BLOCKCHAIN TECHNOLOGY
Unit 2: Cryptocurrency and Design
Comprehensive Study Notes
References:
[1] Imran Bashir - Mastering Blockchain, 2nd Ed., Packt Publication, 2018
[2] Lantz & Cawrey - Mastering Blockchain, 1st Ed., O'Reilly Publication, 2020
[3] Chris Dannen - Introducing Ethereum and Solidity, 1st Ed., Apress Publication, 2017
1. Concept of Cryptocurrency
1.1 What is Cryptocurrency?
A cryptocurrency is a digital or virtual form of currency that uses cryptographic techniques to secure financial
transactions, control the creation of new units, and verify the transfer of assets. Unlike traditional currencies
issued by governments (fiat money), cryptocurrencies operate on decentralized networks — typically based on
blockchain technology.
Key properties of cryptocurrency include:
• Decentralization: No central authority (government, bank) controls it
• Digital Nature: Exists only in electronic form; no physical coins or notes
• Cryptographic Security: Uses public-key cryptography and hash functions to secure transactions
• Pseudonymity: Users are identified by addresses (public keys), not real-world identities
• Immutability: Once recorded on the blockchain, transactions cannot be altered or deleted
• Transparency: All transactions are publicly visible on the blockchain ledger
• Scarcity: Most cryptocurrencies have a capped maximum supply (e.g., Bitcoin: 21 million)
1.2 Key Cryptographic Foundations
Cryptocurrency relies on several cryptographic primitives:
Hash Functions: One-way functions that produce a fixed-size digest from any input. Bitcoin uses SHA-256. Hash
functions ensure data integrity.
Public-Key Cryptography (Asymmetric): Each user has a public key (shared openly) and a private key (secret). The
private key signs transactions; the public key verifies them.
Digital Signatures (ECDSA): Elliptic Curve Digital Signature Algorithm is used in Bitcoin to authenticate transactions
without revealing the private key.
Merkle Trees: A binary tree of hash values used to efficiently verify transaction integrity within a block.
Property Traditional Currency Cryptocurrency
Control Central bank / government Decentralized network
Physical Form Coins, notes Purely digital
Supply Control Printed as needed Algorithmic (fixed supply)
Transaction Speed Hours to days (international) Minutes (globally)
Transparency Opaque Publicly auditable
Security Institutional trust Cryptographic proof
Intermediary Banks, clearinghouses None (peer-to-peer)
2. History of Bitcoin
2.1 Precursors to Bitcoin
Bitcoin did not emerge in isolation. Several earlier digital cash systems laid conceptual groundwork:
• DigiCash (1989, David Chaum): First digital cash using blind signatures for anonymity; failed due to
centralized control
• e-gold (1996): Gold-backed digital currency; shut down due to fraud and regulatory issues
• b-money (1998, Wei Dai): Proposed a decentralized anonymous electronic cash system
• Bit Gold (1998, Nick Szabo): Conceptual forerunner proposing proof-of-work and decentralization
• Hashcash (1997, Adam Back): Proof-of-work system originally designed to limit email spam — directly
inspired Bitcoin's mining mechanism
2.2 Birth of Bitcoin (2008-2009)
On October 31, 2008, a person (or group) using the pseudonym Satoshi Nakamoto published a whitepaper titled
'Bitcoin: A Peer-to-Peer Electronic Cash System.' The paper described a system to allow online payments directly
between parties without going through a financial institution.
Key Whitepaper Insight
Nakamoto's core innovation was solving the double-spending problem without a trusted third party,
using a chain of cryptographic proof (blockchain) and a consensus mechanism (proof-of-work).
On January 3, 2009, the genesis block (Block 0) was mined by Nakamoto. Embedded in its coinbase transaction
was the text: 'The Times 03/Jan/2009 Chancellor on brink of second bailout for banks' — a timestamp and
commentary on traditional banking failures.
2.3 Bitcoin Timeline
Year Event
2008 Satoshi Nakamoto publishes Bitcoin whitepaper
2009 Genesis block mined; Bitcoin software released; first transaction (Nakamoto to Hal Finney)
2010 First real-world purchase: 10,000 BTC for 2 pizzas; Bitcoin exchanges emerge (Mt. Gox)
2011 Bitcoin reaches parity with USD; alternative coins (Litecoin, Namecoin) appear
2012 First halving event (block reward: 50 BTC to 25 BTC); Bitcoin Foundation formed
2013 Price surpasses $1,000 for first time; FBI seizes Silk Road marketplace
2014 Mt. Gox exchange collapses (850,000 BTC stolen); second halving
Year Event
2016 Third halving (reward: 25 to 12.5 BTC)
2017 Bitcoin reaches all-time high near $20,000; SegWit activated; Bitcoin Cash fork
2020 Fourth halving (reward: 12.5 to 6.25 BTC); institutional adoption grows
2021 Bitcoin reaches $69,000; El Salvador adopts as legal tender
2024 Fifth halving (reward: 6.25 to 3.125 BTC); Bitcoin ETFs approved in US
2.4 Identity of Satoshi Nakamoto
The true identity of Satoshi Nakamoto remains unknown. Nakamoto disappeared from the project in 2010-2011,
handing development to the open-source community. The Bitcoin Core development team and the broader
community have since maintained and evolved the protocol.
3. Challenges of Blockchain / Bitcoin Design
While blockchain technology and Bitcoin offer revolutionary capabilities, they face significant design challenges
that limit their adoption and scalability. These challenges span performance, scalability, efficiency, security,
governance, public policy, and legal frameworks.
3.1 Performance
Performance refers to how quickly and efficiently the blockchain can process and confirm transactions.
3.1.1 Transaction Throughput
• Bitcoin processes approximately 7 transactions per second (TPS)
• Ethereum (pre-Merge) handled around 15-30 TPS
• Compare this to Visa, which handles ~24,000 TPS at peak
• The bottleneck is the block size (1MB in Bitcoin) and block time (10 minutes average)
3.1.2 Confirmation Latency
• A Bitcoin transaction typically requires 6 block confirmations (~60 minutes) for high-value transfers
• Even a single confirmation takes ~10 minutes on average
• This delay is unacceptable for real-time retail payment applications
3.1.3 Transaction Fees
• During peak demand, Bitcoin transaction fees have spiked to $50+ per transaction
• Fee markets create inequitable access — wealthy users can pay more to prioritize their transactions
• This undermines Bitcoin's use case for microtransactions
Metric Bitcoin Ethereum Visa
(PoW)
TPS ~7 ~15-30 ~24,000
Block Time ~10 minutes ~13 seconds Milliseconds
Finality ~60 minutes (6 ~2-3 minutes Seconds
blocks)
Fee (avg.) Variable ($1- Variable (gas) Fixed (~2%)
$50+)
3.2 Scalability
Scalability is the ability of the system to handle a growing number of transactions and users without degrading
performance. Bitcoin faces a trilemma: decentralization, security, and scalability — you can optimize for two but
not all three simultaneously.
3.2.1 The Blockchain Trilemma (Vitalik Buterin)
The Blockchain Trilemma
Decentralization + Security + Scalability — every blockchain must compromise on at least one. Bitcoin
prioritizes decentralization and security, sacrificing scalability. This is a fundamental design tension.
3.2.2 Blockchain Bloat
• As more transactions are added, the blockchain grows continuously
• Bitcoin blockchain exceeded 500 GB by 2023
• Full nodes must store the entire chain, raising hardware requirements and reducing decentralization
• New participants face high entry barriers to run full nodes
3.2.3 Layer-2 Scaling Solutions
• Lightning Network (Bitcoin): Off-chain payment channels allowing instant, low-fee transactions; only
final balances are settled on-chain
• State Channels: Generalization of Lightning for arbitrary state transitions
• Sidechains: Separate blockchains pegged to Bitcoin (e.g., Liquid Network)
• Rollups (Ethereum): Bundle thousands of transactions into a single on-chain proof
3.2.4 On-Chain Scaling Proposals
• SegWit (Segregated Witness, 2017): Separated signature data from transaction data, effectively
increasing block capacity to ~4MB equivalent
• Taproot (2021): Improved scripting, privacy, and efficiency using Schnorr signatures
• Block Size Debate: Led to Bitcoin Cash (BCH) fork in 2017, increasing block size to 8MB (later 32MB)
3.3 Efficiency
Efficiency concerns relate primarily to the enormous energy consumption of Proof-of-Work (PoW) consensus, the
dominant mechanism in Bitcoin.
3.3.1 Energy Consumption
• Bitcoin mining consumes an estimated 100-150 TWh of electricity annually (comparable to countries like
Argentina or Norway)
• The energy is used to compute trillions of SHA-256 hash calculations per second
• This is by design — the computational cost makes attacks economically prohibitive
• Critics argue this is wasteful for a payment system; proponents argue it provides unparalleled security
3.3.2 Hardware Arms Race
• Mining evolved from CPUs to GPUs to FPGAs to ASICs (Application-Specific Integrated Circuits)
• ASIC miners are orders of magnitude more efficient than general-purpose hardware
• This has led to mining centralization in large farms and mining pools
• Small/individual miners are priced out, reducing decentralization
3.3.3 Alternative Consensus Mechanisms
Proof-of-Stake (PoS): Validators are chosen based on the number of coins they stake (lock) as collateral. Far more
energy-efficient. Used by Ethereum post-Merge (2022).
Delegated PoS (DPoS): Token holders vote for a small number of delegates who validate transactions (e.g., EOS,
TRON).
Proof-of-Authority (PoA): Approved accounts validate transactions. Used in private/consortium blockchains.
Proof-of-Space-Time: Uses storage capacity rather than computation (e.g., Chia Network).
3.4 Security
Security is fundamental to cryptocurrency — the system must prevent fraud, double-spending, and attacks while
remaining open and decentralized.
3.4.1 51% Attack
• If a single entity controls more than 50% of the network's hashing power, they can rewrite recent
transaction history
• They can double-spend coins and prevent new valid transactions from being confirmed
• Bitcoin's massive hash rate makes this economically infeasible, but smaller PoW coins (e.g., Ethereum
Classic, Bitcoin Gold) have suffered 51% attacks
3.4.2 Double-Spending
• The fundamental problem that Nakamoto's blockchain solved
• Without a central authority, how do you prevent the same coin from being spent twice?
• Bitcoin solves this through the longest chain rule: the chain with the most accumulated proof-of-work is
considered valid
• A fast-confirmation (0-confirmation) transaction is still vulnerable until included in a block
3.4.3 Cryptographic Vulnerabilities
• Quantum computing threat: Sufficiently powerful quantum computers could break ECDSA (Elliptic Curve
Digital Signature Algorithm) used in Bitcoin
• If a quantum computer can derive a private key from a public key, all Bitcoin addresses become
vulnerable
• Research is ongoing into quantum-resistant cryptography (e.g., lattice-based signatures)
• Bitcoin addresses derived from hashed public keys (P2PKH) offer some quantum resistance
3.4.4 Smart Contract Security (Ethereum)
• The DAO Hack (2016): A vulnerability in a smart contract allowed attackers to drain $60M in Ether
• Smart contracts are immutable once deployed — bugs cannot be easily patched
• Formal verification and rigorous auditing are necessary but not foolproof
• Common vulnerabilities: reentrancy attacks, integer overflow, access control flaws
3.4.5 Wallet and Exchange Security
• Private key management: Lost keys mean permanently lost funds; no recovery mechanism
• Exchange hacks: Mt. Gox (2014, 850K BTC), Binance, Bitfinex, Coincheck have all been hacked
• Phishing and social engineering: Users tricked into revealing private keys
• Hardware wallets (e.g., Ledger, Trezor) mitigate risks by keeping keys offline
Attack Type Description Mitigation
51% Attack Majority hash power enables chain High hash rate, merge mining
rewrite
Double Spend Same coins spent in two transactions Wait for confirmations
Sybil Attack Creating many fake identities PoW/PoS makes this expensive
Eclipse Attack Isolating a node from honest peers Multiple diverse connections
Replay Attack Rebroadcasting a valid transaction Replay protection in forks
Phishing Trick users into revealing keys Hardware wallets, 2FA
3.5 Governance
Governance in blockchain refers to how decisions about protocol changes, upgrades, and direction are made. This
is one of the most contentious aspects of decentralized systems.
3.5.1 Bitcoin's Governance Model
• Bitcoin Improvement Proposals (BIPs): Formal proposals for protocol changes, submitted by developers
and community members
• No formal voting mechanism — changes are driven by rough consensus among developers, miners,
node operators, and users
• Miners signal support by including version bits in mined blocks
• The block size debate (2015-2017) demonstrated how contentious governance can become, ultimately
resulting in the Bitcoin Cash hard fork
3.5.2 Types of Protocol Upgrades
Soft Fork: Backward-compatible upgrade. Old nodes still accept new blocks (e.g., SegWit). Requires majority miner
adoption.
Hard Fork: Non-backward-compatible upgrade. Creates a permanent chain split if not universally adopted (e.g.,
Bitcoin Cash, Ethereum/Ethereum Classic).
UASF (User Activated Soft Fork): Soft fork activated by full nodes rather than miners. Demonstrated during SegWit
activation (BIP 148).
3.5.3 On-Chain vs Off-Chain Governance
• Off-Chain (Bitcoin, Ethereum): Decisions made through informal processes, developer discussions, social
media, community forums
• On-Chain (Tezos, Polkadot, Compound): Token holders vote directly on governance proposals through
the blockchain itself
• On-chain governance is more transparent and democratic but can favor large token holders
3.5.4 Ethereum's Governance
• Ethereum Improvement Proposals (EIPs) formalize proposed changes
• The Ethereum Foundation plays a significant role but does not have sole authority
• The DAO hard fork (2016) demonstrated that social consensus can override technical 'immutability'
• The Ethereum community split into Ethereum (ETH) and Ethereum Classic (ETC) as a result
3.6 Public Policy and Legal Framework
The decentralized, pseudonymous, and global nature of cryptocurrency creates significant challenges for
regulators and policymakers worldwide.
3.6.1 Regulatory Approaches by Country
Country/Region Approach Key Actions
United States Mixed/Evolving SEC treats some cryptos as securities; CFTC oversees
derivatives; ongoing litigation
European Union Regulated (MiCA) Markets in Crypto-Assets (MiCA) framework enacted
2023
China Prohibited Banned crypto trading and mining; developing digital
yuan (CBDC)
El Salvador Legal Tender First country to adopt Bitcoin as legal tender (2021)
India Restrictive Heavy taxation (30%); RBI opposition; no explicit ban
Japan Regulated Bitcoin recognized as legal property; licensed exchanges
required
Country/Region Approach Key Actions
UAE Permissive Crypto-friendly regulations; major hub for crypto
businesses
3.6.2 Key Policy Concerns
• Anti-Money Laundering (AML): Cryptocurrencies can be used to launder illicit funds due to
pseudonymity
• Know Your Customer (KYC): Exchanges required to verify user identities in most jurisdictions
• Tax Evasion: Difficulty tracking cryptocurrency holdings and gains across borders
• Terrorist Financing: Concerns about funding terrorism through anonymous channels
• Consumer Protection: No recourse for victims of fraud, scams, or exchange failures
• Sanctions Evasion: Nations and individuals under economic sanctions using crypto to bypass restrictions
3.6.3 Central Bank Digital Currencies (CBDCs)
Many governments are developing their own digital currencies as a response to cryptocurrency adoption:
• China's Digital Yuan (e-CNY): Most advanced CBDC; pilot programs in multiple cities
• Digital Euro: European Central Bank exploring feasibility
• Digital Dollar: US Federal Reserve studying; legislation pending
• CBDCs are centralized, government-controlled, and do NOT offer the same censorship-resistance as
Bitcoin
• They represent a compromise: digitizing currency without surrendering monetary control
3.6.4 Financial Regulation
• Securities vs. Commodity Classification: The SEC argues many tokens are unregistered securities (Howey
Test); CFTC treats Bitcoin as a commodity
• ICO Regulation (Initial Coin Offerings): Many ICOs were deemed illegal securities offerings; SEC
enforcement actions against numerous projects
• DeFi Regulation: Decentralized Finance platforms create regulatory grey areas — no central entity to
hold accountable
• Stablecoin Regulation: Tether, USDC, and other stablecoins face regulatory scrutiny over reserves and
systemic risk
4. Mining
Bitcoin mining is the process by which new transactions are added to the blockchain and new bitcoins are
introduced into circulation. It is the backbone of Bitcoin's security model and its decentralized consensus
mechanism.
4.1 Purpose of Mining
• Transaction Validation: Miners collect, verify, and group pending transactions from the mempool into
blocks
• Consensus: Mining provides a mechanism for all network participants to agree on a single transaction
history without a central authority
• Block Creation: Miners compete to create the next valid block by solving a computational puzzle
• Issuance: New bitcoins are issued as a block reward to the winning miner — this is the only way new BTC
enters circulation
• Security: The cumulative work (energy expenditure) required to mine makes rewriting transaction
history economically prohibitive
4.2 How Mining Works (Step-by-Step)
• Step 1 - Transaction Broadcast: A user creates and digitally signs a transaction, then broadcasts it to the
Bitcoin network
• Step 2 - Mempool: Unconfirmed transactions wait in the memory pool (mempool). Miners select
transactions, typically prioritizing those with higher fees
• Step 3 - Block Assembly: The miner assembles selected transactions into a candidate block, including a
coinbase transaction (block reward) to themselves
• Step 4 - Proof-of-Work Puzzle: The miner must find a nonce (number used once) such that the block
header's SHA-256 hash is less than or equal to the current target value
• Step 5 - Broadcasting: Once a valid nonce is found, the miner broadcasts the completed block to the
network
• Step 6 - Verification: Other nodes verify the block's validity (correct PoW, valid transactions, correct
format) and add it to their chain
• Step 7 - Reward: The winning miner receives the block subsidy (currently 3.125 BTC) plus all transaction
fees in the block
4.3 Proof-of-Work (PoW) in Detail
4.3.1 The Hash Puzzle
The mining puzzle requires finding a nonce N such that:
SHA-256(SHA-256(Block Header + Nonce)) < Target
The 'target' is a 256-bit number. The lower the target (more leading zeros required), the harder the puzzle. Bitcoin
uses double SHA-256 hashing for added security.
4.3.2 Difficulty Adjustment
• Bitcoin automatically adjusts mining difficulty every 2016 blocks (approximately every two weeks)
• Goal: Maintain an average block time of 10 minutes regardless of total network hash rate
• If blocks are found faster than 10 minutes on average, difficulty increases
• If blocks are found slower, difficulty decreases
• Formula: New Difficulty = Old Difficulty x (Actual Time / 20160 minutes)
• This self-regulating mechanism keeps the inflation rate of Bitcoin predictable
4.3.3 Hash Rate
Hash Rate: The total computational power of the Bitcoin network, measured in hashes per second (H/s). In 2023,
Bitcoin's network hash rate exceeded 500 Exahashes per second (EH/s) — 500 x 10^18 SHA-256 operations per
second.
4.4 Block Structure
Field Size Description
Version 4 bytes Block version number
Previous Block Hash 32 bytes Hash of the preceding block header
Merkle Root 32 bytes Root hash of the Merkle tree of all transactions
Timestamp 4 bytes Unix timestamp of block creation
Bits (Target) 4 bytes Compact representation of the current difficulty target
Nonce 4 bytes 32-bit counter that miners iterate to find valid hash
Transaction Count Variable Number of transactions in the block
Transactions Variable List of all transactions including coinbase
4.5 Mining Economics
4.5.1 Block Reward and Halving
The block reward is the incentive that drives miners to participate. Bitcoin's reward schedule is hardcoded to halve
approximately every four years (every 210,000 blocks):
Period Approximate Year Block Reward (BTC)
Genesis - 1st Halving 2009 - 2012 50 BTC
1st - 2nd Halving 2012 - 2016 25 BTC
2nd - 3rd Halving 2016 - 2020 12.5 BTC
3rd - 4th Halving 2020 - 2024 6.25 BTC
4th - 5th Halving 2024 - 2028 3.125 BTC
Ultimate Limit ~2140 0 BTC (only fees)
4.5.2 Mining Profitability Factors
• Hardware Efficiency: Hash rate per watt (J/TH for ASIC miners). Modern S19 Pro: ~29.5 J/TH
• Electricity Cost: The dominant operational expense; ideal miners pay $0.03-0.05/kWh
• Bitcoin Price: Higher BTC price = higher reward value in fiat terms
• Network Difficulty: Higher difficulty = harder to earn rewards without more hash rate
• Pool Fees: Mining pools typically charge 1-3% of earnings
4.5.3 Mining Profitability Formula
Daily Mining Revenue (approx.):
Revenue = (Miner Hash Rate / Network Hash Rate) x Daily Block Rewards x BTC
Price
4.6 Mining Hardware Evolution
Era Hardware Hash Rate (approx.) Efficiency
2009-2010 CPU (Intel, AMD) ~10 MH/s Very Low
2010-2011 GPU (NVIDIA, AMD) ~500 MH/s Low-Medium
2011-2012 FPGA ~1 GH/s Medium
2013-present ASIC ~100+ TH/s Very High
4.7 Mining Pools
Individual miners face near-zero probability of successfully mining a block given the enormous network hash rate.
Mining pools allow miners to combine computational resources and share rewards proportionally.
• Pool Coordinator: The pool operator assembles candidate blocks and distributes work to participants
• Shares: Miners submit 'shares' — partial solutions below the pool's threshold but above the network
target — as proof of work done
• Reward Distribution Methods:
◦ Pay-Per-Share (PPS): Miners earn a fixed amount per valid share, regardless of block finding
◦ Proportional (PROP): Rewards shared proportionally based on shares submitted per round
◦ Pay-Per-Last-N-Shares (PPLNS): Similar to PROP but based on last N shares, reducing pool hopping
• Major Pools: Foundry USA, AntPool, F2Pool, ViaBTC, Braiins Pool (formerly Slush Pool)
• Centralization Risk: Top 3-4 pools routinely control >50% of hash rate — a governance and security
concern
4.8 Environmental Impact of Mining
• Bitcoin's annual energy consumption rivals that of mid-sized nations
• Mining operations increasingly located near cheap renewable energy (hydroelectric in China, Iceland;
geothermal in El Salvador)
• Stranded energy utilization: Some miners use otherwise-wasted natural gas (flare gas) for electricity
• Bitcoin Mining Council tracks sustainability — reported ~59% renewable energy usage in 2022
• Critics argue carbon footprint is unacceptably high; proponents argue it drives renewable energy
development
• Proof-of-Stake (as adopted by Ethereum) reduces energy use by ~99.9%
4.9 Coinbase Transaction
The first transaction in every block is the coinbase transaction — a special transaction that has no inputs. It:
• Creates new bitcoins out of thin air (the block subsidy)
• Collects all transaction fees from the block
• Pays both to the miner's address
• Contains a scriptsig field that miners use to include arbitrary data (e.g., the Genesis Block's newspaper
headline)
• Has a special input referencing a null transaction (all zeros), with a block height field (BIP34)
5. Summary: Key Concepts of Unit 2
Topic Key Points
Cryptocurrency Digital, decentralized, cryptographically secured currency. No central
authority. Uses public-key cryptography, hash functions, digital signatures.
History of Bitcoin Proposed 2008 by Satoshi Nakamoto. Genesis block Jan 3, 2009. Grew from
cypherpunk precursors (DigiCash, b-money, Hashcash, Bit Gold).
Performance Challenges Low TPS (~7), high latency (10 min blocks), high fees during congestion.
Layer-2 (Lightning) and SegWit help.
Scalability Challenges Blockchain trilemma: can't fully achieve decentralization + security +
scalability. Blockchain bloat as chain grows.
Efficiency Challenges PoW is energy-intensive (~100+ TWh/year for Bitcoin). ASIC arms race leads
to centralization. PoS alternatives are far more efficient.
Security Challenges 51% attacks, double-spending, quantum threats, wallet risks, smart
contract bugs. Multiple layers of defense needed.
Governance Challenges No formal authority. BIPs and EIPs for proposals. Soft vs hard forks. Block
size debate led to Bitcoin Cash fork.
Policy & Legal Challenges Regulatory fragmentation globally. AML/KYC requirements. Securities
classification debates. CBDCs as government response.
Mining PoW process to validate transactions and create blocks. Miners compete to
find valid nonce. Rewarded with block subsidy + fees.
Mining Economics Block rewards halve every ~4 years. Profitability depends on hardware
efficiency, electricity cost, BTC price, and network difficulty.
Mining Pools Miners combine hash rate for stable income. Reward sharing methods: PPS,
PROP, PPLNS. Top pools control significant hash rate.
6. Glossary of Key Terms
Term Definition
ASIC Application-Specific Integrated Circuit — hardware designed solely for mining
Block A container of transactions added to the blockchain, including header and body
Block Height The sequential number of a block in the chain (Genesis Block = 0)
Block Reward BTC awarded to a miner for successfully mining a block (subsidy + fees)
Coinbase Transaction The first transaction in a block, creating new bitcoins as miner reward
Difficulty A measure of how hard it is to find a valid block hash; auto-adjusts every 2016
blocks
ECDSA Elliptic Curve Digital Signature Algorithm — used to sign Bitcoin transactions
Fork (Hard) A protocol change incompatible with older software, potentially splitting the
chain
Fork (Soft) A backward-compatible protocol upgrade; old nodes still accept new blocks
Genesis Block The very first block of the Bitcoin blockchain, mined by Satoshi Nakamoto on Jan
3, 2009
Halving Event every 210,000 blocks where the block subsidy is cut in half
Hash The output of a cryptographic hash function (e.g., SHA-256); a fixed-length digest
Hash Rate Total computational power of the network, measured in hashes per second
Lightning Network Layer-2 payment channel network for fast, cheap Bitcoin transactions
Mempool Memory pool of unconfirmed transactions waiting to be included in a block
Merkle Tree Binary tree of transaction hashes used to efficiently verify block contents
Mining Pool Group of miners combining hash rate and sharing block rewards proportionally
Nonce Number used once; varied by miners to find a valid block hash
Proof-of-Stake (PoS) Consensus where validators are chosen based on staked coins, not computation
Proof-of-Work (PoW) Consensus requiring miners to expend computational energy to propose blocks
Satoshi Smallest unit of Bitcoin: 1 BTC = 100,000,000 Satoshis
SegWit Segregated Witness — upgrade separating signature data, increasing effective
block capacity
SHA-256 Secure Hash Algorithm 256-bit — cryptographic hash function used in Bitcoin
51% Attack Attack where entity with >50% hash power can rewrite recent transaction history
Wallet Software/hardware managing private keys and creating/broadcasting Bitcoin
transactions