Business 31 December 2018Charles Miller
Bluff your way in crypto-speak
If you think peer to peer is a messaging system in the House of Lords or a hard fork is an unusually resilient item of cutlery, let us put you right.
Every business has its own jargon, and cryptocurrency is no different. In Silicon Valley, they talk of little else but hackathons, burn rate, dog-fooding and exit strategies. Crypto jargon is already almost as weird.
Whether you actually need to understand what you’re talking about or just want to look like you’re in the know at some festive gathering, here’s a beginner’s guide to some key lingo to sprinkle into your conversation.
(Pron.“eh sick”.) An application-specific integrated circuit – a specialist microchip designed for a particular function rather than for the kind of general uses you’d need in a laptop, for instance. ASICs aren’t exclusive to crypto but are important in the crypto world because they’ve been developed to make mining (see below) more efficient.
Bitcoin SV (BSV) is the cryptocurrency that we at CoinGeek support. There are others to choose from but we prefer BSV because we believe it embodies the original plan for Bitcoin proposed by Satoshi Nakamoto. SV stands for Satoshi Vision.
An ever-growing string of digital records that is duplicated among a network of computers. It grows through the addition of ‘blocks’ on the end of the ‘chain’ by the process of mining. The additional block capacity is filled with the latest transactions.
What’s crypto about it? Well, the security of a blockchain depends on a software operation to solve mathematical problems. For instance, something like, ‘what number does x need to be multiplied by, to produce an answer y that has particular properties?’ It’s like cryptography in that it’s very hard to find an answer. To do so requires the testing or “hashing” of huge numbers of possible solutions until one works. An important feature is that once an answer is found, it’s easy to check that it’s correct. (Just as it’s hard to find the square root of a number but if someone claims to have the answer, it’s easy to confirm that it’s right.)
A crypto exchange is a business that, just like a normal currency exchange, for a fee, will convert between cryptocurrencies and fiat currencies or from one cryptocurrency to another.
Fiat is Latin for something like ‘let it be’. Here, it refers to traditional currencies being backed by national governments, the idea being that without that authority behind them, fiat currencies would not be trusted by users. That’s in contrast to cryptocurrencies which are decentralised, meaning they’re not dependent on the policies of any central institution: the technology itself guarantees the transactions.
When a blockchain branches into two, that’s a hard fork. ‘Hard’ in the sense that there’s no going back to a single chain. So why would a fork happen? Well, it’s because the protocol for processing transactions has been changed – perhaps because of disagreements about how the currency should develop or to invalidate transactions following a security breach. After the fork, one of the resulting chains may prosper while the other becomes an ‘orphan’ – still technically on the chain but no longer being added to with new blocks. Or both chains may continue but independently.
Hashing is the computer process in which a cryptocurrency is validated by the solving of a cryptographic puzzle. Competition exists between the computers in a crypto network to solve the puzzle. The more trials per second a computer can perform (its hash rate), the better its chances of being the first to solve the puzzle and being rewarded – see proof of work.
An Initial Coin Offering, or ‘token sale’, like an IPO – an Initial Public Offering, the floating of company’s shares on the stock market – is a way for new cryptocurrencies to raise money. Founders like ICOs because they don’t need to give up a share of their ownership of the business, as they do with venture capital funding. The business simply offers units of its new currency for sale. Investors hope that by getting in early, they’ll be buying at a great price. But this doesn’t always work out and ICOs are considered risky investments – so much so that Facebook and Google banned ads for them in January 2018 (a policy that Facebook loosened somewhat a few months later).
A ledger is a record of transactions – once compiled by hand in leather-bound volumes by Dickensian clerks. In crypto, it refers to the records that are compiled on a block, which can’t then be altered.
The computers that power a crypto network are known as miners because in return for maintaining the network, they are remunerated by the creation of new units of the currency. The more ‘work’ they do, the more currency they ‘mine’ – or bring into existence. There are complicated mechanisms that determine how profitable mining is and the balance of profitability between currency creation and a second source of income for miners, transaction fees – a small percentage of each transaction they validate in a block.
The idea of decentralization depends on a network of computers that act as nodes. None of them has power over the others and information is shared, “peer to peer”, traveling between the nodes via different routes. The network is strong because it’s not dependent on any particular node to be functioning, and the information it holds is secure because each computer contains a copy of all the information on the network.
Private key, public key
If you bank online, you probably aren’t too picky about who knows your bank account number and sort code. Well, that’s the equivalent of a public key in crypto. In both cases, money can be sent to you but not taken from you. It’s like an address, and is public. The private key is like the passwords and numbers you carefully guard to give you access to your bank account – not something you’d want anyone else to have. In a crypto wallet, the private and the public keys are both long strings of numbers and letters, but they have these very different security features.
Proof of work
This is the heart of Satoshi Nakamoto’s system, an idea that puts together many of the elements described above. When a mining computer solves a puzzle ahead of the other nodes in the network, it gets rewarded with newly-minted units of the cryptocurrency. At the same time it completes its new block with all the new transactions in it. The ‘work’ uses power (electricity) to solve the puzzle by hashing. The other node computers then confirm that the solution is valid and accept the record of the new transactions, until all computers in the network have identical copies of the latest confirmed transactions, as well as all those made earlier in the chain.
The original Bitcoin White Paper was written by someone (or people) calling themselves Satoshi Nakamoto. Nakamoto also contributed to various online forums over a period of time but then disappeared from the online world, creating a now decade-long mystery as to who it was. Individuals have been ‘outed’ as Nakamoto only to deny it (including someone called Satoshi Nakamoto) while others have claimed to be him only to have their claims disbelieved. Since the thinking behind cryptocurrency is to liberate it from a central authority, perhaps the writer(s) deliberately avoided announcing special authority over the project.
As well as recording transactions in crypotocurrency, a blockchain can also be used as a secure record of transactions in ‘tokens’. Tokens can be created to represent fractions of all kinds of different assets that have value, a bit like selling shares in a company. An entertainment business might ‘tokenize’ the tickets it sells. Or it’s been suggested you could create tokens that represent shares in the value of your house.
While an exchange is a place to change money, a wallet – which you can download as an app on your phone – is a day-to-day digital device for sending and receiving crypto. There are many wallets available, differing in their interfaces and some functionality but essentially doing the same things. Try Centbee for a simple design and the ability to send crypto to your contacts easily (if they also have the wallet).
The original Satoshi Nakamoto White Paper, published in 2008, is a nine page proposal for Bitcoin (“a purely peer-to-peer version of electronic cash”), complete with diagrams and academic-style references. Much of the paper is technical, about the security arrangements for the network, but there is a hint of an idealistic vision in the comparison of the existing financial system, which “suffers from the inherent weaknesses of the trust based model” with the new digital system proposed in the paper.
The best way to make crypto language and the ideas behind it feel less weird is to plunge in and start using a currency. That means converting some money into crypto, using an exchange, downloading a wallet, transfering your crypto into it, and spending it. There are all sorts of possibilities: you can using a crypto supermarket to buy from the big online retailers or just buy a beer at a bar.
CoinGeek’s step by step guide for newbies, from first steps in crypto to making a purchase:
Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.
Bitcoin Satoshi Vision (BSV) is today the only Bitcoin project that follows the original Satoshi Nakamoto whitepaper, and that follows the original Satoshi protocol and design. BSV is the only public blockchain that maintains the original vision for Bitcoin and will massively scale to become the world’s new money and enterprise blockchain.
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