BIP32
BIP32 is a standard for hierarchical deterministic (HD) wallets for Bitcoin.
This means that it’s a way to generate a hierarchical, tree-like account structure of private and public keys, starting from a single “seed” key (or master private key). The advantage of using an HD wallet is that it allows you to generate a large number of separate accounts within a single wallet, and it’s easier to backup and restore your wallet. There is an improved version of this proposal, BIP44, that supports keys for multiple cryptocurrencies.
BIP39
BIP39 is a standard for a mnemonic phrase (more widely known as “Seed phrase”) that is used to control a wallet.
This means that it’s a way to represent a wallet’s private key as a set of 12 or 24 words. The advantage of using a mnemonic phrase representation of a cryptographical private key is that it’s easy for people to read it and write it down, which makes it easier to backup and recover your wallet.
BIP44
BIP44 is a Bitcoin improvement Proposal that built on BIP32 by extending standards for multi-coin wallet management. Not only Bitcoin supported, but almost all other cryptocurrencies, like Ethereum, Dogecoin, etc.
Bitcoin
Bitcoin is a digital currency that allows people to send and receive payments securely over the internet. It is a public money protocol. It was created in 2009 by a person or group of people using the pseudonym “Satoshi Nakamoto”. Unlike traditional currencies, which are issued by governments, Bitcoin is decentralized, which means that it is not controlled by any single entity. Instead, it is underpinned by a network of computers that work together to verify and record transactions on a public ledger called the blockchain. The supply of Bitcoin is limited, and the currency can be bought and sold on online exchanges. Many people are attracted to Bitcoin because of its potential for high returns on investment, as well as its independence from governments and central banks.
Bitcoin Address
A Bitcoin address is a unique string of characters that represents the destination of a Bitcoin payment. It is similar to an email address, but instead of being used to send and receive messages, a Bitcoin address is used to send and receive payments on the Bitcoin network. A Bitcoin address can be shared publicly, and anyone who knows the address can send payments to it. It is important to keep your Bitcoin address private and secure, as anyone who has access to your address can potentially steal your funds. Bitcoin addresses are typically generated by a wallet software and are composed of a string of letters and numbers. They typically begin with the number “1”, or “3”, or “bc1” (defined by BIP44, BIP49, and BIP84 accordingly).
Bitcoin Core
Bitcoin Core is a software program that allows users to send and receive Bitcoin payments. It is a full-featured Bitcoin software that forms the backbone of the network, and it is the most trusted and widely-used Bitcoin software in the world. Bitcoin Core includes a built-in wallet, which allows users to store and manage their Bitcoin, as well as a built-in miner that can be used to secure the network by verifying transactions. It is an open-source software, which means that anyone can view and contribute to the source code. Bitcoin Core is available for free, and it can be downloaded and installed on a computer running Windows, Mac OS, or Linux.
Bitcoin Improvement Proposal (BIP)
A Bitcoin Improvement Proposal (BIP) is a proposal for a change or an improvement to the Bitcoin network. It is a way for anyone who has an idea for how to improve Bitcoin to submit their proposal to the community for discussion and review. BIPs are typically submitted by Bitcoin developers, but anyone can submit a proposal. The process of reviewing and implementing BIPs is designed to be open and transparent, and it is overseen by a group of volunteers known as the Bitcoin Improvement Proposals Working Group (BIPs WG). BIPs can cover a wide range of topics, including changes to the Bitcoin protocol, new features for the software, and improvements to the user experience.
Advanced: Details of all BIPs can be viewed in the GitHub repository https://github.com/bitcoin/bips.
Bitcoin Script
Bitcoin Script is a programming language that is used to define the rules for transactions on the Bitcoin network. It is a simple, stack-based language that allows developers to write scripts that specify conditions for spending Bitcoin. For example, a script might specify that a certain number of signatures from a group of people are required in order to spend some Bitcoin (see “multisignature”), or that a payment can only be made if a certain condition is met. Bitcoin Script is used in the creation of smart contracts on the Bitcoin network, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.
Cold Storage
Cold storage refers to the practice of storing Bitcoin or other cryptocurrencies in a way that is not connected directly to the internet. This is typically done for security reasons, as it reduces the risk of the cryptocurrencies being stolen by hackers. Cold storage can take many forms, such as storing the private keys for a cryptocurrency on a piece of paper or a hardware device that is not connected to the internet. Some people also use offline computers or “air-gapped” devices, which are not connected to the internet at all and are therefore considered more secure. Cold storage is typically used for long-term storage of cryptocurrencies, as opposed to hot wallets, which are connected to the internet and are used for more frequent transactions.
Cryptographic Signature
A cryptographic signature is a mathematical scheme that is used to verify the authenticity and integrity of a message or a piece of data. It is a way of signing a message with a digital key, which can be used to verify that the message was indeed sent by the person who claims to have sent it. Cryptographic signatures are an essential part of many cryptographic protocols, and they are used in a wide range of applications, including secure communication, digital signatures, and blockchain technology. To create a cryptographic signature, a sender uses a secret key to generate a unique “signature” for the message. The signature is then attached to the message, and it can be verified by anyone who has the corresponding public key. This allows recipients to verify that the message was indeed sent by the owner of the secret key, and that it has not been tampered with.
dApp
A dApp, or decentralized application, is a type of software application that runs on a decentralized network, such as a blockchain. Unlike traditional applications, which are typically hosted on a single server or a group of servers, dApps are distributed across a network of computers, which means that they are not controlled by any single entity, they are executed collectively. This makes them more resistant to censorship and tampering, and it allows them to operate in a decentralized and trustless manner. dApps can be built on top of various blockchain platforms, such as Ethereum, Polygon, and others, and they can be used for a wide range of purposes, including financial transactions, gaming, and social networking. Some popular examples of dApps include decentralized exchanges, prediction markets, and decentralized autonomous organizations (DAOs).
Decentralized Finance (“DeFi”)
Decentralized finance, or “DeFi”, refers to a new financial system that is built on top of blockchain technology. It is a way of providing financial services and products, such as loans, insurance, and investment opportunities, without the need for traditional intermediaries, such as banks and financial institutions. DeFi allows users to access these services directly, using smart contracts and other blockchain-based technologies. This allows for faster, cheaper, and more secure transactions, and it also enables new types of financial products and services that were not previously possible. DeFi has the potential to revolutionize the way that finance works, and it is attracting a growing number of users and investors who are attracted by its potential for high returns and its independence from traditional financial institutions.
Elliptic Curve Digital Signature Algorithm (ECDSA)
The Elliptic Curve Digital Signature Algorithm (ECDSA) is a type of digital signature algorithm that is used to sign and verify messages in a way that is secure and efficient. It is based on the mathematics of elliptic curves, which are curves that can be used to define a group of points that have certain mathematical properties. ECDSA is used in many cryptographic protocols, including the Bitcoin and Ethereum networks, and it is considered to be more secure and efficient than other digital signature algorithms. To create a digital signature with ECDSA, a sender uses their private key to generate a unique “signature” for the message. The signature is then attached to the message, and it can be verified by anyone who has the corresponding public key. This allows recipients to verify that the message was indeed sent by the owner of the private key, and that it has not been tampered with.
Encryption
Encryption is a way of converting information into a secret code that can only be read by someone who knows the “secret key” to decrypt it. It is a fundamental technique in cryptography, which is the science of keeping information secure. Encryption is used to protect sensitive information, such as credit card numbers, passwords, and military communications, from unauthorized access. It is also used to verify the authenticity of a message or a piece of data, by generating a unique “signature” that can be verified by anyone who has the corresponding key. Encryption is a key component of many security systems, and it is essential for protecting information in the digital age.
Encryption Keys
Encryption keys are a crucial part of encryption, which is the process of converting information into a secret code. An encryption key is a piece of information that is used to encrypt and decrypt a message or a piece of data. It is a secret code that is used to scramble the original information in a way that can only be undone by someone who knows the key. Encryption keys are a fundamental concept in cryptography, and they are used in many different encryption algorithms. There are two main types of encryption keys: public keys and private keys. Public keys are used to encrypt a message, and they can be shared publicly. Private keys are used to decrypt a message, and they are kept secret by the owner.
Ethereum
Ethereum is an open-source, decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference. These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk. The project was bootstrapped via an ether presale in August 2014 by fans all around the world. It is developed by the Ethereum Foundation, a Swiss non-profit, with contributions from great minds across the globe.
Ethereum Request for Comment (ERC)
An Ethereum Request for Comment (ERC) is a proposal for a new feature, improvement, or standard for the Ethereum blockchain (like BIP for Bitcoin). It is a way for anyone who has an idea for how to improve Ethereum to submit their proposal to the community for discussion and review. ERCs are typically submitted by Ethereum developers, but anyone can submit a proposal. The process of reviewing and implementing ERCs is designed to be open and transparent, and it is overseen by a group of volunteers known as the Ethereum Improvement Proposals Working Group (EIP WG). ERCs can cover a wide range of topics, including changes to the Ethereum protocol, new features for the software, and improvements to the user experience. You can find ERCs here: https://eips.ethereum.org/erc.
ERC-20 token
An ERC-20 token is a type of digital asset that is built on the Ethereum blockchain. It is a standardized way of creating and issuing tokens, which are digital assets that can be traded on the Ethereum network. ERC-20 tokens follow a specific set of rules, which makes it easy for developers to create and manage them, and for exchanges to support them. This has led to the widespread adoption of ERC-20 tokens, and there are now thousands of different tokens that follow the ERC-20 standard. ERC-20 tokens are commonly used to raise funds through initial coin offerings (ICOs), and they are also used to represent assets, such as digital collectibles and game items. The ERC-20 standard may be found here: https://ethereum.org/en/developers/docs/standards/tokens/erc-20/.
ERC-721 token
An ERC-721 token is a type of digital asset that is built on the Ethereum blockchain. It is a standardized way of creating and issuing non-fungible tokens, which are digital assets that are unique and cannot be replicated. Unlike ERC-20 tokens, which are interchangeable and divisible, ERC-721 tokens are each unique and have their own distinct characteristics. ERC-721 tokens are commonly used to represent unique assets, such as digital collectibles, art, and game items. They are also used to create decentralized marketplaces, where users can buy and sell unique assets. ERC-721 tokens were first introduced in 2017, and they have gained popularity due to their ability to represent a wide range of unique digital assets. The ERC-721 standard may be found here: https://ethereum.org/en/developers/docs/standards/tokens/erc-721/.
Hardware Wallet
A hardware wallet is a physical device that is used to store cryptocurrencies, such as Bitcoin and Ethereum. It is a type of cold storage, which means that it is not connected to the internet and is therefore considered to be more secure than online wallets. A hardware wallet stores the private keys for a cryptocurrency offline, in a secure environment that is protected by a PIN code and other security measures. This makes it difficult for hackers to steal the keys and access the funds. Hardware wallets are portable and easy to use, and they are considered to be one of the most secure ways to store cryptocurrencies. Some popular hardware wallets include the Ledger Nano and the Trezor.
Hash & Hash Functions
A hash is a fixed-size string of characters that is created by applying a mathematical algorithm, known as a hash function, to a piece of data. The result of this process is a unique “fingerprint” for the data, which can be used to verify its integrity and authenticity. A hash function is a mathematical algorithm that is designed to take any input of data, of any size, and produce a fixed-size output, known as a hash. The same input will always produce the same output, and even a small change to the input will produce a completely different output. This makes hash functions useful for verifying the integrity of data, as any changes to the data will be immediately detectable by comparing the original and the new hash. Hash functions are used in many different applications, including blockchain technology and password security.
Hierarchical Deterministic Wallet
A hierarchical deterministic wallet, or HD wallet, is a type of cryptocurrency wallet that uses a system of keys to generate a large number of private and public keys from a single seed key. This is known as deterministic key generation, and it allows the wallet to be easily backed up and restored. An HD wallet also has a hierarchical structure, which means that the keys are organized into different levels or “chains” of keys. This allows the wallet to support multiple accounts and addresses, and it makes it easier to manage and organize the keys. HD wallets are commonly used for Bitcoin and other cryptocurrencies, and they are considered to be more secure and user-friendly than non-deterministic wallets. It is an industry standard described in BIP32 and BIP44.
Hot and Cold Wallets
Hot and cold wallets are two different types of cryptocurrency wallets, which are used to store and manage digital assets, such as Bitcoin and Ethereum. A hot wallet is a wallet that is connected to the internet, and it is used for more frequent transactions. A cold wallet, on the other hand, is a wallet that is not connected to the internet, and it is used for long-term storage of cryptocurrencies. Cold wallets are considered to be more secure than hot wallets, as they are less vulnerable to hacking and other online threats. Hot wallets are more convenient to use, but they are also more susceptible to security risks. Most people use a combination of hot and cold wallets, depending on their needs and the amount of cryptocurrency that they are holding.
Lightning Network
The Lightning Network is a layer 2 payment protocol that is built on top of the Bitcoin blockchain. It is a way of enabling fast and cheap transactions on the Bitcoin network, by using a network of payment channels that are off-chain, or outside of the main blockchain. The Lightning Network allows users to open a payment channel with one or more other users, and to make unlimited transactions between them without having to broadcast each transaction to the blockchain. This allows for faster and cheaper transactions, as the fees and the confirmation times are much lower than on the main blockchain. The Lightning Network also has the potential to enable new types of applications and use cases for Bitcoin, such as instant micropayments and cross-chain atomic swaps.
Merkle Tree (aka Hash Tree)
A Merkle tree, also known as a hash tree, is a type of data structure that is used in cryptography and blockchain technology. It is a tree-like data structure that allows for the efficient and secure verification of large amounts of data. A Merkle tree is constructed by taking a group of data items and calculating the hash, or the “fingerprint”, of each item. These hashes are then grouped together to form new hashes, and this process is repeated until there is only one hash left, known as the root hash. This root hash serves as a unique “fingerprint” for the entire data set, and it can be used to verify the integrity of the data. Merkle trees are used in many different applications, including blockchain technology and file integrity verification.
Miniscript
Miniscript is a high-level programming language that is used to write Bitcoin smart contracts. It is a simplified version of the Bitcoin Script language, which is the native programming language of the Bitcoin network. Miniscript allows developers to write smart contracts in a more readable and easier-to-understand format, which makes it easier to reason about the behavior of the contracts. Miniscript also includes a number of features, such as type checking and static analysis, that make it easier to write correct and secure smart contracts. The use of Miniscript has grown in popularity in recent years, and it is now supported by many different Bitcoin wallets and other tools.
(MPC) Multi Party Computation
Multi-party computation, or MPC, is a type of cryptographic protocol that allows a group of parties to compute a function on their inputs, without revealing their inputs to each other. This allows the parties to securely compute a function on sensitive data, without revealing the data itself. MPC protocols are used in many different applications, including secure communication, privacy-preserving machine learning, and secure multiparty computation of smart contracts or a transaction signature. MPC protocols typically involve a mix of cryptographic techniques, such as secret sharing and zero-knowledge proofs, to enable secure computation without revealing the inputs to the other parties. MPC has the potential to revolutionize the way that sensitive information is processed and used, by enabling secure computation on sensitive data without revealing it to the parties involved.
Multi-Signature (aka Multisig)
Multi-signature, or multisig, is a type of digital signature scheme that allows more than one person to sign a document or a transaction. It is a way of creating a joint account or a shared wallet, where multiple people must sign a transaction before it can be broadcast to the network. Multi-signature is commonly used in cryptocurrency and blockchain applications, where it is used to create a shared wallet that requires the signatures of multiple people before a transaction can be executed. This can provide an added layer of security and accountability, as it ensures that multiple people must agree before a transaction can be made. It is also used to create joint accounts, where multiple people can spend from the same account, but where a certain number of signatures are required before a transaction can be executed.
National Institute of Standards and Technology (NIST)
The National Institute of Standards and Technology (NIST) is an agency of the U.S. Department of Commerce that is responsible for promoting innovation and industrial competitiveness. NIST conducts research and develops technology, standards, and guidelines in a wide range of areas, including information technology, manufacturing, and biotechnology. NIST is also a leading authority on cryptography and cybersecurity, and it develops and publishes standards and guidelines for the use of cryptography in government and industry. Some of NIST’s most well-known publications include the Digital Signature Standard (DSS) and the Cryptographic Algorithm Validation Program (CAVP), which are widely used in the development of cryptographic systems.
Non-Fungible Token (NFT)
A non-fungible token, or NFT, is a type of digital asset that is unique and cannot be replicated. It is a way of representing a unique item, such as a digital collectible, a virtual property, or a piece of art, on the blockchain. Unlike other cryptocurrencies, such as Bitcoin and Ethereum, which are interchangeable and divisible, NFTs are each unique and have their own distinct characteristics. This makes them suitable for representing items that are unique and cannot be replicated, such as digital art or virtual real estate. NFTs are commonly created on blockchain platforms, such as Ethereum, and they are often used to create and manage decentralized marketplaces for unique digital assets. For more information, see Vault12’s article about NFTs.
Output Descriptors
An output descriptor is a type of notation that is used to describe the conditions under which a cryptocurrency output can be spent. It is a way of specifying the rules and requirements that must be met in order to spend a particular output, such as the amount of the output, the type of script that is used, and the type of key that is required. Output descriptors are commonly used in Bitcoin and other cryptocurrencies, and they are supported by many different wallet software and other tools. Output descriptors are a useful way of representing the rules and conditions that apply to a particular output, and they can be used to automate the process of generating and signing transactions.
Partially Signed Bitcoin Transaction (PSBT)
A partially signed Bitcoin transaction, or PSBT, is a type of Bitcoin transaction that is only partially signed. It is a way of representing a Bitcoin transaction that is in the process of being signed by multiple parties. A PSBT contains all of the information that is needed to complete the transaction, such as the inputs and outputs, the scripts and other conditions that must be satisfied, and the signatures of some, but not all, of the parties involved. A PSBT is typically created by a wallet software, and it is then sent to one or more other parties for signing. Once all of the required signatures have been added, the PSBT can be finalized and broadcast to the Bitcoin network.
Passphrase (for Seed phrase)
The passphrase is an optional extension to the BIP39 Seed phrase standard, sometimes referred to as an “extra word” (although it does not need to take the form of a single word) and it can be used as an additive authentication feature beyond the standard 12-24-word seed phrase. Some wallets call this passphrase a mnemonic seed extension or 13th/25th word. If used, the passphrase should be securely backed up and stored, because like your seed phrase, if you forget or lose it, you will lose access to your cryptocurrency.
WARNING: Losing your passphrase would have the same effect as losing your seed, resulting in losing access to your crypto!
Seed phrase
A seed phrase, or seed recovery phrase, is a sequence of words that is used as a backup for a cryptocurrency wallet. It is a way of recovering access to a wallet in the event that the wallet’s private keys are lost or stolen. It is defined by the BIP39 standard. A seed phrase is typically a series of 12-24 words, and it is generated by the wallet software when the wallet is first created. The seed phrase can be used to recreate the private keys for the wallet, which allows the user to access their funds. Seed phrases are a critical part of a wallet’s security, and it is important to keep them safe and secure.
Private Key
Broadly, a private key is a secret piece of data that is used in cryptography, such as in the creation of digital signatures and encryption. It is a string of characters that is used to encrypt and decrypt messages and to prove the ownership of a particular piece of data, such as a cryptocurrency wallet. A private key is typically generated by a wallet or vault software, and it is kept secret by the owner. There are a variety of private key types that exist in cryptocurrency language: master private key – usually called “seed phrase”, and derived (from master) private keys that control only specific accounts within a wallet (see BIP32, BIP44 for details on differences). A private key is also mathematically related to the public key, which is a publicly-known value that can be used to verify the digital signatures that are created using the private key.
Random Number Generation (RNG)
Random number generation, or RNG, is the process of generating a unique sequence of numbers or symbols that are unpredictable and do not follow any pattern. Its aim is to achieve uniqueness. It is a fundamental concept in cryptography and security, as random numbers are used in many different applications, including encryption, password generation, and digital signatures. RNG algorithms are designed to produce numbers that are statistically random, which means that they are not biased or predictable, and thus guaranteed to be unique. This makes them suitable for use in cryptographic systems, where random numbers are used to create unique private keys, nonces, and other values that are essential for security. RNG algorithms are typically implemented in software, hardware, or a combination of both, and they are used in many different applications, including gaming, simulation, and cryptography.
Schnorr Signatures
Schnorr signatures are a modern type of digital signature scheme that is used in cryptography and blockchain technology. They are a way of creating a digital signature that is more efficient, secure, and flexible than other signature schemes. Schnorr signatures are based on a mathematical problem known as the Schnorr discrete logarithm problem, which is believed to be hard to solve. This makes them suitable for use in cryptographic systems, where they can be used to create digital signatures that are difficult to forge. Schnorr signatures have been proposed as an upgrade to the existing digital signature scheme used in Bitcoin, and they are also used in other cryptocurrencies and blockchain applications. Schnorr signatures provide the ability to merge multiple transactions, extending Bitcoin’s capabilities and efficiency.
Segregated Witness (aka SegWit)
Segregated Witness, or SegWit, is a Bitcoin improvement proposal (BIP) that was created to address some of the scalability and performance issues of the Bitcoin network. It is a way of modifying the structure of Bitcoin transactions to allow for more efficient and secure processing. SegWit was activated on the Bitcoin network in August 2017, and it has since been adopted by many different wallets and other Bitcoin applications. SegWit changes the way that data is stored in a Bitcoin transaction, by separating the signature data from the rest of the transaction data. This allows for more efficient and secure processing of transactions, and it also enables new features, such as the Lightning Network and transaction malleability fix. SegWit is considered to be an important step forward for the Bitcoin network, as it increases the capacity and the efficiency of the network. Segwit Bitcoin addresses begin with 3 or bc1 and are recommended to use, refer to BIP49 and BIP48 standards to learn more.
Shamir’s Secret Sharing / Key Split
Shamir’s Secret Sharing, also known as key splitting, is a method of dividing a secret, such as a password or a private key, into multiple shares. The secret can then be reconstructed by combining a certain number of shares, known as the threshold. This allows for secure sharing of a secret among a group of people, as each person only has access to one share of the secret, and the secret cannot be reconstructed without the required number of shares. Shamir’s Secret Sharing is named after its inventor, Adi Shamir, and it is a widely-used method for secure sharing of secrets. It is commonly used in cryptography, blockchain technology, and other applications where secure sharing of sensitive information is needed.
Sharding
Sharding is a method of splitting a large database or a network into smaller, more manageable units, known as shards. It is a way of distributing data and workloads across multiple shards, in order to improve the performance, scalability, and security of the system. Sharding is commonly used in database management and distributed systems, where it allows for more efficient and secure storage and processing of data. In a sharded system, each shard is a self-contained unit that contains a subset of the data and the functionality of the overall system. This allows for parallel and distributed processing of the data, which can improve the performance and the scalability of the system. Sharding is also used in blockchain technology, where it is used to improve the scalability and the security of distributed ledger systems.
Signature Aggregation
Signature aggregation is a method of combining multiple digital signatures into a single signature. It is a way of reducing the size and the cost of digital signature schemes, by allowing multiple parties to sign a message or a transaction using a single signature. Signature aggregation is commonly used in cryptography and blockchain technology, where it is used to improve the efficiency and the security of digital signature schemes. In signature aggregation, multiple parties can create their own signatures on a message or a transaction, and then the signatures can be combined into a single signature using a mathematical operation. This allows for more efficient and secure processing of transactions, as the size and the cost of the signature is reduced. Signature aggregation is an important research area in cryptography and blockchain technology, and it has many potential applications.
Smart Contract
A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. Smart contracts allow for the automation of digital relationships, enabling the performance of credible transactions without third parties. These transactions are trackable and irreversible. Smart contracts were first proposed by Nick Szabo in 1994. The goal of smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting.
Spending Policy
A spending policy is a set of rules and conditions that determine how a cryptocurrency wallet can be used to make transactions. It is a way of specifying the conditions under which a wallet can be used to spend funds, and it can be used to enforce certain constraints and requirements on the use of the wallet. Spending policies are commonly used in multisignature wallets, where they are used to specify the number of signatures that are required to spend funds, or to specify the types of transactions that are allowed. Spending policies are also used in other decentralized applications, such as in the management of funds for smart contracts, e.g. DAO treasuries, and in the creation of trustless escrow services.
TapRoot and TapScript
TapRoot and TapScript are the activated upgrades to the Bitcoin protocol that aim to improve the privacy, efficiency, and scalability of the network. TapRoot is a proposed change to the structure of Bitcoin transactions, which allows more efficient and secure processing of transactions. It would enable new features, such as script versioning and multisignature aggregation, which would make it possible to create more complex and flexible transactions. TapScript is a proposed extension to the Bitcoin Script language, which allows creation of more powerful and expressive scripts. These changes enabled new use cases for Bitcoin, such as smart contracts and confidential transactions, and they improve the overall performance and security of the network. The current status of Taproot implementation can be tracked at https://taprootactivation.com/.
Threshold Signature Schemes (TSS)
Threshold signature schemes are types of multi-party computation (MPC) that support the combination of partial signatures to produce a complete threshold signature that satisfies “k of n” approval threshold rules, and even more-complex spending policy rules.
A well-known form of threshold signature schemes is Multisig transactions, which achieve a prescribed level of approvers in order for a spend transaction to be approved.
Two-Factor Authentication (2FA), Multi-factor authentication
Two-factor authentication, or 2FA, is a type of authentication that requires two different factors in order to verify the identity of a user. It is a security measure that is designed to provide an additional layer of protection against unauthorized access to accounts and systems. Two-factor authentication setup might consist of three possible factors: something they know (such as a password), something they have (such as a security token or a smartphone), and something they are (such as a biometric characteristic, such as a fingerprint or a face scan). This makes it more difficult for an attacker to gain access to an account, as they would need to possess multiple factors in order to authenticate. Two-factor authentication is commonly used in online services, such as email and social media, and banking. Multi-factor authentication is a similar concept, but it refers to the use of three or more factors in the authentication process.
An example of a popular application that can generate single-use codes to prove identification of a user/device is Authy.
Unspent Transaction Output (UTXO)
An unspent transaction output, or UTXO, is a type of record that is used in Bitcoin and other cryptocurrencies to track the ownership and the availability of funds. It is a way of representing the output of a transaction, and it is used to determine whether a particular output can be spent in a future transaction. UTXOs are a fundamental concept in Bitcoin and other cryptocurrencies, as they are used to track the flow of funds on the blockchain. UTXOs are created when a transaction is broadcast to the network, and they are consumed when they are used as inputs in a subsequent transaction. UTXOs are stored in a database, known as the UTXO set, which is maintained by the nodes on the network. The UTXO set is used to validate transactions, and it is an essential part of the Bitcoin protocol.
Wallet
A wallet is a software program or a hardware device that is used to store, manage, and transact with digital currencies, such as Bitcoin and Ethereum. It is a way of keeping track of the user’s funds, and it allows for the creation and the signing of transactions. Wallets typically consist of a private key, which is a secret piece of data that is used to sign transactions, and a public key, which is a publicly-known value that is used to verify the signatures. Wallets can be managed by the user, or they can be managed by a third-party service, such as an exchange or a custodial provider. Different types of wallets have different features and trade-offs, and they are suitable for different purposes. Some common types of wallets include software wallets, hardware wallets, and paper wallets. For more details, see the Vault12 article about cryptocurrency wallets.
Wallet Address
A wallet address is a unique identifier for a cryptocurrency wallet. It is a string of characters that is used to receive and send funds, and it is similar to a bank account number or an email address. A wallet address is generated by the wallet software, and it is typically a long and complex string of characters that is derived from the wallet’s public key. A wallet address can be shared with others, and it can be used to receive funds from other wallets. Different cryptocurrencies have different formats for wallet addresses, and they may use different algorithms to generate the addresses. Wallet addresses are an essential part of the cryptocurrency ecosystem, and they are used to track the flow of funds on the blockchain.
Zero-Knowledge Proof (ZKP)
A zero-knowledge proof, or ZKP, is a method of proving the knowledge of a secret without revealing the secret itself. It is a way of demonstrating that a person knows a certain piece of information, without revealing what that information is. Zero-knowledge proofs are a fundamental concept in cryptography and blockchain technology, and they are used to enable private and secure interactions between parties. In a zero-knowledge proof, a person, known as the prover, can prove to another person, known as the verifier, that they know a certain secret, without revealing the secret itself. This is done using a mathematical protocol that allows the prover to convince the verifier that they know the secret, without revealing any information about the secret. Zero-knowledge proofs are an active area of research in cryptography and blockchain technology, and they have many potential applications.
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