Anyone interested in bitcoin, from beginners to experts, all come across the same common bitcoin terms. To some of us, we already know what these terms mean. But to others, some commonly used terms are not always known or understood that well. This post serves to explain some of those most common terms in simple to understand language.
Blocks are found in the Bitcoin block chain. Blocks connect all transactions together. Transactions are combined into single blocks and are verified every ten minutes through mining. Each subsequent block strengthens the verification of the previous blocks, making it impossible to double spend bitcoin transactions (see double spend below).
The Bitcoin block chain is a public record of all Bitcoin transactions. You might also hear the term used as a “public ledger.” The block chain shows every single record of bitcoin transactions in order, dating back to the very first one. The entire block chain can be downloaded and openly reviewed by anyone, or you can use a block explorer to review the block chain online.
The block height is just the number of blocks connected together in the block chain. Height 0 for example refers to the very first block, called the “genesis block.”
Let’s say you are spending $1.90 in your local super market, and you give the cashier $2.00. You will get back .10 cents in change. The same logic applies to bitcoin transactions. Bitcoin transactions are made up of inputs and outputs. When you send bitcoins, you can only send them in a whole “output.” The change is then sent back to the sender.
A confirmation means that the bitcoin transaction has been verified by the network, through the process known as mining. Once a transaction is confirmed, it cannot be reversed or double spent. Transactions are included in blocks.
Difficulty is directly related to Bitcoin mining (see mining below), and how hard it is to verify blocks in the Bitcoin network. Bitcoin adjusts the mining difficulty of verifying blocks every 2016 blocks. Difficulty is automatically adjusted to keep block verification times at ten minutes.
If someone tries to send a bitcoin transaction to two different recipients at the same time, this is double spending. Once a bitcoin transaction is confirmed, it makes it nearly impossible to double spend it. The more confirmations that a transaction has, the harder it is to double spend the bitcoins.
Bitcoins have a finite supply, which makes them scarce. The total amount that will ever be issued is 21 million. The number of bitcoins generated per block is decreased 50% every four years. This is called “halving.” The final halving will take place in the year 2140.
Bitcoin mining is the process of using computer hardware to do mathematical calculations for the Bitcoin network in order to confirm transactions. Miners collect transaction fees for the transactions they confirm and are awarded bitcoins for each block they verify.
A private key is a string of data that shows you have access to bitcoins in a specific wallet. Think of a private key like a password; private keys must never be revealed to anyone but you, as they allow you to spend the bitcoins from your bitcoin wallet through a cryptographic signature.
Is there a bitcoin term not specified here that you’d like us to explain for you? Let us know by commenting below!