Glossary of Economic and Bitcoin Terms

51% Attack: In Bitcoin, a 51% attack occurs when a single miner or group of miners controls more than 50% of the network’s mining power. This level of control can potentially allow them to manipulate transactions, double-spend coins, or disrupt the network’s normal operation.

Acceptability: In economics, acceptability refers to the willingness of individuals in an economy to accept a particular form of money or currency in exchange for goods and services. Bitcoin’s acceptability has grown as more people and businesses have adopted it.

Accounting System: An accounting system is a ledger that records all transactions. For Bitcoin, it is the distributed ledger and is a transparent and immutable system that maintains a public record of all Bitcoin transactions.

Barter System: Barter is an economic system where goods and services are exchanged directly for other goods and services without the use of money.

Bitcoin and bitcoin: “Bitcoin” with a capital “B” refers to the decentralized digital currency and network as a whole, while “bitcoin” with a lowercase “b” refers to the individual units of the currency.

Bitcoin Wallet: A Bitcoin wallet is a digital tool that allows users to store, send, and receive bitcoins. It consists of a public key (for receiving funds) and a private key (for authorizing transactions).

Block: A block in the Bitcoin distributed ledger is a collection of transactions. These blocks are inked together chronologically to form a continuous chain.

Blockchain: A decentralized record of transactions that is maintained across computers through a peer-to-peer network.

Block Reward: The block reward is the amount of newly created bitcoins given to miners as a reward for adding a new block to the ledger.

Boom and Bust Cycles: These are economic cycles characterized by periods of rapid expansion (booms) followed by contractions (busts). Austrian economics often emphasizes the role of monetary policy in these cycles.

Bretton Woods Agreement: An international monetary agreement established in 1944 that fixed exchange rates to the U.S. dollar and tied the dollar to gold. It played a significant role in the global monetary system.

Bullion: Precious metals like gold and silver in their pure, bulk form, often used as a store of value.

Byzantine Generals Problem: A theoretical problem in distributed computing where multiple parties need to reach consensus, even if some participants are unreliable or adversarial. Bitcoin’s proof-of-work system addresses this problem.

Central Bank Digital Currencies (CBDCs): A Central Bank Digital Currency (CBDC) is a digital form of a country’s official currency issued and regulated by the central bank, designed for digital transactions and financial inclusion.

Checks: Traditional paper or digital documents used to transfer funds from one bank account to another.

Circular Economies: Economic systems that focus on using Bitcoin for transactions. These economies help promote the spread of Bitcoin and its use as currency.

City-state: A city-state is an independent political entity that consists of a single city and sometimes its surrounding territory.

Cold Storage: A method of storing bitcoins offline, typically on a hardware wallet or paper wallet, to protect them from online threats.

Commodity: A tangible good or product that has intrinsic value.

Commodity Money: Money that is backed by a tangible commodity with intrinsic value, such as grain or gold.

Consensus: In the context of Bitcoin, consensus is the agreement among network participants (nodes and miners) on the validity of transactions and the state of the ledger.

Counterfeiting: The act of producing fake or fraudulent currency or assets to deceive others.

Credit: In banking and economics, “credit” refers to the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately but promises either to repay or return those resources at a later date.

Cryptocurrency: Digital or virtual currencies that use cryptography for security.

Currency Volatility: The degree to which the value of a currency, such as bitcoin, fluctuates in relation to other currencies or assets.

Debasement: The intentional reduction in the value or purity of a currency, often achieved by adding less valuable materials to it.

Deflation: A decrease in the general price level of goods and services in an economy, often accompanied by an increase in the value of money.

Denomination: The face value or unit of measurement of a currency, such as the dollar.

Devaluation: A deliberate reduction in the official exchange rate of a country’s currency relative to other currencies.

Distributed Ledger: A decentralized digital record-keeping system for Bitcoin where multiple copies of a ledger are maintained across a network of computers.

Divisibility: The property of being easily divisible into smaller units, allowing for flexibility in transactions.

Dollar Standard: A monetary system where the U.S. dollar serves as the primary reserve currency used in international trade and finance.

Double-entry Accounting Method: A method of accounting that records every financial transaction with a column for both debits and credits.

Exchange of Value: The process of transferring one form of value, such as money or goods, for another.

Fiat Money: Currency that has value because a government declares it to be legal tender, even though it is not backed by a physical commodity.

Finite: Having a limited or fixed quantity. Bitcoin has a finite supply capped at twenty-one million coins.

Fixed Exchange Rates: A system in which the value of a country’s currency is tied to the value of another single currency, a basket of other currencies, or another measure of value, such as gold, and is maintained at a constant level by the country’s central bank which actively intervenes in the foreign exchange market to maintain the currency’s value within a narrow band.

Floating Exchange Rates: Exchange rates that fluctuate based on supply and demand in the foreign exchange market, as opposed to fixed exchange rates.

Fractional Reserve System: A banking system where banks only hold a fraction of their customers’ deposits in reserve, lending out the rest.

Fungible: Interchangeable and mutually interchangeable.

Gold Standard: A monetary system where a country’s currency is backed by and can be exchanged for a specific amount of gold.

Hash: A cryptographic function that converts input data into a fixed-length string of characters, used extensively in Bitcoin technology for security.

High Time Preference: A preference for immediate consumption over saving or investing for the future.

Hot Storage: Storing Bitcoin in a digital wallet that is connected to the internet, making it more susceptible to hacking.

Hyperinflation: Hyperinflation is an extremely rapid and out-of- control price inflation, typically exceeding 50% per month, where a country’s currency loses its value at an accelerated rate, leading to a severe decline in purchasing power and often resulting in economic instability and societal challenges. This phenomenon is usually caused by excessive money supply growth, and it often occurs during times of significant political or economic upheaval.

Immutability: Immutability refers to the stability and consistency of economic policies and rules over time, promoting trust, predictability, and long-term planning among economic participants, which is crucial for fostering economic growth and stability. In Bitcoin, immutability refers to the idea that once a transaction is recorded on the ledger, it cannot be altered or deleted.

Inflation: An increase in the general price level of goods and services in an economy, often accompanied by a decrease in the purchasing power of money.

Interest: The cost of borrowing money or the return on investment for lending or investing money.

Lender of Last Resort: A central bank or institution that provides emergency loans to financial institutions in times of crisis to prevent systemic collapse.

Lightning Network: A second-layer scaling solution for Bitcoin that enables faster and cheaper transactions by conducting most transactions off-chain. Eventually transactions are put onto the chain.

Liquidity: The ease with which an asset can be quickly converted into cash without significantly affecting its price.

Low Time Preference: A preference for saving and investing for the future over immediate consumption.

Managed exchange rate: Exchange rates that are generally allowed to float but the government will step in to enact policy to avoid sudden fluctuations.

Medium of Exchange: Something that is widely accepted as a means of payment in transactions, like money.

Mempool: The memory pool of pending transactions in the Bitcoin network waiting to be confirmed by miners.

Miners: Individuals or entities that use computational power to validate transactions and add them to the distributed ledger in exchange for rewards.

Nodes: Computers or devices on the Bitcoin network that maintain a copy of the distributed ledger and validate transactions.

Nonce: A number used in proof-of-work mining algorithms to try to find a hash value that meets certain criteria.

Off-chain: Off-chain transactions in Bitcoin occur outside of the blockchain network, where the transfer of Bitcoin or Bitcoin data is executed through secondary channels and are not immediately recorded on the blockchain. They offer faster and potentially more private transfers without directly impacting the main blockchain ledger such as the Lightning Network.

On-chain: On-chain transactions in Bitcoin refer to transactions that are recorded and verified on the Bitcoin blockchain, involving the transfer of Bitcoin between wallets, which become irreversible once they are confirmed and added to the blockchain after being validated by network participants, known as miners. These transactions are publicly visible and a part of the permanent, decentralized ledger, providing transparency and security inherent to the blockchain technology.

Opportunity Cost: The value of the next best alternative that must be forgone when a decision is made to allocate resources to one option rather than another.

Portability: The ease with which a currency or asset can be carried and transferred.

Proof of Work (PoW): A consensus mechanism in the Bitcoin infrastructure where miners must perform computational work (guessing random numbers) to validate transactions and add blocks to the ledger.

Precious Metals: Rare and valuable metals, such as gold and silver, often used as stores of value.

Private Key: A secret cryptographic key that allows the owner to access and control their Bitcoin holdings.

Public Key: A cryptographic key that is publicly shared and used to receive Bitcoin.

Quantitative Easing: A monetary policy where a central bank increases the money supply by purchasing financial assets, often government bonds, to stimulate economic growth.

Representative Money: Money that is backed by a promise to exchange it for a commodity, such as gold or silver, upon demand.

Reserve Currency: A widely accepted currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves.

Reserves: Assets held by banks or financial institutions to meet potential future liabilities.

Risk: The uncertainty associated with the potential for loss or gain in an investment or decision.

Safe Haven Currency: A currency that is considered a relatively stable and secure store of value during times of economic uncertainty or crisis.

Scarcity: The limited availability of a resource or asset relative to the demand for it.

Sound Money: Money that maintains its value over time and is not subject to significant inflation or devaluation.

Speculative Investments: Investments made with the expectation of significant returns, often accompanied by higher risk.

Stability: The quality of being resistant to sudden and unpredictable changes.

Standard of Value: A function of money that allows it to be used as a common measure of the value of goods and services.

Store of Value: A function of money that allows it to maintain its value over time and serve as a repository of wealth.

Time Preference: An individual’s preference for consuming resources and goods either in the present (high time preference) or in the future (low time preference).

Transaction: An exchange of goods, services, or assets between two or more parties.

Transaction Fees: Fees paid by users of the Bitcoin network to miners for processing transactions.

Unbacked loans: Loans that are not backed by a physical asset or collateral.

Unintended Consequences: Unexpected and often negative outcomes of a particular action, policy, or decision.

Unit of Account: A function of money that allows it to serve as a standard measure for pricing and comparing goods and services.

Value: The perceived worth or utility of a good, service, or asset in an economic context.

Volatility: The degree of variation in the price or value of an asset over time, often used to describe the price fluctuations of cryptocurrencies like bitcoin.

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