Appendix 1: Virtual Currency Terminology

The following is an edited version of Blockchain Trust Accelerator’s glossary of key blockchain terminology:¹

Bitcoin: The word “Bitcoin” refers to:

1. A peer-to-peer virtual currency network, launched in 2009, following the publication of a white paper outlining the key parameters of the system. The paper was authored pseudonymously by Satoshi Nakamoto in 2008, and
2. A virtual currency native to the Bitcoin network, commonly traded on exchanges by the identifier “BTC” or “XBT.” The Bitcoin consensus code suggests that there will ultimately be approximately 21 million total bitcoins ever issued (via block subsidies to miners), but bitcoins themselves are divisible and are commonly transacted in smaller units called “satoshis” (1 bitcoin = 100,000,000 satoshis).

Block: The foundational element of blockchain data structure. Transactions are grouped together into blocks and then cryptographically linked in a chain to the preceding block. By linking blocks together into a blockchain secured by a consensus algorithm like proof-of-work, appended blockchain data can become very difficult to change or delete.

Custody: The protective care or guardianship of a virtual currency. In financial services, “custody” services refer to services where a brokerage or financial institution holds assets on a client’s behalf, and there exist a number of virtual currency custody services that hold funds on behalf of users or institutions. Most major virtual currencies can also be brought into “self-custody”—whereby the virtual currency owner takes full control of ownership of the assets without relying on any third-party custodians, such as an exchange. This can be compared to a purchaser of gold taking “physical delivery” of the gold rather than leaving the gold in a third party’s vault—n other words, the purchaser receives actual gold rather than a gold certificate. In the virtual currency context, virtual currencies purchased and held on an exchange may be compared to virtual currency certificates; withdrawing virtual currency to an asset under user sole control can be compared to taking “physical delivery” of the virtual currency. The 2014 collapse of the Mt. Gox bitcoin exchange, which for many users resulted in massive losses of funds held on the exchange, demonstrated some potential risks of third-party custody, and spurred innovation into products and services to help users more easily take self-custody of virtual currencies.

Cryptocurrency: A type of digital currency, created using cryptographic techniques, which is used within a particular blockchain ecosystem or other networks. Often referred to as “virtual currency.”

Cryptography: A term used to describe the creation and use of protocols, algorithms, techniques, and codes to securely hide, communicate, store, and reveal information.

Digital Wallet: A software designed to hold credentials for processing online transactions, such as public and private keys. Digital wallet addresses are cryptographically related to public and private keys, enabling users to direct payments or validate identity using their digital wallet addresses.

Ether: The native virtual currency on the Ethereum blockchain.

Ethereum: A public blockchain platform designed by the Ethereum Foundation and released in 2015.

Encryption: The process of using cryptographic techniques to encode information for purposes of securely hiding, communicating, storing, and revealing information to authorized parties.

Exchange: A digital marketplace where traders can buy, trade, or sell virtual currencies. Some virtual currency exchanges also offer additional services, such as digital wallets, asset custody, payment processing, and venture capital.

Financial Inclusion: The provision of useful and affordable financial products and services that meet the needs of individuals and businesses.

Initial Coin Offering (ICO): A process by which a portion of a particular protocol’s cryptocurrency or tokens are sold publicly (in many cases following earlier distribution or reservation to venture capitalists, founders, or other supporters) in exchange for either fiat currency or other virtual currencies. These funds can be used for a variety of purposes. ICOs have come under heavy regulatory scrutiny, especially where they can be said to resemble unregistered IPOs that fail to deliver buyers equity or other shareholder rights typical of registered securities.

Intermediary: A third party that serves to coordinate or facilitate exchange between two or more entities.

Network: An interconnected system of two or more digital devices that can exchange data.

Open Source: A classification of software for which the source code is freely available.

Peer-to-Peer Network: A network that allows participating parties to exchange information without relying on a central node or actor as a relay.

Permission: The access required to perform a task, such as reading or writing data.

Private Key: A long string of randomly generated alphanumeric characters that is cryptographically linked to a public key and functions as a secret password to generate a signature that can be used to authorize transactions and authenticate data.

Pseudonymity: The means of identifying a party on a blockchain using a false name. While blockchains are frequently referred to as providing anonymity, pseudonymity is more precise, since parties do have identifiers.

Public blockchain: A blockchain in which read, write, and validate permissions are theoretically open to anyone with access to the Internet and the appropriate hardware. Data is typically visible to anyone who joins the network.

Public Key: A long string of randomly generated alphanumeric characters that is cryptographically linked to a private key and functions as a form of address or alias. This is also known as an “address.”

Scalability: The capability of a system, organization, or process to sustain or increase its performance and accommodate growth.

Security: The ability to ensure continued access and integrity of data despite threats. Blockchain networks typically safeguard data by distributing points of failure and leveraging cryptography to ensure unauthorized additions to the ledger are noticed and rejected by the network.

Token: A virtual representation of an asset, sometimes used for different applications on blockchains (it may or may not have monetary value). These can either be used as an endemic currency within the platform or represent assets in the real world such as electricity, financial credit, or physical space in a shipping container.

Transaction: An exchange of value or data in a blockchain network.

Transaction Fees: The fees that network members pay to incentivize miners to include particular data or transactions in their block.

Virtual Currency: An electronic representation of monetary value.