bitcoin or your Altcoins for when you need them. A wallet will hold the ‘private keys’ – a bunch of secret numbers – you need to make transactions with your funds.

Mining

  • It’s mathematical. Mining is the way in which Bitcoins or Altcoins are created by a group of people known as miners. Miners generate new cryptocurrencies by solving complex mathematical puzzles and using computing hardware.
  • It’s worth it, mainly. In return, they are financially rewarded with Bitcoins that they can then either keep, sell or trade.

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