Crypto Biz Magazine—July, 2014/Issue.02

GITHUB BITCOIN GLOSSARY CONTINUED
from orphaned blocks either become invalid (if already
included in the main chain) or moved to a pool of unconfirmed
transactions. By default, bitcoind nodes throw away unconfirmed
transactions after 24 hours.
Mining
A process of finding valid hashes of a block header by
iterating millions of variants of block headers (using nonce
and extra nonce) in order to find a hash lower than the target
(see also difficulty). The process needs to determine a single
global history of all transactions (grouped in blocks). Mining
consumes time and electricity and nowadays the difficulty
is so big, that energy-wise it’s not even profitable to mine
using video graphics cards. Mining is paid for by transaction
fees and by block rewards (newly generated coins, hence
the term “mining”).
Mining Pool
A service that allows separate owners of mining hardware
to split the reward proportionally to submitted work. Since
probability of finding a valid block hash is proportional
to miner’s hashrate, small individual miners may work for
months before finding a big per-block reward. Mining pools
allow more steady stream of smaller income. Pool owner
determines the block contents and distributes ranges of
nonce values between its workers. Normally, mining pools
are centralized. P2Pool is a fully decentralized pool.
Miner
A person, a software or a hardware that performs mining.
Mixing
A process of exchanging coins with other persons in order to
increase privacy of one’s history. Sometimes it is associated
with money laundering, but strictly speaking it is orthogonal to
laundering. In traditional banking, a bank protects customer’s
privacy by hiding transactions from all third parties. In Bitcoin
any merchant may do a statistical analysis of one’s entire
payment history and determine, for instance, how many
bitcoins one owns. While it’s still possible to implement KYC
(Know Your Customer) rules on a level of every merchant,
mixing allows you to separate information about one’s history
between the merchants.
Most important reasons for mixing are: 1) receiving a salary
as a single big monthly payment and then spending it in
small transactions (“café sees thousands of dollars when you
pay just $4”); and 2) making a single payment and revealing
connection of many small private spendings (“car dealer sees
how much you are addicted to coffee”). In both cases your
employer, a café and a car dealer may comply with KYC/
AML laws and report your identity and transferred amounts,
but neither of them need to know about each other. Mixing
bitcoins after receiving a salary and mixing them before
making a big payment solves this privacy problem.
M-of-N Multi-signature Transaction
A transaction that can be spent using M signatures
when N public keys are required (M is less or equal to N).
Multi-signature transactions that only contain one OP_
CHECKMULTISIG opcode and N is 3, 2 or 1 are considered
standard.
Node
Node, or client, is a computer on the network that speaks
Bitcoin message protocol (exchanging transactions and
blocks). There are full nodes that are capable of validating
the entire blockchain and lightweight nodes, with reduced
functionality. Wallet applications that speak to a server are not
considered nodes.
Nonce
Stands for “number used once.” A 32-bit number in a block
header which is iterated during a search for proof-of-work.
Each time the nonce is changed, the hash of the block header
is recalculated. If nonce overflows before valid proof-of-work
is found, an extra nonce is incremented and placed in the
coinbase script. Alternatively, one may change a merkle tree
of transactions or a timestamp.
Non-standard Transaction
Any valid transaction that is not standard. Non-standard
transactions are not relayed or mined by default BitcoinQT
nodes, but are relayed and mined on testnet. However, if
anyone puts such transaction in a block, it will be accepted
by all nodes. In practice it means that unusual transactions
will take more time to get included in the blockchain. If
some kind of non-standard transaction becomes useful and
popular, it may get named standard and adopted by users
(like it). See also Standard Transaction.
Opcode
8-bit code of a script operation. Codes from 0x01 to 0x4B
(decimal 75) are interpreted as a length of data to be
pushed on the stack of the interpreter (data bytes follow
the opcode). Other codes either do something interesting,
are disabled and cause transaction verification to fail, or do
nothing (reserved for future use). See also Script.
Orphan, Orphaned Block
A valid block that is no longer a part of a main chain. Usually
happens when two or more blocks of the same height are
produced at the same time. When one of them becomes a
part of the main chain, others are considered “orphaned.”
Orphans also may happen when the blockchain is forked
due to an attack (see 51% attack) or a bug. Then a chain
of several blocks may become abandoned. Usually a
transaction is included in all blocks of the same height, so
its confirmation is not delayed and there is no double spend.
See also Fork.
Output
See Transaction Output.
P2SH
See Pay-to-Script Hash.
Pay-to-Script Hash
A type of script and address that allows sending bitcoins to
arbitrary complex scripts using a compact hash of that script.
This allows payer to pay much smaller transaction fees and
not wait long for a non-standard transaction to get included
in the blockchain. Then the actual script matching the hash
must be provided by the payee when redeeming the funds.
P2SH addresses are encoded in Base58Check just like regular
public keys and start with number “3.”
July.2014 Page.63 Crypto Biz Magazine