Glossary

A string of numbers and letters that acts as a destination for bitcoin transactions. A bitcoin address can be thought of as a public account number where anyone can send you bitcoin. Bitcoin wallets automatically generate bitcoin addresses for you.

Short term for ‘Alternate Cryptocurrency’. An alt is any cryptocurrency other than Bitcoin (BTC). The vast majority of altcoins are scams and controlled by a small number of people.

Application-Specific Integrated Circuit, hardware designed specifically for mining Bitcoin. ASICs are designed for a single computational function; they excel at their intended function but cannot run other programs/software.

A Bitcoin Improvement Proposal (BIP) is a formal proposal that suggests changes or new features for Bitcoin. It outlines technical specifications and ideas to improve the network. BIPs are reviewed and discussed by the Bitcoin community before being accepted, modified, or rejected. BIPs typically take years to be reviewed and implemented.

“Bitcoin” with a capital 'B' refers to the protocol, software, and community, while lowercase 'bitcoin' refers to the currency, also referred to as ‘BTC’. For example, “the Bitcoin protocol is decentralized” and “I just sent you some bitcoin”.

Bitcoin ATM - A physical machine that allows users to buy or sell bitcoins using cash. You can find a Bitcoin Well ATM near you here: https://bitcoinwell.com/bitcoin-atm

A Bitcoiner is an above-average bitcoin user. For example, a bitcoiner may have a higher conviction in the future of bitcoin than a casual investor. A bitcoiner has a larger portion of their net worth in bitcoin than a casual bitcoin investor. A bitcoiner is likely up to date with many of the latest developments in bitcoin, familiar with the Lightning Network and wallets, and may run their own nodes. Bitcoiners are above-average bitcoin holders with above-average Bitcoin community involvement.

A collection of Bitcoin transactions that's been verified and added to the blockchain. Each block contains transactions that are sent to bitcoin wallets, and fees and a Block Reward that are distributed to miners. Despite Bitcoin being a fully decentralized protocol, Bitcoin self-regulates blocks by limiting their size (measured in bytes) and ensuring each block is mined (or added to the blockchain).

An online tool to view all transactions, past and current, on the blockchain. Most Block Explorers also enable you to view bitcoin wallet balances and past transactions to other bitcoin wallets.

The number of blocks preceding a particular block on the blockchain. A block height is like a date and time, but for the bitcoin blockchain. For example, the block height on October 18th, 2024 at 4:42 PM is 866,242.

The amount of new bitcoin minted with each mined block. The block is how new bitcoins are brought into circulation, the reward is encoded into the bitcoin protocol, and is the driving incentive for bitcoin miners.

Block rewards are automatically managed by the Bitcoin protocol. Block rewards decrease about every four years (210,000 blocks) to ensure bitcoin’s supply never surpasses 21,000,000 total BTC while keeping the distribution of new bitcoin scarce and equally accessible to any bitcoin miner anywhere in the world.

A public ledger of all Bitcoin transactions that have ever been executed. The blockchain is made up of a string of connected blocks where each block contains transaction data, transaction fees, and a block reward for miners. New blocks are added to the blockchain at an average of 10 minutes per block; each block can contain up to 2,000 transactions.

Many techno-enthusiasts admire bitcoin’s blockchain but try to repurpose it for a different function. This is a folly pursuit as blockchains are not wondrous ledgers that achieve earth incredible speeds and minuscule transaction costs, quite the opposite actually. Bitcoin’s blockchain is purposefully slow so that blocks can be verified by the network and so that the ability to be a network validator (run a bitcoin node) is accessible to all to ensure bitcoin remains decentralized. Thus, the Bitcoin blockchain is an invention to enable a decentralized security system to thrive and have time to monitor and approve valid transactions. Bitcoin’s design priority is security.

The common unit symbol for Bitcoin. See definition for “Bitcoin and bitcoin”.

The Byzantine General's Problem is a theoretical problem identifying the difficulty of reaching consensus in a system where some parts can't be trusted. The name stems from the Byzantine Empire, which ruled much of the Mediterranean region during the Middle Ages and was known for its complex and intrigue-filled political system.

Bitcoin solves this problem by using a shared record (blockchain) and a system that makes it very hard and costly to cheat (proof-of-work). This ensures that no one needs to trust one another because they can verify transactions and the software governing the transactions.

A wallet is a device that stores your private keys, which are used to send bitcoin. Cold storage and hot storage wallets are opposites. A ‘hot wallet’ is wallet software installed on a device with constant or unrestricted internet access – like a computer or a smartphone. A ‘cold storage wallet’ is wallet software that is installed on a dedicated device that is not connected to the internet. Hot and cold wallets have varying levels of security and usability. It's best to think of a hot wallet like the wallet you carry with you daily – contains enough cash for small purchases but not the majority of your funds. A cold storage wallet is like a bank vault or a locked safe at home – a higher security option with portability and usability. Both are tools to be used for different situations.

A hot wallet is a fine place to store your bitcoin when you’re getting started; however, as you accumulate more bitcoin and plan to hold your bitcoin for a long time, you’ll want to use a cold storage wallet to ensure your private keys are safe.

When a transaction has been verified by the network and added to the blockchain. When a transaction is included in a block that has just been mined, that action is a first confirmation. Once another block follows the preceding block, that block counts as a second confirmation. A third block mined is a third confirmation.

Since Bitcoin is decentralized, it can sometimes occur that two blocks are mined simultaneously, thus an additional confirmation allows the network to decide the correct path for the bitcoin blockchain following the Longest Chain Rule.

Bitcoin consensus refers to the process by which participants in the Bitcoin network agree on the state of the blockchain, ensuring that all transactions are valid and that no double-spending occurs.

Key Components of Bitcoin Consensus:

1. Proof of Work (PoW):
   • Miners race to solve blocks. The first to solve the puzzle gets the right to add a new block of transactions to the blockchain and is rewarded with newly minted bitcoins and transaction fees.
   • This process requires significant computational power and energy, making it difficult for any single entity to dominate the network.
2. Difficulty Adjustment:
   • The Bitcoin network adjusts the difficulty of the puzzles every 2016 blocks (approximately every two weeks) to ensure that blocks are added roughly every 10 minutes, regardless of how much computational power is in the network.
3. Longest Chain Rule:
   • When there are multiple versions of the blockchain (forks), the network follows the longest chain, which is considered the most valid. This is because a longer chain represents more cumulative work done by miners.
4. Decentralization:
   • The consensus process relies on a decentralized network of nodes that validate transactions and blocks. Bitcoin code changes are agreed upon by the whole network, not an individual. No single entity can alter bitcoin, preventing any single point of failure and enhancing security against attacks.
5. Transaction Validation:
   • Before miners include transactions in a block, they verify that each transaction is valid (e.g., ensuring the sender has sufficient balance and that the transaction follows protocol rules).

The method used to secure Bitcoin transactions, control the creation of new coins, and control wallets. Bitcoin uses SHA-256, which is a cryptographic hashing function that makes it impossible to guess the password for a particular user name. Thus, it is impossible to figure out a private key for a particular wallet. SHA-256 is why bitcoin is secure and why no bitcoin wallet has ever been hacked.

A wallet where the private keys are managed by a third party. Most cryptocurrency exchanges also act as custodial wallets. This is why exchanges can store bitcoin on behalf of their customers.

Beware of custodial wallets as they aggregate bitcoin for many customers, creating a concentrated ‘honey pot’ that is the ultimate prize for hackers, thieves, and other malicious actors. The vast majority of bitcoin lost or stolen in the last 10 years occurred on custodial exchanges. The safer alternative? Non-custodial wallets, meaning no one has the keys to your bitcoin except you.

To ensure the bitcoin protocol operates smoothly, predictably, and with maximum security, bitcoin blocks achieve a targeted average rate of 10 minutes per block. Sometimes a block takes less than 1 minute to mine; sometimes it can take over 20 minutes. However, the average of 10 minutes is achieved by adjusting the bitcoin difficulty every 2016 blocks.

If blocks are solved too quickly on average, the difficulty is increased to make blocks harder to find, and vice versa. Adjusting the difficulty level is like increasing or decreasing the size of a bullseye.

Decentralization means that control of a protocol is distributed among many independent participants, rather than being concentrated in a single entity. In decentralized systems like Bitcoin, no single party controls the network. Instead, a network of nodes (computers) maintains and validates the blockchain.

Double spend is a fundamental problem with digital transfers. Bitcoin solving the double-spend problem is one of Bitcoin’s greatest successes.

For example, it is really hard to delete a picture off the internet, especially if that picture has value. For example, if Bob has only $5, then Bob cannot send $4 to Alice AND $4 to Jane. This would be called a double spend. Bitcoin invented a way for money to be sent peer-to-peer without the need for a third party, like a bank, to validate and ensure a double-spend transaction has not taken place.

Central bank-issued currency, like USD or EUR. Fiat money is valuable ‘by decree’, meaning a series of government laws and policies, such as the legal requirement to accept fiat currency for goods and services, is the source of the value and acceptance of fiat currency. Fiat currency is unlike commodity-based money, such as gold or silver-backed paper notes, as fiat has no value beyond its legal decree.

Fiat money is controlled by central banks through changes in interest rates, which in effect, raise the cost of money itself via debt financing variations, as well as changes in the literal amount of money in existence.

Since the governments are the largest holders of fiat debts, they are incentivized to ensure the debt gets progressively less burdensome. This is done by ensuring a minimum amount of inflation occurs each year. Thus, fiat money is intentionally designed to lose value. This is the actual reason why the prices of most things tend to increase over time.

A Bitcoin full node is a computer running Bitcoin software that fully validates transactions and blocks, enforcing all network rules. It stores the entire blockchain and helps secure the network by independently verifying the integrity of the ledger.

The first block of the Bitcoin blockchain, which took place on January 3, 2009. The Genesis block is symbolic because it was the day that Bitcoin demonstrated its initial success. Perhaps aware of its significance, Satoshi encoded a message replicating the headline from The Times Newspaper: “Chancellor on brink of second bailout for banks,” contrasting the challenges of the Financial Crisis with the emergence of a decentralized monetary protocol.

An event where the reward for mining new blocks is halved, occurring every 210,000 blocks or roughly every four years. In April 2024, the bitcoin block reward halved from 6.25 BTC to 3.125 BTC. Bitcoin halving is crucial for driving scarcity, increasing value, and ensuring long-term price stability.

A Bitcoin hard fork is a permanent divergence in the blockchain. A hard fork requires all nodes to upgrade. If not, two separate chains emerge, potentially creating a new cryptocurrency. Imitations of bitcoin have emerged in this way, bearing alternate names such as ‘Bitcoin Cash’ or ‘Bitcoin Gold’. As with most altcoins, these alternate versions of bitcoin are centralized, where their code, community, and supply are controlled by a very small group of individuals. Bitcoiners call these coins scams.

A physical device designed to securely store private keys. A hardware wallet is also a cold storage device.

A cryptographic function which takes an input and produces a fixed-size string of bytes, typically used in the Bitcoin blockchain.

The speed at which an ASIC completes a hash operation in the Bitcoin code.

Hold On to Dear Life - A slang term coined during the early 2010s when a bitcoiner shared in a forum post their passionate conviction in bitcoin, despite dramatic price decreases at that time. Since then, the term has stuck as a battle cry for unwavering bitcoiners in the face of large price declines.

A wallet is a device that stores your private keys, which are used to send bitcoin. Cold storage and hot storage wallets are opposites. A ‘hot wallet’ is wallet software installed on a device with constant or unrestricted internet access – like a computer or a smartphone. A ‘cold storage wallet’ is wallet software that is installed on a dedicated device that is not connected to the internet. Hot and cold wallets have varying levels of security and usability. It's best to think of a hot wallet like the wallet you carry with you daily – contains enough cash for small purchases but not the majority of your funds. A cold storage wallet is like a bank vault or a locked safe at home – a higher security option with portability and usability. Both are tools to be used for different situations.

A hot wallet is a fine place to store your bitcoin when you’re getting started; however, as you accumulate more bitcoin and plan to hold your bitcoin for a long time, you’ll want to use a cold storage wallet to ensure your private keys are safe.

KYC stands for Know Your Customer. Regulatory agencies require certain companies to verify a customer’s identity.

Imagine Bitcoin as a bustling highway during rush hour - that's the main blockchain during peak times. The Lightning Network is like a network of side streets that helps alleviate this congestion. It's a 'second-layer' solution built on the Bitcoin blockchain, allowing for faster, cheaper transactions without compromising Bitcoin's security.

Note: A second-layer solution is an additional protocol built on top of an existing blockchain to improve its performance or add functionality.

When there are multiple versions of the blockchain (forks), the network follows the longest chain, which is considered the most valid. This is because a longer chain represents more cumulative work done by miners.

The holding area for unconfirmed transactions. When a transaction has been sent from your wallet but is in a state of zero confirmations, it has not yet been added to the blockchain. Transactions with the highest fees get chosen first. You can increase your transaction speed by increasing your fee.

Individuals or entities that use ASICs to create new blocks and earn bitcoin block rewards and transaction fees. Miners use expensive computers and large amounts of energy to compete over block rewards and transaction fees. Miners assemble blocks by automatically selecting new transactions; they choose valid transactions with the highest fees. Once a block is built, all nodes instantly verify its validity and miners begin trying to build the next block in the blockchain.

The competitive process of using special computers that race to add transaction records to Bitcoin's public ledger to earn bitcoin issued from the protocol.

A group of miners who combine their computational resources and split their rewards proportionally to their contribution.

Multi-signature (multisig) in Bitcoin requires multiple private keys to authorize a transaction, increasing security. For example, a 2-of-3 multisig wallet might need two out of three parties (e.g., two business partners) to sign a transaction before it can be broadcast, preventing unauthorized spending by any single party. Multisig increases the security of stored bitcoin because a single compromised key cannot transact the bitcoin.

A Bitcoin node is any computer running Bitcoin software that participates in the network by validating transactions, relaying information, and storing the blockchain. Nodes ensure the network's integrity and decentralization by enforcing Bitcoin's rules independently.

A wallet where the user has control of their private keys. Banks and exchanges hold onto people's assets – this is called a custodial service. Bitcoin was invented to provide an alternative to custodial services, which also act as middlemen for transactions. In the wake of the Great Financial Crisis, banks misinvested customer funds and paid big bonuses to executives who acted fraudulently. Bitcoin was invented to provide an alternative to the corrupt world of central/commercial banking by creating a system of rules without rulers. This way, there is no group at the top of the system with disproportionate control. Bitcoin does not have room for corruption or centralized control; it is decentralized.

Non-custodial wallets are an integral part of bitcoin as they enable individuals to hold their own bitcoin by managing their private keys or seed phrase. Non-custodial wallets are secured by SHA-256 unbreakable cryptography. Individuals with bitcoin in non-custodial wallets do not require permission to use their bitcoin—all they need to do is send a technically valid transaction with a reasonable fee, and it will be included into the blockchain. A non-custodial wallet is arguably Bitcoin’s greatest invention.

A paper document containing your private key or seed phrase.

Interaction between two parties without a middleman.

Proof of Work (PoW) in Bitcoin is the consensus mechanism used to secure the network and validate transactions. Anyone can mine bitcoin; however, modern bitcoin mining has become competitive, requiring special computers called ASICs.

Once a miner finds the correct solution, it’s easy for others to verify, and the new block is added to the chain. The miner is rewarded with newly created Bitcoin and transaction fees. PoW makes the Bitcoin network secure by making it costly and difficult for attackers to alter past transactions, as they would need to control the majority of the network’s computing power.

The address to which others can send bitcoin.

Used for simplifying the input of Bitcoin addresses. You can scan QR codes to send bitcoin to someone, or to receive bitcoin.

A satoshi, also called a ‘sat’, is the smallest unit of bitcoin, equivalent to 0.00000001 BTC. As bitcoin becomes more expensive, people start to refer to items priced in sats. For example, a $5 USD latte would be 7402 sats, or 0.00007402 BTC.

The pseudonymous creator of Bitcoin. Satoshi wrote and published the Bitcoin whitepaper, solving many of the problems needed to achieve digital, decentralized money. Satoshi worked with key bitcoin developers from 2009-2010 to advance bitcoin before he vanished from the project, never returning or selling any of his 1,000,000 BTC.

A list of words which store all the information needed to recover Bitcoin funds. A seed phrase is an easy way to store and recover all of your private keys. Keep your seed phrase safe! Never share your seed phrase with anyone and do not store it digitally.

SegWit (Segregated Witness) is a Bitcoin protocol upgrade that separates transaction signatures (witness data) from transaction data, reducing block size, increasing transaction capacity, fixing malleability issues, and enabling second-layer solutions like the Lightning Network for faster, cheaper transactions.

A Bitcoin soft fork is a backward-compatible upgrade that introduces new rules without splitting the blockchain. Non-upgraded nodes still recognize the blocks, maintaining network unity while allowing new features or improvements.

Bitcoin Taproot is an upgrade that enhances privacy, scalability, and efficiency by combining multiple signatures into one. It improves smart contract functionality and reduces the size of complex transactions, making them indistinguishable from standard transactions on the blockchain. The Taproot upgrade enabled some bitcoiners to embed images into blocks.

A parallel blockchain for testing Bitcoin software. Bitcoin on the testnet has zero value and is used purely for testing various types of bitcoin software, like wallets.

A small fee imposed on some transactions to incentivize miner inclusion in a block. The larger the transaction fee, the more likely your transaction will be selected in the next block. Transaction fees are calculated by the size of a transaction measured in bytes, not bitcoin. This is why it is important to understand UTXOs.

A transaction that has not yet been included in a block.

While a bitcoin wallet balance may appear similar to an account balance, bitcoin wallets operate closer to the logic of physical money than digital balances.

Think of sending bitcoin like sending and receiving envelopes full of bitcoin. Each UTXO needs its own fee to send, like how each envelope requires a stamp to be mailed. When a bitcoin wallet receives a 0.1 BTC deposit, it perceives one UTXO with 0.1 BTC, or one envelope with 0.1 BTC inside. If your wallet receives five of these payments, your wallet now perceives five envelopes, or five 0.1 BTC UTXOs. This wallet will only pay for one stamp if it sends 0.05 BTC because it's taking those funds from the first UTXO.

Transactions can also have weight, like a heavy envelope requiring a larger stamp. Weight isn’t calculated by the amount of BTC, but rather the instructions added. Some transactions include multi-signature conditions or ordinal inscriptions, which can make a bitcoin transaction more expensive and take up more bytes on a given block.

A Bitcoin wallet is software or hardware that stores private keys and manages Bitcoin addresses, allowing users to send, receive, and track their Bitcoin balances securely on the blockchain.

Watch-only Wallet - A wallet that can view transactions but cannot spend bitcoin.

An individual or entity holding at least thousands of bitcoins.

The Bitcoin whitepaper is significant because it outlines the core principles of Bitcoin—decentralization, peer-to-peer transactions, and trustless digital currency—serving as a foundational document that began the Bitcoin movement. Several years later, BTC gained value and many copycats emerged.