Bitcoin glossary

Address

A unique string used to receive Bitcoin. Public, but tied to no name unless you reveal one.

BIP

Bitcoin Improvement Proposal — the standard format for proposing changes to Bitcoin.

BIP39

The standard for generating a wallet from a 12 or 24-word seed phrase.

Bitcoin

A peer-to-peer digital currency invented in 2008 by Satoshi Nakamoto. The first money in human history with a fixed supply.

Block

A bundle of Bitcoin transactions added to the blockchain roughly every ten minutes.

Blockchain

The public ledger of every Bitcoin transaction, organised into a chain of blocks.

CBDC

Central Bank Digital Currency — a digital version of fiat money issued by a central bank, with programmable rules.

Channel

A two-party Lightning payment connection. Open it once, exchange thousands of payments off-chain, close it when done.

Channel close

Settling a Lightning channel back on the main Bitcoin chain. Cooperative closes are fast and cheap; force closes are expensive.

Cold wallet

A wallet whose private keys never touch an internet-connected device. Maximum security, less convenience.

Custody

Who holds the private keys. The single most important question to ask any wallet or exchange.

DCA

Dollar-Cost Averaging — buying a fixed amount of Bitcoin on a regular schedule, regardless of price.

Fiat

Government-issued currency not backed by a physical commodity. The default form of money since 1971.

Halving

A pre-programmed event every four years where the Bitcoin issuance rate drops by 50%.

Hardware wallet

A dedicated physical device that stores private keys offline and signs transactions internally.

Hash

A fixed-length fingerprint of arbitrary data. Bitcoin uses SHA-256 hashes for everything from block IDs to addresses.

Hot wallet

A wallet on an internet-connected device. Convenient for everyday spending. Less secure than cold storage for large amounts.

Inflation

The loss of purchasing power over time. Today's pound buys less than yesterday's.

Invoice

A Lightning payment request — a string starting with "lnbc..." that encodes amount, description, and destination.

Lightning Network

A second-layer Bitcoin payment network that enables instant, low-fee transactions.

Liquid Network

A Bitcoin sidechain built for fast, low-fee transactions and asset issuance.

Mempool

The waiting room of unconfirmed transactions — where every Bitcoin transaction sits before being included in a block.

Mining

The process of competing to add new blocks to the Bitcoin blockchain. Miners earn block rewards plus fees.

Multisig

A wallet that requires multiple signatures to spend. 2-of-3 means any two of three keys can authorise a transaction.

Node

A computer running Bitcoin software that stores and verifies the entire blockchain.

On-chain

A Bitcoin transaction settled directly on the main blockchain. Slower and more expensive than Lightning but the ultimate settlement layer.

Phishing

A scam where the attacker impersonates a trusted entity to trick you into revealing credentials or sending funds to the wrong address.

Private key

The cryptographic secret that authorises spending Bitcoin. If someone gets your private key, they can spend your sats.

Public key

The cryptographic counterpart to a private key. Used to derive addresses and verify signatures. Safe to share.

RBF

Replace-By-Fee — a way to bump up the fee on an unconfirmed transaction so it confirms faster.

Satoshi

Two meanings: (1) the smallest unit of Bitcoin (1/100,000,000 BTC), and (2) the pseudonymous inventor of Bitcoin.

Sats

Short for satoshis — the smallest unit of Bitcoin. 100 million sats = 1 BTC.

Seed phrase

A 12 or 24-word phrase that backs up your entire wallet. Lose it, lose your sats. Share it, lose your sats.

Self-custody

Holding your own Bitcoin private keys. Nobody can freeze, seize, or lose your sats — except you.

Taproot

A 2021 Bitcoin upgrade (BIP-340-342) that enables more efficient and private transactions, especially for multisig and Lightning.

Time preference

How much you value the present versus the future. Low time preference = patient. High = impulsive.

UTXO

Unspent Transaction Output — the basic unit of Bitcoin balance. Your wallet is a collection of UTXOs.

Watch-only wallet

A wallet that can see balances and transactions but cannot spend. Useful for accountants, kids, or just monitoring a stack.