6 Bitcoin Jargon You Need to Understand

6 Bitcoin Jargon You Need to Understand

Getting acquainted with Bitcoin and the rest of the cryptocurrency world can be difficult, not simply because of the introduction of a new kind of technology, but also because it requires diving headfirst in an entire dictionary of unfamiliar terminologies and jargon. Trading 101 demands that you educate yourself thoroughly in any asset you put money in, and failing to understand common Bitcoin-related terms can put you at a major disadvantage. Here are 6 common Bitcoin jargon you need to understand in the cryptocurrency realm.

1) Cryptocurrency

Cryptocurrency is a digital currency, or more specifically, a peer-to-peer electronic cash system. Satoshi Nakamoto, the creator behind the first cryptocurrency (Bitcoin) in 2009, wanted to create a digital currency that solved the problems from previous attempts at digital currency: scarcity and utility. Without either of these two factors, no currency could truly have an inherent value. Cryptocurrencies achieve these two factors and prevent double-spend through an encrypted blockchain network.

2) Blockchain

Blockchain is the technology on which cryptocurrencies and other decentralized platforms are built. The main point that must be understood about blockchain is its decentralization—unlike other applications and software, there is no central server or holder of data for a blockchain system. Instead, blockchain works by running across a network of every computer connected to it, with heavy encryption that prevents any one user from manipulating the chain.

3) Bitcoin Wallets

Bitcoin wallets are sometimes known as cryptowallets. These are applications where users can store their keys (PINs) which identify their Bitcoin. With each wallet comes two keys: the private key and the public key. The public key is shared with others, when you wish to have coins sent to your wallet, and the private key is for the wallet owner alone. There are also physical wallets, which is known as “cold storage”; these are small devices upon which Bitcoin owners can store their Bitcoin safely, without fear of losing it through fraud.

4) “HODL”

“HODL” is a meme in the Bitcoin community, which originated from a post from 2013 in which an inebriated Bitcoin owner called himself a bad investor, because instead of selling Bitcoin when it had reached a supposed All-Time-High, he kept “HODLing” or holding his Bitcoin investment. This has become a point of reference for many cryptocurrency owners who begin to feel uneasy during tense times: “HODL” your investment through all the rough patches.

5) Proof of Work

Proof-of-work, or POW, is the mining that goes on behind the scenes to produce Bitcoin. Miners must dedicate their computer’s electrical power towards solving equations in the blockchain (this is the POW system), and these equations are part of a set of unpredictable mathematical formula that, when solved, gives Bitcoin to the miner. The faster and better the computers of the miners, the faster they can solve these equations and mine Bitcoin. The POW system is part of what gives value to Bitcoin, as running computers that can mine Bitcoin has become so expensive that it is now estimated that Bitcoin miners use the same amount of energy as several countries.

6) Decentralization

This is the most important term to understood when getting on board with Bitcoin and blockchain technology: the true necessity of decentralization. Bitcoin was born after the 2008 global financial crisis, caused by financial institutions that proved that they could no longer be trusted. However, many of us cannot afford to live without banks in our lives, and therefore a system needed to be created that would allow the same functionality that we currently have with large institutions, but without any of the trust that we grant those institutions.

This is the concept of decentralization—creating “trustless” societies, in which we no longer have to put our trust into institutions, financial or not. Many predict that decentralization and blockchain technology will lead to a reshaping of society and the Internet.