This quick glossary contains many of the terms used in relation to bitcoin. These terms are used throughout the book, so bookmark this for a quick reference.
- address
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A bitcoin address looks like 1DSrfJdB2AnWaFNgSbv3MZC2m74996JafV. It consists of a string of letters and numbers starting with a "1" (number one). Just like you ask others to send an email to your email address, you would ask others to send you bitcoin to your bitcoin address.
- bip
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Bitcoin Improvement Proposals. A set of proposals that members of the bitcoin community have submitted to improve bitcoin. For example, BIP0021 is a proposal to improve the bitcoin uniform resource identifier (URI) scheme.
- bitcoin
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The name of the currency unit (the coin), the network, and the software.
- block
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A grouping of transactions, marked with a timestamp, and a fingerprint of the previous block. The block header is hashed to produce a proof of work, thereby validating the transactions. Valid blocks are added to the main blockchain by network consensus.
- blockchain
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A list of validated blocks, each linking to its predecessor all the way to the genesis block.
- confirmations
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Once a transaction is included in a block, it has one confirmation. As soon as another block is mined on the same blockchain, the transaction has two confirmations, and so on. Six or more confirmations is considered sufficient proof that a transaction cannot be reversed.
- difficulty
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A network-wide setting that controls how much computation is required to produce a proof of work.
- difficulty target
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A difficulty at which all the computation in the network will find blocks approximately every 10 minutes.
- difficulty retargeting
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A network-wide recalculation of the difficulty that occurs once every 2,106 blocks and considers the hashing power of the previous 2,106 blocks.
- fees
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The sender of a transaction often includes a fee to the network for processing the requested transaction. Most transactions require a minimum fee of 0.5 mBTC.
- hash
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A digital fingerprint of some binary input.
- genesis block
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The first block in the blockchain, used to initialize the cryptocurrency.
- miner
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A network node that finds valid proof of work for new blocks, by repeated hashing.
- network
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A peer-to-peer network that propagates transactions and blocks to every bitcoin node on the network.
- Proof-Of-Work
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A piece of data that requires significant computation to find. In bitcoin, miners must find a numeric solution to the SHA256 algorithm that meets a network-wide target, the difficulty target.
- reward
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An amount included in each new block as a reward by the network to the miner who found the Proof-Of-Work solution. It is currently 25BTC per block.
- secret key (aka private key)
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The secret number that unlocks bitcoins sent to the corresponding address. A secret key looks like 5J76sF8L5jTtzE96r66Sf8cka9y44wdpJjMwCxR3tzLh3ibVPxh.
- transaction
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In simple terms, a transfer of bitcoins from one address to another. More precisely, a transaction is a signed data structure expressing a transfer of value. Transactions are transmitted over the bitcoin network, collected by miners, and included into blocks, made permanent on the blockchain.
- wallet
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Software that holds all your bitcoin addresses and secret keys. Use it to send, receive, and store your bitcoin.