Industry Glossary / Reference Guide

Bitcoin Terms

A reference of Bitcoin protocol, mining, wallet, and network terms. Definitions are concise and drawn from primary sources, developer documentation, and established industry usage.

A

Address: A string of characters that identifies a destination for bitcoin. Derived from a public key or script. Formats include legacy (P2PKH), SegWit (bech32), and Taproot (bech32m).
Air gap: A physical separation between a signing device and any network-connected computer. Used to keep private keys offline.
ASIC: Application-Specific Integrated Circuit. Hardware designed solely to compute SHA-256 hashes for Bitcoin mining. Far more efficient than general-purpose processors.

B

BIP (Bitcoin Improvement Proposal): A design document proposing changes to the Bitcoin protocol, standards, or ecosystem. Notable BIPs include BIP-32 (HD wallets), BIP-39 (seed phrases), and BIP-141 (SegWit).
Bitcoin: A peer-to-peer electronic cash system with a fixed supply of 21 million coins, secured by proof-of-work and maintained by a distributed network of nodes. Created in 2009 by Satoshi Nakamoto.
Block: A batch of validated transactions, cryptographically linked to the previous block. New blocks are added approximately every 10 minutes.
Blockchain: The append-only public ledger of all Bitcoin transactions. Each block references the hash of the previous block, making history tamper-evident.
Block height: The sequential number of a block, starting from the genesis block at height 0. Used as a universal reference for protocol events such as halvings and difficulty adjustments.
Block reward: The total bitcoin paid to the miner who finds a valid block: the block subsidy (newly minted coins) plus all transaction fees in that block.
Block subsidy: The newly minted bitcoin awarded with each block. Started at 50 BTC and halves every 210,000 blocks. Currently 3.125 BTC (post-April 2024 halving).
BTC: The ticker symbol for Bitcoin. One BTC equals 100,000,000 satoshis.

C

Change output: The remainder returned to the sender when a UTXO is spent for an amount smaller than its full value. Analogous to receiving change from a cash payment.
Coinbase transaction: The first transaction in every block. It has no inputs and pays the block reward to the miner. Not to be confused with the exchange of the same name.
Cold storage: Holding private keys offline, on a device or medium that is not connected to the internet. Reduces exposure to remote attack.
Confirmation: A transaction receives one confirmation when included in a block. Each subsequent block adds another confirmation, increasing the cost of reversal.
Consensus rules: The validation rules that full nodes enforce to agree on the state of the blockchain. Distinct from social consensus among developers or users.
Custodian: A third party that holds bitcoin on behalf of a client. The client does not control the private keys.

D

Difficulty: A network-wide measure of how hard it is to find a valid block hash. Adjusted every 2,016 blocks (~two weeks) to target a 10-minute average block time.
Dust: A UTXO so small that the fee to spend it exceeds its value. What counts as dust depends on the current fee market.
Double-spend: An attempt to spend the same UTXO in two different transactions. Bitcoin's consensus rules and proof-of-work make successful double-spends costly once a transaction has confirmations.

E

ETF (Exchange-Traded Fund): A regulated investment product that tracks the price of bitcoin and trades on traditional exchanges. Spot bitcoin ETFs hold actual bitcoin; futures ETFs track contracts.
Exchange: A platform that facilitates the buying and selling of bitcoin for fiat or other assets. Most exchanges are custodial: they hold the keys to customer balances.

F

Fee: The difference between a transaction's inputs and outputs, paid to the miner who includes it in a block. Fees are priced per virtual byte, not by the amount sent.
Fee rate: The price per unit of transaction data, typically quoted in satoshis per virtual byte (sat/vB). Miners prioritize higher fee rates when filling a block.
Fork: A divergence in the blockchain. A soft fork tightens rules and remains compatible with older software. A hard fork loosens rules and can split the network if not universally adopted.
Full node: Software that downloads and validates every block and transaction against the consensus rules. Running a full node allows independent verification without trusting a third party.

G

Genesis block: The first block of the Bitcoin blockchain, mined by Satoshi Nakamoto on January 3, 2009. It contains the headline "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."

H

Halving: The programmed reduction of the block subsidy by half every 210,000 blocks (~four years). Past halvings: 2012, 2016, 2020, 2024. The next is expected around 2028.
Hash: The output of a cryptographic hash function. Bitcoin uses SHA-256. A hash is deterministic, one-way, and sensitive to any change in the input.
Hashrate: The number of hash calculations performed per second. Individual miners are measured in TH/s; the network is measured in EH/s (exahashes per second).
HD wallet: Hierarchical Deterministic wallet. A wallet that derives all keys from a single seed, allowing backup and recovery from a seed phrase alone. Specified in BIP-32.
HTLC: Hashed Time-Locked Contract. A transaction type used on the Lightning Network to route payments between parties who do not share a direct channel.

L

Lightning Network: A second-layer protocol for fast, low-cost bitcoin payments. Payments move through channels off-chain and settle on the base layer when channels close.

M

Mempool: A node's local pool of valid, unconfirmed transactions. Each node maintains its own. Miners select from the mempool by fee rate when constructing a block.
Merkle root: The root hash of a Merkle tree of all transactions in a block. Included in the block header, it commits to every transaction without listing them individually.
Miner: A participant who expends computational power to find valid proof-of-work blocks. Miners collect transaction fees and the block subsidy.
Mining: The process of hashing block headers until a hash below the difficulty target is found. Mining secures the network and orders transactions.
Multisig: A script that requires signatures from multiple keys to spend. Common configurations include 2-of-3, where any two of three signers can authorize a transaction.

N

Node: A computer running Bitcoin software that validates and relays transactions and blocks. Full nodes enforce consensus rules independently.
Nonce: A number in the block header that miners vary while searching for a valid hash. Changing the nonce changes the hash.

O

Orphan block: A valid block that is not part of the longest chain, typically because another block at the same height was accepted first. Also called a stale block.

P

P2PKH: Pay-to-Public-Key-Hash. The original address type. Sends bitcoin to a hash of a public key. Addresses begin with "1".
P2SH: Pay-to-Script-Hash. Sends bitcoin to a hash of a script, enabling multisig and other complex conditions. Addresses begin with "3".
Peer-to-peer: A network architecture in which participants interact directly without a central intermediary. Bitcoin transactions are broadcast peer-to-peer.
Private key: A secret number that proves ownership of bitcoin and authorizes spending. Must be kept secure. Loss of the private key means loss of the associated bitcoin.
Proof-of-work: The consensus mechanism that requires miners to expend computational energy to produce a valid block. Proof-of-work makes rewriting history costly.
PSBT: Partially Signed Bitcoin Transaction. A format for passing unsigned or partially signed transactions between devices or co-signers. Specified in BIP-174.
Public key: Derived from a private key. Used to receive bitcoin and to verify signatures. Can be shared openly.

R

RBF (Replace-by-Fee): A policy that allows an unconfirmed transaction to be replaced by a new version that pays a higher fee. Useful for accelerating stuck transactions.

S

Satoshi: The smallest unit of bitcoin. One bitcoin equals 100,000,000 satoshis. Named after Satoshi Nakamoto.
Satoshi Nakamoto: The pseudonymous creator of Bitcoin. Published the white paper in 2008, released the software in 2009, and withdrew from public communication in 2011.
Seed phrase: A human-readable backup of a wallet's seed, typically 12 or 24 words. Specified in BIP-39. Anyone with the seed phrase can reconstruct the wallet and spend its bitcoin.
SegWit: Segregated Witness. A 2017 soft-fork upgrade that separated signature data, fixed transaction malleability, and increased effective block capacity. Specified in BIP-141.
SHA-256: The cryptographic hash function used in Bitcoin's proof-of-work and in address generation. Produces a 256-bit output.
Signature: A cryptographic proof, produced with a private key, that the owner authorized a transaction. Verifiable by anyone with the corresponding public key.
Soft fork: A backward-compatible protocol change that tightens the rules. Old nodes still accept new blocks. SegWit and Taproot were soft forks.

T

Taproot: A 2021 soft-fork upgrade that improved privacy and efficiency for complex spending conditions. Uses Schnorr signatures and introduces bech32m addresses. Specified in BIPs 340–342.
Transaction: A signed message that transfers bitcoin from one or more inputs to one or more outputs. Broadcast to the network and, once confirmed, recorded on the blockchain.
TXID: Transaction identifier. A hash of the serialized transaction, used to uniquely reference it.

U

UTXO: Unspent Transaction Output. A discrete piece of bitcoin created by a previous transaction and available to be spent. Bitcoin tracks UTXOs, not account balances. A wallet's balance is the sum of its spendable UTXOs.

W

Wallet: Software or hardware that generates and stores keys, constructs transactions, and displays balances. A wallet does not hold bitcoin; it holds the keys that control it.
WIF: Wallet Import Format. A standardized encoding of a private key for import into wallet software.

X

xpub: Extended public key. Allows derivation of child public keys without exposing the private key. Used for watch-only wallets and receiving addresses. Specified in BIP-32.

Definitions are for reference only and are not investment, legal, or technical advice. For protocol specifications, consult the Bitcoin Improvement Proposals and Bitcoin Core documentation.