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Address

See Public Key.


Algorithm

In mathematics and computer science, algorithms are used for calculation, data processing, and automated reasoning. The Bitcoin protocol utilizes well-established cryptographic algorithms as a means of security -- the same algorithms that are used in high-level computer security systems by banks, governments, and military.


Altcoin

The collective name for digital currencies offered as alternatives to Bitcoin. Ethereum, Litecoin, and Monero are some examples of popular altcoins. Many altcoins are based off of the Bitcoin source code, with some offering unique features beyond what Bitcoin offers.


Backups

The process of making copies of a computer file to ensure its integrity in case of loss, theft, or damage. Bitcoin has the unique feature of allowing users to make backup copies of their digital wallets. This protects against losing one's money in the event of a computer crashing or losing one’s mobile device. This would be the equivalent of being able to backup the cash in your wallet, so that if you lost it, you could restore the cash from a backup.


BIP38 Private Key

A regular private key that is protected with a passphrase. Even if someone was to steal your BIP38 private key, they would not be able to access the balance without your passphrase. Keep in mind, though, that if you encrypt your private key with BIP38 and you forget your passphrase, it will be impossible for you to recover the funds that are in this wallet. Navigate to our Security and Storage page to learn how to use BIP38 private keys.


Bits (μBTC)

One bitcoin is divisible into one hundred million units, so bitcoins can be described with many different denominations. Its smallest unit is 0.00000001 of a bitcoin, which is known as a satoshi. The "bit" is a commonly-referenced shorthand denomination, and is equal to 100 satoshis, (just like one dollar is 100 cents). This makes payments easier and more adaptable to conventional currencies.

Example: 0.00382749 BTC = 3,827.49 bits, or 3,827 bits and 49 satoshis. Satoshis are currently worth fractions of a penny and are commonly rounded out for convenience. Bits can also be represented as μBTC, or microbitcoins.


Bitcoin

Bitcoin is a global peer-to-peer payment network that operates much like email. If email is a digital message system, then Bitcoin is a digital money system. Bitcoin can be used freely by anyone with access to the internet. Bitcoin is open source software powered solely by its users; its design is fully transparent and in the public domain. As a decentralized software protocol, no single individual or company owns and controls Bitcoin. HTTP and Email are other protocols that work much the same way as the Bitcoin protocol. Bitcoin is also considered a cryptocurrency, because it utilizes mathematical cryptography as a means of accounting. Bitcoin is like cash for the internet, but is also provably rare and impossible to counterfeit. Bitcoin allows value to flow as fast as information, much like email and social media did for communication.

"Bitcoin" - with capitalization, is used when describing the concept of Bitcoin, or the entire network itself -- e.g. "I was learning about the Bitcoin protocol today."

"bitcoin" - without capitalization, is used to describe bitcoins as a unit of account -- e.g. "I just sent 3 bitcoins to you." Bitcoins can also be abbreviated as BTC or XBT (rarely), and bits, μBTC, and satoshis are words used to describe smaller denominations of bitcoins.


BitcoinAverage

Bitcoinaverage is a website which provides a bitcoin fair price index based on the weighted average price from various exchanges all over the world. They also offer a “Bitcoin price converter" in order to calculate different exchange rates.


Bitcoin Client

Bitcoin clients are software programs used to interface with the Bitcoin network. They store the private keys needed to conduct Bitcoin transactions as well as a copy of the entire blockchain. A Bitcoin client connects to the Bitcoin network and becomes a node in the network. A node shares and propagates new transactions with the rest of the network creating a robust infrastructure. The Bitcoin Core client is the original software written by Satoshi Nakamoto.


Bitcoin Exchange

A central resource for exchanging different forms of currency and other assets. Bitcoin exchanges are typically used to buy and sell bitcoins for fiat currencies or altcoins. Some well-known exchanges are: Bitfinex, BTCe, Kraken, and Vault of Satoshi. Storing your bitcoins on an exchange is much like storing them in a online wallet. You most likely will not have access to the private keys. However, projects like Open Transactions and Ethereum are attempting to create decentralized exchanges that DO NOT have access to your private keys.

Whenever you trust your private keys to a third party, you’re putting your bitcoins at risk. Securing private keys is solely your responsibility.

To learn more, visit our Bitcoin Storage & Security page.


Bitcoin Whitepaper

The Bitcoin whitepaper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" was written by Satoshi Nakamoto and posted to a cryptography mailing list in 2008. The eight-page document describes methods of using a peer-to-peer network to generate “a system for electronic transactions without relying on trust," and laid down the working principles of the digital currency. Satoshi Nakamoto followed up a year later by releasing the original bitcoin client in 2009.


BitPay

BitPay is an international bitcoin payment processor for businesses and charities. It is currently the only US-based payment processor aside from Coinbase. Bitpay has no monthly fees and offers 1% processing fees. Bit Consultants currently recommend BitPay as the best payment processor choice for most businesses.


Block

A block is a group of transactions recognized by the network as valid and added to the blockchain. On average, every 10 minutes a new block is created and added to the blockchain. Blocks are created by a process called mining.


blockchain

The blockchain is the public ledger of every Bitcoin transaction, in chronological order. The blockchain is shared between all Bitcoin nodes and miners. It is used to verify Bitcoin transactions and prevent double spending. Blockchain.info is one of many websites that allows you to browse the Bitcoin blockchain.


Brain Wallet

See Digital Wallets.


BTC

BTC is the most common denomination of a bitcoin. One bitcoin can be written as 1.00000000 BTC. The 8 decimal places are included because each bitcoin contains 100,000,000 units of account, the smallest being 0.00000001, or 1 satoshi.


Change

Since transaction outputs cannot be partially spent, some digital wallets will automatically generate a new Bitcoin address to send the difference back to you. Most digital wallets handle change and change addresses in the background, so it's not something users commonly need to worry about.

Change addresses are not automatic when moving bitcoins from a cold wallet. It is crucial that you transfer ALL of your bitcoins off of your cold wallet, not a partial amount. It is always safest to create a new cold wallet after taking bitcoin off an old one.


Chargeback Fraud

This happens when a person makes a purchase with their credit card, and then requests their money back from the issuing bank after receiving the purchased goods or services. A chargeback cancels the financial transaction, and the purchaser receives a refund of the money they spent. When a chargeback occurs, the business is accountable, regardless of any measures they took to verify the transaction. Bitcoin transactions are irreversible, which eliminates any potential for chargeback fraud.


Cloud Wallet

See Digital Wallets.


Coinbase

Another name for the input used in a bitcoin’s generation transaction. When a bitcoin is mined, it doesn’t come from another bitcoin user, but is generated as a reward for the miner. That reward is recorded as a transaction, but instead of another user’s bitcoin address, some arbitrary data is used as the input.

Coinbase is also a payment processor based in San Francisco, California, that provides a online wallet and exchange platform where businesses and individuals can transact with bitcoin.


Cold Storage Wallet

A method of generating and storing private keys completely offline. One could use a desktop or laptop computer disconnected from the internet, a dedicated hardware wallet, a USB stick, or a paper wallet. To learn more, visit our Bitcoin Storage & Security page.


Confirmation Number

The number of confirmations for a specific bitcoin transaction. Zero confirmations means that the transaction is unconfirmed. One confirmation means that the transaction is included in the latest block in the blockchain. Two confirmations means the transaction is included in two blocks, three confirmations for three blocks, and so on. The probability of a transaction being reversed (double spent) diminishes exponentially with every block and subsequent confirmation.


Confirmed Transaction

When a bitcoin transaction is made, a miner must verify that the transaction is valid. When the inputs and outputs are verified, the transaction is included in a block in the blockchain. The transaction can now be considered complete and irreversible. The confirmation number increases as more blocks are added to the blockchain.


Cryptocurrency

A form of currency based on mathematical cryptography. In comparison, fiat currency is created only by decree of a government or bank. Cryptocurrency is created and verified strictly through the solving of cryptographic proofs.


Cryptography

The use of mathematics to create verifiable codes and ciphers that can be used to authenticate and secure information. Cryptography lets us create mathematical proofs that provide high levels of security. Every area of computer technology utilizes cryptography in various ways. In the case of Bitcoin, cryptography is used to secure the blockchain and prevents a problem known as double spending, the duplication of bitcoins. Cryptography is also used for wallet encryption, so that digital wallets cannot be accessed without a passphrase.


Decentralized

This is a term you'll hear often when digital currency is being discussed. In the context of Bitcoin, it means that the Bitcoin network is not controlled by a centralized authority, such as a bank, government, or corporation. Instead it is controlled by the users of the network. Decentralized systems like the internet do not have single points of failure, making them inherently robust.


Desktop Wallet

See Digital Wallets.


Deterministic Wallets

Most bitcoin wallets generate new key pairs randomly as needed. Deterministic wallets use a specific algorithm and a random seed to generate a master private and public keys, which in turn creates all your other key pairs. As long as you write down the random seed, your deterministic wallet can always be recovered. This method is often used as another form of cold storage. Deterministic wallets allow for greater privacy through the use of unique addresses for every transaction. Some wallets that support deterministic addresses are Trezor, Electrum, and Hive Wallet.

To learn more, visit our Bitcoin Storage & Security page.


Digital Currency

A medium of exchange that is electronically created and stored. Some digital currencies, such as Bitcoin, are also known as cryptocurrencies.


Digital Signature

A digital signature is a mathematical mechanism that allows someone to prove their identity or ownership of a digital asset. When your digital wallet signs a transaction with the appropriate private key, the whole network can see that the signature matches the bitcoins being spent, without the need to reveal the private key to the network.


Digital Wallets

A digital wallet is similar to a physical wallet except that it is used to hold digital currency. A Bitcoin wallet holds your private keys, which allow you to spend your bitcoins. You are also able to make backups of your wallet in order to ensure that you never lose access to your bitcoins. Digital wallets can exist in many different forms and on many devices:
  • Desktop/Software Wallet (Electrum, Bitcoin Core, Armory, Multibit): Wallet programs that you install on a laptop or desktop computer. You are solely responsible for protecting the wallet file and the private keys it contains. Make backup copies of your wallet files to ensure that you don't lose access to your funds.

  • Mobile Wallet (Mycelium, Breadwallet, Airbitz): These wallets can be downloaded through Google Play or Apple (iTunes) App Stores. Mobile wallets allow you to use Bitcoin on the go by scanning a QR code to send payment. Make backup copies of your mobile wallet files to ensure that you don't lose access to your funds.

  • Online/Cloud/Web Wallet (Coinbase, Circle): Third parties that will store your bitcoins on their servers for you, so that you can access your bitcoins from any device connected to the internet. If their website is hacked or if their servers are damaged, you run the risk of losing your bitcoins. Any online wallets should be secured with strong passphrases and 2FA. You cannot make backup copies of your online wallet, because you do not have access to the private keys.
      - Hybrid Online Wallets: Some websites such as GreenAddress and Coinkite offer what is known as hybrid online wallets. These websites store your private keys in such a way that solves the problem of trusting a third party.

Bit Consultants strongly urge that you NEVER store large amounts of bitcoin in any online wallet.

  • Hardware Wallets (Trezor): A hardware wallet is a specialized, tamper-proof, hardware device that stores your private keys. This device is able to sign transactions with your private key without being connected to the internet. However, you must have an internet connection to send the transaction to the Bitcoin network. This allows your private keys to be accessed easily while still keeping them securely protected.

  • Brain Wallet: A wallet in which the public and private keys are generated from a string of random words that you, alone, have memorized. Brain wallets are not recommended as a means of storing bitcoins. This is because generating bitcoin keys requires a significant amount of entropy (randomness) that is not easily achieved by humans.

  • Offline/Cold Storage (Paper wallet): A special wallet that is created offline and is never exposed to the internet. Accomplished by using software to generate a public and private key offline and then recording the generated keys. They keys can be printed out on paper or even laser-etched in metal. Copies can be made and stored in a personal safe or bank deposit box. This is the most secure way to store bitcoins. There is no risk of using software wallet files, which can become corrupt, or web wallets, which can be hacked or defrauded.

To learn more about using digital wallets, visit our Bitcoin Storage & Security page.


Distributed

A distributed system is a software system in which components located on networked computers communicate and coordinate their actions by passing messages. The components interact with each other in order to achieve a common goal. Distributed computing also refers to the use of distributed systems to solve computational problems. In distributed computing, a problem is divided into many tasks, each of which is solved by one or more computers, which communicate with each other by message-passing.


Double Spend

Even though Bitcoin solved the double spend problem, a malicious user can still attempt to send the same bitcoins to two different recipients, at the same time. Since the blockchain knows that the bitcoins were already sent once, only one of the transactions will be confirmed. Bitcoin miners and nodes create a consensus on the blockchain about which of the two transactions will confirm and which will be rejected. Double-spending requires an immense amount of resources, making it very expensive and therefore not economical on small scales. If you are ever transacting with large amounts of bitcoin, we suggest waiting for 1-3 confirmations.


Encryption

Using cryptography, encryption is the process of encoding information or data in such a way that only authorized parties can access it. The information is encrypted using an algorithm, generating ciphertext that can only be read if decrypted with the correct corresponding key.


Exchange

See Bitcoin Exchange.


Exchange Rate

The current price of 1 BTC compared to the price of other currencies, like dollars. A good place to see the average exchange rate across all the bitcoin exchanges is bitcoinaverage.com. The value of bitcoins at any given time depends upon the market’s demand for them relative to the available supply. For this reason, the value is always fluctuating, relative to the dollar. As a business, you can avoid the volatility risk by having a payment processor do an instant exchange at the time of each transaction.


Fiat Currency

Fiat money is currency which derives its value from government regulation or law. It differs from commodity money, which is based on a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange. The majority of currencies in the world — including US dollars — are fiat currency systems. They can be used for transactions and are viable for trade in their own markets because those who use them — be they governments, banks, or individual investors — have faith in the issuing authority of said fiat currency.


Genesis Block

The very first block in the blockchain. The Bitcoin Genesis block was created on the 3rd of January, 2009, containing a newspaper headline: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" as a proof that there are no secretly pre-mined blocks to overtake the blockchain in the future. The headline reflects the reason for the creation of Bitcoin; an alternative to the constant inflationary money supply printed by governments and banks.


Halving (Block Reward)

This refers to the predetermined reduction of bitcoin mining rewards approximately every 4 years. In December 2012, the reward was 50 BTC per block. Until 2016, it will be 25 BTC; then, 12.5 BTC, and so on. The majority of the 21 million bitcoins will be created by the year 2040, and the very last satoshi will be created around the year 2140, after which point, no more bitcoins will ever be created.


Hardware

Computer hardware is the tangible component of computers, such as the monitor, mouse, keyboard, computer data storage, hard drive disk (HDD), system unit (graphic cards, sound cards, memory, motherboard and chips), etc. Computer hardware works alongside software, and neither can be realistically used without the other.


Hardware Wallets

See Digital Wallets.


Hash

A hash algorithm compresses an arbitrarily large amount of data into a fixed-length string of letters and numbers, called a hash. When you hash a piece of data, a unique code is created. This acts as a means to verify the original data. If the data is modified by even one byte, it would completely change the hash, and would indicate that the data is not authentic. Bitcoin uses the SHA-256 hash algorithm to secure the network with a process known as proof-of-work.


Hashing

When a block of transactions is created, miners put it through a process. They take the information in the block, and apply a mathematical formula to it, turning it into a hash -- a far shorter, seemingly random sequence of letters and numbers. This hash is stored along with the block, at the end of the blockchain. Miners also include the data from the hash of the block before it into the hash for the new block. Because each block’s hash is produced using the hash of the block before it, it becomes a digital version of a wax seal. It confirms that this block – and every block after it – is legitimate; if it's tampered with, everyone would know. If you tried to fake a transaction by changing a block that had already been stored in the blockchain, this would change that block’s hash. If someone checked the block’s authenticity by running the hashing function on it, they’d find that the hash was different from the one already stored along with that block in the blockchain. The block would be instantly spotted as a fake.


Hash Rate

The hash rate is the measuring unit of the processing power of the Bitcoin network. The Bitcoin network is constantly calculating hash functions for network security purposes. When the Bitcoin network reached a hash rate of 100 Th/s, it meant that 100 trillion hashing calculations were happening per second.


Inputs

The part of a bitcoin transaction denoting where the bitcoin payment has come from. This will almost always be a bitcoin address, unless the transaction is a generation transaction, meaning that the bitcoin has been freshly mined.


Instant Exchange

When you enable Instant Exchange with a payment processor, all bitcoin payments you receive will be immediately sold to the payment processor at the current exchange rate. This ensures that you will receive the correct amount in US dollars for whatever you sold your product for, less applicable fees.


Ledger

A ledger is a permanent book or computer file for recording economic transactions measured in terms of a monetary unit. A ledger records the debits, credits, and monetary balance for each account. With Bitcoin, the blockchain acts as the ledger.


Malware

Malware, short for malicious software, is any software used to disrupt computer operation, gather sensitive information, or gain access to private computer systems. Malware includes computer viruses, worms, trojan horses, ransomware, spyware, adware, scareware, and other malicious programs. Malware is often disguised in email files, URLs, or on malicious websites. Bit Consultants recommend installing Malwarebytes to protect your computer. They offer a free version, which works well; however, you can purchase their pro version with bitcoin!


mBTC (Millibitcoin)

One thousandth of a bitcoin. Equal to 0.00100000 BTC or 1,000 bits.


μBTC (Microbitcoin)

One millionth of a bitcoin. Equal to 0.00000100 BTC or 1 bit.


Medium of Exchange

A currency or commodity universally trusted and used for trade to avoid the inconveniences of a pure barter system.


Mining

Bitcoin mining is the process of using computers to perform hash functions (mathematical calculations) to ensure the security of the Bitcoin network. Miners confirm or reject transactions, include them in blocks, and secure the blockchain. As a reward for offering computing power to the network, Bitcoin miners are issued newly-minted bitcoins by the Bitcoin protocol. Miners also collect the transaction fees for any transactions that they confirm. Mining was once easy enough to do on a laptop but has since become a specialized and competitive market. Only 21 million bitcoins will ever be minted by the software. As of July, 2014, there are roughly 13 million bitcoins in circulation. About every 4 years, the number of bitcoins being minted is halved. The increasing supply quickly tapers off within a matter of years, and bitcoins will trickle into creation up until 2140; however, the majority of the 21 million will be created by 2040.


Mining Pool

A group of miners working cooperatively to increase their hashing power. In mining pools, rewarded bitcoins are divided amongst its users according to how much computing power they offer to the pool.


Mixing Service (Tumbler)

A service that mixes your bitcoins with someone else’s, sending you back bitcoins with different inputs and outputs from the ones that you sent to it. A mixing service (also known as a tumbler) preserves your privacy because it stops people tracing a particular bitcoin to you.


Mobile Wallet

See Digital Wallets.


Mt Gox

Mt Gox was a very large Bitcoin exchange based in Japan. In February, 2014, it suddenly suspended trading and closed its website. At the time, 850,000 bitcoins (which had the equivalent value of US$450 million) went missing. Since that time, over one quarter of these bitcoins have been found, but the rest remain missing. It’s important to note that the dangers in the system lay with Mt Gox, which was insecure and poorly managed, rather than with Bitcoin itself.


Multi-signature Address (Multisig)

A multi-signature address is an address that is associated with more than one private key. With regular bitcoin addresses, only one private key is required to spend your bitcoins. Multisig addresses require multiple private keys to spend your bitcoins. This enables a higher level of protection for your bitcoins, because multiple private keys are needed to access the coins.


Mycelium

A mobile wallet app with resources for buying and selling bitcoins in your local area. See Digital Wallets.


Node

A computer connected to the bitcoin network that relays transactions from one client to another. Whether mining or not, anyone can operate a node on the Bitcoin network, which is a copy of the public ledger (blockchain). Allowing anyone to become a node keeps the blockchain decentralized and beyond the control of any one single entity. This is key to the operation of the Bitcoin protocol. Bitcoin Core is the main client for running a Bitcoin node. As of July 2014, the blockchain requires 25GB of free hard drive space.


Offline Storage

See Cold Storage Wallets.


Online Wallet

See Digital Wallets.


Open Source

Pertains to a type of computer software whose source code is available, free of charge, to the public -- to use, copy, modify, sublicense, or distribute. The source code can be understood as the blueprints for any software program. In the context of Bitcoin, its source code was made open source in 2009 by Satoshi Nakamoto. The code has been thoroughly audited and operates exactly as indicated.


Outputs

The part of a bitcoin transaction denoting where a bitcoin payment is being sent to. Depending on how many parties you are sending to, there can be multiple outputs for a single transaction.


Paper Wallet

A paper wallet is a document that contains your public and private keys that make up your digital wallet. Often they will be represented as QR codes, so that you can easily scan and access them to make a transaction. Paper wallets are a form of cold storage. See Digital Wallets for more information.


Passphrase

A passphrase is similar to a password in usage, but is generally longer for added security. Passwords are typically not safe to use for digital currency encryption; passphrases are stronger and clearly a better choice in these cases. Passphrases usually are a string of random words up to 20 characters or more. If well chosen, they will not be found in any phrase or quote dictionary, so such dictionary attacks will be almost impossible. A long phrase is more easily remember f a single word password is more easily memorable, reducing the risk of hardcopy theft.

A strong passphrase should be:
  • Long enough to be hard to guess (20 characters or more)
  • Not a famous quotation from literature, holy books, et cetera
  • Hard to guess by intuition—even by someone who knows the user well
  • Easy to remember and type accurately
  • For better security, any easily memorable encoding at the user's own level can be applied.
  • Not reused between sites, applications and other different sources.

Use this website to test a passphrase that is similar in length to the one you're considering using. DO NOT type your actual passphrase into this website.


Payment Processor

For businesses, Bitcoin payment processors allow you to automatically cash out bitcoins into your bank account. This protects you from any exchange rate risk, because the dollar amount paid by your customer will be the exact amount you receive in your bank account. Payment processors also give you the option to hold a percentage of your bitcoin earnings, if you wish. There are currently two major Bitcoin payment processors in the U.S.: Coinbase and Bitpay. Both are well-established, licensed, and trusted by major companies like Expedia, Overstock, Dell, and Dish Network. Bit Consultants can help recommend which payment processor will best fit your needs.


Payout/Cash Out

The process of selling bitcoins for another currency or commodity. Bitcoin exchanges and Mycelium are the most common ways to cash out bitcoin for individuals. For businesses using a payment processor, bitcoins are paid out in dollars to your local bank account once per day. Instant exchange must also be enabled with your payment processor for automatic payouts.


Peer-To-Peer (P2P)

Peer-to-peer is a type of decentralized and distributed computer network that anyone can participate in. Data is shared directly between computers on the network without the need of a central server. In other words, each computer on a P2P network becomes a file server as well as a client. In the case of Bitcoin, the P2P network is built in such a way that each Bitcoin node is both broadcasting and receiving the transactions of other users. Because of this, no centralized authority is required to sustain the network. The Bitcoin network acts as the trusted third party who keeps a transparent public ledger know as the blockchain.


Private Key

A private key is a specific string of numbers that allows you to spend bitcoins from a specific bitcoin address. Your private key is the sole means of accessing your bitcoins and must be kept secure. Every Bitcoin address has a matching private key. Your bitcoin address can be calculated from the private key, but importantly, the same cannot be done in reverse. Your private key(s) can be stored in a number of places; most software and mobile wallets store your private keys locally, which means your private keys reside on the same device as your wallet. With a cold storage wallet, your private keys are stored offline on paper, making it the most secure way to store private keys. In the case of an online wallet, some store your private keys on a remote server. This is a much less secure method, as your keys are no longer solely in your possession. Private keys must always be secured and never revealed to untrusted parties. If someone has access to your private keys, they can spend all the bitcoins associated with that bitcoin address.


Proof-of-Work (PoW)

The process of using computational power to solve cryptograhic hashes. Bitcoin's network utilizes the SHA-256 algorithm for its proof-of-work function.


Protocol

A specific set of rules or instructions which allow computers to communicate with each other. With the Bitcoin protocol, anyone can participate as long as they follow the same set of rules. HTTP, FTP, and email are some other commonly-used protocols.


Public Key (Public Address)

A public key, also called a public address, is similar to an email address. It is the only information you need to provide for someone to send you bitcoins. It consists of a long string of numbers and letters. QR codes are often used to represent addresses and makes sending and receiving bitcoins much easier.

Example of a public address: 1M72Sfpbz1BPpXFHz9m3CdqATR44Jvaydd


Public Key Encryption

When a new bitcoin address is created, a cryptographic key pair consisting of a public key and private key is generated. Like puzzle pieces, these two keys only fit with each other. Giving out your public key is how people send you bitcoins. Your private keys are used to sign bitcoin transactions, which is what allows you to send bitcoins.


Push vs. Pull Payment Systems

Bitcoin is a push payment technology, meaning all payments are initiated by the spender/customer. In contrast, credit cards are a pull technology, meaning each payment is initiated by a third party. With a credit card, you must provide your personal credit card information in order to make charges to your card. With Bitcoin, your personal information is not shared, and you are the only person who is authorized to access your funds and send payments.


QR Code

A monochromatic pattern representing a sequence of data, much like a barcode. QR codes can be quickly scanned by cameras, like those found in mobile phones. With Bitcoin, QR codes are frequently used to encode bitcoin addresses and other payment details. Bit Consultants are also able to create customized QR codes with a company logo.

Example:
                      


Satoshi

The smallest unit of a bitcoin, 0.00000001 BTC.


Satoshi Nakamoto

The original creator of Bitcoin. A technical paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" was published on the internet in 2008 under the moniker of ‘Satoshi Nakamoto.’ Not much is known about Satoshi. Many speculate that the name is a pseudonym, and that the creator of Bitcoin could be someone of any nationality or even a group of people. Satoshi's anonymity sometimes raises unjustified concerns, many of which are linked to a misunderstanding of the open source nature of Bitcoin. The Bitcoin protocol and software are published openly, and anyone can review the source code functionality. Satoshi cannot make changes to Bitcoin unless they are adopted by the entire network, and therefore “he" does not control Bitcoin any more than you or I do. Remember, the network is an incredibly robust decentralized network that is impossible to stop, outside of shutting down the entire internet.


Seed

In the case of deterministic wallets, a 128-bit seed is typically presented as a 12-word mnemonic using common English words. A backup of the seed allows for the recovery of a digital wallet in the case of hard drive failure, corruption, loss, or theft.


Server

A server is a computer that provides data to other computers. Many types of servers exist, including web servers, mail servers, and file servers. Each type runs software specific to the purpose of the server. While server software is specific to the type of server, the hardware is not as important. In fact, a regular desktop computer can be turned into a server by adding the appropriate software. For example, a computer connected to a home network can be designated as a file server, print server, or both.


SHA-256

The cryptographic algorithm used as the basis for Bitcoin’s proof-of-work system.


Software

Computer software, also known as computer programs, is the non-tangible component of computers. Computer software works alongside computer hardware (the physical components of computers) in order to create a functional computer interface. Computer hardware and software require each other, and neither can be realistically used without the other. See Source Code.


Software Wallet

See Digital Wallets.


Source Code

Every computer program (software) is written in a programming language, such as Java, C/C++, or Perl. Computer programs include anywhere from a few lines to millions of lines of text, called source code. Source code, often referred to as simply the "source" of a program, contains variable declarations, instructions, functions, loops, and other statements that tell the computer how to function.


Transaction

A transaction occurs when you send any amount of currency from one place to another. All Bitcoin transactions are recorded on the blockchain, which acts a public ledger by accounting for every bitcoin in existence. Blockchain.info is a website that displays, in real time, all bitcoin transactions happening on the Bitcoin network.


Transaction Fee

The Bitcoin network requires a small transaction fee when sending a transaction. This fee is paid to the miners to include your transaction in the blockchain. The higher fee you are willing to pay the faster your transaction will be added to the blockchain. These fees are paid directly to the miners running specialized hardware to secure the network.


Triple Entry Accounting

Triple entry accounting is an enhancement to the double entry system, the method currently favored by the worldwide financial system. In double-entry bookkeeping, changes in balances such as earning revenues and collecting cash are recorded with two entries, usually a debit and a credit, assigned on a given date. With triple entry accounting, a third party is present to cryptographically seal each new entry. In the case of Bitcoin, the protocol acts as the third party and records all entries in a public ledger known as the blockchain.


Two-Factor Authentication (2FA or Two Step Verification)

Two-factor authentication is an optional security feature for online wallets, which requires that the user of a system provide more than one form of verification in order to prove their identity and allow access to the Bitcoin wallet. Some two-factor authentication options are: Yubikeys, Google Authenticator, Authy, SMS (text message), and email. These add a second layer of security on top of your chosen passphrase. For more information, see our Storage & Security page.


Unconfirmed Transaction (Zero Confirmations)

A transaction that has not yet been confirmed in the blockchain. This is the only time that there is a risk of double spending. This would take an enormous amount of resources, however, and is very unlikely to happen. For businesses doing large transactions ($1000+) without the use of a payment processor, Bit Consultants recommend waiting for at least 3 confirmations before considering the Bitcoin transaction complete.


Vanity Address

A bitcoin address containing a customized string of letters, such as a name.

Example: 1NiNja1bUmhSoTXozBRBEtR8LeF9TGbZBN


Virtual Private Network (VPN)

Enables a computer to send and receive data across shared or public networks as if it is directly connected to the private network, while benefiting from the functionality, security and management policies of the private network. A VPN is created by establishing a virtual point-to-point connection through the use of dedicated connections, virtual tunneling protocols, or traffic encryptions.


Wallet

See Digital Wallets.


Watch Only Address

Because the blockchain is transparent, you have the ability to view any bitcoin address on the blockchain using a digital wallet or by browsing blockchain.info. You will be able to view the transactions and balance of a public address, but not necessarily who controls it. To move bitcoins you need the private key that corresponds to the public key.


Web Wallet

See Digital Wallets.


Zero-Confirmation Transaction

See Unconfirmed Transaction and Confirmation Number.


51% Attack

A miner or pool (group) of miners colluding to control more than half of the hash rate of the Bitcoin network. This could theoretically allow the group to fraudulently confirm double-spent transactions. Also known as >50% attack or a double spend attack. This attack is considered theoretical because owning more than 50% of hash rate might be much more expensive than any gain from a double spend could be. 51% attacks are mitigated by using checkpoints that prevent reorganization past a certain block.

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