Like any other technology, Bitcoin has borrowed a lot of terminologies from inventions that precede it, in this case, older forms of money. Most of these Bitcoin vocabularies and titles, to a large extent, serve as convenient analogies that describe the cryptocurrency.
In this article, we are going to look at some of these terminologies and see whether they accurately relate to what they are intended to describe. The following are some of such terminologies:
1. A Bitcoin wallet
Any Bitcoin user will tell you that a Bitcoin wallet is a place where they keep their coins. Indeed the word ‘wallet’ conjures up the images of a small leather container for holding notes and coins.
Therefore, you will understand why the name was picked for an app that keeps track of one’s bitcoins on the blockchain.
Bitcoin.org defines it as:
“A Bitcoin wallet is loosely the equivalent of a physical wallet on the Bitcoin network.”
However, it is true that a bitcoin wallet does not contain any bitcoins. It is rather a ‘key chain’. It keeps pairs of private and public keys.
The balances indicated on the wallet are only the amount of bitcoins on the blockchain assigned to a public key (public address) in the wallet. The user will always use the private keys to authorize ceding control of bitcoins to another person.
Bitcoin.org says this further:
“The wallet actually contains your private key(s) which allow you to spend the bitcoins allocated to it in the block chain. Each Bitcoin wallet can show you the total balance of all bitcoins it controls.”
2. Sending and Receiving Bitcoin
That brings us to another two terminologies: ‘Sending and Receiving bitcoins’. Before the Internet, all forms of money were objects that consumers past around or sent and received.
Most users expect Bitcoin to behave exactly this way. They want to think of it as at least virtual objects that are sent from one wallet to another wallet.
In reality though, there is nothing that moves from one bitcoin wallet to another safe for notification of change of bitcoin share on the blockchain. Indeed, only entries against given public address on the public ledger change.
To understand how sending and receiving bitcoins are not accurate terminologies, you should note that the blockchain is one huge value, which users have shares of. When you ‘send’ bitcoins, what you are doing is ceding part of your share to someone and receiving means acquiring more share of the pie. All transactions are just entries made on the public ledger, with no value moving about.
3. Bitcoin Mining
Often bitcoin is equated to gold because of its scarcity; there will only be 21 million bitcoins ever. Even this part of this analogy is not entirely accurate. While we know the total number of bitcoins that will ever be in existence, nobody knows exactly how many ounces of gold are out there (both mined and unmined). But at least the scarcity fits.
However, the analogy does extend to how new bitcoin are created. Thus, generation of new units of bitcoins is referred to mining.
A closer look again, this time at how now bitcoins are created, discredits the analogy of mining.
In the natural mining process, people are looking for gold that already exist but is often deep in the bowels of the earth. On the other hand, no bitcoins exist anywhere until they are debited on the blockchain.
Indeed, the creation of new bitcoin is nothing more than a right acquired by a node on the Bitcoin network to add extra units (25 bitcoins per block) to its names on a new block through the provision of a mathematical solution that confirms transactions on the blockchain.
4. Bitcoin denominations
Since the time the Genesis Block was mined, there has been a discussion within the bitcoin community on the naming of bitcoin units or denominations. As a result, such denominations as the Satoshi, milibitcoin, microbitcoin, decibitcoin, etc. are now commonly used in conversations online and offline.
However, all factors make denominations a relic of the object or physical currency. Denominations had a purpose when money needed to be printed and minted into tangible objects and values existed in specific coins and notes.
For instance, the U.S. Dollar exists in one, two, five, ten, twenty, fifty and a hundred dollar denominations.
It is, therefore, correct to state that denominations have no meaningful function in bitcoin and other cryptocurrencies.
Do these terminologies serve a purpose?
Even though the above and other terminologies used in Bitcoin do not describe aspects of the cryptocurrency accurately, they still serve a purpose. Otherwise, how do you expect to explain some of these complex bitcoin aspects to ordinary users on the street?
Moreover, it is not like they are misleading, they just draw close parallels as much as it is possible.
Daniel O. Nyairo
Daniel is a Kenyan blogger and a content creator for fintech startups on Bitcoin, altcoins and the blockchain technology. Follow the author on Twitter @danbelte