What is digital currency?
Digital currency, also known as cryptocurrency (or crypto currency), refers to any virtual asset that uses cryptography for security and blockchain technology for decentralized data storage. The most well-known digital currency is Bitcoin, but other digital currencies/ altcoins also use cryptography and blockchain technology to provide different types of virtual assets.
The following videos may help provide a fundamental understanding of cryptocurrency. It is recommended to watch them in order, as the videos advance for progressive learning. Some of the content is redundant by design, but listening to the concepts explained slightly differently in each video will help enrich your overall knowledge of digital currency. A glossary of definitions is included below for your convenience.
What is a blockchain?
A blockchain is a data system that allows for a digital ledger of transactions to be stored on a decentralized network. Through the means of cryptography, users can securely engage with the ledger and blockchain without the need for any centralized entity or institution. This allows global citizens to participate together on a trusted, decentralized network, as opposed to a centralized system which is managed, regulated, and manipulated by a single entity.
The following videos may help provide a fundamental understanding of blockchain technology. It is recommended to watch them in order, as the videos advance for progressive learning. Some of the content is redundant by design, but listening to the concepts explained slightly differently in each video will help enrich your overall knowledge of blockchain technology. A glossary of definitions is included below for your convenience.
How do you buy & store digital currency?
The following links may help provide a fundamental understanding of how to buy and store digital currency. Please perform your own independent research and consult with a qualified professional before making any financial decisions.
Buy Digital Currency
Store Digital Currency
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Documentaries
General Definitions
A wallet address the location of where you would send, receive, or hold your crypto currency. An address consists of 26-35 alphanumeric characters, and is the public portion of the two encrypted keys necessary for a holder to accept or verify (digitally sign) a transaction.
Example address: 1m5tWpb8K1S7NmH4Zx6rewF9WQrcZv213Z
Air dropping refers to when an Initial Coin Offering (ICO) or cryptocurrency developer issues free tokens or coins to prime the market with early distribution and help gain interest into their new cryptocurrency.
Any digital currency or cryptocurrency other than, or alternative to, Bitcoin (the original crypto currency). Altcoins may be cryptographic applications of various types that operate on a blockchain network, but many altcoins are not limited to only performing as a virtual monetary instrument/ digital currency. Currently, some of the most popular altcoins with the highest market caps are Etherium (ETH), Litecoin (LTC), Bitcoin Cash (BCH), and Ripple (XRP).
The original cryptocurrency, Bitcoin (BTC), is the most widely used digital currency to date. It runs on a decentralized, peer-to-peer network and uses an open source, cryptographic protocol. Developed by Satoshi Nakamoto, whose true identity is unknown and has yet to be verified, designed the Bitcoin network to mathematically generate no more than 21 million Bitcoins.
Bitcoin Cash (BCH) is an altcoin which was the result of a hard fork from Bitcoin on August 1, 2017. It is different than Bitcoin in that Bitcoin Cash does not include the Segregated Witness (SegWit2x) technology, but does currently offer a larger block size to help with transaction processing speeds.
Blocks are the files where unalterable data is permanently stored on the blockchain network. A block acts like a “page” in a ledger or record keeping book. Each time a block is completed, it gives way to the next block in the blockchain. A block is a permanent store of records; once written, a block cannot be altered or removed.
https://www.investopedia.com/terms/b/block-bitcoin-block.asp
A blockchain is a data system that allows for a digital ledger of transactions to be stored on a decentralized network. Through the means of cryptography, users can securely engage with the ledger and blockchain without the need for any centralized entity or institution. This allows global citizens to participate together on a trusted, decentralized network, as opposed to a centralized system which is managed, regulated, and manipulated by a single entity.
Cryptocurrency (or crypto currency), refers to any digital currency or virtual asset that uses cryptography for security and blockchain technology for decentralized data storage.
The technical ability to encrypt and decrypt information through codes and cyphers to ensure security during the sending, receiving, and transfer of data.
Ethereum (ETH) is a revolutionary open-source cryptographic technology that operates on a decentralized platform and runs smart contracts on a specialized blockchain. This technology enables the ability for different types of cryptographic applications (not just digital currency) to be built upon its blockchain technology. Currently, Ethereum is the largest altcoin (highest market cap) and the second most popular cryptocurrency (Bitcoin being the most popular).
Ether is the token of Ethereum, or the “fuel” needed for operating the Ethereum distributed application platform. It is a form of payment made by the clients of the platform to the machines executing the requested operations. Ether is used to compensate developers for their contributions and acts as an incentive for high-quality applications.
A fork is the permanent divergence of an alternative operating version of the current blockchain. Forks occur when a development team creates and inserts notably substantial changes into the system, or when a new set of consensus rules come into existence. Sometimes forks are necessary to correct a bug in the original/ current program or a 51% attack. A hard fork consists of a complete change to the cryptocurrency’s protocol, and a soft fork includes changes that are backward-compatible.
An Initial Coin Offering (ICO) is somewhat similar to an Initial Public Offering (IPO) where shares of a company are sold to investors. Cryptocurrency startups issue their own token in exchange for digital currency as a means of crowdfunding for their project.
A ledger is the file used for the recording and totaling of cryptocurrency transactions. A distributed ledger allows for cryptographic agreements of shared, replicated, and synchronized data to be securely stored on a decentralized blockchain. A central ledger is different to a distributed ledger in that it is controlled by a singular, centralized entity or institution.
Litecoin (LTC) is an altcoin based on an open source cryptographic protocol and is similar to Bitcoin in design. Some differences include faster transaction confirmation, but the use of Scrypt in Litecoin’s Proof of Work algorithm requires more processing memory than Bitcoin which currently causes a more complicated and more expensive production.
A miner is a computer participating by performing Proof of Work (PoW) in a cryptocurrency blockchain network. In turn, miners receive block rewards in the form of the respective digital currency.
Mining is the process by which cryptocurrency transactions are verified and added to the public ledger, known as the blockchain. This is also the process of how new coins or tokens are released for cryptocurrencies. Through this process of compiling transactions into blocks and solving a computational puzzle or algorithm, new blocks become discovered along the blockchain. A small percentage of the mined cryptocurrency is given to miners as a reward for solving the algorithm and lengthening the block chain.
A node is a computer or connected to a cryptocurrency network that helps verify the accuracy of the network’s blockchain. This is achieved by the node supporting the network through validating and relaying transactions while cross-referencing the full blockchain.
A private key is a secret series of letters and numbers kept by the cryptocurrency wallet’s owner, and allows the digital currency to be accessed by the owner. It is recommended that your private key is kept as "cold storage" in a secret location safely offline, and your private key should never be shared with anyone.
A public key is used during digital currency transactions to receive cryptocurrency from the sender. The public key is a unique address consisting of numbers and letters that recipient’s give to senders in order to receive payment through a cryptocurrency transaction.
Public key cryptography, or asymmetrical cryptography, is any cryptographic system that uses pairs of keys: public keys which may be disseminated widely, and private keys which are known only to the owner. This accomplishes two functions: authentication, which is when the public key is used to verify that a holder of the paired private key sent the message, and encryption, whereby only the holder of the paired private key can decrypt the message encrypted with the public key.
Ripple (XRP) is an altcoin it is built upon a distributed open source Internet protocol and has a similar design to Bitcoin, but offers an alternative payment network that is capable of sending any virtual asset type. For example, Ripple has been increasingly adopted by banks and payment networks as a settlement infrastructure technology.
Coined after the alias of Bitcoin’s founder, Satoshi Nakamoto, a satoshi is the smallest unit of a Bitcoin currently available (1 satoshi = 0.00000001 BTC, or 1 Bitcoin = 100,000,000 satoshis).
A smart contract, or self-executing contract, has logic operations similar to a real-world contract and is an unalterable agreement between two parties that is stored on the blockchain network. Once digitally signed, a smart contract can never be altered. A smart contract can be used to define certain computational benchmarks or barriers that must be met in order to process data for transactions. For example, smart contracts may be used to verify digital currency deposits and financial debits and credits, authenticate recorded information such as mortgages, deeds, and land rights, or seamlessly facilitate supply chain management for organizations.
Tokens are the “currency” of Initial Coin Offering (ICO) projects and are a representation of a particular asset or utility that resides on a blockchain. An ICO creates and distributes tokens to the public as a means of crowdfunding the development of their cryptocurrency project. Some examples of tokens include, Golem (GNT), Augur (REP), Basic Attention Token (BAT), and Iconomi (ICN).
A wallet is a digital or physical address where cryptocurrency can be sent, received, and stored. A hardware wallet is a physical device that can securely store cryptocurrency as “cold storage” and is regarded as the most secure way to hold crypto-currency. Two of the most popular hardware wallet models are Ledger Nano S and Trezor. A software wallet stores cryptocurrency that exist purely as digital files. Software wallets can be generated for free from a variety of online sources. Both hard and soft wallets require a private key to access the stored digital currency.
A white paper (or whitepaper) is a cryptocurrency developer’s formal documentation which describes the new cryptocurrency’s protocol and functions in detail. It is an integral part of an Initial Coin Offering (ICO) and includes the commercial, technological, and financial details of the new digital currency.
Technical Definitions
Application-Specific Integrated Circuit (ASIC) mining is a lucrative method of mining digital currency at a much faster rate than a via a standard desktop or laptop computer. An ASIC chip is specifically created for the sole purpose of ASIC mining. For example, a Bitcoin ASIC miner will only process SHA-256, while some altcoin ASICS miners may use Scrypt to solves the specific mathematical code.
https://en.wikipedia.org/wiki/Application-specific_integrated_circuit
BitcoinJS is an online library of JavaScript code used for Bitcoin development, particularly for web wallets. It is a reimplementation of Bitcoin using Node.js and web technologies.
Bitcoin QT is an open source software client that contains a copy of the Bitcoin blockchain. Once installed, it turns your computer into a node in the Bitcoin network and also acts as a desktop wallet.
An estimate for the “velocity of money” within the Bitcoin network. This is used because it gives greater weight to bitcoins that have not been spent for a long time, and better represents the level of economic activity taking place with bitcoin than total transaction volume per day.
Block explorers act as search engines for a cryptocurrency and allow the query of transactions, addresses, and other information.
Block height is the number of blocks preceding the genesis block (first block) on the block chain. A genesis block will always have a height of zero because nothing precedes it. It is a metric used to create a bearing on time in the programming world. Considering that a new Bitcoin block is made every 10 minutes, the information for certain time parameters can help determine the total length of the blockchain.
A block reward is the payment given to miners for hashing, or solving the mathematical equation related to a transaction block. The reward for mining a Bitcoin block is 25 bitcoins per block mined, which will “halve” every 210,000 blocks.
Cold storage is when digital currency is stored offline, and is considered to be the safest means of storing cryptocurrency to discourage against hacking. Some cold storage methods include printing out the QR code of a software wallet, moving the files of a software wallet onto a USB drive, or using a hardware wallet such as the Ledger Nano S or Trezor.
COMIT (Cryptographically-secure Off-chain Multi-asset Instant Transaction) is a protocol where every blockchain is connected. It is an off-chain transaction protocol that allows the blockchain ecosystem to scale further and be more inclusive.
Consensus is achieved when all participants of a cryptocurrency network agree on the validity of the transactions, ensuring that databases are exact copies of each other.
Controlled supply of a digital currency in a fully decentralized monetary system requires no central authority to act as a monetary regulator. Instead, digital currency is created by the nodes of a Peer-to-Peer (P2P) network. For example, the Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless.
In a centralized economy, currency is issued by a central bank at a rate that is supposed to match the growth of the amount of goods that are exchanged so that these goods can be traded with stable prices. This monetary base is controlled by a central bank. For example, in the United States, the Fed increases the monetary base by issuing currency, thus increasing the amount banks have on reserve, and more recently, printing money electronically in a process called Quantitative Easing. Historically, this economic cycle has lead to periods of currency devaluation and instability due to inflation and hyperinflation.
Dapps are decentralized applications with proven uptime reliability. They exist on a blockchain and use a smart contract as part of their back-end code.
A Decentralized Autonomous Organization (DAO), or Decentralized Autonomous Corporation (DAC), is an organization which exists and operates as a sovereign entity and without human intervention. This is achieved through blockchain technology, where the organization’s rules are encoded as computer programs called smart contracts, and financial transaction records and program rules are maintained on a blockchain network.
https://en.wikipedia.org/wiki/Decentralized_autonomous_organization
Delegated Proof-of-Stake (DPOS) is a form of mining that allows a cryptocurrency’s stakeholders (coin/ token holders) to elect delegates for securing the blockchain. DPOS leverages the power of stakeholder approval voting to resolve consensus issues in a fair and democratic manner. All network parameters may be voted on by the elected delegates, including fee schedules, block interval sizes, and transaction sizes. The DPOS model is considered to be more efficient, flexible, and democratic than a traditional Proof Of Stake (POS) algorithm.
Through demurrage, some digital currencies discourage users for hoarding and impose a fee for holding unspent coins over a given period of time.
A deterministic wallet is a system of deriving keys from a single starting point known as a “seed.” The seed allows a user to easily backup and restore a wallet without needing any other information, and may allow the creation of public addresses without the knowledge of the private key in some cases. Seeds are typically serialized into human-readable words in a mnemonic phrase.
In mathematics and computer science, a directed acyclic graph (DAG), is a finite directed graph with no directed cycles. That is, it consists of finitely many vertices and edges, with each edge directed from one vertex to another, such that there is no way to start at any vertex v and follow a consistently-directed sequence of edges that eventually loops back to v again. Equivalently, a DAG is a directed graph that has a topological ordering, a sequence of the vertices such that every edge is directed from earlier to later in the sequence.
In DAG-based cryptocurrencies, each new transaction confirms one or more previous transactions. As a result, transactions perform a structure which represents a directed graph with no directed cycles. An example is IOTA's Tangle Ledger technology use of DAG.
A Distributed Denial of Service (DDoS) is a cyber attack that uses many different computers to tie up the resources of a website or web service with the intention of acquiring the financial resources of a central target.
Distributed Ledger Technologies (DLT) allows for cryptographic agreements of shared, replicated, and synchronized data to be securely stored on a decentralized blockchain.
A digital currency transaction for an extremely small amount (e.g. 1 Satoshi), which offers little financial value but takes up space in the blockchain. Dust transactions are considered “spam” by the network, and are not relayed in efforts to prevent accidental or deliberate clogging of the blockchain.
Enterprise Ethereum Alliance (EEA) is a coalition of start-ups, research groups, and Fortune 500 companies that test various use cases for Ethereum. The purpose of the EEA is to coordinate the engineering of an open-source reference standard and private "permissioned" version of the Ethereum blockchain that can address the common interests of enterprises in banking, management, consulting, automotive, pharmaceutical, health, technology, mobile, entertainment, and other industries, while working with developers from the Ethereum ecosystem.
https://en.wikipedia.org/wiki/Ethereum#Enterprise_Ethereum_Alliance_(EEA)
ERC20 is the Ethereum token standard used for Ethereum smart contracts. This enables cryptocurrency developers who wish to build upon the Ethereum Virtual Machine (EVM) with a common list of rules which Ethereum tokens must implement. ERC20 provides the baseline on how new tokens will function within the Ethereum ecosystem.
A faucet strategy may be used when first launching a digital currency and involves a set number of coins or tokens to be pre-mined and given away for free. This strategy is used to encourage interest in the new cryptocurrency, and for miners to begin mining it.
A 51% attack is a virtual hack of more than half of the computing power on a network in efforts to gain complete and total control over a network. Some scenarios of a 51% attack may result in halting all network mining, or preventing or manipulating all transactions.
A frictionless payment system or market involves zero transaction costs or restraints on trading.
Gas is the execution fee for every operation made on Ethereum, and a measurement of how much processing is required by the Ethereum network to complete a transaction. Its price is expressed in ether which is decided by the miners, and miners can refuse to process transactions with less than a certain gas price. Simple transactions, like sending ether to another address, typically do not require much gas. More complex transactions, like deploying a smart contract, require more gas.
Gas price is the amount of ether to be spent for each gas unit on an Ethereum transaction. The initiator of a transaction chooses and pays the gas price, and transactions with higher gas prices are prioritized by the network.
A genesis block is the first block of a blockchain.
A denomination of ether. Gas prices are most often measured in Gwei (1 Ether = 1000000000 Gwei).
Halving occurs when the “reward” for successfully mining a block of bitcoin is reduced by half. This first happens after mining 210,000 blocks, then every 210,000 blocks thereafter.
A hard fork is a complete change to a cryptocurrency’s protocol. It is a total divergence from the previous software version of the cryptocurrency’s blockchain. Nodes running versions of the previous protocol will no longer be accepted by the changed protocol after the hard fork occurs.
Hashing is a mathematical process that takes a variable amount of data and produces a shorter, fixed-length output. The inputted data is converted into a fixed length string of typically 32 characters. Applied to bitcoin, a hash must follow certain rules and is formulated using very specific information. A bitcoin hash must contain the previous hash and block information within itself, and uses a nonce or “dummy data” to produce a randomized hash. Not all hashes will be accepted and even the slightest modification of the original input data would result in a completely different hash. A hash is “rehashed” thousands of times over per second until a suitable hash is found. The hash is created by the computers trying to find a suitable hash out of hundreds of thousands of hashes. Once a hash is created, it is then stored at the end of the blockchain. The computer that is responsible for submitting a working hash is allocated a reward in the form of the respective digital currency.
A hashrate is the speed at which a block is discovered and the rate at which the related math problem is solved. This is the measuring unit of the processing power of the entire network. The network must make difficult and complex mathematical operations to ensure security. For example, a hashrate of 1 Th/s means that 1 trillion calculations a produced per second.
Transaction inputs reference a previous transaction’s output, where inputs to an address are added up determines the amount a wallet can spend in outputs.
Insta-mine, or instamine, refers to a distribution of cryptocurrency coins in an unfair manner. Typically, an insta-mine scheme issues a large supply of all future available coins during the initial launch of a new cryptocurrency’s Initial Coin Offering (ICO). An insta-mine scenario is likely the result of either nefarious coding by the ICO’s developers, or an issue with the mining difficulty leading to unforeseen errors.
The Kimoto Gravity Well is a mining difficulty readjustment algorithm, which was created in 2013 for the altcoin Megacoin. The well allows difficulty readjustment to occur every block, instead of every 2016 blocks as with Bitcoin. This was done as a response to concern about multi pool mining schemes.
Liquidity swaps are contracts where investors issue loans for others to trade with in exchange for a set return. They are available through digital currency exchanges.
Merged mining is the process of allowing two different crypto currencies that are both based on the same algorithm to be mined simultaneously. This allows a miner to work on multiple blockchains simultaneously, contributing to the hashrate and security of each cryptocurrency being mined. Merged mining is used with low hash-powered cryptocurrencies to increase the hashing power behind their respective network by bootstrapping onto more popular crypto currencies. For example, Scrypt mining of Dogecoin with Litecoin, and Namecoin with Bitcoin, respectively.
A mining algorithm is the computational formula used by a cryptocurrency to sign transactions. These algorithms vary across different digital currency’s. For example, Bitcoin’s mining algorithm is SHA256 and Litecoin’s mining algorithm is Scrypt.
Mining contracts allow investors to invest into cryptocurrency mining without directly mining themselves. Essentially, mining hardware is rented by the investor at a pre-specified amount of hashing power for an agreed amount of time. The mining service is responsible for hardware maintenance, hosting and electricity costs, thus making it easier for investors to participate in the mining space.
Mining difficulty refers to the difficulty level of hashing a new block. This is represented by a numeric value that is related to the maximum allowed number in a given numerical portion of a transaction block's hash. A low number indicates a harder mining difficulty, and a high number indicates an easier mining difficulty.
A mining pool is a group of miners who collaborate to combine their resources and computing power for mining digital currency. This creates a synergy between the miners which allows digital currency rewards to be distributed more consistently between participants in the mining pool.
Minting is the process of rewarding users in Proof of Stake (PoS) cryptocurrency. In turn, new coins are minted as the reward for verifying transactions in a block.
Multisig refers to having more than one signature to approve a transaction. This form of security is beneficial for an organization receiving money into a wallet. For example, for the organization to ensure that one employee does not possess sole access to a transaction, multisig allows for a transaction to be verified by two separate employees before it is complete.
A network split occurs as a result of a hard fork, when a cryptocurrency's blockchain seperates into two different blockchains.
A nonce is a random number used once when a miner attempts to hash a transaction block. The parameters of a nonce is set by the mining difficulty.
Off-blockchain transactions, or off-chain transactions, are exchanges of value which occur off the blockchain network between trusted parties.
An orphaned block is a valid block which becomes discarded by the network after the blockchain has forked and then regained consensus back on a single blockchain. This may happen after two miners simultaneously solve a block, temporarily resulting in two valid blocks in the blockchain.
Orphaned blocks are not to be confused with a Stale Block, which is a well-formed block that is no longer part of the longest difficulty and most well-formed blockchain.
An over-the-counter (OTC) exchange, or off-the-exchange trading, allows direct trading between two parties, and enables traders to avoid some of the limitations set by formalized exchanges.
https://en.wikipedia.org/wiki/Digital_currency_exchange#Over_the_counter_trading_(OTC)
The output of a cryptocurrency transaction contains the instructions for sending/ depositing the digital currency to the receiving address.
A paper wallet is a form of “cold storage” where the wallet’s private key is written or printed on a physical piece of paper and stored in a safe location offline. This method ensures protection against virtual hacks or potential erasing of data.
The ability to perform Peer-to-Peer (P2P) transactions is a primary focus of blockchain and is one of the biggest value-added benefits of decentralization. Nearly every interaction on the blockchain can be fulfilled via P2P, or without a centralized institution such as a store, bank, or notary.
Pre-mining is the act of mining a pre-launched cryptocurrency by its developers before the respective digital currency is released to the public. This can be done with good intentions, however pre-mining is also a common practice of “scamcoins” and fraudulent ICOs.
Proof of burn is a method for distributed consensus and an alternative to Proof of Work and Proof of Stake. It can also be used for bootstrapping one cryptocurrency off of another. Miners show proof of their burned digital currency by sending the burned cryptocurrency to a verified non-spendable address.
Proof-of-Existence is a service provided through the blockchain that allows users to anonymously and securely store a proof of existence for any document online. This allows individuals to prove that a document existed at a certain point in time and demonstrate ownership without fear of evidence being stolen, confiscated, or compromised.
Proof-of-Stake (PoS) is an alternative to Proof-of-Work (PoW), in which an exiting stake in a digital currency is used to calculate the amount of that cryptocurrency to be mined. The PoS concept states that miners may mine or validate block transactions according to how many coins the miner holds. This means that the more digital currency a miner owns, the more mining power the miner has. PoS has been considered the “greener” alternative to PoW. Where PoW requires the miner to prove that they are performing a certain amount of computational work, a PoS system requires the miner to show ownership of a certain amount of money, or stake.
Proof-of-Work (PoW) is a system that ties mining capability to computational power, and was originally designed to filter spam emails and prevent DDOS attacks. A Proof of Work is essentially a protocol that is very costly to execute in terms of time and resources, but can easily be verified by another party. The PoW for Bitcoin is referred to as a “nonce,” or number used only once, and is argued to be an energy intensive alternative to Proof-of-Stake.
The Raiden Network is an off-blockchain protocol change to Ethereum that will enable high-speed, low-fee, and scalable transfers of ether. Although still currently in development, the Raiden Network is aimed to share similar aspects of Bitcoin’s planned Lightning Network.
The Scrypt (pronounced “ess” crypt) mining algorithm is an alternative Proof-of-Work to Bitcoin’s mining algorithm, SHA256. Scrypt is used by several altcoins, including Litecoin, and was specifically designed to make it costly to perform large-scale custom hardware attacks by requiring large amounts of memory. Its more robust memory requirements was originally touted as being “ASICs resistant,” but ASICs has since been released for also mining Scrypt.
A seed refers to a private key derived from a deterministic wallet’s single starting point. The seed allows a user to easily backup and restore a wallet without needing any other information, and may allow the creation of public addresses without the knowledge of the private key in some cases. Seeds are typically serialized into standard words in a mnemonic phrase.
The Segregated Witness (Segwit) consensus layer is intended to solve Bitcoin’s blockchain size limitation which effects transaction speed. Segwit achieves this by splitting the transaction into two segments, removing the unlocking signature ("witness" data) from the original portion, and appending it as a separate structure. In turn, the original section continues to hold the sender and receiver data, and the new "witness" structure contains the scripts and signatures. The original data segment would be counted normally, but the "witness" segment would, in effect, be counted as a quarter of its original size. Segwit was implemented as a soft fork change in Bitcoin’s transaction protocol, and is also used by other altcoins such as Litecoin and Vertcoin.
A sidechain is a separate blockchain that is attached to its parent blockchain through the use of a two-way peg. This allows for the digital currency to be interchangeable and moved across the network at a fixed deterministic exchange rate. The sidechain’s two-way peg works by utilizing Simple Payment Verification (SPV) to prove ownership of the digital currency on the parent blockchain.
A signature is the mathematical operation that proves ownership of a wallet, digital currency, or stored data. For example, a Bitcoin wallet may have a public address, but only a private key can verify with the blockchain network that a signature matches and that the respective transaction is valid.
A Simplified Payment Verification (SPV), also known as a lightweight client or thin client, allows cryptocurrency users to make digital currency payments without needing a copy of the entire blockchain. SPV enables the validation of a transactions by ensuring transactions are in a block, and by providing the Proof of Work confirmations that additional blocks being added to the blockchain.
A soft fork is a change to the software protocol for a cryptocurrency that is backward compatible to allow older nodes, which are not upgraded with the new protocol change, to still function. Only previously valid blocks and transactions are made invalid, and since old nodes will recognize the new blocks as valid, a softfork is backward-compatible. Soft forks require only a majority of the miners to enforce the new rules, as opposed to a hard fork which requires all nodes to upgrade and agree on the new version.
https://www.investopedia.com/terms/s/soft-fork.asp#ixzz50L4CANwr
Solidity is a contract-oriented, high-level language for implementing smart contracts. It was influenced by C++, Python, and JavaScript, and is designed for the Ethereum Virtual Machine (EVM).
A stale block is a block that has already been solved/ mined, and thus cannot offer miners any reward for further work. Although stale blocks have already successfully been mined, they may not be included on the current blockchain, likely because some other block at the same height had its chain extended first.
A taint analysis is a measure of correlation between two addresses to track a digital currency’s history. The “taint” of a transaction evaluates the association between an address and earlier transaction addresses, where a higher taint indicates a stronger link between the two addresses of a digital currency transaction.
The tangle ledger varies from a traditional blockchain in that it is a blockless distributed ledger. Contrary to today’s Blockchains, consensus is no-longer decoupled but instead an intrinsic part of the tangle ledger. This allows for a decentralized and self-regulating peer-to-peer network which is scalable, lightweight, and makes it possible to transfer value without any fees.
A testnet is an alternative blockchain that developers use for testing. Testnet coins are separate and distinct from the blockchain’s actual digital currency and do not hold any monetary value. This allows application developers and testers to experiment without any potential risk of damaging or interfering with the main blockchain.
A timestamp provides proof that a piece of data existed at a certain point in time. Applied to digital currency, this is the cryptographic proof of when transactions taken place.
Digital data can be hashed and the hash can be incorporated into a transaction stored in the blockchain, which serves as a secure proof of the exact time at which that data existed. The proof is due to a tremendous amount of computational effort performed after the hash was submitted to the blockchain. In addition to serving as a source of variation for the block hash, they also make it more difficult for an adversary to manipulate the block chain.
Other applications for a decentralized timestamp are found in dashboard cameras to secure the integrity of video files, and to prove copywrite ownership for creative content and ideas shared on social media platforms.
The total coin supply of a cryptocurrency is the limit on the number of respective coins that will come into existence. Foe example, Bitcoin’s total coin supply is capped at 21 million coins, although some digital currencies have an infinite supply, meaning there is no hard cap set for that particular coin.
A vanity address may be generated as a user’s customized bitcoin address to include chosen words or numbers.
Example vanity address: SendMeUrCrypto4ds36ox2VXdeBE7LNd
The velocity of money is the rate at which money is exchanged from one transaction to another and how much a unit of currency is used in a given period of time. In the global economy, velocity of money is usually measured as a ratio of GNP to a country's total supply of money. For measuring bitcoin velocity, “bitcoin days destroyed” can indicate whether users are hoarding (holding/ hodling) or spending their bitcoins.
https://www.investopedia.com/terms/v/velocity.asp#ixzz50P8CsxFG
A virgin bitcoin is a bitcoin that has been received by a miner as a block reward and which has never been spent by the miner.
A zero-confirmation transaction (or unconfirmed transaction) is a digital currency transaction that has been relayed to nodes in the network, but has not yet been incorporated into a block on the blockchain. Typically, six minimum confirmations are performed before accepting a transaction. Zero-confirmation transactions aim to reduce transaction times, but may also reduce security by increasing the risk of “double spending” or currency manipulation.
Lingo & Jargon
A shortened term for cryptocurrency, refers to any digital currency or virtual asset that uses cryptography for security and blockchain technology for decentralized data storage.
Fiat money is government-issued currency which is controlled by a centralized bank or institution. Examples of fiat currency include the US Dollar, British Pound, and Euro.
https://en.wikipedia.org/wiki/Fiat_money
A potential future event where an altcoin's market cap surpasses Bitcoin’s market cap.
Fear of Missing Out (FOMO) is a mindset that causes investors to purchase an asset based on the premise that they may miss out on a potential windfall.
FUD refers to the emotional effects of fear, uncertainty, and doubt which are caused by biased news, rumors, or misinformation that scare investors into selling off their holdings. This is sometimes caused by deliberate propaganda in efforts to manipulate the markets through confusion and ambiguity.
To "hodl" cryptocurrency means to hold an investment position without selling off coins/ tokens. Originally found as a typo of "hold" on a forum, HODL has evolved into an acronym for "hold on for dear life."
The term “honey badger” refers to Bitcoin’s bias and resilience to fiat currency as well as other types of digital currency: “Bitcoin is the honey badger of money!”
The term “joy of missing out” refers to feeling grateful for not being invested during a market decline, or not losing money due to missing out on the negative event.
Mt. Gox was an early Bitcoin exchange based in Japan that collapsed in February of 2014 due to poor security practices and incompetent management. The infamous demise of Mt. Gox has led to a higher level of due diligence and better practices throughout the industry.
A “scamcoin” refers to fraudulent cryptocurrencies that were created as get-rich-quick schemes to benefit their developers. Scamcoins usually have certain properties, such as being clones of an existing cryptocurrency. Other characteristics may include being pre-mined, insta-mined, or having a hidden launch.
Spoofy is said to be a trader or group of investors who leverage the volatility of cryptocurrencies, mainly Bitcoin, to manipulate their market price. The manipulation is achieved through spoofing, where the nefarious trader/s place buy or sell orders with no intention of actually executing them.
A whale is a trader or investor who owns a significant stake of a digital currency.