5 Essential Bitcoin Terms For Beginners
Interest in Bitcoin continues to rise around the world. However, as the cryptocurrency has been steadily gaining traction for over a decade now – having launched in 2009 – Bitcoin has generated a ton of esoteric lingo and terminology which can prove baffling to anyone new to the scene.
Here we explore five of the most basic Bitcoin terms, which are essential for anyone new to trading and investing in BTC.
Blockchain is the system used to power Bitcoin. In essence, it’s where all transactions, data, and records relating to Bitcoin are stored and verified. This ensures that no one can cheat the system by changing or editing the records.
The blockchain system stores information across a network of personal computers. This means that the system is decentralised. Unlike fiat money, which is controlled by governments and banks, Bitcoin has no central company or organisation that controls the system. Instead, it is a collective system which anyone can help run and use. This further guarantees that the blockchain can’t be corrupted in any way as all data is spread across hundreds and thousands of computers located around the world. Each computer holds a bundle of records, known as blocks, which are linked together in a chronological chain. The blockchain uses a form of math called cryptography to implement a series of security protocols, such as ensuring these records aren’t counterfeited; that only one person owns each Bitcoin at one time; and that currency can’t be spent more than once.
While blockchain has become intrinsically linked with Bitcoin, the system itself can be applied to many other functions and is in fact the basis for other cryptocurrencies, such as the increasingly popular Ethereum platform.
The Halving or Halvening
Just like gold, there’s a finite amount of Bitcoin to be found in the world. In fact, supply of Bitcoin is limited to 21 million and, theoretically speaking, there’ll come a day when there’ll be no new Bitcoins left to mine. With some 18.5 million BTC in circulation are we nearing the total cap already?
Thankfully, no. Bitcoin’s developers coded a clever protocol into the blockchain technology that powers Bitcoin to prevent this from happening. The protocol is called the Halvening. This event happens once every four years and literally halves the rate at which new Bitcoins are created. This decreasing-supply algorithm was programmed into the digital currency to echo the rate at which commodities like gold are mined. It’s projected that somewhere around 2140, the last tiny fragments of the final Bitcoin will finally be exhausted.
HODL is used often in Bitcoin circles. The unusual term first appeared on a Bitcoin forum in 2013 after a dramatic drop in the BTC price. It was an obvious typo for the word HOLD. But since them it has become a backronym, standing for Hold On For Dear Life.
When traders and Bitcoin influencers send out a message of HODL, it is meant to encourage people not to impulsively sell Bitcoin when it experiences a price crash. Instead, traders are urged to hold onto their Bitcoins until prices rise again and they are able to sell for a highly profitable rate.
Whenever a cryptocurrency transaction is executed, a crypto miner needs to authenticate that information and update the blockchain with the transaction. Crypto miners compete against one another to solve complicated encryption puzzles through algorithms called cryptographic hash functions. The first miner to crack the code is rewarded with a portion of Bitcoin of their own.
Mining can be very profitable, but it’s also an expensive endeavour. Crypto miners invest a lot of money in building specialised computers capable of processing high hash rates within seconds. A Mining Farm is a vast data centre crammed full of thousands of computers and servers, all of which are purposefully built to verify as many crypto transactions as possible in the least amount of time. Crypto mining is most commonly associated with Bitcoin, however Altcoins like Ethereum and Litecoin are also generated through this process.
A Satoshi the smallest unit of a Bitcoin. Equivalent to 100 millionth of a Bitcoin, the unit was named in honour of the popular cryptocurrency’s mysterious founder—Satoshi Nakamoto.
Satoshi Nakamoto has become synonymous with Bitcoin yet he remains something of a cipher. Many people associate the face of Dorian Nakamoto with Bitcoin’s mysterious creator, but there isn’t substantial evidence to support this claim. Despite countless online hunts, no physical person has ever been traced to the name. Many even believe the pseudonym could refer to a group of people. What is certain is that someone calling themselves Satoshi Nakamoto published a white paper in 2008 titled Bitcoin: A Peer-to-Peer Electronic Cash System. It was this protocol that kickstarted the Bitcoin revolution through the introduction of Blockchain. Then just as Bitcoin began to attract global attention, Satoshi disappeared, and he has never been heard of since.
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