Cryptocurrency decrypted. Helping you make sense of the jargon.

If you're new to cryptocurrency and find yourself struggling to connect the dots because you need to consult a dictionary at every turn, you're not alone.

Cryptocurrency really does have a vocabulary of its own, and learning to 'talk the talk' is much like learning any new language.

So, with the hope of helping to 'decrypt' the cryptocurrency world and its language, here we explain some common concepts, terminology and jargon.

Address

When it comes to cryptocurrency transactions, an address is a string of alphanumeric characters representing a possible payment destination. Only someone who knows the address's corresponding private key can access the cryptocurrency transferred there.

Altcoin

The term given to all cryptocurrencies developed after Bitcoin.

Combining the words 'alternative' and 'coin', altcoins are alternative cryptocurrencies to Bitcoin -- each with its own use, purpose and market.

Bitcoin

Launched in 2009, Bitcoin is the world's first cryptocurrency.

One bitcoin comprises 100,000,000 satoshis (smallest unit of value).

Bitcoin network

The decentralised, peer-to-peer computer network responsible for maintaining the Bitcoin blockchain.

Consisting of computers all running the Bitcoin protocol, the Bitcoin network checks the validity of transactions and then records them in the Bitcoin blockchain.

Bitcoin protocol

The software, or 'rules', that governs the Bitcoin network.

All computers forming the Bitcoin network run the same software via the internet, connecting them in a decentralised network.

Blockchain

A blockchain is to cryptocurrency what a ledger is to a bank: it records transactions.

However, while bank ledgers are maintained privately, a cryptocurrency blockchain is an online, decentralised database maintained publicly by nodes in its network.

Transactions are recorded in 'blocks' in the database in such a way that they become virtually impossible to alter.

BTC / XBT

Common symbols for the Bitcoin cryptocurrency.

Confirmation

Cryptocurrency transactions are not considered final until they have been checked and validated by members of the network and incorporated into its blockchain.

Confirmation refers to the process of recording a new 'block' of transactions in a blockchain.

Cryptocurrency

The world's newest form of currency, cryptocurrency is any form of digital money that uses cryptography -- the science of encoding information to keep it private -- to ensure that digital transactions are secure.

Cryptography

The science of encoding information to ensure its integrity and confidentiality.

The internet is far from a secure channel for communications and transactions. However, the encryption processes built into cryptocurrencies ensure that only authorised parties are able to transact -- and do so securely.

Decentralised

Most cryptocurrencies are by very nature, decentralised. They are not governed or maintained by a central authority, but are jointly maintained by all their participants.

Practically speaking, people who transact in cryptocurrency do so 'peer-to-peer' -- without the oversight of a third party.

Similarly, records of transactions in cryptocurrency are held not privately by a central authority (as in the case of a bank), but maintained by its network and made publicly available to all.

Digital cryptographic signature

In much the same way that entering a PIN proves that a cardholder is authorised to transact, a digital cryptographic signature proves the authority of a transaction in cryptocurrency.

Digital signatures, however, are unique to every transaction and produced using the account holder's private account key (known only to them). As a result, they are extremely secure.

Exchange

Traditional exchanges facilitate the sale and purchase of assets such as stocks, bonds and currencies.

Cryptocurrency exchanges allow parties to buy and sell digital money.

Key

Every address created to facilitate cryptocurrency transactions comprises a public/private key pair.

A public key and address are one and the same; they are used to receive cryptocurrency. The corresponding private key (mathematically linked to the public key/address) is used to spend/transfer cryptocurrency.

Mining

A far cry from hard labour deep underground, mining refers to the computational process performed by nodes to validate cryptocurrency transactions, record them in 'blocks' and then broadcast them to the rest of their network.

Dubbed 'mining' because of the extensive computational work required to 'solve' the maths behind the creation of transaction blocks, miners are themselves rewarded with cryptocurrency for their efforts.

Nodes (also 'payment validators')

Nodes are the computers that maintain cryptocurrency transaction records (see blockchain).

Responsible for checking the validity of transactions, grouping transactions into 'blocks' in the transaction chain and broadcasting the updated ledger to the other computers in the network, nodes are the engine rooms of cryptocurrencies.

Wallet

Think of a wallet as you would your internet banking system. This system stores information about all the accounts you hold with that bank and can also serve as a transaction platform.

Similarly, in the world of cryptocurrency a wallet is used to store information relevant to your dealings, including addresses, balances, transaction histories and public and private account keys.

Offline or 'cold' wallets store this information on paper, USB or a hard drive. Online or 'hot' wallets include various apps and software that also facilitate transactions.

There you have it. A brief overview of some of the terms and jargon you're likely to come across as you survey the cryptocurrency landscape.

For further help 'decrypting' the world of cryptocurrency, we encourage you to keep exploring the Cointree Learning Hub.


Credit: Laura Hawting on behalf of Cointree and reviewed by Anouk Pinchetti education consultant Blockchain Centre.