Common Bitcoin Terminologies
There are a lot of terms you hear when you get into bitcoin. I mean a whole lot of terms. We will start with the most common terms.
1) Hash : - is the output of a hash function. A hash function is simply defined as complex math performed by processors but that definition will be misleading so a hash function is a mathematical function that takes an input of any possible length of characters and transforms it into an output of a fixed length of characters. A hash output is normally it’s just a sequence of numbers and alphabets like this b666f26b0f364886b8fe9127920fd9202315e9fe . The bitcoin network demands that the hash output of a block must resemble 00000febfe912ca920 because it increases the network difficulty by increasing or reducing the number of zeros it demands at the start there by increasing or decreasing the number of times a processor will have to solve the complex math.
2) Address : - A bitcoin address is similar to bank account number. It is the only information you need to provide if you wish to receive bitcoins. It is like the reference number to the container where your bitcoins are stored which makes it your bank account number inside the bitcoin economy.
It is not a wallet. Every bitcoin address is directly linked to a private key. You can calculate the bitcoin address if you have the private key. You can transfer money from an address if you have the private key.
Example of a bitcoin address: 1FdPFc6bWdPiz2UP18jorvbuP6sZZ31LU2.
3) Wallet : - A bitcoin wallet can contain one or more bitcoin addresses. When you download the bitcoin client for your PC or Android then your PC or Android device it becomes a wallet. A wallet holds your private key. Simply the wallet is a program which stores the private keys.
Websites like blockchain.info provides a free and very secure wallet service (An Online Wallet.) which makes it easy to send and receive Bitcoins without needing to download a Bitcoin client.
4) Private Keys : - Every Bitcoin address (account) has a unique private key attached to it. This key is what allows you to maintain control of those bitcoins inside the Bitcoin address. A private key must always be kept secret. Anyone with your private keys can spend your Bitcoins!!! . The private key is a secret code which allows the user to prove his ownership of his bitcoins. It is like your ATM CARD PIN or Online Banking account Password.
E.g. of a private key: 5JZB4ewYsbJhej6Psb5gL1h5BL26EoA49EzwoLSSXB8rtEDX8su
5) Bitcoin (BTC) : - Simply put is a new kind of currency that is not regulated by any government. A difference exists between the terms 'Bitcoin' and 'bitcoin'. Bitcoin written with capital ‘B’ refers to the entire system; the bitcoin economy while Bitcoin written with small ‘b’ is used to describe the unit of account, the currency itself. eg: 0.001, 0.01, 1.00. As at Feb 6th 2015 a person will give you $223 for 1.0BTC.
6) Block & BlockChain : - All of the transactions that happen on the bitcoin network at the same time span are bundled into one chunk of data, called a block. These blocks are linked such that each new block proves that older blocks were valid; they have reference to the previous block. These linked blocks are called BLOCK-CHAIN.
The blockchain is a database that has records of all the transactions that ever happened in the bitcoin economy. Every bitcoin client PC has its own copy of the blockchain.
Genesis Block is the very first block that was created and the beginning of the blockchain.
7)Confirmation :- When bitcoins are sent from one address to another the transaction is broadcasted(sent out) to all other nodes directly connected to the node that performed the transaction those other nodes still broadcast what they receive and in no time everybody on the network hears about the transaction. Within each transaction that happens there is a mathematical relationship between the ID of the coins involved, the ID of the address involved, and the ID of the transaction.
All transactions that occur are bundled into a chunk of data called block and MINERS process each block to verify transactions by hashing to verify that a mathematical relationship exists between the coins, address and transaction that occurred.
A confirmed transaction, is simply a transaction has been put into a block and validated by the network (By Miners).
8) Miners and Mining : - Miners are people who put their computers or any other processing unit like ASIC and FGPA into work to verify transactions that happen on the bitcoin network. Mining is the term used to describe what miners do because every 10 minutes a new block is created and difficult calculations are performed to verify transactions. The first transaction in a block is a special transaction that manufactures 25 bitcoins. This new 25 bitcoins belongs to the people (computers) that created the block.
Anyone on the bitcoin network can opt-in and become a miner by just grouping a set of unordered transactions it received from other nodes into a block, and broadcast the block to the network as a suggestion for the next block. It also tries to verify the transactions by verifying that the mathematical relationship that exists between the ID of the coins involved the ID of the address involved, is consistent with the ID of the previous transactions that the coin has been involved in.
Before a miner broadcast’s a block, he must hash it and make sure that the output of the hash starts with a certain number of zeros.
9) FPGA: Field Programmable Gate Array, An FPGA is an integrated circuit whose function can be changed as it can be reprogrammed. FGPAs used in bitcoin mining are specifically modified to perform hash calculations and produce new bitcoins from mining.
10) GPU: Graphical Processing Unit, a GPU (or commonly just referred to as a graphics card) was previously the dominant way of Bitcoin mining. It’s far more efficient than a CPU. With the increase in the difficulty CPUs became obsolete for mining but it has recently become inefficient too. FGPAs and ASIC chips are used.
11) Hash (Rate) :- is simply the speed at which a processor can perform hashing but as it relates to Bitcoin, the Hash Rate is the speed at which a processing unit is completing an operation in the Bitcoin code. Example1H/s means the processor performs one hash in one second 1KH/s means the processor performs 1000 hashes in one second, 1 MH/s means that the processor performs 1,000,000 hashes in one second.