Bitcoin Flashcards
The Double-Spend Problem
The problem in digital currency exchanges of ensuring money cannot be simply duplicated. When performing an exchange, it must appear to be destroyed at one end and created at another.
Cryptocurrency
A form of digital currency that uses strong encryption.
Bitcoin
A popular cryptocurrency invented in 2008. It is stored on digital wallets and utilised using bitcoin applications. When a person wishes to transfer bitcoin, the application signs the message using the senders private key, and neighbouring bitcoin users authenticate it using the public key (this does not add security, but does authenticate the sender). It is then stored as a pending payment until the block is finalised.
Blockchain
A distributed ledger recording Bitcoin users’ balances and transactions. Each user can keep and access their own copy, preventing significant malware attacks.
Block
A part of the blockchain containing information on a single transaction as well as a SHA-2 hash of the previous block in the Blockchain. This fixes the double spend problem.
Genesis Block
The first block in the Blockchain.
Nonce
A random 32-bit value added to the contents of a new block.
Finalising a Block
A process which completes a pending payment. A nonce must be added to the data, before devices compete to find a SHA-2 hash value for the block smaller than a certain target value. If the hash is valid, the nonce is shared with every computer on a network which then rehash the block using this nonce to validate the claim. If valid, the block is added to the chain, otherwise the operation repeats. The target value is eventually altered, after 2016 processed blocks.
Bitcoin Mining
The process of finalising a block using many machines on a network, possibly without the owners knowledge of this, by generating nonces. The first user to validate a block is rewarded with free bitcoin, making it potentially lucrative.
Proof of Work
A computation which takes a long time to complete but can be validated easily.
