Bitcoin Core Concepts

Block. A block of coins is divisible to eight decimal places. A millibitcoin (mBTC) is 1/1000 of a Bitcoin. The smallest unit is a satoshi (sat), which is 1/100,000,000 of a Bitcoin.

Transaction. A computer directive styled as "payer X sends Y Bitcoins to payer Z."

Blockchain. Each transaction forms an unbroken link on the chain. This transparent, public chain is what allows Bitcoin to exist and be usable.

Mining. Independent individuals or groups complete intensive and costly computer calculations to create a block.

Block hash. Mining activities incorporate a record-keeping service that keeps the blockchain consistent, complete and unalterable. The hashes validate available Bitcoin and serve as a means of uniformly rewarding the miners.

Blockchain address. A sequence of 25 to 34 alphanumeric characters. This is the information that is given to other parties so they know where to send the coins. They are considered pseudonymous because, while the blockchain itself is public, the address shields personally identifiable information. Cryptocurrency exchanges may be required by law to collect personally identifiable information, but each transaction can be associated with a different Bitcoin address to maintain privacy.

Wallet. Any individual or entity wishing to exchange Bitcoin must create a digital collection of the credentials, known as a wallet, necessary to transact coins.

Full clients. This is a wallet that includes a full copy of the entire blockchain. This is the safest form of storage, but it requires substantial digital space.

Lightweight clients. This is a wallet that includes a more limited version of the blockchain in order to enable it to be portable on devices, such as a smartphone. Since the entire blockchain is not available, a party using a lightweight wallet must trust intermediaries who have full wallets.

Keys. These are the credentials stored in the wallet. Like a safe-deposit box, there are two keys necessary for each transaction.

Public. This is the technology necessary to encrypt and decrypt transactions. It is "one way," meaning that it easily unlocks transactions, but it is very challenging to reverse the transaction. This key enables the blockchain to be uninterrupted.

Private. This is the passcode that transacting parties initiate so that the transaction is unique to themselves. To spend Bitcoin, one must know the corresponding private key and digitally sign the transaction. The party's signature is verified by the public key without revealing the private key.

If the party "loses" its key, the Bitcoin is unrecognizable and essentially of zero value. According to Glassnode, a blockchain analytics company, it is estimated that 10% to 25% of Bitcoins have been forgone by parties who lost the private key. Additionally, if the private key is revealed in a security breach, it is possible for the value of Bitcoins to be stolen and virtually unrecoverable. In 2022, cryptocurrency investors lost a record $3.8 billion to hackers.

Cold Storage. Private keys are stored offline to help avoid losing them or exposing them to a security breach.