Vocabulary hardware wallet
The Bitcoin network exist from different layers and can be used for different applications. With Bitcoin a whole Bitcoin community and Bitcoin economy has risen, this led to a whole Bitcoin vocabulary. On this page we will give the meaning of all special words and describe them.
Bitcoin adoption takes place when more people start to use bitcoin. Adoption can grow by more people using it as a payment method and by expanding use cases as well. The bitcoin adoption will be parallel to the price, because adoption means more demand and the supply is limited. The adoption of Bitcoin is driven by network effect: The more people are using it, the more useful it will get. The final goal for Bitcoin is mainstream adoption, what means that everyone will use it.
An asset is something you own with financial value. Assets are bought with the reason to sell it for a higher price in the future, or / and to earn a cashflow. Assets can be physic or on paper (proof of ownership). Bitcoin is the first electronic asset and is mostly used for speculation or as store of value. Because Bitcoin is a new technology it is not decided yet in what asset class it belongs. Some countries see it as a currency and others as commodity. There are also many countries where bitcoin doesn’t have a legal status yet.
An altcoin is a cryptocurrency other then bitcoin (alternative coin). Most of the altcoins are based on a blockchain and all of them use cryptography. Altcoins try to do things better or different than Bitcoin, but Bitcoin enjoys the biggest, oldest and strongest blockchain. Also the network effect and first mover advantage will boost Bitcoin.
bitcoin without capital letter b is the currency, coin and payment methode of bitcoin. This is the most famous application of this cryptocurrency, but when the blockchain is used in a smart way there are many more possibilities.
Bitcoin with a capital B stands for the Bitcoin network. The currency is only a small part of the network.
A bitcoin exchange is a platform where you can change your bitcoins (and sometimes other cryptocurrencies) for fiat and fiat for bitcoins. At most of the exchanges you can store your bitcoins too, but remember that exchanges often get hacked. It is better to use exchanges only to exchange and store your bitcoins yourself in a secure way (e.g. hardware wallet)
The Bitcoin network is the total infrastructure where Bitcoin is running on. The Bitcoin network connects the blockchain, side chains, applications, miners, wallets and users. The currency bitcoin is only one application (the most important one). The Bitcoin network is expanding in layers and these layers are growing too. This makes the network bigger, stronger, more secure, wider usable and more capable.
A bitcoin wallet is an application where you can store and use your bitcoins. A wallet contains a private key and a public key and some features to make transactions, track your balance and more. There are different kinds of bitcoin wallets, e.g. online wallet, paper wallet, hardware wallet.
The blockchain is the fundament of the Bitcoin network. The blockchain is a ledger where all transactions are bundled in 10 minutes blocks. All participants will have a copy of this ledger. The transactions are processed by miners and secured by proof of work. The Bitcoin blockchain is the oldest and strongest and has never been hacked. Beside the registration of transactions the blockchain can be used for several other interesting applications.
It is possible to remember your private key, this is called a brain wallet. A private key is made from a string of characters and this is very hard to remember. To make a brain wallet that is easier to memorize, the private key can be encrypted to a password or passphrase. For a secure brain wallet you need to create a strong password. Many brain wallets are already hacked by brain wallet miners. They use special software to try common sentences like songs or famous sayings.
A cryptocurrency contains an amount of tokens that can be used in a certain network. With these tokens you can participate in the network and you can trade them on exchanges. Some cryptocurrencies can also be used as payment method at some merchants. To be valuable these tokens have to be rare. To guarantee safety of the network and avoid counter fitting of the tokens cryptography is used. The most common cryptocurrency of this moment is bitcoin and this currency is slowly taking its part in the international currency market.
Cryptography is a technology to form electronic messages in a way that they are only readable for designated persons. Cryptography is mostly developed for military purpose, but nowadays it is used for digital security and privacy too. By combining different cryptographic technics in a smart way, it became possible to create a secure digital coin. The Bitcoin network is secured by SHA256
Cold storage means that you keep your private key offline. This is the most secure way to store your bitcoins. The private key is the key to spend your bitcoins, the one who owns this key can spend the bitcoins. When your private key is stored on an online device, hackers could steal them. Examples of cold storage are paper wallets, hardware wallets, brain wallets and wallets on an offline computer. Cold storage is most secure when the private key is created on an offline device that has never been connected to the internet. The biggest risk of cold storage is the chance to loose your keys, when you lose your keys you will never be able to reach your bitcoins again!
Counterparty is an altcoin based on the Bitcoin network created to make features possible that cannot be done on Bitcoin itself. The most important features are a platform to create digital tokens, a DEX (decentralized exchange) and a smart contract platform. Counterparty is created with ‘proof of burn’, this means an amount of bitcoins is send to an address where they cannot be spend. These bitcoins represent the Counterparty tokens (XCP). Counterparty expect to enable Ethereum smart contracts on their platform.
Dash is an altcoin specialized in privacy and speed.
When a proces takes place all over the network and not in one physic location, it is called decentralized. The most known decentralized network is the internet. The internet is not located on one place, but exist over all the computers that are connected to the netwerk. The advantage of a decentralized network is that there is no point to attack and the power is among the participants and not a small group of people. Bitcoin is the first decentralized currency. It is hard to attack, devaluation is impossible and you don’t need any permission to get involved. A centralized blockchain can never deliver the same level of security, efficiency and innovation as a decentralized blockchain. Decentralization is by everyone, for everyone!
Dodgecoin is an altcoin, designed to be faster than bitcoin. Dodgecoin is especially fitted for tipping and micro payments.
Ether is the cryptocurrency within the smart contract platform Ethereum. All payments in Ethereum applications are done in Ether. Ether is called the fuel for the Ethereum platform by it’s creator. Ether is not designed as a currency or store of value, the inflation is higher and there is a higher adoption rate needed for a rise in price. However Ether is popular among investors, because the technology is very interesting and a surge in adoption and use cases is expected.
Ethereum is a blockchain based platform that is specially designed for smart contracts. Smart contracts bring the ability to write contracts in the blockchain. Payments will be done automatically when certain actions are proven by so called inputs. The applications that can be created on Ethereum will make existing processes more efficient and reliable, and will make new applications possible. Ethereum is called ‘the world computer’ and is after Bitcoin the biggest altcoin in market capitalization.
A fiat currency is a currency that is created and controlled by the government or central bank. It is possible to control the value of a fiat currency by decreasing or increasing the supply. In the current currency wars, currencies are used to improve the competing power of a country by creating new money. The disadvantage of this is that the value of existing money will decrease, because of a bigger supply against a constant demand. The buying power will be influenced in a negative way and all assets based on this currency will lose value. This can be avoided by storing your wealth in precious metals or cryptocurrencies.
A Hacker is a person who tries to break in in electronic systems to steal information or digital assets. Bitcoin and other cryptocurrencies are attracting hackers, they use special software to crack or steel passwords. The Bitcoin network itself is never hacked, but online wallets and exchanges are often. Cold storage is a way to keep your bitcoins away from hackers, and a hardware wallet is the easiest way to do this. Never store big amounts of cryptocurrency online, but keep them offline so that hackers are not able to reach them.
A hardware wallet is an extern device that can be connected to the computer via USB. A hardware wallet can contain one or multiple wallets, able to make transactions in an secured environment. The private key will never reach the online environment. A hardware wallet is the only way to keep your bitcoins in cold storage while you still keep the ability to make realtime transactions. In other forms of cold storage the bitcoins first have to be brought online before you are able to make payments. Receiving bitcoins is possible by all forms of cold storage, because only the public key is used and not the private key.
Hash power is calculating power used for mining bitcoin and other cryptocurrencies based on proof of work. Bitcoin mining is the approval of bitcoin transactions in a secure way and this will earn the miners BTC. All transactions in a block will be encrypted to 256 characters (When SHA256 is used as in bitcoin) Some of these characters will be replace by a 0 and must be guessed by the miners to find / create a new block in the blockchain and earn a reward. Hash power is measured in hashes / second. The amount of hashes / second represent the amount of guesses to be done in one second. When you have a lot of hash power the chance is bigger to find a new block. The amount of zero’s in the line characters will be adjusted to the time it takes to find a new block over a certain periode of time (Is adjusted to ten minutes). The more hash power is available on the network, the more zero’s will be present in the line of characters and the harder it is to find a new block. This is called the difficulty. When the bitcoin price is rising, more people will start mining. More hash power will come to the network and this will increase the security.
Lightcoin is an altcoin that is lighter than bitcoin and has a shorter block time. This makes the confirmation of a transaction faster. Lightcoin is created to be better than bitcoin on certain points, but bitcoin is still ahead measured in adoption and market capitalization. Many people in the crypto space call Lightcoin silver, where bitcoin is gold.
Market capitalisation is the total value of an asset that is available. To calculate the market capitalisation you can multiply the value of an asset by the available amount. Many analysts try to forecast the bitcoin price by using market capitalization. The market capitalisation is still very small, thousands of times smaller than the cap op other asset classes. When 1% of the money invested in other assets flows into bitcoin, the bitcoin price should theoretically tenfold many times. Using market capitalization it is realistic to say that the strong surge in bitcoin price in the past is only the beginning when Bitcoin will become a real asset class.
The Bitcoin network is secured by miners. The miners are validating transactions by using specialized hardware to deliver hash power or calculating power to the network. By delivering hash power the miners compete in a race to find a new block in the blockchain. When a new block is found, all transactions in this block will be confirmed and the miner will earn 12,5 BTC + the mining fees. To secure the Bitcoin network by delivering hash power, the miners will have to invest in hardware and electricity. This is called proof of work.
Monero is an altcoin designed to transact anonymously. Many sites on the dark web adopted Monero because of it’s good privacy features. After this the Monero price has seen a significant surge.
Namecoin is an altcoin to register identity and domain names in the blockchain.
An online wallet is a wallet that you can easily instal on your computer or smartphone. The advantage of an online wallet is the ease to make instant transactions. The big disadvantage is that an online wallet is easy to hack. Never store big amounts of bitcoin on an online wallet, but use it only for daily transactions and keep bigger amounts in cold storage. A hardware wallet is the only way to make instant transactions from cold storage.
A paper wallet is a wallet on a piece of paper. By writing or printing the private key or recovery seeds on paper and deleting all the online files, the acces to your wallet is not online and hackers can’t steel your bitcoins. Creating a 100% secure paper wallet is complicated because the wallet should be created offline too. When you want to transact with a paper wallet, you first have to insert it to an online wallet.
The private key is the key to make transactions. When you create a wallet you wil receive a private key in a line of characters and a QR code as well. You have to keep your private key strictly secret, otherwise someone can steel your bitcoins
Proof of work
Proof of work is the root of the security of the Bitcoin network. Miners are confirming transactions in het Bitcoin blockchain by delivering hash power. They have the chance to find / create a new block and get a reward. To be able to deliver this hash power, investments must be made in hardware and electricity. To be able to find a new block you will need to put effort (proof of work) in it by sacrificing valuable recourses. The entire network, spread all over the world will confirm transaction how they really happend. The one who wants to cheat the network and tries to insert false information will be rejected and his resources will be lost. Only if he owns more than 50% of the hashpower in the network it will be possible (this is called an 51% attack). Nowadays the hash power on the Bitcoin network is huge, it is almost impossible for a single individual or party to crack the Bitcoin blockchain. When you want to change the history of the blockchain, it will cost even more. Every block of ten minutes has to be overwritten by more hashpower than it is created with. This means that you need already more than 6 times the total hashpower to change one hour (imagine one day, month, year….). Because of the compounding security some platforms require more confirmations of ten minutes for bigger transactions.
The public key is the adres to receive bitcoins. Same as the private key you will receive your pubic key in the form of a line of characters or a QR code when you create a wallet. You can show your public key to everyone.
Quantitive easing is printing money of a certain fiat currency by a central bank. Quantitive easing is done to decrease the value of a currency and improve the competitive position of a country. Nowadays quantitive easing takes place on a huge scale, so other countries have to follow to improve their position as well. This is called currency war. When new money get printed, most of it will flow into financial markets, but the savings of the civilians will become less valuable. Bitcoin can’t be printed, so to protect your wealth you can store it in bitcoin. Because of this and because there is no correlation with other financial products, bitcoin is together with gold seen as a safe heaven.
Recovery seeds are 12 to 24 words, created bij encrypting the private key. When you create a wallet you will be asked to write these words down and keep them in a secure place. When you lose your wallet or forget your password, you can download the same wallet again and get your bitcoins back by inserting your recovery seeds. Keep your recovery seeds always secure and take care that nobody will ever see them!
Rootstock – RSK
Rootstock or RSK is a sidechain of Bitcoin that will be available soon. The blockchain of Bitcoin is not designed for smart contracts, so Rootstock is created to enable this. Bitcoins can be locked up in the sidechain and used as payment in Rootstock. All smart contracts that can run on Ethereum will also work on Rootstock, but Rootstock is way more secure because it is based on Bitcoin. Furthermore, Bitcoin never had a hard fork or roll in it’s history. Also will Rootstock help to solve the scaling problems, there will be much more transactions possible than on the Bitcoin blockchain itself.
Satoshi Nakamoto is the creator of Bitcoin, but nobody knows who it is. It could be an individual or a group of people. After the launch of Bitcoin, Satoshi communicated with the world online for a few time and disappeared later. Probably it was a good choice to remain anonymously, because many parties are not happy with the rise of Bitcoin
Smart contracts are automatic contracts in a blockchain. The contracts will be executed automatically when certain inputs confirm a reached agreement. Smart contracts will replace a lot of administrational work and will end fraud and human error. People can now safely sign a agreement without the need to know or trust each other. Using smart contracts an application like Uber can be automized and decentralized (no backing company needed). When somebody enters the (self driving) taxi, he can inserts his destination and pays the BTC to the application where it will go in escrow. Now the taxi will drive to the destination and the GPS will confirm the destination to be reached as an input. Now the BTC will move from escrow to the wallet of the taxi and the doors of the taxi will be unlocked. Off course this is very futuristic, but smart contracts can be way more simple and can be used in every kind of business. At the moment the most known smart contract platform is Ethereum, but soon it will be possible on the Bitcoin network too, via Rootstock / RSK.
Store of value
A store of value is an asset that people can use to maintain the value of their wealth in times of economic uncertainties. Gold and silver are the most known stores of value, but bitcoin is becoming a store of value too. Bitcoin is not correlated to other assets so can be used to stabilize an investment portfolio. Also as a currency it is a safe heaven, because there is no government or bank that controls and it can’t be printed. Bitcoins will be created in a fixed rate of 12,5 BTC per block (10 minutes). This supply will decrease over time and finally there will never be more than 21 million bitcoins.
Testnet is a platform to try new Bitcoin software and applications without risking real bitcoins.
Volatility of an asset describes how much the price is moving. Wan an asset is volatiel the price movers a lot and the chance for a big lost or profit is bigger. A currency shouldn’t be to volatile, because it will change the buying power everyday and this will bring uncertainty. Bitcoin was in its first years very volatile, but now it is becoming more stable and this makes it a beter payment system. The expectation is that this trend will go on when Bitcoin get more mature.
Zcash is an altcoin with comparable characteristics as bitcoin, but an extra layer to become 100% anonymous. Bitcoin is pseudo anonymous, because all transactions in the blockchain are open to see for everyone.