Crypto Biz Magazine—July, 2014/Issue.02

GITHUB BITCOIN GLOSSARY CONTINUED
Sequence
A 32-bit unsigned integer in a transaction input used to
replace older version of a transaction by a newer one. Only
used when locktime is not zero. Transaction is not considered
valid until the sequence number is 0xFFFFFFFF. By default,
the sequence is 0xFFFFFFFF.
Signature
A sequence of bytes that proves that a piece of data is
acknowledged by a person holding a certain public key.
Bitcoin uses ECDSA for signing transactions. Amounts of
bitcoins are sent through a chain of transactions: from one to
another. Every transaction must provide a signature matching
a public key defined in the previous transaction. This way, only
the proper owner of a secret private key, associated with a
given public key, can spend bitcoins further.
Simplified Payment Verification (SPV)
A scheme to validate transactions without storing the whole
blockchain (only block headers) and without trusting any
external service. Every transaction must be present with
all its parent and sibling hashes in a merkle tree up to the
root. SPV client trusts the most difficult chain of block
headers and can validate if the transaction indeed belongs
to a certain block header. Since SPV does not validate all
transactions, a 51% attack may not only cause a double
spend (like with full nodes), but also make a completely
invalid payment with bitcoins created from nowhere.
However, this kind of attack is very costly and probably
more expensive than a product in question. Bitcoinj library
implements SPV functionality.
Secret key
Either the Private Key or an encryption key used in encrypted
wallets. Bitcoin protocol does not use encryption anywhere,
so secret key typically means a private key used for signing
transactions.
Soft Fork
Sometimes the soft fork refers to an important change of
software behavior that is not a hard fork (e.g. changing
mining fee policy). See also Hard Fork and Fork.
Spam
Incorrect peer-to-peer messages (like sending invalid
transactions) may be considered a denial of service attack
(see DoS). Valid transactions sending very tiny amounts and/
or having low mining fees are called Dust by some people.
The protocol itself does not define which transactions
are not worth relaying or mining, it’s a decision of every
individual node. Any valid transaction in the blockchain must
be accepted by the node if it wishes to accept the remaining
blocks, so transaction censorship only means increased
confirmation delays. Individual payees may also blacklist
certain addresses (refuse to accept payments from some
addresses), but that’s too easy to work around using mixing.
Spent Output
A transaction output can be spent only once: when another
valid transaction makes a reference to this output from its
own input. When another transaction attempts to spend
the same output, it will be rejected by the nodes already
seeing the first transaction. Blockchain as a proof-of-work
scheme allows every node to agree on which transaction
was indeed the first one. The whole transaction is considered
spent when all its outputs are spent.
Split
A split of a blockchain. See Fork.
SPV
See Simplified Payment Verification.
Standard Transaction
Some transactions are considered standard, meaning
they are relayed and mined by most nodes. More complex
transactions could be buggy or cause DoS attacks on
the network, so they are considered non-standard and
not relayed or mined by most nodes. Both standard and
non-standard transactions are valid and once included in
the blockchain, will be recognized by all nodes. Standard
transactions are: 1) sending to a public key; 2) sending to an
address; 3) sending to a P2SH address; 4) sending to M-of-N
multi-signature transaction where N is 3 or less.
Target
A 256-bit number that puts an upper limit for a block header
hash to be valid. The lower the target is, the higher the difficulty
to find a valid hash. The maximum (easiest) target is
0x00000000FFFF0000000000000000000000000000000000000000000000000000.
The difficulty and the target are adjusted every 2016 blocks
(approx. 2 weeks) to keep interval between the blocks close
to 10 minutes.
Testnet
A set of parameters used for testing a Bitcoin network.
Testnet is like mainnet, but has a different genesis block (it
was reset several times, the latest testnet is testnet3). Testnet
uses a slightly different address format to avoid confusion
with main Bitcoin addresses and all nodes relaying and mining
non-standard transactions.
Testnet3
The latest version of testnet with another genesis block.
Timestamp
UNIX timestamp is a standard representation of time as a
number of seconds since January 1st, 1970, GMT. Usually
stored in a 32-bit signed integer.
Transaction
A chunk of binary data that describes how bitcoins are
moved from one owner to another. Transactions are stored
in the blockchain. Every transaction (except for coinbase
transactions) has a reference to one or more previous
transactions (inputs) and one or more rules on how to spend
these bitcoins further (outputs). See Transaction Input and
Transaction Output.
Transaction Fee
Also known as “miners’ fee,” an amount that an author of
transaction pays to a miner who will include the transaction in a
block. The fee is expressed as the difference between the sum
of all input amounts and a sum of all output amounts. Unlike
traditional payment systems, miners do not explicitly require
fees and most miners allow free transactions. All miners are
competing between each other for the fees and all transactions
July.2014 Page.65 Crypto Biz Magazine