Glossary of Terms
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A
Algorithm
Definition:
A set of step-by-step instructions used to perform a task or solve a problem.
Backstory:
Algorithms are the building blocks of computing and are used in everything from search engines to cryptographic functions in blockchain. They help blockchains process transactions, secure the network, and reach consensus.
ELI5 (Explain like I’m 5-years old):
It’s like a recipe in a cookbook—if you follow the steps in the right order, you’ll get the same result every time, whether it’s baking cookies or verifying a payment.
Audit Trail
Definition:
A chronological log of actions or events.
Backstory:
Helps businesses prove compliance and trace operations without manual reconciliation.
ELI5 (Explain like I’m 5-years old):
It’s like a receipt for every step taken—so you can double-check exactly what happened and when.
B
Block
Definition:
A group of transactions bundled together with metadata—including a timestamp, a reference to the previous block (via its hash), and a block header—and permanently added to the blockchain.
Backstory:
Blocks are the the fundamental building units of the blockchain. Each block contains not only verified transactions but also a header with essential information like the timestamp, nonce, Merkle root, and previous block hash—creating a secure, chronological link between all blocks.
ELI5 (Explain like I’m 5-years old):
It’s like a page in a public diary that includes the date, a summary of what’s inside, and a note pointing back to the previous page. Once everyone agrees it belongs in the book, it’s sealed in place and can’t be changed.
Blockchain
Definition:
A digital system for recording information in a way that makes it difficult or impossible to change.
Backstory:
Blockchain was designed to enable secure peer-to-peer money transfers without banks, offering a tamper-resistant record system.
ELI5 (Explain like I’m 5-years old):
It's like a notebook that everyone can see and write in, but once something is written, nobody can erase or change it.
Blockchain transaction
Definition:
A digital record of value or data exchange on the blockchain.
Backstory:
Transactions are the fundamental unit of operation in blockchain systems, used to log payments, contracts, and more.
ELI5 (Explain like I’m 5-years old):
It’s like sending money or information through a digital envelope—and the blockchain keeps a public receipt that proves it really happened.
C
Coin
Definition:
A unit of digital currency generated by mining and recorded on the blockchain. New coins are awarded to the winning miner of each block, from where it is distributed across the network. Because a coin is digital, a single unit can be divided into smaller units. In Blockchains based on the Bitcoin protocol, such as BSV Blockchain, the smallest unit is called a satoshi. There are 100,000,000 Satoshis in each Bitcoin.
Backstory:
New coins are created as rewards for miners who secure the network by validating blocks. This incentivizes participation and bootstraps the economy.
ELI5 (Explain like I’m 5-years old):
It’s like earning play money for doing chores—only this money is digital.
Consensus
Definition:
Agreement among many computers on what data is valid
Backstory:
Blockchain consensus algorithms replaced central authorities, allowing decentralized trust.
ELI5 (Explain like I’m 5-years old):
It's like a group of accountants all checking the same report. If they all agree it’s correct, you can trust the numbers are accurate.
Cryptography (in blockchain context)
Definition:
In proof-of-work blockchains, nodes (miners) have to solve a cryptographical challenge to win a reward and write the next block to the chain. Once a block is added, cryptography links it to the previous block to secure the content and order of the blocks. If anyone tries to change something in a previous block or reorder the blocks, it would break the cryptographical proof, so everyone would notice right away.
Backstory:
Used in military and secure communication for centuries, cryptography ensures data authenticity and privacy in blockchain systems.
ELI5 (Explain like I’m 5-years old):
In proof-of-work blockchains, cryptography is used as tough puzzles to make sure only honest people who have expended sufficient work can write to the blockchain. Blockchain also uses a cryptography technique (hashing) that creates a fingerprint of one block and publishes it to the next block, so that nobody can change what’s already there.
D
Digital Identity
Definition:
A blockchain-based version of a person's or entity's verified identity.
Backstory:
Replaces fragile username/password systems with secure, portable credentials.
ELI5 (Explain like I’m 5-years old):
It’s like having a digital version of your passport that proves who you are wherever you go online.
Digital Ledger
Definition:
A digital version of a traditional ledger that tracks transactions.
Backstory:
Replacing fragile paper with a digitised version.
ELI5 (Explain like I’m 5-years old):
It's like keeping your budget on a spreadsheet on your computer, rather than a paper book in your drawer.
Digital Signature
Definition:
A cryptographic way to prove that a message or transaction was approved by a specific user.
Backstory:
Based on public key cryptography, digital signatures are tamper-proof alternatives to handwritten signatures.
ELI5 (Explain like I’m 5-years old):
It's like sealing an instruction in envelope with a unique wax seal that only you have. Everyone can see the signature is yours, and they can tell if your seal gives you sufficient power for them to execute the instruction on your behalf.
Double-spend(Problem)
Definition:
When someone tries to spend the same digital coin more than once. The ‘double-spending problem’ is one of trying to prevent double-spending.
Backstory:
Before Bitcoin, digital money systems struggled to prevent double-spending without a central authority. Blockchain solved it using consensus and timestamps to ensure only the first attempt to spend a coin is accepted.
ELI5 (Explain like I’m 5-years old):
It’s like trying to use the same voucher twice, at different branches of the same chain store that are using the same computer system. The voucher’s barcode will be scanned the first time around and record that it’s been redeemed (on such and such day and time) across the computer system.
E
Electronic Cash
Definition:
Digital money that can be sent directly from one person to another without intermediaries.
Backstory:
Digital money that can be sent directly from one person to another without intermediaries.
ELI5 (Explain like I’m 5-years old):
It’s like giving someone exact change through your phone, no bank or app company involved.
Electronic Signature
Definition:
A digital way to sign documents or transactions that proves authenticity.
Backstory:
Bitcoin uses cryptographic digital signatures to verify that transactions were really authorized by the owner of the funds.
ELI5 (Explain like I’m 5-years old):
It’s like signing your name on a digital form via special software on your computer—the software records that the person who signed it was logged in with your credentials to confirm the identity of the signator.
F
Fungible Tokens
Definition:
Tokens that are interchangeable and equal in value, like traditional money.
Backstory:
Used to represent stablecoins, loyalty points, and other interchangeable assets on blockchain.
ELI5 (Explain like I’m 5-years old):
It’s like marbles that are all the same size and color—if you trade one for another, it doesn’t matter because they’re equal.
G
Genesis Block
Definition:
The very first block in a blockchain.
Backstory:
Bitcoin’s Genesis Block contains a quote from the headline of The Times newspaper published on January 3, 2009, the same day the genesis block was mined—about the 2008 financial crisis—symbolizing a new, transparent economic model.
ELI5 (Explain like I’m 5-years old):
It’s like page one of a diary—everything written afterward builds on it, and it marks the start of the story.
H
Hash / Hashing
Definition:
A hash turns data into a short, unique digital fingerprint.
Backstory:
Hashes help detect tampering—if data changes, the hash changes—ensuring record integrity on blockchain.
ELI5 (Explain like I’m 5-years old):
Hashes help detect tampering—if data changes, the hash changes—ensuring record integrity on blockchain.
I
Immutable
Definition:
Cannot be altered once written to the blockchain.
Backstory:
Immutability ensures legal, financial, and operational transparency.
ELI5 (Explain like I’m 5-years old):
It’s like writing something in permanent marker in a public notebook—once it’s there, no one can erase or change it.
Incentive (Intermediate)
Definition:
Rewards that motivate miners to act in the network’s best interest, typically through block rewards and transaction fees.
Backstory:
In Bitcoin-based networks, like BSV Blockchain, game theory design ensures that it’s more profitable to follow the rules than to cheat.
ELI5 (Explain like I’m 5-years old):
Imagine you're competing in a race where you only win if you’ve passed each of the checkpoints. Even if pass the finish line first, you will not win if your ID was not scanned at all checkpoints, and you would have wasted all of your effort. On the blockchain, these rewards (like earning coins or getting paid) encourage people to act honestly and keep the system working properly.
M
Microtransaction
Definition:
A very small transaction—often less than a cent.
Backstory:
Enables new monetization models like pay-per-use or microtipping.
ELI5 (Explain like I’m 5-years old):
It’s like dropping a coin in a tip jar online—quick, easy, and so small you hardly notice, but it adds up over time.
N
Network
Definition:
In Bitcoin, a group of interconnected computers that share blockchain data and relay transactions and blocks.
Backstory:
Bitcoin operates as a peer-to-peer network—every node connects to others to form a resilient, fraud-resistant system.
ELI5 (Explain like I’m 5-years old):
It’s like a big web of friends who all talk to each other and keep copies of the same notebook so no one can cheat.
Nodes (or Miners)
Definition:
In Bitcoin, network participants who use computing power to validate transactions and add new blocks to the blockchain.
Backstory:
In Bitcoin, miners are rewarded with new coins and transaction fees for performing proof-of-work, securing the network, and confirming the validity of activity.
ELI5 (Explain like I’m 5-years old):
It’s like digital gold miners who compete to solve hard puzzles—the first one who solves the puzzle gets to publish the next block of transactions to the chain and receive payment in new digital coins (the ‘block subsidy’ plus transaction fees).
Non-Fungible Tokens (NFTs)
Definition:
Unique digital items that can't be replaced or exchanged one-to-one, often used for art, games, and collectibles.
Backstory:
NFTs became popular for proving ownership of unique items online. On BSV, they are enabled via protocols like 1Sat Ordinals.
ELI5 (Explain like I’m 5-years old):
It’s like a one-of-a-kind action figure—your friend’s might look similar, but yours has its own serial number and story.
O
Overlays
Definition:
Overlay Services offers customisable zones on top of the network to enable businesses and organisations to create specialised services with custom-fit characteristics for their use case.
Backstory:
Introduced to extend blockchain functionality (e.g., identity, compliance) without altering its core.
ELI5 (Explain like I’m 5-years old):
It’s like adding special apps on top of your phone’s operating system—these apps give you more tools, but the phone still works the same underneath.
P
Peer-to-peer (P2P)
Definition:
Direct interaction between users, without intermediaries.
Backstory:
Inspired by file-sharing networks, Bitcoin applied this model to digital currency.
ELI5 (Explain like I’m 5-years old):
It's like paying a neighbor directly for mowing your lawn—no app, no company, just a simple exchange between the two of you.
Private Key / Public Key
Definition:
A pair of codes—one private, one public—that allow for secure digital communication.
Backstory:
Developed in the 1970s, this system underpins encryption and secure transactions on blockchain.
ELI5 (Explain like I’m 5-years old):
Your public key is like your email address—you can share it with others. Your private key is your password—only you should have it, and it proves you really sent the message or payment.
Proof of Work (PoW)
Definition:
A process where computers solve math (cryptographical) problems to validate transactions and create a self-incentivised network.
Backstory:
Originated to prevent spam and was adopted by Bitcoin to secure decentralized consensus.
ELI5 (Explain like I’m 5-years old):
It’s like a competition where people race to solve a puzzle. The first one to solve it gets to write the next page in a public notebook—and everyone agrees to trust that page. In return for solving the puzzle and writing the page, the winner gets a reward.
Public Blockchain
Definition:
A blockchain that anyone can join, read, or write to without needing permission.
Backstory:
Public blockchains like BSV blockchain were created to ensure open access and trustless collaboration across the globe.
ELI5 (Explain like I’m 5-years old):
It’s like a community bulletin board in a town square—anyone can read the messages, write their own, and see what others have shared.
S
Simplified Payment Verification (SPV)
Definition:
Verifying a transaction without downloading the full blockchain.
Backstory:
Enables phones and light clients to interact with blockchain networks efficiently.
ELI5 (Explain like I’m 5-years old):
It’s like checking your bank balance with a text message instead of going to the bank—you get the info you need without seeing all the details.
Smart Contract
Definition:
Self-executing digital agreements that run when predefined conditions are met.
Backstory:
Inspired by vending machines, smart contracts automate trust and reduce the need for intermediaries.
ELI5 (Explain like I’m 5-years old):
It’s like a vending machine: you put in the right amount of money, and it gives you your snack automatically—no person needed to check or approve.
Stablecoin
Definition:
A token whose value is tied to a stable asset like fiat currency.
Backstory:
Offers cryptocurrency functionality with lower volatility—ideal for payments and remittances.
ELI5 (Explain like I’m 5-years old):
It’s like a digital dollar that doesn’t jump up and down in value—it’s designed to always be worth about the same, so it’s easier to trust for everyday use.
T
(Types of) Tokens
Definition:
Digital assets on a blockchain that represent value or rights. Two main types are fungible and non-fungible tokens (NFTs).
Backstory:
Tokens extend blockchain functionality beyond currency to things like collectibles, assets, and voting rights.
ELI5 (Explain like I’m 5-years old):
It’s like game pieces—some are all the same (fungible, like coins), and some are special and unique (non-fungible, like rare trading cards).
Teranode
Definition:
High-performance BSV node architecture enabling massive transaction throughput.
Backstory:
Developed to solve scaling limitations in Bitcoin implementations.
ELI5 (Explain like I’m 5-years old):
It’s like upgrading a delivery truck into a fleet of high-speed trains—you can move way more stuff at once without slowing down.
Timestamping
Definition:
Recording the exact time and order of data entries.
Backstory:
Initially used for legal and academic verification, blockchain added tamper-proof timestamping by anchoring data to an immutable sequence.
ELI5 (Explain like I’m 5-years old):
It's like putting the exact time on a drawing you made, so everyone knows when you made it and can't pretend it was done earlier or later.
Token
Definition:
A digital representation of value, ownership, or rights.
Backstory:
Tokens enable digital representation and exchange of assets from currencies to artwork.
ELI5 (Explain like I’m 5-years old):
It’s like a digital gift card or ticket—it proves you own something, whether it’s a game item, concert seat, or even a piece of digital art.
Transaction Fees
Definition:
Small payments made to miners for processing and recording transactions on the blockchain.
Backstory:
Transaction fees help reward miners—especially as block rewards diminish.
ELI5 (Explain like I’m 5-years old):
Imagine sending a letter by post—you need to put a stamp on it to pay for delivery. On the blockchain, when you send a transaction, you also add a little “stamp” called a transaction fee. This small payment goes to the miners, who make sure your transaction is delivered safely and recorded. It’s how they earn money, especially as the rewards for mining new blocks get smaller over time.
U
UTXO (Unspent Transaction Output)
Definition:
A system where each transaction uses specific outputs from previous ones.
Backstory:
Bitcoin’s method of tracking ownership by treating coins as discrete chunks.
ELI5 (Explain like I’m 5-years old):
It’s like a library system that tracks the whereabouts of each book. When one person hands back a book to the library, the library system records the return (input) so it knows that the book is available to lend to someone else again (output). As long as the system records that the book has not been lent out again (an unspent output), it knows it’s available to other library members.
V
Valid Transactions
Definition:
Transactions that follow all protocol rules, such as having correct signatures and unspent inputs.
Backstory:
Even if a miner is first to solve the proof-of-work puzzle, their block will only be accepted if only valid transactions are included. This ensures network integrity and prevents fraud.
ELI5 (Explain like I’m 5-years old):
A valid transaction is like a properly filled-out form with the right signature and no mistakes. It proves you’re allowed to spend the money and haven’t already used it somewhere else. Even if a miner finishes the puzzle fastest and tries to add a new folder of pages to the blockchain book, they will only win the prize if every page in the folder follows the rules. This helps keep the system fair and stops cheating.
W
Wallet
Definition:
Software and/or hardware that stores and manages your blockchain-based assets.
Backstory:
Emerged alongside cryptocurrencies to let users hold and transact digital money and assets.
ELI5 (Explain like I’m 5-years old):
It's like an app version of your real wallet—it stores your digital money and ID cards, and you can use it to send or receive payments securely from your phone, computer or wallet device.
