Does Bitcoin Terminology fit future needs?
The development of technology usually does outpace the creation of new vocabulary words to describe new processes, concepts or procedures. This is all too true in the case of Bitcoin and cryptocurrency in general. We use examples of existing concepts to explain the way cryptocurrency works. Over time, words that had one meaning can end up having an entirely new meaning as a result. However, using words commonly associated with fiat monetary systems might do more harm than good when explaining certain Bitcoin or cryptocurrency processes.
Bitcoin Terminology: Custody
There is a lot of talk about services emerging with the intention of serving as secure “custodians” of bitcoin. That word “custodian” may very well help describe the concept, but it has a different meaning when referring to cryptocurrency vs. other assets. While using words such as “wallet” or even “coin” help give newcomers to the space a better understanding, the use of “custodian” can be misleading and possibly put funds at unintended risk. Traditional assets rely on ownership paper trails such as deeds, ledger entries, contracts, etc. Ordinarily, custody of an asset means authorized safekeeping of property rights. This definition when applied to crypto assets is completely incorrect. Bitcoin is a bearer asset with no names attached, thus the “custodian” that holds the private keys also owns the asset. If you entrust another party with the “custody” of your bitcoin, you are handing over ownership as well. It does not mean the party is “holding” the asset for you – it means they have been given more “ownership” of the bitcoin than what you possess!
Bitcoin Termonology: Multisig
Another confusing word used to describe emerging services and options for safekeeping of cryptocurrency assets is “multisig” – which means that multiple signatures are required for transactions. This may seem like a good alternative, given both parties involved must “sign off” on any transactions related to the asset. However, what if something happens to one of the custodians? Traditional securities are returned to the rightful owners should there be a breach, default, or even death of a custodian. There is simply no guarantee of that happening when it comes to bitcoin.
Bitcoin Terminology: Wallet
The word “wallet” has become one of the most widely used words to describe what is actually a software program which allows you to send and receive bitcoin. The word is used to describe the “wallet” one also has on an exchange – which additionally allows you to convert fiat money into cryptocurrency. The confusion comes in understanding that a wallet integrated on an exchange is not one which the asset owner has control of, unlike a wallet on your computer, smartphone, or hardware device. In reality, the word wallet was adopted to help those less tech-savvy understand the basic concept by likening it to what is used to transport fiat money. Most put their money in a “wallet” to take it to the store and spend it. It probably would have been better to coin a new word for the two very different types of crypto “wallets”, but we think that ship has sailed.
Bitcoin Terminology: Mining
Like gold, Bitcoin must be obtained through a process. While gold is physically mined, bitcoins are mined virtually through the deciphering of special computer encryptions. The analogy isn’t too far off the mark, and use of the word “mining” was a much easier way to make the concept of solving complex computational math problems by high-powered computers to create a valuable asset more understandable. However, what the word “mining” does not address when used to describe the bitcoin creation process is that by solving the computational math problems, bitcoin miners make the bitcoin payment network trustworthy and secure by verifying its transactional information. Yeah, that’s not really a part of mining gold.
Bitcoin Terminology: Address
A bitcoin address is similar to an email address in that it can be publicly shared, and it is the only information you need to provide to be paid in bitcoin. However, each address should only be used once for a single transaction. That makes it quite a bit different from an email address. A bitcoin address is a string of letters and numbers that represents a “destination” on the Bitcoin network, nothing more, and there are a few different kinds of bitcoin addresses. They all do the same thing: point to where bitcoin needs to be sent, and they are only used when “receiving” bitcoin. Additionally, unlike an email received, there is no “return address” on a Bitcoin transaction.
A bitcoin address should be used only once as a step in protecting the privacy of Bitcoin users. The practice removes the ability to link transactions to each other. The address is related to the “wallet” that generated it, and that wallet could be no longer used by the original provider. Suppose the wallet was on a phone that had been lost or stolen. The last-sent-to Bitcoin address on that stolen phone now belongs to the phone-thief because the wallet is on that phone also.
Bitcoin Terminology: Storage
Another confusing word when used in the crypto space is “storage” or “stored”. Many believe that a bitcoin address is where you store your bitcoin, while others believe it is stored in your “wallet”. What is stored in your wallet is merely a list of accounts (addresses) that you control and the secret key needed to spend coins sent to those accounts (addresses).
Bitcoin is only “stored” in the public blockchain on every computer running the Bitcoin client as a record of every transaction ever made, including those that sent you coins. You do not physically keep the “coins” in any amount locally on a computer, in an online or smartphone wallet, or in a hardware device. These wallets and hardware devices store the “private keys” which allow the user to access Bitcoin addresses for assets owned. This makes using Bitcoin more intuitive and convenient, but there is no Bitcoin “stored” there.
Bitcoin is a digital currency which does not exist in any physical shape or form, and is not “stored” anywhere. Private keys are used to access your public Bitcoin address and sign for transactions. A combination of the recipient’s public key (address) and your private key (stored in the wallet used) is what makes a Bitcoin transaction possible.
Bitcoin Terminology: Private Keys
Perhaps the most logical use of existing words to describe Bitcoin technology is the term “private keys”. Your Bitcoin private key must remain secured and secret at all times. Revealing it is the equivalent to giving over control of the bitcoins secured by that key. It must be backed up, and protected from thief, or accidental loss. It cannot be recovered if stolen or lost. If stolen or lost, the funds secured by it are gone forever, too.
The phrase “private key” was used because just as your home “address” is something anyone can know, your “key” to your home is very “private” and no one but you should possess it. Again, this makes it easier for newcomers to cryptocurrency understand the logic and the importance of Bitcoin private keys. A private key is actually an alphanumeric password/number used to spend/send your bitcoins to another Bitcoin address.
A private key is a 256-bit long number which is randomly created as soon as you make a “wallet” and the degree of randomness and uniqueness is well defined by cryptographic functions. They are primarily used for making transactions irreversible. This irreversibility is guaranteed by mathematical signatures which are linked to each transaction whenever we use private keys to send bitcoins. For each transaction, these “signatures” are unique, even though generated from the same private keys. This feature makes them impossible to copy, so the same “private key” can be used again and again. These signatures are mathematically related to Bitcoin addresses, and are only related specifically to the addresses generated by the private key used.
- Private Key
- White Paper
It is not easy to convey the details of a completely new concept without borrowing words that describe the existing and familiar. There are many aspects to Bitcoin that can be overwhelming. It is rare to find those that take the time to do a lot of reading to completely understand it. And, the fact is, one does not have to understand every nuance of the underlying technology to use Bitcoin. Most of us don’t necessarily understand every detail of what makes electricity power our home, or email reach its destination, but we use it because there have been services developed for us to do so.
The Internet, email, smartphones, and other technology was “hard to understand” in the beginning and common words were used to describe these concepts, often eclipsing their original meanings. Think about what words like “surf”, “web”, and “net” used to mean compared to what most of us associate them with today. It is easy to imagine that the word “wallet” will also take on a whole new meaning in the near future.
Disclaimer: This article in no way constitutes financial, legal or investment advice. It exists for educational and informational purposes only.