Cryptocurrency Bitcoin Glossary

cryptocurrency glossary

A block is a file where transaction data is recorded in the blockchain. New tokens are sometimes given to a number of users that have assets on a particular blockchain. Essentially, when the new tokens are distributed, they are “airdropped” to the holders on the blockchain. A transaction identifier used to reference transactions on a blockchain. Payment received in the form of cryptocurrency is a taxable event. You will have to file income tax on a crypto payment you receive, and file gain or loss when you sell the asset.

Fork (blockchain)

This is the protocol followed by each network participant to create a single, shared state of the blockchain. In this context, consensus protocols replace a centralized record keeper or counterparty, enabling trustless, peer-to-peer interactions. Just like fingerprints, digital signatures are unique to a single person or entity. These signatures are mathematically derived from a special pair of numbers called a public/private key pair. A signature on a public key can only be created by the holder of the corresponding private key. Just like a real signature, a digital signature should convince the recipient that message is authentic. A special mathematical function is then applied to this private key in order to derive a second value, a public key.

Long is a trading position in which the trader is expecting the asset or currency price will appreciate and therefore realize a profit by selling at a higher price than it was purchased at. A limit order is a type of order set to purchase or sell an asset at a specified price or better. For buy limit orders, the order will be executed only at the limit price or lower.

View keys are a special derivative of a private key which grant the recipient permission to view a specific transaction from the corresponding public key. Sharding is a classic technique in distributed systems that reduces the load on the nodes participating in a network by eliminating the requirement that each node process every transaction. cryptocurrency glossary With sharding, each node instead processes only a subset of all transactions. This enables a much greater network throughput, though at the cost of some redundancy. If a dishonest validator violates the protocol, their deposit is “slashed” or confiscated and distributed to the remaining honest validators on the network.

This entity also ensures that no one spends the same balance twice, which replicates the physical scarcity of real currency. Research has shown it is impossible for truly distributed, permissionless networks to achieve all three of these properties. This means that blockchain designers face tradeoffs about what to prioritize. Consensus algorithms aiming for speed often limit the number of network participants, making it less decentralized.

Mining

cryptocurrency glossary

In the case of a sell limit orders, the order will be executed only at the limit price or higher. This stipulation allows traders to better control the prices they trade at. Limit orders rest in the order books until such time as they are cancelled or market transacted against. The Lightning Network is a layer 2 payment protocol designed on top cryptocurrency glossary of the Bitcoin blockchain. It allows instantaneous transactions and settlement off-chain with only the final state of participating nodes being recorded onto the layer 1 Bitcoin blockchain. KYC is the government-mandated practice of collecting exchange and broker market participant data so their movements of assets can be tracked and recorded.

Block Chain

DApps operate similarly to regular web applications; however, they retrieve their state and data from a blockchain network. DApps do not require a central web server to function and can communicate to each other over the messaging protocol of the blockchain network to which they’re connected. In some contexts, confirmations refer to the number of nodes that have accepted a transaction, the number of transactions that reference it, or the number of blocks that are above it. In Bitcoin, a transaction has five confirmations when five blocks have been produced after the block containing the transaction. For many consensus protocols, chain reorganizations occur during the confirmation process. Different blockchains have different metrics for what blocks can be considered immutable and therefore confirmed. The generation of blockchain technology that enabled smart contracts and generalized processing on chain.

So blocks are effectively immutable once added to the blockchain. The contents of this folder are the transactions that occur over a given time interval . Each block contains a reference linking it to the previous block — hence the term “blockchain”. This is similar to how blockchains replicate the physical cryptocurrency glossary scarcity of the real world. However, instead of mining gold, computers must solve a special type of math problem that take at least a certain amount of time. In blockchains, there is no central record-keeper, so the solution to the double spend problem must be solved through the rules of the network.

In this case, the blockchain splits into two or more branches at the last point of agreement, and new valid blocks accepted on one fork will be rejected by the other. Proof-of-work puzzles are based on hash functions, and are at the foundation of Bitcoin’s security model.

A public key can be used to decrypt a message that is symmetrically encrypted using the corresponding private key. A consensus mechanism in which the ability to produce a block is proportional to the amount of the blockchain’s native cryptocurrency an actor holds. The more cryptocurrency the actor holds, the more likely it becomes that he or she will be assigned as a block producer. A participant in a blockchain network that is connected to peers and is capable of validating and propagating new blocks.

Stable tokens reduce the risk associated with the traditional market volatility of cryptocurrencies. A cryptographic equation or set of parameters that corresponds to a paired private key.

  • , the unique codes that are essential to cryptocurrency transactions.
  • Therefore, the further down the chain a transaction is, the more secure and correct its details are.
  • In the case of cryptocurrency creation , the publishing node includes a transaction sending the newly created cryptocurrency to one or more blockchain network users.
  • A digital asset/credit/unit within the system, which is cryptographically sent from one blockchain network user to another.
  • With an asymmetric key algorithm, both parties have access to the public key, but only the person with the private key can decode the encryption; this assures that only they can receive the funds.
  • These assets are transferred from one user to another by using digital signatures with asymmetric-key pairs.

Altcoins

This fact about cryptocurrency can be a major point of friction for new users, especially those who are used to credit cards and bank accounts. In response, cryptocurrency glossary an entire custody industry has emerged to ensure users can maintain the security of their accounts without having to manage private keys.

cryptocurrency glossary

ATR is a technical analysis indicator that measures market volatility by decomposing the entire range of an asset price over a specified period of time. Typical wallet software has functionality for signing messages and transactions for the corresponding network. In blockchains that use UTXOs, each transaction references a previous transaction’s output and consumes 100% of the output’s tokens. The desired payment amount is assigned to the recipient’s address, and ‘unspent’ tokens are assigned back to the owner’s address. This reinforces the immutability of the blockchain, as no transaction may reference a UTXO that has already been consumed. A list of all transactions that have been propagated through a network but not yet included in a block.

The time period between the moment when a transaction is submitted to the network and the moment when it’s recorded into a confirmed block. An approximate number of cryptocurrency coins circulating in the market. Any incoming transactions are broadly classified as a buy if the user directly cryptocurrency glossary invests US dollars to acquire the cryptocurrency. Coins issued by the blockchain protocol to cryptocurrency miners for each successfully mined and validated block. A term referring to the lowest price a seller is ready to accept on their sell order when trading an asset on an exchange.

Market Capitalization

An ICO is when a new coin/token is being sold at a base price before the launch of the service it is associated with, similar to an IPO for corporations in the traditional markets. ICOs are frequently used for developers of a new cryptocurrency to raise capital. A hard fork is a type of blockchain fork that renders previously invalid transactions valid, and vice versa. This type of fork requires all nodes and users to upgrade to the latest version of the protocol’s software.

A tactic consisting in buying and selling assets on different markets and used to take advantage of differing prices on the same asset during the same time. Signature is a unique line of code that allows you to prove your ownership of the cryptocurrency wallet, coins, and contracts. It is similar to cryptocurrency glossary the signature you use in real life to sign checks and contracts, only it’s much more secure and can’t be duplicated. A transaction of very small value that doesn’t offer much financial profit but takes time space in the blockchain. Some cryptonetworks use “on-chain” governance to make decisions.