Bitcoin Terms – Short Guide, Part Two

Double Spending

A situation when a malicious bitcoin holder tries to send his bitcoins to two different recipients at the same time. Bitcoin blockchain and mining process are here to create an agreement on the network about which of the two transactions will be confirmed and considered valid.

Exchange

A resource for exchanging different forms of money and other assets. Bitcoin exchanges are typically used to exchange cryptocurrencies including Bitcoins and Altcoinc for other, typically fiat, currencies.

Fiat Currency

Currency, declared to be legal tender by the government, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, majority of the currencies were based on gold or silver, but fiat money is based solely on trust.

Halving

The process of reward reduction every 210000 blocks, approx. every 4 years. Reward halving leads the total supply of bitcoins is limited.

Hash Function

A computer algorithm which takes an arbitrary amount of input data and deterministically produces string of the fixed length. It is used to verify the fact the data has not been modified. The hash is random, so it is almost impossible to produce a certain hash by changing the data that is being hashed.

Hash Rate

Processing power measurement unit of the Bitcoin network.

Mining

Computer hardware usage in order to perform mathematical calculations for the Bitcoin network to confirm transactions and increase overall security. Bitcoin miners can collect transaction fees for the transactions they confirm, along with newly created bitcoins. Mining is a competitive market where the rewards are divided up judging on the volume of calculations done.

Paper Wallet

Method of storing bitcoins offline. Representation - a piece of paper that holds both the private key and the public address.

Private Key

A secret string that proves your right to spend bitcoins from a certain wallet via a cryptographic signature. Private keys are stored in notebook if you use a software wallet; they are stored on remote secured servers if you use a web wallet.

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