Common Terms -Digital Currency Glossary
This glossary unpacks common terms you might encounter in the world of digital currency.
Arbitrage: The simultaneous buying and selling of securities, currency, or commodities in different market regions to take advantage of differing prices for the same asset.
Ask: A sell order.
Bitcoin: The first digital currency built on a blockchain and capped at 21 million units. Created by Satoshi Nakamoto in 2009, Bitcoin is the original cryptocurrency.
Bitcoin Cash: A digital currency, which hard-forked from Bitcoin on 1 August 2017, with bigger block size, intended to let miners process more transactions per block.
Blockchain: A decentralised network that records transactions, much like a traditional ledger. These transactions can be any movement of currency, goods or secure data.
Blocks: Contain transactional information. Blocks can be thought of as the pages of a ledger.
Block reward: The new coins issued to miners when they have successfully mined a block of transactions on the Bitcoin (or any other digital currency) network.
Bubble: When the price of an asset becomes inflated and exceeds the true value of that asset. When a bubble “pops" prices fall drastically.
Cryptocurrency: Any digital currency that uses cryptography to validate and secure transactions.
Cryptography: The practice and study of techniques for secure communication in the presence of third parties called adversaries. In the context of digital currency, cryptography validates and secures transaction information.
Difficulty: The amount of effort needed to mine blocks. Different digital currencies implement different methods of adjusting the difficulty. In Bitcoin, the mining difficulty adjusts approximately every two weeks to ensure that changes in the number of miners processing transactions don’t drastically increase the rate new Bitcoin is issued into circulation.
Exchange: A place where buyers and sellers meet to buy and sell an asset, like Bitcoin, shares or derivatives.
Fork: A fork occurs when a group of participants (miners) run a different version of the software (protocol). If the new version is backwards compatible (if it can successfully use data from earlier versions of the blockchain) then it’s a soft fork, and all participants will remain on the same blockchain. If the new version does not work with the existing blockchain then it’s a hard fork and the blockchain will split into two separate chains.
Hash (Noun): A cryptographic algorithm.
Hash (Verb): The act of performing the cryptographic algorithm on some data. Read more here.
Hash rate: The hash rate measures how powerful a (Bitcoin) miner's machine is. Specifically, it measures the number of times a hash function can be computed per second. A miner's expected profit is directly proportional to the hash rate. Hash rate is also used to measure how much computer power is securing a specific blockchain.
Hodl: This means to hold (i.e. not sell) your Bitcoin. The term became popular in 2010 when a typo in a Bitcoin forum went viral. The typo was retrofitted as an acronym for “Hold on for dear life".
Limit order: An order placed by specifying both the amount and price at which you wish to trade. Depending on the price specified, the limit order might trade immediately against existing orders in the order book (in that case it is a taker order), or it might itself be inserted into the orderbook waiting for other orders to trade against it (in that case it is a maker order).
Market order: An order placed by only specifying the amount you wish to trade. The order executes immediately at the best available rate in the market. In other words, the market order matches with existing orders waiting in the orderbook. A market order is always a taker order.
Mining: The committing of computer hardware to process transactions on a blockchain (Bitcoin or otherwise). Miners do this to receive mining rewards and profit.
Miner fee: Miners earn block rewards when solving blocks. Over and above this miners also earn voluntary fees paid by people who wish to send coins. This incentivises miners to include transactions with the highest fees into blocks when the network is congested.
Multi-signature / multisigin wallets: Multiple signature (or MultiSig) refers to the requirement of multiple authorisations (usually from different people) to successfully send a transaction on a blockchain. For example, you have 5 people authorised to send Bitcoin from a MultiSig wallet but at least 3 of these 5 must approve a transaction before it is authorised.
Public key: A public key is a digital code that uniquely identifies a wallet on a blockchain; ie. the wallet address. This is the address you give to somebody who wants to send you digital currency.
Satoshi (unit): A satoshi is also the smallest unit into which a Bitcoin is divisible. 1 Satoshi = 0.00000001 Bitcoin.
SHA256: The SHA (Secure Hash Algorithm) that Bitcoin uses. See hash.
Segregated Witness (Segwit): SegWit is feature of some blockchain protocols (including Bitcoin and Litecoin), that moves a part of the transaction data out of the main block thereby reducing the effective size of transaction. It therefore allows more transactions to fit into into a single block without having to increase the size of the block.
Smart contract: A software program that is created on a blockchain and identified by an address. Transactions on the blockchain can execute the contract in various ways, for example, by sending some digital currency or data to the contract's address. If executed, a smart contract can, in turn, send more transactions or execute other smart contracts.
Spread: This is the difference (or gap) between the price of the highest buy order (see bid) and the price of the lowest sell order (see ask). Lower spreads are a sign of a healthy or stable market.
Token: Generally, a token is a digital currency that is not backed by its own blockchain, and instead is provided by functionality of another currency's blockchain. For example, ERC20 tokens provided by smart contracts on the Ethereum blockchain.
Transaction confirmation: Roughly every ten minutes (in Bitcoin, that is - other blockchains block times may vary), a new block is created and added to the blockchain through the mining process. This block verifies and records any new transactions. Since subsequent blocks are linked to previous blocks, each subsequent block acts as a confirmation of its predecessors. For example, if a transaction was included in block 101, and the latest block is 110, the transaction is said to have 10 confirmations. In this way, transactions are said to have been confirmed by the (Bitcoin) network.
Transaction ID (or TxID): An identifier used to uniquely identify a particular transaction.
Two-factor authentication: Sometimes referred to as “2FA". An extra layer of security, usually in addition to a password. Two-factor typically uses a second device (e.g your mobile phone) to provide an extra once-off code. Both your usual password and this unique code are needed to authorise sign-in access or a transaction.
Is there any related term that you felt we have omitted or didn't add, you can add them in the comment section below
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Altcoin: A digital currency that is not Bitcoin. There are thousands of altcoins with varying values and use cases.Arbitrage: The simultaneous buying and selling of securities, currency, or commodities in different market regions to take advantage of differing prices for the same asset.
Ask: A sell order.
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Bid: A buy orderBitcoin: The first digital currency built on a blockchain and capped at 21 million units. Created by Satoshi Nakamoto in 2009, Bitcoin is the original cryptocurrency.
Bitcoin Cash: A digital currency, which hard-forked from Bitcoin on 1 August 2017, with bigger block size, intended to let miners process more transactions per block.
Blockchain: A decentralised network that records transactions, much like a traditional ledger. These transactions can be any movement of currency, goods or secure data.
Blocks: Contain transactional information. Blocks can be thought of as the pages of a ledger.
Block reward: The new coins issued to miners when they have successfully mined a block of transactions on the Bitcoin (or any other digital currency) network.
Bubble: When the price of an asset becomes inflated and exceeds the true value of that asset. When a bubble “pops" prices fall drastically.
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Cold storage: A wallet that is kept offline. This is a security measure to prevent unauthorised access.Cryptocurrency: Any digital currency that uses cryptography to validate and secure transactions.
Cryptography: The practice and study of techniques for secure communication in the presence of third parties called adversaries. In the context of digital currency, cryptography validates and secures transaction information.
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Decentralised: A governance protocol, characterised by distributing control and authority amongst all participants. Bitcoin is decentralised because many different miners secure the network. As opposed to a centralised network, like banking, where one authority such as the central bank makes decisions.Difficulty: The amount of effort needed to mine blocks. Different digital currencies implement different methods of adjusting the difficulty. In Bitcoin, the mining difficulty adjusts approximately every two weeks to ensure that changes in the number of miners processing transactions don’t drastically increase the rate new Bitcoin is issued into circulation.
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Ethereum: A crytocurrency Created by Vitalik Buterin, Ethereum is a distributed computing platform, a blockchain built to process transactions and other information, such as smart contracts. See our Learning Portal series about Ethereum.Exchange: A place where buyers and sellers meet to buy and sell an asset, like Bitcoin, shares or derivatives.
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Fiat: Conventional or government-issued money (your local currency).Fork: A fork occurs when a group of participants (miners) run a different version of the software (protocol). If the new version is backwards compatible (if it can successfully use data from earlier versions of the blockchain) then it’s a soft fork, and all participants will remain on the same blockchain. If the new version does not work with the existing blockchain then it’s a hard fork and the blockchain will split into two separate chains.
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Hardware wallet: An alternative to your normal digital currency wallet, this is a dedicated physical device in which private keys are stored (usually offline for extra security).Hash (Noun): A cryptographic algorithm.
Hash (Verb): The act of performing the cryptographic algorithm on some data. Read more here.
Hash rate: The hash rate measures how powerful a (Bitcoin) miner's machine is. Specifically, it measures the number of times a hash function can be computed per second. A miner's expected profit is directly proportional to the hash rate. Hash rate is also used to measure how much computer power is securing a specific blockchain.
Hodl: This means to hold (i.e. not sell) your Bitcoin. The term became popular in 2010 when a typo in a Bitcoin forum went viral. The typo was retrofitted as an acronym for “Hold on for dear life".
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ICO / token sale: Initial coin offering (or ICO) is the sale of tokens on a blockchain before they are issued. The public can pay for these tokens in an ICO and they are issued to participants later.ll
Ledger: A record of transactions.Limit order: An order placed by specifying both the amount and price at which you wish to trade. Depending on the price specified, the limit order might trade immediately against existing orders in the order book (in that case it is a taker order), or it might itself be inserted into the orderbook waiting for other orders to trade against it (in that case it is a maker order).
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Maker order: This is either a limit buy order below the market price or a limit sell order above the market price. The order waits in the order book and is therefore said to ‘make’ the market.Market order: An order placed by only specifying the amount you wish to trade. The order executes immediately at the best available rate in the market. In other words, the market order matches with existing orders waiting in the orderbook. A market order is always a taker order.
Mining: The committing of computer hardware to process transactions on a blockchain (Bitcoin or otherwise). Miners do this to receive mining rewards and profit.
Miner fee: Miners earn block rewards when solving blocks. Over and above this miners also earn voluntary fees paid by people who wish to send coins. This incentivises miners to include transactions with the highest fees into blocks when the network is congested.
Multi-signature / multisigin wallets: Multiple signature (or MultiSig) refers to the requirement of multiple authorisations (usually from different people) to successfully send a transaction on a blockchain. For example, you have 5 people authorised to send Bitcoin from a MultiSig wallet but at least 3 of these 5 must approve a transaction before it is authorised.
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Node: A device with a copy of the blockchain on it that shares information with other nodes across the network. The node does not necessarily mine digital currency but it does contribute to decentralisation and therefore security of the blockchain. All miners are nodes but not all nodes are miners.oo
Order: An instruction to trade (buy or sell) via an exchange (e.g. the stock market). More specifically, we exchange Bitcoin for local currencies, as on the XWEALTHBOX Online site.pp
Private key: A private key is a digital code, like a password, that is used to authorise digital currency transactions on a blockchain. This code, which should be kept secret, authorises the owner to send coins from a specific wallet.Public key: A public key is a digital code that uniquely identifies a wallet on a blockchain; ie. the wallet address. This is the address you give to somebody who wants to send you digital currency.
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Reward halving: Approximately every four years, the rate at which new Bitcoin gets issued is halved. This is also why Bitcoin is thought of as deflationary.ss
Satoshi (person): Satoshi Nakamoto is the person credited with inventing Bitcoin. It’s a pseudonym. The identity of the inventor of Bitcoin is unknown.Satoshi (unit): A satoshi is also the smallest unit into which a Bitcoin is divisible. 1 Satoshi = 0.00000001 Bitcoin.
SHA256: The SHA (Secure Hash Algorithm) that Bitcoin uses. See hash.
Segregated Witness (Segwit): SegWit is feature of some blockchain protocols (including Bitcoin and Litecoin), that moves a part of the transaction data out of the main block thereby reducing the effective size of transaction. It therefore allows more transactions to fit into into a single block without having to increase the size of the block.
Smart contract: A software program that is created on a blockchain and identified by an address. Transactions on the blockchain can execute the contract in various ways, for example, by sending some digital currency or data to the contract's address. If executed, a smart contract can, in turn, send more transactions or execute other smart contracts.
Spread: This is the difference (or gap) between the price of the highest buy order (see bid) and the price of the lowest sell order (see ask). Lower spreads are a sign of a healthy or stable market.
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Taker order: This is either a buy order at / above the market price or a sell order at / below the market price. This order executes immediately, without waiting in the order book. Because it matches with maker order and takes them out of the market, it is said to be a ‘taker’ order.Token: Generally, a token is a digital currency that is not backed by its own blockchain, and instead is provided by functionality of another currency's blockchain. For example, ERC20 tokens provided by smart contracts on the Ethereum blockchain.
Transaction confirmation: Roughly every ten minutes (in Bitcoin, that is - other blockchains block times may vary), a new block is created and added to the blockchain through the mining process. This block verifies and records any new transactions. Since subsequent blocks are linked to previous blocks, each subsequent block acts as a confirmation of its predecessors. For example, if a transaction was included in block 101, and the latest block is 110, the transaction is said to have 10 confirmations. In this way, transactions are said to have been confirmed by the (Bitcoin) network.
Transaction ID (or TxID): An identifier used to uniquely identify a particular transaction.
Two-factor authentication: Sometimes referred to as “2FA". An extra layer of security, usually in addition to a password. Two-factor typically uses a second device (e.g your mobile phone) to provide an extra once-off code. Both your usual password and this unique code are needed to authorise sign-in access or a transaction.
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Wallet: Software with which you send and receive digital currency. Remember, the coins are stored on the blockchain. The wallet contains the private keys that authorise the owner to send these coins to another wallet.Is there any related term that you felt we have omitted or didn't add, you can add them in the comment section below
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