All About Cryptocurrency

Wednesday, August 12, 2015

How to Mine Litecoin and other Altcoins

4 comments : Posted by Unknown at 4:14 AM

While it is now considered too late for hobbyists without expensive ASIC processors to start mining bitcoins, many of the alternative digital currencies are still well suited for mining on your home PC.

In this guide, we’ll take you through all you need to know to start digging up a few litecoins, feathercoins or dogecoins without any costly extra equipment.

For the most part, cryptocurrencies employ either SHA-256 or scrypt as their proof-of-work hashing algorithm, but many of the newer currencies have opted for scrypt.

Gridseed Litecoin Miners — Row of Gridseed litecoin miners set up. Copyright: Arina P Habich

Scrypt tends to be the more memory intensive of the two – however, home PCs with reasonably powerful graphics cards can still mine those cryptocurrencies quite effectively, as there are no dedicated ASICs to compete with – yet.

Perhaps surprisingly, it’s still possible to use just your computer’s CPU to mine some of the digital currencies. This holds true, even if you have only a laptop with integrated graphics; though this may not prove terribly effective and is not a set-up we would recommend.

Wallets at the ready

Before you start mining, you will need a wallet to keep your hard-earned coins in (see our guide to storing bitcoin). A good option is to head to the homepage of the currency you intend to mine and seek out the download link for the default wallet app. If you would like to do more research into litecoin specifically, we have a guide on how to get started.

If you find yourself in need of help and advice, most altcoins have community forums, as well as their own subreddit. The majority of wallets are based on the original Bitcoin-Qt client. Be warned, though, that before these wallets are truly usable, you may face a lengthy wait while the coin's entire block chain downloads.

Dogecoin Client — Wow. Much Wallet (This is DogeCoin's Wallet)

The need for speed

Unless you possess specific mining hardware, there are two ways to mine cryptocurrencies: with your central processing unit (CPU) or with your graphics processing unit (GPU) – the latter being sited, of course, on your graphics card.

Of the two, a GPU offers far better performance for the cryptographic calculations required. However, if you are making your first foray into mining and don't possess a souped-up gaming computer – a laptop with Intel integrated graphics, perhaps – it will still be possible to mine those altcoins, but at a far slower rate.

The catch with GPU mining is that it requires a dedicated graphics processor, such as you may have fitted inside your desktop PC – the Intel integrated graphics cards found in most laptops are just not suitable for the task. To keep speeds up to a respectable level, most altcoin miners build dedicated machines using motherboards that can house multiple graphics cards, usually via riser cables.

Be aware, too, that mining digital coins is very system intensive and can reduce the lifespan of your electronic components. It's a good idea to make sure you have adequate cooling in place, keep an eye on those temperatures and keep hold of any warranties – just in case.

Solo, or with the crowd?

Mining can either be a solitary venture or you can join a mining 'pool', where a number of people combine their processing resources and all take a share of the rewards.

It can be helpful to think of mining pools as joining a lottery syndicate – the pros and cons are exactly the same. Going solo means you get to keep the full rewards of your efforts, but accepting reduced odds of being successful. Conversely, joining a pool means that the members, as a whole, will have a much larger chance of solving a block, but the reward will be split between all pool members, based on the number of 'shares' earned.

If you are thinking of going it alone, it's worth noting that configuring your software for solo mining can be more complicated than with a pool, and beginners would probably be better off taking the latter route. This option also creates a steadier stream of income, even if each payment is modest compared to the full block reward.

Deciding which altcoin to mine will be something else to bear in mind, however, some pools, such as Multipool, manage this for you and switch coins based on profitability.

Installing your CPU miner

A handy piece of software called cpuminer is the easiest way to start mining, but does require the ability to use the command line on your computer. The program can bedownloaded from SourceForge and is available for Windows (32 and 64 bit), OS X and Linux. For the purposes of this guide, though, we are making the assumption that you are using the Windows OS.

First, download the appropriate file for your operating system. The zip file can be extracted to anywhere on your hard drive, as long as you remember where it went. A good idea would be to create a 'cpuminer' folder on your desktop.

Writing your script

So, how to set up cpuminer with the parameters needed for your mining pool? Well, it's usually simplest to write a one-line script (known as a 'batch file' in Windows) to launch the miner with the correct instructions.

To do this you will need the following:

The full path of the directory in which the mining program ("minerd.exe") is stored (eg: "C:\cpu-miner-pooler").
The 'stratum' URL of your mining pool server (eg: "stratum+tcp://pool.d2.cc").
The port number of your mining server (eg: "3333”).
Your mining pool username (eg: "username").
Your worker name or number (eg: "1”).
Your worker password (eg: "x").

Now, open Notepad or your preferred text editor. Do not, however, use a word processor such as MS Word. Next, enter the script using the following formula (note that this method assumes you are mining a currency that uses the scrypt algorithm):

start "path" minerd.exe - -url URL:PORT –a scrypt - - userpass USERNAME.WORKER:PASSWORD

So, using the example details above, you would have produced the following text:

start "C:\cpu-miner-pooler" minerd.exe --url stratum+tcp://pool.d2.cc:3333 -a scrypt --userpass username.1:x

Save this file with a ".bat" extension; for example: "my-mining-profile.bat".

Once the batch file is saved, double click it to activate the miner program. Your mining pool will most likely have a web-based interface and, within a few minutes, the website should show that your mining worker is active.

Now that you know how to mine with the CPU, let's have a look at using your GPU.

Setting up your GPU miner

For those that intend to mine with GPUs, or USB mining devices, cgminer is the program to use and can be downloaded from the developer's website – unless, that is, you're a Mac user, in which case you will find some unofficial binaries here.

Versions of cgminer following version 3.72 do not support scrypt mining, and support for GPUs was removed in version 3.82. Therefore, the latest version isn't necessarily the one to download. Instead, seek out the version appropriate for your needs.

Again, in this example, we are making the assumption that you are using the Windows OS. However, if you are using Linux or OS X, the command line arguments (ie: the parameters) are the same. Furthermore, the instructions below once again assume you will be mining a scrypt currency.

Extract the software into a folder that can easily be found, eg: "c:\cgminer\".

Before going any further, make sure that your graphics drivers are up to date.

Next, press the Windows key together with the "R" key, type in "cmd", and press "enter". This will open the command terminal. Use the "cd" command to change the directory to the one housing the cgminer zip file.

Then, type in "cgminer.exe –n". This will list all recognised devices on your PC. If your graphics card is detected, you should be good to go. If not, you'll have research the steps required to properly set up your specific graphics card.

You will now need your mining pool details, just as with the CPU mining section above:

The full path of the directory in which the mining program ("minerd.exe") is stored (eg: "C:\cpu-miner-pooler").
The 'stratum' URL of your mining pool server (eg: "stratum+tcp://pool.d2.cc").
The port number of your mining server (eg: "3333”).
Your mining pool username (eg: "username").
Your worker name or number (eg: "1”).
Your worker password (eg: "x").

Now we'll make a batch file again, in order to start cgminer up with the correct parameters. In this case, the command structure is:

Start "path" cgminer -- scrypt -o URL:PORT -u USERNAME.WORKER -p PASSWORD

For example,

Start "C:\cgminer\" -- scrypt –o stratum+tcp://pool.d2.cc:3333 --userpass username.1:x

Watching your miner

Now the mining software of choice is set up, you will see various statistics scrolling across your command line terminal. If you are using cgminer, you will see more information than you would with cpuminer. In the case of the former, you will see information about the currency and the mining pool, as well as about your mining hardware. If you're running cpuminer, you will only see references to blocks that your PC has solved; although, it does, at least, show your hashing speed.

Maximising your power

Good news for miners who own PCs with dedicated graphics cards: it is possible to run both cpuminer and cgminer at the same time. To make this possible, add a "-- threads n" argument to the minerd command. Here, "n" stands for the number of CPU cores that you wish to employ for mining.

Remember to leave one or two cores free to control your GPUs, though. Setting minerd to use all CPU cores will mean that the CPU will be too busy to send data to the GPU for processing. For example, if you have a quad core CPU, try setting the "--threads" argument to "2" or "3".

Mining with both GPU and CPU concurrently reveals just how much better GPUs are at mining than the CPU. Compare the hash rates shown in the terminal windows for each of your mining programs and you should see at least a five-times difference in hashing speed.

How do Bitcoin Transactions Work?

1 comment : Posted by Unknown at 4:12 AM

Bitcoin transactions are sent from and to electronic bitcoin wallets, and are digitally signed for security. Everyone on the network knows about a transaction, and the history of a transaction can be traced back to the point where the bitcoins were produced.

Holding onto bitcoins is great if you’re a speculator waiting for the price to go up, but the whole point of this currency is to spend it, right? So, when spending bitcoins, how do transactions work?

There are no bitcoins, only records of bitcoin transactions

Here’s the funny thing about bitcoins: they don’t exist anywhere, even on a hard drive. We talk about someone having bitcoins, but when you look at a particular bitcoin address, there are no digital bitcoins held in it, in the same way that you might hold pounds or dollars in a bank account. You cannot point to a physical object, or even a digital file, and say “this is a bitcoin”.

Instead, there are only records of transactions between different addresses, with balances that increase and decrease. Every transaction that ever took place is stored in a vast public ledger called the block chain. If you want to work out the balance of any bitcoin address, the information isn’t held at that address; you must reconstruct it by looking at the blockchain.

What does a transaction look like?

If Alice sends some bitcoins to Bob, that transaction will have three pieces of information:

An input. This is a record of which bitcoin address was used to send the bitcoins to Alice in the first place (she received them from her friend, Eve).
An amount. This is the amount of bitcoins that Alice is sending to Bob.
An output. This is Bob's bitcoin address.

How is it sent?

To send bitcoins, you need two things: a bitcoin address and a private key. A bitcoin address is generated randomly, and is simply a sequence of letters and numbers. The private key is another sequence of letters and numbers, but unlike your bitcoin address, this is kept secret.

Think of your bitcoin address as a safe deposit box with a glass front. Everyone knows what is in it, but only the private key can unlock it to take things out or put things in.

When Alice wants to send bitcoins to Bob, she uses her private key to sign a message with the input (the source transaction(s) of the coins), amount, and output (Bob’s address).

She then sends them from her bitcoin wallet out to the wider bitcoin network. From there, bitcoin miners verify the transaction, putting it into a transaction block and eventually solving it.

Why must I sometimes wait for my transaction to clear?

Because your transaction must be verified by miners, you are sometimes forced to wait until they have finished mining. The bitcoin protocol is set so that each block takes roughly 10 minutes to mine.

Some merchants may make you wait until this block has been confirmed, meaning that you may have to make a cup of coffee and come back again in a short while before you can download the digital goods or take advantage of the paid service.

On the other hand, some merchants won’t make you wait until the transaction has been confirmed. They effectively take a chance on you, assuming that you won’t try and spend the same bitcoins somewhere else before the transaction confirms. This often happens for low value transactions, where the risk of fraud isn’t as great.

What if the input and output amounts don’t match?

Because bitcoins exist only as records of transactions, you can end up with many different transactions tied to a particular bitcoin address. Perhaps Jane sent Alice two bitcoins, Philip sent her three bitcoins and Eve sent her a single bitcoin, all as separate transactions at separate times.

These are not automatically combined in Alice’s wallet to make one file containing six bitcoins. They simply sit there as different transaction records.

When Alice wants to send bitcoins to Bob, her wallet will try to use transaction records with different amounts that add up to the number of bitcoins that she wants to send Bob.

The chances are that when Alice wants to send bitcoins to Bob, she won’t have exactly the right number of bitcoins from other transactions. Perhaps she only wants to send 1.5 BTC to Bob.

None of the transactions that she has in her bitcoin address are for that amount, and none of them add up to that amount when combined. Alice can’t just split a transaction into smaller amounts. You can only spend the whole output of a transaction, rather than breaking it up into smaller amounts.

Instead, she will have to send one of the incoming transactions, and then the rest of the bitcoins will be returned to her as change.

Alice sends the two bitcoins that she got from Jane to Bob. Jane is the input, and Bob is the output. But the amount is only 1.5 BTC, because that is all she wants to send. So, her wallet automatically creates two outputs for her transaction: 1.5 BTC to Bob, and 0.5 BTC to a new address, which it created for Alice to hold her change from Bob.

Are there any transaction fees?

Sometimes, but not all the time.

Transaction fees are calculated using various factors. Some wallets let you set transaction fees manually. Any portion of a transaction that isn’t picked up by the recipient or returned as change is considered a fee. This then goes to the miner lucky enough to solve the transaction block as an extra reward.

Right now, many miners process transactions for no fees. As the block reward for bitcoins decreases, this will be less likely.

One of the frustrating things about transaction fees in the past was that the calculation of those fees was complex and arcane. It has been the result of several updates to the protocol, and has developed organically.

Updates to the core software handling bitcoin transactions will see it change the way that it handles transaction fees, instead estimating the lowest fee that will be accepted.

Can I get a receipt?

Bitcoin wasn’t really meant for receipts. Although there are changes coming in version 0.9 that will alter the way payments work, making them far more user-friendly and mature.

Payment processors like BitPay also provide the advanced features that you wouldn’t normally get with a native bitcoin transaction, such as receipts and order confirmation web pages.

What if I only want to send part of a bitcoin?

Bitcoin transactions are divisible. A satoshi is one hundred millionth of a bitcoin, and it is possible to send a transaction as small as 5430 satoshis on the bitcoin network.

How to Accept Bitcoin Payments for Your Store

2 comments : Posted by Unknown at 4:11 AM

One issue holding bitcoin back from wider adoption is the lack of businesses that accept the digital currency as payment. This is a chicken-and-egg problem. If more businesses had the ability to accept bitcoin, it might encourage consumers to start obtaining and spending it, and vice versa.

With this in mind, here is our guide to accepting bitcoin in a physical store.

Person-to-person payments

The easiest way to accept bitcoin payments is in-person, simply by getting your customer to send the correct amount of bitcoin (BTC) to your digital wallet. This is similar to thinking of it as a cash-in-hand payment.

burger-bear — A customer of Burger Bear, which uses a simple QR code system to accept bitcoin payment

This can be done via many smartphone apps, such as the Bitcoin Wallet app by Andreas Schildbach, on Android. There are also options available on the Windows Phone app store for users of that OS.

Some months ago, Apple removed all bitcoin wallet apps from its App Store. However, on 2nd June, the company rescinded this policy, once again paving the way for wallet apps on iOS devices. These are already starting to appear, with Blockchain,Coinbase and others apps now available. We can expect many more to arrive in coming months too.

To find out more about bitcoin transactions, see our detailed guide.

Another alternative is CoinBox which is specifically designed for merchants wanting a straightforward option to receive payments. In these scenarios, the merchant enters the price of an item or service into the phone, which then presents a QR code containing the amount to be paid and the address the funds are sent to. The customer scans the QR code with their bitcoin wallet app and the payment is sent.

All of these simple systems are ideal for small businesses testing bitcoin acceptance or for those doing odd-jobs for small amounts. Businesses which are larger in scale will likely look into a dedicated solution that fits in with their existing POS systems.

Merchant bitcoin point-of-sale (POS) solutions

There is also a growing number of commerce-specific options that aim to streamline the process of taking bitcoin payments. The following services offer a variety of POS solutions for merchants, both online and off.

BIPS

BIPS, short for the Bitcoin Internet Payment System, is a payment processor that allows merchants from all over the world to buy and sell bitcoin, and accept payments in bitcoin too. For bricks-and-mortar retail stores, BIPS offers a point of sale app for Android. BIPS also gives you the ability to store and archive invoices.

For integrating with your website, there are plugins to interface with e-commerce options, such as BigCommerce, WooCommerce, Shopify, and others. There is also API access for those coding their own solutions.

CoinKite

CoinKite is a new startup that offers a bitcoin payment terminal looking exactly like the over-the-counter chip-and-PIN terminals we are so used to using in stores today. This handset reads a bitcoin-based debit card, also offered by CoinKite. The handsets can also serve as a bitcoin and litecoin ATM, as well as offer the option to print QR codes for customers to scan with their smartphone apps.

CoinBase

Coinbase is another payment processor that provides a point of sale app (Android) for bricks-and-mortar retailers. While it currently only supports US bank accounts as a funding source, it offers extensive e-commerce support. Not only does it offer an HTML code segment for easily inserting payment buttons into your website, it also provides plugins for WordPress, WooCommerce, Megento, and ZenCart.

BitPay

BitPay is an international payments processor for businesses and charities. It is integrated into the SoftTouch POS system for bricks-and-mortar retail stores. However,BitPay has an API which could be implemented into any other POS system with some coding work. BitPay has various tariffs that merchants can subscribe to, enabling features such as using the service on a custom domain (for online stores), exporting transactions to QuickBooks, etc.

Blockchain Merchant

Blockchain have also produced a merchant app for Android devices. Blockchain Merchant promises instant transactions, 0% fees on payments and it has multiple linguistic versions for use around the world.

Revel

As mentioned in our recent report: "Revel Systems offers a range of POS solutions for quick-service restaurants, self-service kiosks, grocery stores and retail outlets, among other merchants. POS packages start at $3,000 plus a monthly fee for an iPad, cash drawer and scanner." It was recently announced that Revel will also include bitcoin as a method of payment in its POS software.

BitXATM

Germany-based startup BitXatm has announced the arrival of its Sumo Pro – a cryptocurrency ATM with a POS (point of sale) function that will appeal to merchants seeking to easily accept payments from customers in digital currencies.

Costing €2,900 (around $3,993), the stand-alone machine offers a generous 17-inch touchscreen and has the ability to accept any fiat currency. Additionally, it can accept or dispense any digital currency, according to the company’s website.

Paystand

California-based online payment processor PayStand provides US-based websites and mobile applications another way to accept payments such e-checks, credit cards and bitcoin. Paystand have recieved $1m in investment as part of its initial seed-funding round.

Founded in 2009, PayStand aims to be a multi-payment gateway that eliminates merchant transaction fees, in part by supporting digital currency acceptance.

Coin of Sale

A new bitcoin POS system, Coin of Sale, is trying to make it easier for merchants to accept bitcoin payments for their goods and services.

Created by Singapore-based expat Thomas Forgac, Coin of Sale works with both Android and iOS devices. When users sign up for an account, they are automatically set up with an Electrum wallet.

The merchant must simply enter the amount of money that needs to be charged and the app will automatically generate a QR code for it. The customer then scans this QR code to complete the payment.

XBTerminal

XBTerminal provides a bitcoin POS device that allows the merchant's customers to pay from any mobile bitcoin wallet by NFC or QR code. Payment from offline mobile devices is supported by bluetooth. Payments take place through the company's platform and, if desired, bitcoin can be converted instantly to fiat currency at the time of sale.

The company also provides web apps and an online interface for its payments solution for those that wish to invest in third-party hardware.

DIY

With bitcoin, it is possible to forego the fees of using a payment processor or provider, and simply integrate payments into your own custom system. Those with a technical background have achieved this, such as Stephen Early, who integrated bitcoin payments into the POS system of his UK pubs single-handedly.

Get noticed

Whether you have an online or a bricks-and-mortar store, if you accept bitcoin, you need to publicize the fact. You can find a 'bitcoin accepted here' sign at the bitcoin wiki.

A sign with more impact may alert customers to the fact you accept bitcoin.Cryptocables produces a range of neon and LED signage.

Additionally, Coco Mats ’n More offers bitcoin-logoed doormats and 'Bitcoin Accepted Here' mats for merchants wanting to advertise the cryptocurrency as a payment option.

Credit card and PIN terminal images via Shutterstock

Bitcoin Glossary

1 comment : Posted by Unknown at 4:09 AM

Confused by some of the terms used on CoinDesk? Here you will find a complete bitcoin 101 that will help you to understand digital currency by explaining commonly used terms and their meanings.

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

51% attack

A condition in which more than half the computing power on a cryptocurrency network is controlled by a single miner or group of miners. That amount of power theoretically makes them the authority on the network. This means that every client on the network believes the attacker’s hashed transaction block. This gives them control over the network, including the power to:

Issue a transaction that conflicts with someone else's.
Stop someone else's transaction from being confirmed.
Spend the same coins multiple times.
Prevent other miners from mining valid blocks.

Address

A bitcoin address is used to receive and send transactions on the bitcoin network. It contains a string of alphanumeric characters, but can also be represented as a scannable QR code. A bitcoin address is also the public key in the pair of keys used by bitcoin holders to digitally sign transactions (see Public key).

Altcoin

The collective name for cryptocurrencies offered as alternatives to bitcoin. Litecoin, Feathercoin and PPcoin are all altcoins.

AML

Anti-Money Laundering techniques are used to stop people converting illegally obtained funds, to appear as though they have been earned legally. AML mechanisms can be legal or technical in nature. Regulators frequently apply AML techniques to bitcoin exchanges.

ASIC

An Application Specific Integrated Circuit is a silicon chip specifically designed to do a single task. In the case of bitcoin, they are designed to process SHA-256 hashing problems to mine new bitcoins.

ASIC miner

A piece of equipment containing an ASIC chip, configured to mine for bitcoins. They can come in the form of boards that plug into a backplane, devices with a USB connector, or standalone devices including all of the necessary software, that connect to a network via a wireless link or ethernet cable.

Bitcoin ATM

A bitcoin ATM is a physical machine that allows a customer to buy bitcoin with cash. There are many manufacturers, some of which enable users to sell bitcoin for cash. They are also sometimes called 'BTMs' or 'Bitcoin AVMS'. CoinDesk maintains a worldwide map of operational bitcoin atm machines and a list of manufacturers.

Bitcoin Investment Trust

This private, open-ended trust invests exclusively in bitcoins and uses a state-of-the-art protocol to store them safely on behalf of its shareholders.

It provides a way for people to invest in bitcoin without having to purchase and safely store the digital currency themselves.

Bitcoin Sentiment Index (BSI)

The Bitcoin Sentiment Index is a measure of whether individuals feel the digital currency's prospects are increasing or decreasing on any given day, and is powered bydata collected by Qriously.

Bitcoin Market Potential Index (BMPI)

The Bitcoin Market Potential Index (BMPI) uses a data set to rank the potential utility of bitcoin across 177 countries. It attempts to show which markets have the greatest potential for bitcoin adoption.

Bitcoin Price Index (BPI)

The CoinDesk Bitcoin Price Index represents an average of bitcoin prices across leading global exchanges that meet criteria specified by the BPI. There is also an API for developers to use.

Bitcoin Whitepaper

The bitcoin whitepaper was written by 'Satoshi Nakamoto’ and posted to aCryptography Mailing list in 2008. The paper describes the bitcoin protocol in detail, and is well worth a read. Satoshi Nakamoto followed this by releasing the bitcoin code in 2009.

BitPay

A payment processor for bitcoins, which works with merchants, enabling them to take bitcoins as payment.

Bitcoin white paper

In November 2008, a paper, authored (probably pseudonymously) by Satoshi Nakamoto, was posted on the newly created Bitcoin.org website with the title 'Bitcoin: A Peer-to-Peer Electronic Cash System’. The eight-page document described methods of using a peer-to-peer network to generate "a system for electronic transactions without relying on trust" and laid down the working principles of the cryptocurrency.

BitStamp

An exchange for bitcoins that has been gaining in popularity. Read the latest Bitstamp news.

Blockchain

The full list of blocks that have been mined since the beginning of the bitcoin cryptocurrency. The blockchain is designed so that each block contains a hash drawing on the blocks that came before it. This is designed to make it more tamperproof.

To add further confusion, there is a company called Blockchain, which has a very popular blockchain explorer and bitcoin wallet.

Block reward

The reward given to a miner which has successfully hashed a transaction block. This can be a mixture of coins and transaction fees, depending on the policy used by the cryptocurrency in question, and whether all of the coins have already been successfully mined. Bitcoin currently awards 25 bitcoins for each block. The block reward halves when a certain number of blocks have been mined. In bitcoin’s case, the threshold is every 210,000 blocks.

BTC

The short currency abbreviation for bitcoins.

Buttonwood

A project founded by bitcoin enthusiast Josh Rossi, to form a public outcry bitcoin exchange in New York's Union Square. Named after the Buttonwood agreement, which formed the basis for the New York Stock Exchange in 1792.

Circle

Circle is an exchange and wallet service, offering users worldwide the chance to store, send, receive and exchange bitcoins.

Client

A software program running on a desktop or laptop computer, or mobile device. It connects to the bitcoin network and forwards transactions. It may also include a bitcoin wallet (see node).

Confirmation

The act of hashing a bitcoin transaction successfully into a transaction block, and cementing its validity. A single confirmation will take around 10 minutes, which is the average length of time for a transaction block to be hashed. However, some more sensitive or larger transactions may require multiple confirmations, meaning that more blocks must be hashed and added to the blockchain after the transaction’s block has been hashed. Each time another block is added to the blockchain after the transaction’s block, the transaction is confirmed again.

Colored coins

A proposed add-on function for bitcoin that would enable bitcoin users to give themadditional attributes. These attributes could be user-defined, enabling you to mark a bitcoin as a share of stock, or a physical asset. This would enable bitcoins to be traded as tokens for other property.

CPU

Central Processing Unit – the 'brain' of a computer. In the early days, these were used to hash bitcoin transactions, but are now no longer powerful enough. They are still sometimes used to hash transactions for altcoins.

Coinbase

Another name for the input used in a bitcoin’s generation transaction. When a bitcoin is mined, it doesn't come from another bitcoin user, but is generated as a reward for the miner. That reward is recorded as a transaction, but instead of another user's bitcoin address, some arbitrary data is used as the input.

Coinbase is also the name of a bitcoin wallet service that also offers payment processing services for merchants and acts as an intermediary for purchasing bitcoins from exchanges.

Coin age

The age of a coin, defined as the currency amount multiplied by the holding period.

Cryptocurrency

A form of currency based on mathematics alone. Instead of fiat currency, which is printed, cryptocurrency is produced by solving mathematical problems based on cryptography.

Cryptography

The use of mathematics to create codes and ciphers that can be used to conceal information. Used as the basis for the mathematical problems used to verify and securebitcoin transactions.

DDoS

A distributed denial of service attack uses large numbers of computers under an attacker’s control to drain the resources of a central target. They often send small amounts of network traffic across the Internet to tie up computing and bandwidth resources at the target, which prevents it from providing services to legitimate users. Bitcoin exchanges have sometimes been hit with DDoS attacks.

Deflation

The reduction of prices in an economy over time. It happens when the supply of a good or service increases faster than the supply of money, or when the supply of money is finite, and decreases. This leads to more goods or services per unit of currency, meaning that less currency is needed to purchase them. This carries some downsides. When people expect prices to fall, it causes them to stop spending and hoard money, in the hope that their money will go further later. This can depress an economy.

Difficulty

This number determines how difficult it is to hash a new block. It is related to the maximum allowed number in a given numerical portion of a transaction block’s hash. The lower the number, the more difficult it is to produce a hash value that fits it. Difficulty varies based on the amount of computing power used by miners on the bitcoin network. If large numbers of miners leave a network, the difficulty would decrease. Thus far, however, bitcoin’s growing popularity has attracted more computing power to the network, meaning that the difficulty has increased.

Double spending

The act of spending bitcoins twice. It happens when someone makes a transaction using bitcoins, and then makes a second purchase from someone else, using the same bitcoins. They then convince the rest of the network to confirm only one of the transactions by hashing it in a block. Double spending is not easy to do, thanks to the way that the bitcoin network operates, but it is nevertheless a risk run by those accepting zero-confirmation transactions.

Dust transaction

A transaction for an extremely small amount of bitcoins, which offers little financial value, but takes up space in the blockchain. The bitcoin developer team has taken efforts to eliminate dust transactions by increasing the minimum transaction amount that will be relayed by the network.

ECDSA

The Elliptic Curve Digital Signature Algorithm is the lightweight cryptographic algorithm used to sign transactions in the Bitcoin protocol.

Escrow

The act of holding funds or assets in a third-party account to protect them during an asynchronous transaction. If Bob wants to send money to Alice in exchange for a file, but they cannot conduct the exchange in person, then how can they trust each other to send the money and file to each other at the same time? Instead, Bob sends the money to Eve, a trusted party who holds the funds until Bob confirms that he has received the file from Alice. She then sends Alice the money.

Exchange

A central resource for exchanging different forms of money and other assets. Bitcoin exchanges are typically used to exchange the cryptocurrency for other, typically fiat, currencies.

Faucet

A technique used when first launching an altcoin. A set number of coins are pre-mined, and given away for free, to encourage people to take interest in the coin and begin mining it themselves.

Fiat currency

A currency, conjured out of thin air, which only has value because people say it does. Constantly under close scrutiny by regulators due to its known application in money laundering and terrorist activities. Not to be confused with bitcoin.

FinCEN

The Financial Crimes Enforcement Network, an agency within the US Treasury Department. FinCEN has thus far been the main organization to impose regulations on exchanges trading in bitcoin.

Fork

The creation of an alternative ongoing version of the blockchain, typically because one set of miners begins hashing a different set of transaction blocks from another. It can be caused maliciously, by a group of miners gaining too much control over the network (see 51% attack), accidentally, thanks to a bug in the system, or intentionally, when a core development team decides to introduce substantial new features into a new version of a client. A fork is successful if it becomes the longest version of the blockchain, as defined by difficulty.

FPGA

A Field Programmable Gate Array is a processing chip that can be configured with custom functions after it has been fabricated. Think of it as a blank silicon slate on which instructions can be written. Because FPGAs can be produced en masse and configured after fabrication, manufacturers benefit from economies of scale, making them cheaper than ASIC chips. However, they are usually far slower.

Freicoin

A cryptocurrency based on the inflation-free principles outlined by the economist Silvio Gessell.

Genesis block

The very first block in the block chain.

Gigahashes/sec

The number of hashing attempts possible in a given second, measured in billions of hashes (thousands of Megahashes).

GPU

Graphical Processing Unit. A silicon chip specifically designed for the complex mathematical calculations needed to render millions of polygons in modern computer game graphics. They are also well suited to the cryptographic calculations needed in cryptocurrency mining.

Hash

A mathematical process that takes a variable amount of data and produces a shorter, fixed-length output. A hashing function has two important characteristics. Firstly, it is mathematically difficult to work out what the original input was by looking at the output. Secondly, changing even the tiniest part of the input will produce an entirely different output.

Hash rate

The number of hashes that can be performed by a bitcoin miner in a given period of time (usually a second).

Inflation

When the value of money drops over time, causing prices for goods to increase. The result is a drop in purchasing power. Effects include less motivation to hoard money, and more motivation to spend it quickly while the prices of goods are still low.

Input

The part of a bitcoin transaction denoting where the bitcoin payment has come from. Typically, this will be a bitcoin address, unless the transaction is a generation transaction, meaning that the bitcoin has been freshly mined (see Coinbase).

Kilohashes/sec

The number of hashing attempts possible in a given second, measured in thousands of hashes.

KYC

Know Your Client/Customer rules force financial institutions to vet the people they are doing business with, ensuring that they are legitimate.

Leverage

In foreign currency trading, leverage multiplies the real funds in your account by a given factor, enabling you to make trades that result in significant profit. By giving leverage to a trader, the trading exchange is effectively lending them money, in the hope that it will earn back more than it loaned in commission. Leverage is also known as a margin requirement.

Liberty Reserve

A centralized digital currency payment processor based in Costa Rica. It was shut downby the US government, after it was found guilty of money laundering.

Litecoin

An altcoin based on the Scrypt proof of work. Read Litecoin news to find out more.

Liquidity

The ability to buy and sell an asset easily, with pricing that stays roughly similar between trades. A suitably large community of buyers and sellers is important for liquidity. The result of an illiquid market is price volatility, and the inability to easily determine the value of an asset.

Margin call

The act of calling in a margin requirement. An exchange will issue a margin call when it feels that a trader does not have sufficient funds to cover a leveraged trading position.

Megahashes/sec

The number of hashing attempts possible in a given second, measured in millions of hashes (thousands of Kilohashes).

Market order

An instruction given to an exchange, asking it to buy or sell an asset at the going market rate. In a bitcoin exchange, you would place a market order if you simply wanted to buy or sell bitcoins immediately, rather than holding them until a set market condition is triggered to try and make a profit.

mBTC

1 thousandth of a bitcoin (0.001 BTC).

Microtransaction

Paying a tiny amount for an asset or service, primarily online. Micro-transactions are difficult to perform under conventional payment systems, because of the heavy commissions involved. It is difficult to pay two cents to read an online article using your credit card, for example.

Mining

The act of generating new bitcoins by solving cryptographic problems using computing hardware.

Mixing service

A service that mixes your bitcoins with someone else's, sending you back bitcoins with different inputs and outputs from the ones that you sent to it. A mixing service (also known as a tumbler) preserves your privacy because it stops people tracing a particular bitcoin to you. It also has the potential to be used for money laundering.

Mt. Gox

One of the first bitcoin exchanges, and at one time the most popular. Mt. Gox has since gone into administration. Based in Japan, the exchange was started by Jed McCaleb in 2010. Read the latest Mt. Gox news.

Multisig

Multi-signature addresses allow multiple parties to partially seed an address with a public key. When someone wants to spend some of the bitcoins, they need some of these people to sign their transaction in addition to themselves. The needed number of signatures is agreed at the start when people create the address. Services using multi-signature addresses have a much greater resistance to theft. Read more about Multisighere.

Namecoin

An altcoin designed to provide an alternative to the traditional domain name system (DNS). Users can register .bit domains, accessible via proxy servers, by paying withnamecoins.

Node

A computer connected to the bitcoin network using a client that relays transactions to others (see client). If you'd like to run a bitcoin node, then bitcoin.org offers acomprehensive guide.

Nonce

A random string of data used as an input when hashing a transaction block. A nonce is used to try and produce a digest that fits the numerical parameters set by the bitcoin difficulty. A different nonce will be used with each hashing attempt, meaning that billions of nonces are generated when attempting to hash each transaction block.

Orphan block

A block which is not a part of the valid blockchain, but which was instead part of a fork that was discarded.

OTC exchange

An exchange in which traders make deals with each other directly, rather than relying on a central exchange to mediate between them.

Output

The destination address for a bitcoin transaction. There can be multiple outputs for a single transaction.

P2P

Peer-to-peer. Decentralized interactions that happen between at least two parties in a highly interconnected network. An alternative system to a 'hub-and-spoke' arrangement, in which all participants in a transaction deal with each other through a single mediation point.

Paper wallet

A printed sheet containing one or more public bitcoin addresses and their corresponding private keys. Often used to store bitcoins securely, instead of using software wallets, which can be corrupted, or web wallets, which can be hacked or simply disappear. A useful form of cold bitcoin storage.

Pool

A collection of mining clients which collectively mine a block, and then split the reward between them. Mining pools are a useful way to increase your probability of successfully mining a block as the difficulty rises.

PPCoin

AKA Peercoin or P2P coin. An altcoin using the proof of stake mechanism in conjunction with proof of work. Based on a paper produced by Sunny King and Scott Nadal.

Pre-mining

The mining of coins by a cryptocurrency’s founder before that coin has been announced and details released to others who may wish to mine the coin. Pre-mining is a common technique used with scamcoins, although not all pre-mined coins are scamcoins (see Scamcoins).

Primecoin

Developed by Sunny King, Primecoin uses a proof of work system to calculate prime numbers.

Private key

An alphanumeric string kept secret by the user, and designed to sign a digital communication when hashed with a public key. In the case of bitcoin, this string is a private key designed to work with a public key. The public key is a bitcoin address (see Bitcoin address).

PSP

Payment Service Provider. The PSP offers payment processing services for merchants who wish to accept payments online.

Pump and dump

Inflating the value of a financial asset that has been produced or acquired cheaply, using aggressive publicity and often misleading statements. The publicity causes others to acquire the asset, forcing up its value. When the value is high enough, the perpetrator sells their assets, cashing in and flooding the market, which causes the value to crash.

Process node

The size of a transistor in nanometers, produced during a chip fabrication process. Smaller process nodes are more efficient.

Proof of stake

An alternative to proof of work, in which your existing stake in a currency (the amount of that currency that you hold) is used to calculate the amount of that currency that you can mine.

Proof of work

A system that ties mining capability to computational power. Blocks must be hashed, which is in itself an easy computational process, but an additional variable is added to the hashing process to make it more difficult. When a block is successfully hashed, the hashing must have taken some time and computational effort. Thus, a hashed block is considered proof of work.

Public key

An alphanumeric string which is publicly known, and which is hashed with another, privately held string to sign a digital communication. In the case of bitcoin, the public key is a bitcoin address.

QR code

A two-dimensional graphical block containing a monochromatic pattern representing a sequence of data. QR codes are designed to be scanned by cameras, including those found in mobile phones, and are frequently used to encode bitcoin addresses.

Ripple

A payment network that can be used to transfer any currency (including ad hoc currencies that have been created by users). The network consists of payment nodes and gateways operated by authorities. Payments are made using a series of IOUs, and the network is based on trust relationships.

Satoshi

The smallest subdivision of a bitcoin currently available (0.00000001 BTC).

Satoshi Nakamoto

The name used by the original inventor of the Bitcoin protocol, who withdrew from the project at the end of 2010.

Scamcoin

An altcoin produced with the sole purpose of making money for the originator. Scamcoins frequently use pump and dump techniques and pre-mining together.

Scrypt

An alternative proof of work system to SHA-256, designed to be particularly friendly to CPU and GPU miners, while offering little advantage to ASIC miners.

Signature

A digital digest produced by hashing private and public keys together to prove that abitcoin transaction came from a particular address.

Silk Road

An underground online marketplace, generally used for illicit purchases, often with cryptocurrencies such as bitcoin. Silk Road was shut down in early October 2013 by the FBI after owner Ross Ulbricht was arrested. Ulbricht was later convicted on money laundering and drug distribution charges.

SEPA

The Single European Payments Area. A payment integration agreement within the European Union, designed to make it easier to transfer funds between different banks and nations in euros.

SHA-256

The cryptographic function used as the basis for bitcoin’s proof of work system.

SPV

Simplified Payment Verification. A feature of the Bitcoin protocol that enables nodes to verify payments without downloading the full blockchain. Instead, they need only download block headers.

Stale

When a bitcoin block is successfully hashed, any others attempting to hash it may as well stop, because it is now ‘stale'. They would simply be repeating work that someone else has already done, for no reward. The term is also used in mining pools to describe a share of a hashing job that has already been completed.

Taint

An analysis of how closely related two addresses are when they have both held a particular bitcoin. A taint analysis could be used to determine how many steps it took for bitcoins to move from an address known for stolen coins, to the current address.

Terahashes/sec

The number of hashing attempts possible in a given second, measured in trillions of hashes (thousands of Gigahashes).

Testnet

An alternative bitcoin blockchain, used purely for testing purposes.

TOR

An anonymous routing protocol, used by people wanting to hide their identity online.

Transaction block

A collection of transactions on the bitcoin network, gathered into a block that can then be hashed and added to the blockchain.

Transaction fee

A small fee imposed on some transactions sent across the bitcoin network. The transaction fee is awarded to the miner that successfully hashes the block containing the relevant transaction.

uBTC

One microbitcoin (0.000001 BTC)

Vanity address

A bitcoin address with a desirable pattern, such as a name.

Virgin bitcoin

Bitcoins purchased as a reward for mining a block. These have not yet been spent anywhere.

Volatility

The measurement of price movements over time for a traded financial asset (including bitcoin).

Wallet

A method of storing bitcoins for later use. A wallet holds the private keys associated with bitcoin addresses. The blockchain is the record of the bitcoin amounts associated with those addresses.

Wire transfer

Electronically transferring money from one person to another. Commonly used to send and retrieve fiat currency from bitcoin exchanges.

Zerocoin

A protocol designed to make cryptocurrency transactions truly anonymous.

Zero-confirmation transaction

A transaction in which the merchant is happy to provide a product or service before the bitcoin’s transmission has been confirmed by a miner and added to the blockchain. It can carry a risk of double spending.

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