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General Terms

Bitcoin maximalist – 1) originally a pejorative coined by Vitalik in a blog post – a person who blindly believes Bitcoin to be the best in all things related to cryptocurrency.

2) a person who’s convinced Bitcoin’s position as the leading digital asset/cryptocurrency is unassailable by nature of distributed consensus, economic incentives and network effects. It is the position based on the most evidence and research.

Bitcoin minimalist – a person who believes that Bitcoin’s consensus protocol layer should be kept robust and simple to minimize vulnerabilities. This is done by moving most processes, features and functions up the stack, to other layers, in the very same way the internet itself has scaled and improved.

Bitcoin-like –  a non-bitcoin digital asset that is a native token for a decentralized network, smart contract, or application. Since the term Bitcoin can mean the native token or the network, Bitcoin-like can also refer to a decentralized network like the Bitcoin network. This is also a spectrum. Some assets will be more or less like bitcoin and the same with other networks. You can use another adjective to describe this relationship, for example, “highly bitcoin-like,” or “somewhat bitcoin-like.”

Bitcoiner –  a term of endearment, a label for a person heavily involved in bitcoin, similar to bitcoin maximalist but not derogatory.

Buttcoin – a famous skeptical subreddit r/buttcoin. They always make fun of bitcoiners, but sometimes have good skeptical takes. They have been wrong 90% of the time on the anti-bitcoin FUD.

Casascius coin – (ca-say-tious) – an early physical bitcoin coin made by Mike Caldwell, there are large runs and limited editions, more of the story here.

Corn – slang form of bitcoin.

Crypto-anarchy – the absence of violent compulsion in human activity, specifically enabled and maintained by the use of cryptologic methods. Further reading Wikipedia and Manifesto

Anarchism – the absence of violent compulsion from the State. Anarchism argues for self-organization, self-defense, and self-determination over centralized violent imposition of these things. Anarchism has rules in the form of emergent social and cultural norms and morals, and enforced by appropriate injured parties. Entangling voluntary contracts and their free-market enforcement are often cited as a replacement for State enforcement. Anarchism exists all around us where ever actions are voluntary, it’s everywhere there’s an absence of violent compulsion. Anarchism exists along side Statism, so questions about where or when has anarchy been successfully implemented completely miss the point.

Cypherpunk – an activist advocating widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change. Originally communicating through the Cypherpunks electronic mailing list, informal groups aimed to achieve privacy and security through proactive use of cryptography. Cypherpunks have been engaged in an active movement since the late 1980s. Wiki

Etherium – 1) a common misspelling of Ethereum made by people new to the space. 2) a slightly trollish way to spell Ethereum to point out that all its investors are noobs and are investing in a marketing ponzi.

Ethereans – a term from the Ethereum community for people obsessed with Ethereum.

Exit scam – When a founder or central party to an investment disappears with the money. These were quite common early on in Bitcoin and remain a risk today. It’s best to always hold your bitcoin on a wallet you control, like a hardware wallet. Never invest a significant amount of money with people you know only from the internet.

Fiatsplaining – A very new term coined by a patron of the show @WahWhoWah – it means that a person uses simple outdated mainstream financial arguments in a discussion with a bitcoiner.

The Flippening – the much anticipated event where Ethereum would overtake Bitcoin in market cap, it never came – the term was adapted to all sorts of similar events in the 2017 scaling conflict, like hashpower on rival chains, node count, etc.

FOMO – Fear of missing out – An emotional reaction to a price increase that makes you chase and be more likely to buy the top of a rally. The opposite of a panic reaction to a price decrease.

FUD – Fear Uncertainty and Doubt – FUD is found in any community and usually consists of unfounded rumors or claims aimed at causing an emotional reaction from other members or even outsiders. It can be targeted at different demographics within or without the community. For example, certain types of rumors can scare new traders or owners of bitcoin, but don’t affect more experienced bitcoiners. To protect against FUD you must learn as much about bitcoin as possible (technicals and history), and find sources of information you can trust.

The Halvening – the reduction in block reward that happens roughly every four years – funny form of halving – this term appeared in 2015 as the block reward reduction was approaching. You can watch the countdown with the halvening rocket here. The bitcoin community likes to come up with little in group sayings and this one caught on. The ending of “ening” has been adopted in other terms like “The Flippening.”

Hodl – variant of hold – first used in a forum post. The author was drunk and furious at his poor trading performance during the December 2013 rally. He misspelled the word hold and it quickly became a viral meme in the community. Today, it has morphed into an ideology, where hodlers are people that will never sell their coins. It’s a very important concept in bootstrapping a store of value for bitcoin.

Bitcoin Spartan hodling the line

Hodler – a person who hoards bitcoin and will not sell is massive dips in price, because they are in it until the end, as it were.

Monetary maximalism – a system of logical arguments which examines the market forces which pressure money to be one good to the furthest extent possible.

MtGox – “em tee gox” – the first large exchange for bitcoin. It was a re-purposed trading website for Magic the Gathering cards, and stands for Magic the Gathering online exchange. It was originally developed by Jed McCaleb, who sold it to Mark Karpeles when it got too big for Jed’s comfort level. Jed still owned 12% of the company after selling it. Jed then went on the co-found Ripple and found Stellar, a close relative of Ripple.

MtGox experienced several hacks after Karpeles too over, and it’s now famous for being a very poorly executed trading engine. At the height of MtGox’s influence it accounted for 75% of bitcoin’s liquidity and held a very significant percentage of all coins. In 2013, several problems became apparent in MtGox’s backend and rumors of a large hack and insolvency spread quickly. Withdrawal delays became very long for users, but there is some evidence and controversy around board members of the Bitcoin Foundation along with Karpeles himself, were given preferential treatment in withdrawals. That included people like Paul Vessenes, Roger Ver, and Jon Matonis. At the very time that Roger Ver was producing his now imfamous “MtGox is solvent video” he was likely jumping the queue to get his bitcoins out safely. MtGox officially stopped trading in Feb 2014 when it was disclosed that they had lost 800,000 bitcoins at the time roughly $800 million. Maybe people lost all of their bitcoins in the event, and the lengthy legal battle is still raging today.

Nocoiner – a recent term, even has made it into the urban dictionary now – a person who has no Bitcoin. Nocoiners (usually Socialists, Lawyers or MBA Economists ) are people who missed their opportunity to buy Bitcoin at a low price because they thought it was a scam, and who is now bitter at having missed out. The nocoiner takes out his or her bitterness on Bitcoin Hodlers, by constantly claiming that Bitcoin will crash, is a scam, is a bubble, or other types of easily refuted FUD.

Noob – someone new to Bitcoin. This term carries a slight feeling of empathy, since we were all new at some point.

Permanoob – someone who is not new to Bitcoin, but has seemingly struggled to learn basic concepts about money, economics, game theory, scaling and alike. These people usually have a profit motive in the way of their learning. They either have large bags of altcoins, a blockchain company, or produce media and play a role of a permanoob as an interviewer.

Pluralism – a description of a future monetary scenario characterized by more than one coin playing a significant role in perpetuity. You can compare it to a bimetallic standard, where gold and silver were both used for different monetary purposes.

This theory does not accept two main pillars in monetary economics. 1) Two sets of prices are less efficient than one, hence people who chose to use the superior monetary asset will benefit at the expense of the person who chose the inferior asset. The gold/silver ratio is an example, silver holders lost relative to gold holders. 2) The hard money aspect.

Ponzi scheme – a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. Nearly all altcoins and tokens in the bitcoin space have aspects of Ponzi schemes.

Precoiner – a person who has yet to be exposed to cogent arguments for Bitcoin, or who has not come around to understanding Bitcoin. Unlike nocoiners, precoiners are not outspoken while they come around to Bitcoin.

Pyramid scheme – a form of investment in which each paying participant recruits further participants, with returns being given to early participants using money contributed by later ones based on their recruitment success.

Reckless – in a sense it is a used literally to mean “(of a person or their actions) without thinking or caring about the consequences of an action”, but it is often used in relation to Bitcoin’s Lightning Network. When lightning was starting out in alpha, people recklessly started using it before the protocol developers said it was ready. There are some products that have embraced this meme, like Recksplorer for the Lightning Network.

Rekt – intentional misspelling of wrecked – used to describe losing all your bitcoin, or losing an argument badly.

Sat – short for satoshi, the smallest unit on the bitcoin network. Most often used in the term “stacking sats”.

Scam – (1) A project that intentionally misleads investors to steal their money. (2) A project doomed to failure through ignorance and leads to investors losing money and wasting time. This ignorance can be technical or economic, or both.

Scammer – (1) A person who intentionally misleads investors. (2) A person whose actions unwillingly will lead to investors losing money and wasting time. It’s very hard to tell between these two types of scammers if you little education in the space. For this reason, don’t dismiss people calling out scams or scammers without asking for clarification. Be wary of people defending scams or scammers with labels of the accuser. Scammers operate best when skeptics are marginalized.

Shitcoin – an altcoin or token that will horribly under-perform bitcoin long term. Often used for all altcoins.

The State – an institution for violent compulsion. It’s differentiated from other institutions, which all make and enforce rules, by its ability to force involuntary actions in the market.

All action taken by a State must be defined as coercive, because if the goal were not to cause involuntary action, the State would not be needed. In other words, voluntary action does not need the State to take place. In this way, the State cannot facilitate voluntary action either, because voluntary action cannot result from coercively limited choices.

Stealth – a secretive period of development, made popular in technology start ups. The usual characteristics of a project in stealth is they have well-known backers and are concerned with an idea that is not at the proprietary stage yet. It could also be a technology that isn’t proprietary, and founders are busy building to a stage at which their launch will form some sort of first mover advantage.

Toxic – in the Bitcoin sector, a label given to bitcoiners making evidence based arguments in public and/or refusing to accept faulty counterarguments. Used synonymously with bigoted and as the opposite of inclusive. It is most often applied to vocal Bitcoin maximalists in an attempt to shame them into not challenging fraudulent claims.

The label is usually applied by con men, their bagholders, or people who have been convinced by con men of their legitimacy, because con artists lose effectiveness when their targets are educated. Not to be confused with a run-of-the-mill troll.

Vaporware – software that is advertised and marketed, but has not been delivered. In the altcoin space, vaporware is a common problem, especially in ICO tokens. Funding is raised on promises of revolutionary tech, until the team finds out their extraordinary claims are harder than they thought to deliver. The incentives of ICOs are aligned to produce many vaporware projects. The developers are met with the decision, do they deliver a project that won’t meet expectations and crash the price of the tokens, or do they extend and pretend for as long as they can?

Technical Terms

ASIC – Application Specific Integrated Circuit – These are computer chips specifically designed to work on one or one family of algorithms. The introduction of ASICs to bitcoin caused the difficulty of mining to skyrocket, making it nearly impossible for basement miners to get a ROI. ASICs are a hotly debated issue today, because of the relative centralized manufacturing process. One major company has come to dominate Bitcoin ASIC manufacturing, Bitmain, though this is quickly changing as three new companies are beginning delivery of their chips in 2018.

Bitcoin – a set of rules that when followed by a piece of software, the software’s actions are recognized as valid by other software on the Bitcoin network.

bitcoin – the native asset token in the Bitcoin network with a total supply of 21,000,000.

Bitcoin Address – an identifier of 26-35 alphanumeric characters, beginning with the number 1 or 3, that represents a possible destination for a bitcoin payment. Addresses can be generated at no cost by any user of Bitcoin. Every Bitcoin address stands for a number and most Bitcoin addresses are 34 characters. Addresses derived and controlled by multiple private keys can be made and are called Multisig.

Block – a file containing transactions and a block header, primarily to order transactions and provide proof of work, analogous to a page in a ledger – Blocks are “found” in the process of mining and appended to the chain of previous blocks. In Satoshi’s words from a comment in the original software:

Bitcoin Spartan hodling the line

Fig. 1 – Satoshi on blocks and the block chain.

Block chain (also written as “blockchain“) – a chain of blocks – The decentralized ledger of transactions and block headers in bitcoin. The block chain is only one piece of the whole system balanced by incentives. Block chains require proof of work and are append only. They provide a censorship resistant database at the cost of efficiency. Centralized databases are much more efficient.

Some say blockchain and block chain (“block space chain”) are different. “Blockchain” has come to mean a friendlier more palatable-to-suits version of bitcoin. While “block chain” is a decentralized ledger created through proof of work. The word block chain did not appear in the whitepaper, but did make its first appearance written by Satoshi in the original software, see Fig. 1 and Fig. 2:

Fig. 2 – Satoshi on the block chain.

Block reward – also known as block subsidy – the reward of bitcoin for finding a block, the incentive for miners to mine. When a miner finds a block they create a special transaction called a coinbase transaction where they create virgin coins at their own address. There is a decreasing maximum amount of reward, halved every 210,000 blocks, roughly every 4 years. The block reward started at 50 coins, halved to 25 in 2012, and halved again in 2016 to the current 12.5 coins. In 2020, the reward will be halved again to 6.25 coins.

The block reward is a very important part of the incentive structure of bitcoin. It provides an incentive to miners to maintain the block chain and order transactions into a block to prevent double spending. It is the sole incentive for miners. Some say miners also have a second incentive to mine, that being the right to vote on upgrades, but that is a perversion of the incentive structure and also impossible to implement.

Byzantine Fault Tolerance –  the dependability of a fault-tolerant computer system, particularly distributed computing systems, where components may fail and there is imperfect information on whether a component has failed. The term is derived from the Byzantine Generals’ Problem, where actors must agree on a concerted strategy to avoid catastrophic system failure, but some of the actors are unreliable. Byzantine fault tolerance has been also referred to with the phrases interactive consistency or source congruency, error avalanche, Byzantine agreement problem, Byzantine generals problem, and Byzantine failure. Wikipedia

Censorship resistance – where an action is technically difficult, financially impractical, or impossible to be censored. Bitcoin transactions and the network is censorship resistant due to it’s decentralized nature. The amount of decentralization is also dynamic. Bitcoin’s design allows it to be run slightly more centralized or slightly more decentralized as market conditions of censorship dictate. No one can stop a bitcoin transaction from being sent or received on the open network. Brute forcing a private key to confiscate money is financially impractical. Compared to traditional fiat exchanges, fiat can be stopped any any number of intermediates or the central regulator, and seized out of your accounts almost effortlessly. Censorship resistance is the thing that makes the inefficiency or decentralization and a block chain worth it.

Cold wallet – or offline wallet, also cold storage – this is a wallet created and maintained offline making it impossible to hack. In the past, many people printed private/public key pairs on paper from an offline computer and kept them in a safe. Hardware wallets are a derivative of a cold wallet.

Consensus – 1) Agreement on the current state of the network. This form of consensus is always 100%. Some nodes may be behind or ahead other other nodes, however, if nodes have the same information, they will be in agreement of the current state. This type of consensus is a direct result of the consensus rules.

2) Academic or development consensus is different than state consensus. It is a general consensus. When an update to the network is proposed, it first goes through a lengthy and rigorous process of peer review. No mandatory process has been or can be created for this due to the permissionless decentralized nature of Bitcoin. The proposal continues to get reviewed and discussed until all criticisms have been adequately answered. Again, there’s no hard and fast rule for when this is or what constitutes adequately. Many times it’s when the person who raised the criticism is satisfied with the answer, or that a large majority of people involved in the debate are satisfied. The ultimate arbiters are the nodes. You can sum up this type of consensus by saying it’s “the absence of sustained opposition.”

Cryptography – the practice and study of techniques for secure communication in the presence of third parties called adversaries. More generally, cryptography is about constructing and analyzing protocols that prevent third parties or the public from reading private messages; various aspects in information security such as data confidentiality, data integrity, authentication, and non-repudiation are central to modern cryptography. Modern cryptography exists at the intersection of the disciplines of mathematics, computer science, electrical engineering, communication science, and physics. Cryptography is found in electronic commerce, chip-based payment cards, digital currencies, computer passwords, and military communications. Often shortened to crypto, not to be confused with the short form of cryptocurrencies which is also crypto. Wiki

Deterministic – an algorithm which, given a particular input, will always produce the same output, with the underlying machine always passing through the same sequence of states. Deterministic algorithms are by far the most studied and familiar kind of algorithm, as well as one of the most practical, since they can be run on real machines efficiently. Wikipedia

Difficulty adjustment – or difficulty retarget – bitcoin is a self-adjusting system. When more hashpower starts mining the difficulty to find a block can adjust to retarget the 10 minute goal for new blocks. Bitcoin’s difficulty is retargeted every 2016 blocks or about 2 weeks.

Double spend – this is the main problem that a block chain solves. Prior to bitcoin it was impossible to solve the double spending problem without a central authority. Specifically, double spending is sending the same coin to multiple recipients. When transactions go through a central clearing house, they’d throw out the second tx, but in a decentralized system it was impossible. Bitcoin solves this through proof of work and ordering transactions into blocks.

Dual Consensus Problem – this problem exists when the functioning of an application relies on a decentralized consensus, as in a block chain network, and the physical world existence of a good. Keeping these two completely separate realms in sync requires centralization, and if the agreement of these two consensus mechanisms is a centralized process, the need for the decentralized consensus disappears.

Example 1, to gold-backed token relies on the decentralized consensus for the token and the physical world consensus on the assignment of ownership of the gold. Example 2, tokenized real estate relies on the decentralized consensus for the token and the physical world consensus of the assignment of ownership of the property. If something happens to the real world item, such as theft of the gold or destruction of the property by fire, the token is useless. On the other hand, if the token is stolen, i.e. hacked from your wallet, the dual consensus also breaks.

Dust – a small unspent transaction output (utxo) that is uneconomical to send. In other words, an input into your wallet that is so small that fees make it uneconomical to spend. In the early days of the Bitcoin network, malicious users sent many very small transactions to people, which bloated the network. An unofficial “dust limit” was instituted by wallets to stop these types of outputs.

Fork – There are two ways this term is used. 1) A split in the codebase of bitcoin. Forking bitcoin is as easy as copying the code and changing a few things. This process results in an altcoin.

2) There’s also another type of fork in regards to the block chain. If two miners find a block at almost the exact same time, and some on the network receives a block from one miner, and the other half of the network receives a block from the other miner, there is a fork in the block chain. These types of forks usually don’t last longer than 10 mins, because they are resolved when the next block is found. In very rare circumstances, forks of this nature can last for 3 blocks, but they eventually converge. It’s very safe to count 3 blocks as irreversible in this sense.

Hard Fork – A non-compatible change to the codebase. Hard forks change the rule set of bitcoin, so some new rules can be previously invalid and some previous valid rules can be made invalid. The resulting valid rule set is different. Since bitcoin is decentralized, some nodes will not upgrade and will be left behind/kicked off the network. Hard forks have massive centralizing pressure for a network, and creates a central party of developers or large stakeholders that take control, because hard forks introduce new attack vectors not present in soft forks. Political attacks, social engineering attacks or stakeholder attacks from governments can control the central party and force changes onto the network.

Layer two (L2) – software which interacts with the protocol consensus layer. Base layer distributed consensus protocols are not very forgiving and tend to be hard to change and scale. This limitation buys very high social scalability. Layer 2 software unburdens the user to interact directly with the consensus layer every transaction. This buys the network more user friendliness and effectively unlimited features which don’t have to do with final settlement. That is the sticking point. Final settlement must be done on the consensus layer.

Anything which interacts with bitcoin transactions can be considered a L2, some decentralized and trust-minimized like Lightning Network and sidechains, some relatively more centralized needing relatively more trust like exchanges, centralized merchant processors, statechains, coinjoin, etc.

A limiting factor is settlement, since the number of settlements available on the consensus layer doesn’t scale well. Some have wrongly argued this is a fatal flaw throughout the history of bitcoin, and consistently end up wrong. They usually have very good reasons to think so, but they underestimate two things, people’s ability to create trust-minimized abstractions and the strength of convergence of money to overcome any technical hurdle.

Soft Fork – A backwards compatible change to the codebase. Soft forks make the rules of bitcoin more restrictive, so the resulting valid set is smaller. All actions on the network after the soft fork remain valid to older versions of the software. This is an extremely important concept for a decentralized network. Since bitcoin is decentralized, you have control over your own node, and getting everyone to update to a new version is impossible. There’s still people running 3-4 year old versions on the bitcoin network and they continue to function as they always have.

Full node – also known as a fully validating node – Created by running the bitcoin software on a computer. Includes a copy of the block chain, mempool and UTXOs. Validates transactions and blocks, can broadcast transactions and act as a wallet. A full node is your vote on the network, your tool to individual sovereignty over your money. No one can tell you what software to run on your node. In the scaling conflict the winning side promoted running your own, and even kept the protocol light to make running a full node easier. Full nodes are the backbone of a decentralized network. If a node receives an invalid block (doesn’t conform to the rules of the network) it rejects it and disconnects from th

Genesis block – The very first block on the bitcoin block chain, mined by Satoshi on Jan 6th, 2009. There was a message contained in the genesis block from a Times headline, “Chancellor on Brink of Second Bailout for Banks.” Another less known fact is that there was a period of time before the second block ending on the 10th. Also the coins in the genesis block are unspendable.

Halving – the reduction in block reward that happens roughly every four years – serious form of halvening.

Hash rate – the measure of total computational power on the Bitcoin network; measured in the number of times per second the SHA-256 algorithm is run by all computers mining.

Hot wallet – a wallet that holds your private keys and with access to the internet, most commonly on a smartphone. In the early days of bitcoin these wallets were very unsafe, but have come a long way over the last couple of years. They now have encrypted keys in isolated environments. It’s very important that you are careful where you download your wallet. Never keep more than spending money on a hot wallet.

MAHF – Miner Activated Hard Fork – a mechanism to activate a non-backwards compatible upgrade to the Bitcoin network via miners as opposed to nodes. Whether a MAHF is even possible is debatable.

MASF – Miner Activated Soft Fork – When miners signal for readiness for a new feature, this signaling activates the use of new features. This was encapsulated in BIP9 activation, which was how Segwit was originally designed to be activated. The major problem of MASFs is it changes the incentive structure of bitcoin itself and invites politics into the process. It also, wrongly, gives the miners a feeling that they are more important than they are or in charge.

Mempool – the group of transactions in a node’s memory waiting to be confirmed. In Bitcoin transactions are broadcast so the entire network can hear them, until they show up in a block they sit in the mempool. Miners take txs from the mempool and order them into blocks.

Each node may have a slightly different mempool, because they hear a slightly different set of txs than other nodes. Nodes can set an individual mempool max size for their node, ie 50MB, so anything more than that, the node will drop older txs. A reason for restricting the size of the mempool could be performance. Another option for limiting your mempool is by transaction fee. You can set it to not retain txs with fees lower than a set limit, ie 5 sats/byte.

The mempool is “cleared” by miners ordering transactions into blocks. With a maximum block weight now of 4MB and 6 blocks/hour, the mempool can theoretically be cleared at a rate of 24MB/hour. However, if people refuse to use segwit type txs, the block size is more limited.

Mining – 1) Bitcoin mining was first described in the white paper, but was adapted from earlier efforts by Wei Dai and Hal Finney. It serves several functions, it is the process by which new bitcoins are released into circulation, distributed randomly, transactions are confirmed, and the keeps the system immutable.

2) Mining is the use of software, hardware and electricity to find a random number which solves a math problem. The difficulty of finding the random number is programatically adjusted to keep the average time to find it to 10 minutes. Miners are incentivized to do this work by allowing them to claim a reward of bitcoin in special transaction in each block called a coinbase transaction. They are also rewarded to order transactions through fees, and doing so increases the value of the block reward, too.  When a miner finds a valid solution they hash it together with ordered valid transactions into a block and broadcast it to the network. For their reward to be claimed, their solution must be added to the block chain by the network. If two miners simultaneously broadcast a block, and because of network latency both are accepted by different parts of the network the tie is broken by the next block. Each block is built on the previous block, so whatever the next block builds on becomes the winner.

3) Behavior of miners is the result of an extremely dynamic process within the Bitcoin incentive structure. It’s not fully understood and the subject of lively debate within the community.

Multi-sig – short for multiple signatures – bitcoin’s transactions can be scripted in such a way to be bound by multiple private keys/signatures. A certain signature scheme (n of m) is needed to evaluate programmatically to true to spend those coins. This is a smart contract that bitcoin does very well, and other networks like ethereum don’t have a native solution for. A popular signature schemes are 2 of 3, meaning that 3 signatures are acceptable, and 2 of those 3 signatures must sign the transaction for it to be valid. This has many very powerful uses, one of them being personal security. You can lock your coins into a multi-sig address where you need two of your personal devices to spend, and you can have a third key locked in a safety deposit box or stored with a third party.

Native Token – a purely digital token that solely exists on and for the network. The native token is directly dependent on the other Nakamoto Consensus rules, and they on it. It’s the keystone that locks the network’s economic incentive structure together.

Non-deterministic – an algorithm that, even for the same input, can exhibit different behaviors on different runs, as opposed to a deterministic algorithm. There are several ways an algorithm may behave differently from run to run. A concurrent algorithm can perform differently on different runs due to a race condition. A probabilistic algorithm’s behaviors depends on a random number generator. An algorithm that solves a problem in nondeterministic polynomial time can run in polynomial time or exponential time depending on the choices it makes during execution. The nondeterministic algorithms are often used to find an approximation to a solution, when the exact solution would be too costly to obtain using a deterministic one. Wikipedia

Oracle – the entity responsible for bringing external data into a decentralized network. Many smart contracts depend on external data to function. For example, a smart contract may do something when a sports team wins a game. The oracle is responsible for telling that smart contract which sports team won. See Oracle Problem.

Oracle Problem – Oracles are not trustless, they are centralized and controlled by one or a group of parties, therefore the smart contracts that rely on oracles are not decentralized or trustless. Many efforts have been made to solve the oracle problem, which rely on obfuscated trust. None have been successful. If a smart contract relies on a centralized trusted oracle, there’s no need for the smart contract itself to be on a decentralized network. The overall trust level of an app is the most trusted aspect of that app. So if the oracle is centralized, the whole app is centralized and trusted. Related to the Dual Consensus Problem.

Private key – a private key in the context of Bitcoin is a secret number that allows bitcoins to be spent. Every Bitcoin wallet contains one or more private keys, which are saved in the wallet file. The private keys are mathematically related to all public keys and Bitcoin addresses generated for the wallet

Proof of stake – (proof-of-stake, PoS) – an alternative decentralized consensus model to proof-of-work where cost and time is replaced by putting some of the native token on the network at stake with a risk of loss for dishonest behavior. There are many more attack vectors to PoS than pure PoW. It has been a well studied topic, with live experiements in the form of cryptocurrency networks. To date, no PoS network has been able to garner much confidence, especially relative to PoW networks.

Proof of work – (proof-of-work, PoW) – a piece of data which is difficult (costly, time-consuming) to produce but easy for others to verify and which satisfies certain requirements. Producing a proof of work can be a random process with low probability so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work system as a decentralized consensus mechanism to keep all nodes on the same history. Bitcoin nodes will follow any block which has valid proof-of-work and valid data in the block.

Accumulated proof of work secures the network’s history, because to change the history, an attacker would need to redo the proof of work. An extremely costly and time consuming process. The attack would need to sustain >50% of the network’s hash power for an extended period of time to even rewrite a few blocks. A vast majority of 80% or more would be needed to dominated the current and historical record of Bitcoin.

Public key – a 2D point coordinate on an Elliptic Curve derived from private key. The private key is used to sign messages (in case of Bitcoin – the transactions), and the public key is used to check whether the signature is correct. The public key can either be used raw in a transaction, or turned into a Bitcoin address by means of hashing and other operations.

satoshi – the smallest unit size on the bitcoin network. 100,000,000 satoshis make 1 BTC. Sub-satoshi division is possible on other layered protocols like the Lightning Network (LN). The satoshi is the native denomination currently used on the LN since its value is still very low (~$0.0001), but in the future a satoshi will be worth more than a $0.01, you will want to be able to divide a bitcoin further, and that’s possible on other layer protocols. It’s unclear if those divisions will be available on the consensus layer.

Scalability Trilemma – a term coined by Vitalik Buterin to describe theoretical scaling trade offs for a Bitcoin-like network. The three components are decentralization, security, scalability. The claim is that these three things are each a spectrum and designers of these networks must choose to what level to optimize for each component.

Seed phrase – (also known as a seed recovery phrase or backup seed phrase) – a list of words which store all the information needed to recover a Bitcoin wallet. Wallet software will typically generate a seed phrase and instruct the user to write it down on paper. If the user’s computer breaks or their hard drive becomes corrupted, they can download the same wallet software again and use the paper backup to get their bitcoins back. Anybody else who discovers the phrase can steal the bitcoins, so it must be kept safe like jewels or cash. For example, it must not be typed into any website. Seed phrases are an excellent way of backing up and storing bitcoins and so they are used by almost all well-regarded wallets. Read more

Stablecoin – digital tokens representing a unit of fiat currency.

A state – the sum total of all remembered events and interactions in a computer program or network. In Bitcoin, this is represented by the most recent block. To be able to verify how this current state came to be, all blocks are cryptographically linked and stored in the block chain.

UAHF – User Activated Hard Fork – a mechanism to activate an incompatible upgrade the Bitcoin network where users coordinate and agree to adopt the change as a large organic distributed consensus. The extremely important distinction is incompatible, because it is very hard or impossible to force all nodes to upgrade. Leaving nodes behind out of consensus shrinks the network. If any of those nodes constitute significant economic value, the hard fork will definitely decrease the price of the hard forked coin, influencing others not to upgrade. In Bitcoin, HFs are impossible if there is an option to not upgrade, they are only viable in existential cases. All other HFs in Bitcoin result in an altcoin.

UASF – User Activated Soft Fork – a mechanism to activate a backwards compatible upgrade to the Bitcoin network, where users coordinate and agree to adopt the change as a large organic distributed consensus. It’s the opposite of a centrally planned change. As a soft fork, the upgrade is backwards compatible, so doesn’t mandate any action on the part of nodes (the Segwit UASF was slightly different than this due to the hardcoded requirements included in the upgrade).

Whitepaper – The original outline of ideas written by Satoshi Nakamoto and released on 31 Oct 2008. The white paper introduced the ideas behind Bitcoin, but wasn’t the first application of the ideas. That came two months later.

Economic Terms

Analytic statement – a statement that is true in the meaning of the words alone, but that doesn’t convey additional information about the real world. For example: All bachelors are unmarried; or a triangle has three sides.

Austrian Economics – a tradition starting generally around the study of human action in St. Thomas Aquinas and the University of Salamanca, flowing through the scholastics to economists like Richard Cantillon, Turgot, and getting its modern form in Menger, Böhm-Bawerk, Mises and Rothbard. The foundational ideas are free market, individual rights, subjective value, an Austrian theory of money, and business cycles. One of things that stands out in Austrian Economics after Mises is a methodological reliance on logic vs empiricism of other modern economic schools of thought. What that means is we can reach some understanding through reason. Read more

Bubble – (also known as an economic bubble or asset bubble or speculative bubble) – a relatively rapid rise in asset prices to unsustainable levels, driven by ignorance of the assets themselves or by a widespread miscalculation of sustainable valuations. Economic bubbles occur on a regular basis, but seem to cluster around two types of scenarios; 1) the initial invest opportunity around new technology, and 2) the self-reinforcing malinvestment due to inflation of money supply. Bitcoin has both of these scenarios wrapped up into one, so the bubble cycles are extreme and short-lived.

Cantillon Effect – an uneven expansion of the amount of money that favors people closer to the source of the new money. This effect is used to explain how mispricing and misallocation of capital results from money printing and how it damages the economy. Named after Richard Cantillon, an 18th century economist.

Catallactics – or catallaxy – theory of the way the free market system reaches exchange ratios and prices. It aims to analyse all actions based on monetary calculation and trace the formation of prices back to the point where an agent makes his or her choices. More

Chartalism – is a theory that claims money is a creation of the State by dictating a solution to barter, and that fiat currency has value, because the State collects taxes in it. Chartalism has been denounced by nearly all modern economists, including mainstream and Austrian as not supported by observation. Chartalism was praised by Keynes, which might be a reason it has survived and even been revived as Neo-Chartalism or modern monetary theory (MMT).

Convergence – ​the moving toward one standard from disparate standards. Convergence in Bitcoin comes in two types, communication/money and technology. Money is a subcategory of communication, but has its own incentives.

Default Keynesian – a person who, probably unwittingly and passively, supports the centralized monetary and fiscal policies that are descended from the ideas of economist John Maynard Keynes simply because that’s the way things are now. Source

Efficient Market Hypothesis – coming soon

Efficiency – the extent to which an action’s result approaches the greatest possible benefit to human well-being out of all available options. There are two options available in this regard, 1) results from a voluntary action or 2) results from an involuntary action. Logically, since well-being is subjective, voluntary exchange is the most efficient option.

Empirical statement – a statement about the world based on observation and experience. The truth of empirical statements can be tested. They are hypotheses and falsifiable. For example: Germans drink more beer than Czechs. Empirical statements also make intuitive sense if you state the opposite. Germans drink less beer than Czechs.

In economics, empirical statements are problematic, because there are infinite variables in the market. It’s impossible to control for enough variables to make an experiment’s results meaningful. In fact, it’s trivial to critique any economic study by simply showing several more variables that weren’t controlled for. Austrian Economics is often criticized for its rejection of empirical statements as being unable to tell us anything about economics.

Fiat Money – inconvertible paper money made legal tender by a government decree and violence. Fiat leads to the Cantillon Effect, an incentive to grow market intervention, a degrading ethical fiber of market participants, inflation and ever-expanding debt.

Free market – also known as an unhampered market – a market where choices are not coercively limited, except by the self-defense of other individuals. These natural limitations are enforced by the individual and cultural norms.

An easy heuristic to use in identifying a free market is if there is no organization to enforce rules that has powers in excess of the individual. If the individual is not justified in taking an action, but the enforcement organization is, it’s not a free market.

Gold standard – a global standard of value based on gold and gold backed currency. The classical gold standard defines a period that ran from the 1870s to the First World War. In the interwar years attempts were made to return the gold standard, but the financial center of London had abandoned it, so all attempts failed. After WWII, the major countries of the world signed the Bretton Woods Agreement, where the US would maintain a gold standard for its currency, and all other countries would peg or based their currency off dollar backing. This worked for a while, until it because obvious that the US wasn’t able to convert dollars to gold on demand. In 1971, the US closed the gold window all pretenses were dropped. From that point on, the financial system has been based on pure government fiat.

For millennia gold had functioned as a very popular money. It’s scarcity and unforgeable costliness to mine, restrained government intervention in the market. However, as the industrial revolution increased the speed and scope of international trade, more and more gold was centralized into large bank vaults. By the first half of the 20th century, most gold was in vaults directly regulated by government or vulnerable to government seizure. That being the case, it was irresistible to bureaucrats to inflate the paper currency. It wasn’t long until the ruse was up, and they abandoned the official gold standard all together, in favor of the infinitely and politically printable fiat money.

Hard Money – money that is hard to produce, measured by its stock to flow ratio. Until Bitcoin, money production depended on price to control supply, the more valuable the good was the more supply would increase. For example, if the price of gold was to double, it would incent more mining and more supply to be brought to market. In Bitcoin, a higher price still incents capital to go into mining but the issuance rate is very tightly controlled. Bitcoin is therefore the hardest money ever created.

Inflation – an expansion in supply of a good, usually applied to money as a monetary expansion or stimulus. The modern day meaning, however, has been perverted to mean an increase in the general price level. It is extremely hard to measure when defined as an effect, leading to any number of subcategories of inflation. Central banks almost universally have an distorted prices (inflation) target as part of their mandates. The “accepted” rate of increase in the general price level is to be 2% per year.

Intervention – the use of physical force or threats of physical force to compel involuntary actions; it substitutes coercion for voluntary actions. State intervention distorts market prices, leading to unintended consequences, and requiring more intervention to adjust. Intervention begets intervention. For example: Say the price of a quart of milk is 1000 satoshis, and the State sets the price at 500 satoshis so the poor can more easily afford milk. Then the farmers make less money, forcing the marginal producers out and restricting supply, while people can afford to by more milk. This leads to shortages. The State then comes in to mandates milk production to meet demand, which causes farmers to produce at a loss. They now have less money to maintain their tractor, so they supply less of their other products (meat or crops) to market. The State then steps in to mandate corn production. On and on.

Intrinsic value – a fallacy that purports an objective use value, below which the long term price of a good cannot fall. For example, gold can be used to make spoons or cuff-links, which have a non-zero objective utility, if gold’s monetary premium went to zero, supposedly the value of gold would still remain non-zero.

This was an important early concept of the origin of value, because it stops the circular reasoning of the value of money. However, Mises showed with his Regression Theorem, that it wasn’t intrinsic value, but an established market price based on subjective valuation that was at the root of the value of money.

Minimum utility threshold – the minimum utility (value) of a bitcoin transaction must be higher than the minimum cost (fee) to get the transaction confirmed. Minimum value > minimum fee. This only holds for consensus layer transactions, however. Source

It’s argued that this threshold makes room for a wholly different money (altcoin) to be a substitute good below the cost for one block minimum of security. However, money substitutes are not addressed in the source. Today, these are thinks like Lightning Network bitcoin and Liquid bitcoin. It seems likely that trust-minimized layer 2 protocols can serve to fill this gap through cryptographic guarantees on underlying bitcoin. The L2 money substitutes can even be atomically swapped (settled) between two trust-minimized layers for more cryptographic security. The threshold would effectively be lowered for all non-essential transactions. It is highly unlikely that a substitute good like an altcoin, with its own exchange rate and security will take transaction share unless there is insufficient time for bitcoin to meet that demand. Insufficient time, however, is temporary.

Neo-Austrian – A branch of the Austrian School that places primary importance on Bitcoin and building unstoppable tools for civil disobedience.

Opportunity cost – also called hidden cost – the cost of any activity measured in terms of the value of the next best alternative foregone (that is not chosen). More An often quoted example is found in the Broken Window fallacy. A broken window doesn’t stimulate the economy, because the money put into fixing the window would have been used elsewhere. The broken window also decreases capital wealth, which must be replaced by cash. Opportunity cost is not quantitatively measurable. We know it’s qualitatively positive, in other words opportunity costs exist, but there is no way to calculate it, because it would involve subjective value judgments of an alternate outcome. We can deduce that the opportunity cost for an involuntary action is greater than the benefit of the action taken, because if it were less it wouldn’t be involuntary.

Plunge Protection Team – The Working Group on Financial Markets (also, President’s Working Group on Financial Markets, the Working Group, and colloquially the Plunge Protection Team) was created by Executive Order 12631, signed on March 18, 1988, by United States President Ronald Reagan. Its goals are enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence. It’s commonly believed that this body acts to support stock market prices directly.

Praxeology – the study of human action, based on the axioms that humans act and human action is purposeful behavior. It’s based on synthetic a priori statements, as opposed to empirical (falsifiable hypothesis requiring testing) and analytical (true on purely logical grounds). Synthetic a priori statements can say something true about the world without needing to be tested. For example: two straight lines cannot enclose a space. This statement says something about the world and is irrefutably true.

The Austrian School of Economics is based on praxeology and deduction, not empirically testable hypotheses. Statements such as, voluntary trade is mutually beneficial to both parties, else it wouldn’t take place, don’t need to be tested to be true. Many people (nocoiners, MMT, default Keynesians) feel uncomfortable around Austrian claims, because the claims can’t be quantitatively confirmed, only logically deduced in a qualitative manner.

Preferences – the ordinal ranking of valued ends by individuals.

Regression Theorem – in the early days of Austrian Economics and the marginal revolution, it was not established how the value of money was set. You couldn’t simply say “people have a marginal utility for money because of its purchasing power,” because that’s circular. People exchange goods for money because they have a higher marginal utility for the money, but to explain why people have that marginal utility for money is not readily apparent. Other goods have a consumption value, money does not by its very definition, it is a good held for future use and not consumed. Mises devised a way in which people’s expectations about future value was priced-in today’s and based on yesterday’s value. If you follow that back in time, you arrive at a time before that good was money, and all it had was a consumption use, like gold for cuff-links. More

This is often misunderstood by gold advocates as damning for bitcoin, because bitcoin lacks a past as a marketable consumption good. However, the Regression Theorem only applies to money arising out of an economy without money. New money arising in a market with old money, can simply bootstrap off of that old money. The exchange rate history takes the place of the original consumption value.

Saleable – a good is saleable if it is able to be exchanged (sold) for something else of value. Some goods cannot be sold, whether it’s because the value of a unit is to low to be calculated (a blade of grass) or because there is simply no demand at the time. In a hypothetical barter economy, if a person has a good on offer that no one is willing to trade for, that good is currently not saleable.

Saleability – the level to which something can be readily exchanged (sold). Everyday items like food and water have high saleability, because people have a constant need for them. The use of an indirect medium of exchange, money, causes the saleability of most items to go up. This is often referred to a network effects.

The performance of an indirect medium of exchange can be estimated by examining the monetarily important characteristics of the good. Traditionally these have been scarcity, durability, portability, cognizability, divisibility, and fungibility. Digital goods like bitcoin have a unique characteristic, along with these traditional ones – inalterability.

Seigniorage – profit made by a government by issuing currency, especially the difference between the face value of coins and their production costs.

Sound Money – a commodity based money that has arisen from the market as the most liquid and salable good, and used as reserves for government money. Sound money is has many benefits over fiat. It can’t be printed by governments, so the corruption and misallocation from money printing is controlled. It also tempers and alleviates the worst effects of boom bust business cycles in the economy. Bitcoin will be sound money, but it’s unlikely to be used in any reserve scheme, because it’s highly tradable.

Stimulus – economic stimulus is nearly synonymous with the original definition of inflation. It is an attempt to “stimulate the economy” through government deficit spending or monetary policy (money printing or interest rate manipulation). These activities result in the expansion of the quantity of money.

Substitute – money substitutes – claims to a definite amount of money, payable or redeemable on demand. Not to be confused with substitute goods, which are wholly different goods used for the same thing. Money substitutes are derivatives of the money meant to impart different characteristics on the money, or to save costs. Banknotes created a more divisible gold for example, and allowed economies of scale to save cost on security. Money substitutes technically introduce counterparty risk, but it’s considered so slight that people treat money substitutes as the money itself.

Altcoins are substitutes in the general goods sense and not in the monetary sense. With cryptography, we can make truly trust-minimized money substitutes for the first time, with an auditable supply. Lightning network bitcoin could be seen as a trust-minimized money substitute. Pegged sidechain coins, like Liquid BTC (LBTC) may grow into proper money substitutes for bitcoin with time, as well.

Trust-minimized money substitutes do introduce new challenges for the market to solve. The necessity for fees at the protocol level, seem to make small value transactions impossible to settle. Some have argued this gives enough incentive for a wholly different money complementary to bitcoin for small transactions. However, I don’t believe this to be the case. Innovation will bridge the gap of the minimum utility threshold (one confirmation), with perhaps a trust-minimized L2-to-L2 settlement; e.g. Lightning to sidechain, exchange to sidechain or lightning.

Switching cost – the cost incurred to switch brands of a common good. The monetary effect, mental effort and time needed to do so is non-zero. This is very important when discussing monetary goods. The switching costs must be less than the benefit of switching. The benefit to holding a different asset in your cash balances must be greater than both the opportunity cost of the forsaken asset plus the switching cost if necessary. When substitutes are very close in utility, the switching cost always favors the more liquid good.

Synthetic a priori statement – a statement that is logically true, but also contains information about the real world. It’s a mix of the benefits of empirical and analytic statements. For example: Two lines cannot enclose a space, or the sum of the angles in a triangle is 180°. A synthetic a priori statement is often confused with empirical statements, because it contains information about the world, however, they are not empirical, because they don’t need to be tested.

This type of statement is extremely powerful and the basis for Austrian Economics. The Action Axiom is this type of statement: All humans act and all human action is purposeful.

Technical analysis – 1) the art of learning from past prices and market data to predict future prices. 2) an analysis methodology for forecasting the probable direction of future prices through the study of past market data, including price history, relative price history, price movements through time in relation to empirical market data, volume, price formation and the basics of economic calculation, market sentiment and investor psychology. Technical analysis is not trading, it is forecasting. TA must be combined with an individual skill set, including a proclivity for risk management, consistency, calm temperament, open mindedness, etc. to be profitably applied to trading.

I personally defend the use of TA with the following logic: 1) all action is future oriented, 2) all action is a prediction of outcomes, 3) we can learn and make better decisions to achieve our goals, and 4) prices are the only reliable source of information about the market. Some people are more skilled at forecasting than others. They are more able to form the probabilities of price movements. Some people’s character are better suited to trading. It is, however, impossible to have 100% certainty about the future, or to be 100% uncertain. To be certain about the uselessness of TA is a contradiction.

Unit bias – the reasoning that the relative price of a whole unit of a money says about its fair value. For example, when people compares the price of bitcoin at say $20,000 and the price of an altcoin at $10 and concludes the altcoin has a lot more room for growth. Of course, this is a fallacy and doesn’t take into account total supply, liquidity, robustness, or any actual metric at all.

Unwilling convergence – ​eventual capitulation to a overwhelming single standard. This is related to loses accrued due to holding out against convergence. Entrepreneurs take on large risk toward a perceived larger payoff. You are incentivized to try to pick the eventual winner in any of these convergent areas. If you invest in the wrong standard, you will benefit relatively less or lose outright.

Eventually you’ll be forced to capitulate based solely on relatively loses. Your illusion is ultimately dependent on the limited resources of reality.

Game Theory Terms

Credible Commitment – an attempt to induce a certain behavior by signaling your own intentions toward a strategy. By signaling the intention toward a strategy, the player is effectively trying to restrict the choices of the other player/s. “I promise not to defect.” The problem with commitments of this nature is the player could be lying.

A credible commitment is only needed if they are trying to break or avoid a Nash equilibrium/status quo.

Finite Game – a game played with the purpose of winning. Finite games have a set number of players, set rules with clear boundaries and set victory conditions. Profit isn’t the purpose of this kind of game, profit can result from winning, but survival in this zero sum environment is the purpose. Examples of finite games are chess, sporting events, wars, political battles for absolute power, etc. In the study of game theory matrices, infinite games are one round.

Infinite Game – a game played with the purpose of continuing the game. Infinite games have no set rules or players, in fact the rules must change through the game, precisely to prevent a player from winning, and also to bring as many players as possible into the game. In the study of game theory matrices, infinite games are infinitely repeated games.

​Lindy Effect – The longer a non-perishable thing, like technology, survives, the longer it will survive. My comments: Not necessarily that it must survive longer. Taleb uses the terms life expectancy and expected, in this regard. The only qualifier we can rely on is time itself. If it lasts relatively longer, it means it’s robust enough to last, and so it will last.

Nash Equilibrium – ​a solution to a game, that if given a choice, no player would change their strategy. This is not an absolute best case for each player, but it is a best case for both involved.

A Nash equilibrium is very stable in repeated games, because it’s the trust minimized solution.

Payoffs – ​numbers which represent the motivations of players. Payoffs may represent profit, quantity, “utility,” or other continuous measures (cardinal payoffs), or may simply rank the desirability of outcomes (ordinal payoffs). In all cases, the payoffs must reflect the motivations of the particular player. source

Ordinal payoffs are numbers representing the outcomes of a game where the value of the numbers is not important, but only the ordering of numbers. For example, when solving for a Nash equilibrium in pure strategies, you are only concerned with whether a payoff is larger than another – the degree of the difference is not important. Thus, we can assign values like “1” for the worst outcome, “2” for the next best, and so on. Thus, ordinal payoffs simply rank all of the outcomes. source

Prisoners’ Dilemma – ​a very basic game that explains the traditional framework for game theory with strategies and payoffs. It is most often found in payoff matrix form or word form.

Prisoners’ Dilemma Payoff Matrix

Shelling Point (also called a focal point) – is a strategy that people will tend to use in a game in the absence of communication, because it seems natural, special, or relevant to them. ​This has importance to bitcoin, because it’s the first and the biggest, most liquid, most secure, most well-known, the most respected technically, the most users, etc etc etc, so when investors look into this space, bitcoin stands out as the only investable asset. Also, in a game theoretic sense, status quo is the shelling point. If there is a credible commitment problem, or uncertainty in any way, the shelling point will win, because it’s the most obvious and established consensus.

Variable sum game – a game in which the sum of all player’s payoffs differs depending on the strategies they utilize. This is the opposite of a constant sum game in which all outcomes involve the same sum of all player’s payoffs. In variable sum games, players can mutually benefit through cooperation. source It seems that this type of game with ordinal payoffs is an area for further study, as it could give economists a powerful way to simplify complex logic.

Zero sum game – a special case of a constant sum game in which all outcomes involve a sum of all player’s payoffs of 0. Hence, a gain for one participant is always at the expense of another, such as in most sporting events. source