Entering the world of cryptocurrencies and mining can seem complicated. Everywhere you turn, you encounter unfamiliar words and technical terms that are difficult to understand. To help you navigate discussions about blockchain, mining rigs, and ASIC miners, we have prepared a comprehensive guide to the most important terms.
Whether you are planning to invest in Bitcoin or get into mining, a proper understanding of key terms is the foundation for success. We will explain what hash rate is, why halving is so important, and what the difference is between a coin and a token. Before you embark on your journey to find digital gold, you need to learn its language. Let's get started.
Hardware and technology
ASIC (Application-Specific Integrated Circuit)
Definition: A special integrated circuit designed exclusively for one purpose—mining a specific cryptocurrency.
More detailed explanation: Unlike graphics cards (GPUs), which are versatile for many tasks, an ASIC miner is tailor-made for a single mining algorithm (e.g., SHA-256 for Bitcoin or Scrypt for Litecoin). This makes it incredibly powerful and efficient, making it the dominant device for mining cryptocurrencies where large networks dominate.
Miner
Definition: Any device designed for mining cryptocurrencies.
More detailed explanation: The term miner can refer to both specialized devices (e.g., Antminer) and entire computer systems with graphics cards. Its task is to perform cryptographic calculations in order to verify transactions and create new blocks on the blockchain, for which it is rewarded.
Rig (computer consisting of several graphics cards)
Definition: A mining assembly usually built from several graphics cards (GPUs).
More detailed explanation: A mining rig is essentially a specialized computer built for maximum computing power. It is used for mining cryptocurrencies that are not supported by ASIC miners, or for those where it is more efficient to use more versatile graphics cards. It is characterized by its "open air" design for better cooling.
Wallet
Definition: A digital tool for managing and storing your cryptocurrencies.
More detailed explanation: A cryptocurrency wallet does not store your coins in the true sense of the word, but stores private keys (long sets of characters) that allow you to access and control your funds on the blockchain. There are software wallets (applications, websites) and hardware wallets (physical devices).
Hardware Wallet
Definition: A physical device that stores private keys offline.
More detailed explanation: This is the most secure type of wallet because the keys never leave the device and are therefore not exposed to the risk of hacking or viruses. Transactions are signed inside the device but are only sent to the network after connecting to a computer.
Blockchain and mining
Blockchain
Definition: A decentralized and distributed digital ledger that is immutable.
More detailed explanation: You can think of it as a digital chain where each link (block) contains transaction data. Once a block is closed and added to the chain, it cannot be changed retroactively. Because the blockchain is distributed across thousands of computers around the world (nodes), there is no single central location that can be attacked or controlled.
Hash Rate
Definition: The number of computational operations that mining equipment is capable of performing per second.
More detailed explanation: Hash rate is a key parameter that determines your chance of receiving a reward. A higher hash rate means more attempts to find the correct calculation and thus a greater chance. The total hash rate of the network indicates its security.
Hash rate is measured in hashes per second and various prefixes are used to denote the enormous speeds involved:
Kilohash (KH/s) = 1,000 hashes per second
Megahash (MH/s) = 1,000,000 hashes per second
Gigahash (GH/s) = 1,000,000,000 hashes per second
Terahash (TH/s) = 1,000,000,000,000 hashes per second
Petahash (PH/s) = 1,000,000,000,000,000 hashes per second
Practical example: A top-of-the-line ASIC miner such as the Antminer S21 can have a hash rate of around 200 TH/s. This means it can perform 200 trillion calculations in a single second. Compare this to an older model that only achieves 14 TH/s, and you can immediately see why hash rate is crucial when choosing a profitable device.
Block
Definition: The basic building block of a blockchain, containing a list of verified transactions.
More detailed explanation: Each block is linked to the previous one and followed by the next one, creating an ever-growing chain. Entries into the block are made by miners, who receive a reward for correct verification.
Halving
Definition: An event in the Bitcoin network that reduces the reward for miners for a mined block by half.
Detailed explanation: This event occurs approximately every four years. Its purpose is to limit the amount of newly created Bitcoins and ensure that their total number never exceeds 21 million. Halving usually has a significant impact on price because it reduces supply.
Mining Pool
Definition: A group of miners who pool their computing power to increase their chances of mining a block.
More detailed explanation: Individual miners would not stand a chance against giant mining companies. By joining a pool, they share their computing power and participate in a shared reward. Once the pool finds a block, the reward is distributed among all members according to their share of the hash rate provided.
Exchanges and Investments
Exchange
Definition: An online platform for buying, selling, and exchanging cryptocurrencies.
More detailed explanation: Cryptocurrency exchanges work similarly to traditional ones, but instead of stocks, they trade digital assets. They provide an interface with current prices, charts, and trading orders.
Bull Market
Definition: A period when cryptocurrency prices are rising.
More detailed explanation: The term comes from English, and the symbolism of the bull lies in its method of attack, when it raises its horns upward. A bull market is usually accompanied by optimism, increased buying activity, and positive news.
Bear Market
Definition: A period when cryptocurrency prices are falling.
More detailed explanation: The symbol of the bear comes from the way it attacks with its paws down. A bear market is characterized by pessimism, falling prices, and negative news. Many investors panic and sell.
General terms
Coin
Definition: A cryptocurrency that has its own independent blockchain.
More detailed explanation: Examples of coins are Bitcoin, Ethereum, and Litecoin. They have their own network in which they are mined and serve primarily as currency or for network management.
Token (used to represent various digital assets or rights within a network)
Definition: A digital asset that is built on the blockchain of another cryptocurrency.
More detailed explanation: These are most often tokens built on the Ethereum network (ERC-20). They are not mined, but are created and managed within an existing network. They often represent some value or right, such as participation in a project.
Hodl (holder)
Definition: Internet slang for long-term holding of cryptocurrencies, regardless of price fluctuations.
More detailed explanation: The term originated in 2013 when a user on an internet forum drunkenly typed "I AM HODLING" instead of "holding." Since then, it has become a symbol of the community and philosophy that believes in the long-term value of cryptocurrencies.