Bitcoin Glossary

Bitcoin Glossary

A comprehensive guide to Bitcoin terminology — 200+ terms defined and cross-referenced.

2-of-3 Multisig

A multi-signature setup requiring two of three private keys to authorize a Bitcoin transaction, used for shared custody, escrow, and enhanced security.

51% Attack

An attack where one entity controls over 50% of Bitcoin's hash power, enabling double spends and reversals. Its scale makes this prohibitively costly.

Address

A string derived from a public key used as a destination for Bitcoin payments, available in legacy (1...), P2SH (3...), and native SegWit (bc1...) formats.

Air-Gapped Signing

Signing Bitcoin transactions on a device that has never connected to any network. Combines PSBTs with QR codes or SD cards to bridge the air gap securely.

Altcoin

Any cryptocurrency other than Bitcoin. Short for alternative coin, it covers thousands of post-Bitcoin projects with varying technical and economic traits.

Anchor Outputs

A Lightning Network commitment transaction format that includes small, spendable outputs allowing either channel party to fee-bump the transaction via CPFP after broadcast.

Ark Protocol

A layer-2 Bitcoin protocol where an always-on server (ASP) facilitates off-chain payments using virtual UTXOs, offering a non-interactive alternative to Lightning channels.

ASIC

Application-Specific Integrated Circuit for Bitcoin mining. ASICs compute SHA-256 hashes more efficiently than CPUs or GPUs, dominating mining since 2013.

Assume UTXO

A Bitcoin Core feature that lets a new node start validating and serving transactions almost immediately by loading a trusted UTXO set snapshot while full validation continues in the background.

Assume Valid

A Bitcoin Core optimization that skips script validation for blocks below a hardcoded checkpoint, dramatically speeding up initial blockchain synchronization.

Atomic Swap

A trustless crypto-to-crypto exchange using hash time-locked contracts so both parties receive funds or neither does, eliminating any central exchange.

Base Layer

Bitcoin's Layer 1 where transactions settle, secured by proof of work and providing the security foundation that higher-layer protocols depend on.

Base58

Bitcoin's encoding for addresses and keys that omits ambiguous characters 0, O, I, and l, minimizing errors when users manually copy or transcribe them.

Batch Transaction

A single Bitcoin transaction to multiple recipients, reducing fee cost and block space usage compared to sending each payment as a separate transaction.

Bech32

SegWit address format starting with bc1, defined in BIP173. Bech32 is case-insensitive, has strong error detection, and lowers fees vs older formats.

BIP (Bitcoin Improvement Proposal)

A formal proposal for Bitcoin protocol changes reviewed by the community. BIPs are the primary mechanism for Bitcoin's decentralized technical governance.

BIP32

Defines HD wallets deriving an entire key tree from one master seed. A BIP32 seed phrase restores all current and future wallet keys, simplifying backup.

BIP39

Standard for 12 or 24-word seed phrases to back up Bitcoin wallets. BIP39 encodes entropy as plain words enabling portable, human-readable key recovery.

Bitcoin Core

The open-source reference implementation of Bitcoin. Bitcoin Core runs a full node, validates all transactions, and defines the de facto protocol standard.

Bitcoin Dominance

The ratio of Bitcoin's market capitalization to the total cryptocurrency market cap, used as a gauge of Bitcoin's relative strength in the digital asset space.

Bitcoin Pizza Day

May 22, 2010: Laszlo Hanyecz paid 10,000 BTC for two pizzas, marking Bitcoin's first known real-world commercial transaction.

Bitcoin Script

A non-Turing-complete stack-based language defining spending conditions in Bitcoin outputs. It enables multisig, timelocks, and hash locks securely.

Bitcoin Standard

A monetary framework in which Bitcoin serves as the base money and unit of account for economic activity, replacing fiat currency as the foundational layer of the financial system.

Bitcoin Treasury

A corporate or sovereign strategy of holding Bitcoin on balance sheets as a primary reserve asset, popularized by MicroStrategy (now Strategy) in 2020.

Bitcoin

A peer-to-peer digital currency by Satoshi Nakamoto (2009) with a 21 million coin cap. Bitcoin uses proof of work for trustless, permissionless payments.

Blinded Paths

A Lightning privacy technique where the recipient provides encrypted routing hints so that the sender can deliver a payment without learning the recipient's node identity or location.

Block Explorer

A web tool for browsing the Bitcoin blockchain to look up transactions, address histories, block data, and network stats. Mempool.space is widely used.

Block Header

An 80-byte structure starting each block with version, previous hash, Merkle root, timestamp, difficulty, and nonce. Miners hash it to find proof of work.

Block Height

A block's position in the Bitcoin blockchain, counted from 0 at genesis. Block height is used to track halvings, difficulty adjustments, and timelocks.

Block Propagation

The process by which newly mined blocks spread across the Bitcoin peer-to-peer network, critical for consensus convergence, mining fairness, and network security.

Block Reward

Bitcoin earned by a miner per block: the block subsidy plus fees. The subsidy began at 50 BTC and halves every 210,000 blocks, roughly every four years.

Block Size

The max data capacity of a Bitcoin block in weight units. The 4 million weight unit limit from SegWit translates to roughly 1 to 4 MB of transaction data.

Block Time

The average interval between Bitcoin blocks, targeted at 10 minutes. Bitcoin's difficulty adjustment recalibrates every 2,016 blocks as hash rate changes.

Block

A bundle of validated transactions with a proof-of-work solution and a link to the prior block. Bitcoin mines one new block every 10 minutes on average.

Blockchain

Bitcoin's append-only ledger of cryptographically linked blocks. Each block references its predecessor's hash, making transaction history tamper-evident.

Blocksize War

The 2015-2017 conflict over whether to increase Bitcoin's block size limit, culminating in SegWit activation and the Bitcoin Cash hard fork.

BOLT

Basis of Lightning Technology: the Lightning Network specs. BOLTs standardize channel operations, routing, and invoicing across all implementations.

BOLT12

A Lightning Network specification for reusable payment offers that support static QR codes, payer privacy, refunds, and recurring payments without requiring an HTTP server.

Broadcast

Submitting a signed Bitcoin transaction to the peer-to-peer network so nodes validate and relay it until a miner includes it in a confirmed block.

Capacity (Lightning)

The bitcoin locked in a Lightning channel, capping what can flow through it. Capacity splits into inbound and outbound sides, shifting with each payment.

Chain Analysis

Tracing Bitcoin transaction flows to cluster addresses and identify users. Chain analysis firms provide services to governments and financial institutions.

Change Address

An address the sender controls to receive change from a Bitcoin transaction. UTXOs are spent in full, so any excess over payment and fee is returned.

Channel Factory

A multi-party construction where a group of users share a single on-chain UTXO and can open, close, and reorganize Lightning channels among themselves without individual on-chain transactions.

Child Pays for Parent (CPFP)

CPFP technique: a child transaction spends an unconfirmed parent's output with a higher fee, raising the combined package rate for faster miner inclusion.

Circular Economy

A bitcoin circular economy lets participants earn, spend, and save in bitcoin without touching fiat, reducing their dependence on traditional banking.

Coin Control

Manually selecting which UTXOs to spend in a transaction. Coin control is essential for privacy, fee optimization, and avoiding dust attacks.

Coin Selection

The algorithm a wallet uses to choose which UTXOs to spend in a transaction, optimizing for fees, privacy, and change output minimization.

Coinbase Transaction

The first transaction in each Bitcoin block, created by the miner to claim the block reward and fees. It creates coins from scratch with no UTXO inputs.

CoinJoin

A privacy technique combining multiple transactions into one, hiding the link between inputs and outputs. Tools include Wasabi Wallet and JoinMarket.

Cold Storage

Keeping Bitcoin private keys offline to defend against remote attacks. Hardware wallets, air-gapped computers, and paper wallets are cold storage methods.

Compact Block Filter

A privacy-preserving light client protocol (BIP157/158) where full nodes create compact filters and clients download them to find relevant transactions locally.

Compact Block Relay

BIP152 protocol optimization that allows nodes to reconstruct new blocks from shorthand transaction IDs, dramatically reducing block propagation bandwidth and latency.

Confirmation

Each block built on top of a transaction adds one confirmation. Six confirmations is the standard for considering large Bitcoin payments irreversible.

Consensus

The rules all Bitcoin nodes follow to agree on the valid blockchain. Consensus is enforced by every full node, validating and rejecting invalid blocks.

Cost Basis

The average acquisition price of a Bitcoin holding, used for calculating capital gains, evaluating investment performance, and on-chain analytics.

Custodial Wallet

A wallet where a third party holds Bitcoin private keys for the user. Custodial wallets are convenient but expose funds to hacks, seizures, and insolvency.

A Cypherpunk's Manifesto

Eric Hughes' 1993 foundational text declaring privacy a necessity for an open society and calling on cypherpunks to build anonymous systems with cryptography.

Cypherpunk

Activists using cryptography to defend privacy and freedom. Bitcoin emerged from the cypherpunk tradition of building decentralized financial tools.

Daemon

A background process with no graphical interface, like bitcoind, which operates a Bitcoin full node, validates blocks, and serves RPC requests.

Decentralization

The distribution of control across many participants rather than a single entity. Bitcoin achieves this via P2P architecture and proof-of-work mining.

Difficulty Adjustment

An automatic recalibration every 2,016 blocks to maintain a 10-minute average block time. Difficulty increases if blocks arrive fast, decreases if slow.

Difficulty Epoch

A 2,016-block period (~two weeks) after which Bitcoin recalculates mining difficulty. Each epoch targets 14 days of 10-minute blocks.

Difficulty

A measure of computational work required to mine a valid Bitcoin block. Adjusted every 2,016 blocks to keep average block time near 10 minutes.

Digital Signature

A cryptographic proof that a private key holder authorized a Bitcoin transaction. ECDSA and Schnorr signatures verify spending by the rightful owner.

Discreet Log Contract (DLC)

A Bitcoin smart contract using oracle attestations to settle conditional payments. DLCs enable bets and derivatives on real outcomes with private terms.

Dollar-Cost Averaging

An investment strategy of buying a fixed dollar amount of Bitcoin at regular intervals, regardless of price, to reduce the impact of volatility on overall cost basis.

Double Spending

Attempting to spend the same bitcoin twice via conflicting transactions. Proof-of-work consensus ensures only one conflicting transaction can be confirmed.

Dual-Funded Channel

A Lightning channel where both parties contribute funds to the opening transaction, providing immediate bidirectional liquidity from the moment the channel is created.

Dust Attack

A deanonymization technique where an attacker sends tiny bitcoin amounts to many addresses, then tracks when recipients spend the dust alongside their other UTXOs.

Dust

A UTXO worth less than the fee required to spend it. Nodes apply a dust limit to prevent economically unspendable outputs from cluttering the UTXO set.

Ecash

A digital cash protocol using blind signatures for strong privacy. Bitcoin ecash mints like Cashu issue Lightning-backed tokens for private payments.

Eclipse Attack

An attack where an adversary monopolizes all peer connections of a Bitcoin node to feed it false blockchain data, enabling double spending or censorship.

Electrum

An open-source Bitcoin wallet that queries remote Electrum servers, avoiding a full node download. Supports hardware wallets, multisig, and coin control.

Elliptic Curve Cryptography (ECC)

Public-key cryptography based on elliptic curves over finite fields. Bitcoin uses secp256k1 to generate key pairs and digital signatures proving ownership.

Energy Density (Mining)

The energy cost per unit of bitcoin mined, a key metric for mining profitability that varies by hardware efficiency, electricity price, and network difficulty.

Entropy

The measure of randomness used in Bitcoin key and seed generation. High-quality entropy is the foundation of cryptographic security — weak entropy leads to stolen funds.

Erlay

A proposed Bitcoin transaction relay protocol using set reconciliation to reduce bandwidth consumption by approximately 40%, enabling nodes to maintain more peer connections.

Escrow

A trust-minimized arrangement holding bitcoin until conditions are met. Bitcoin 2-of-3 multisig escrow splits control among buyer, seller, and arbitrator.

Extended Public Key (xpub)

An HD wallet key enabling derivation of all child public keys in a branch without private key access. Used for watch-only wallets and address generation.

Faucet

A service dispensing free testnet bitcoin to developers for testing. Mainnet Bitcoin faucets existed in 2010 when bitcoin was worth fractions of a cent.

Fee Market

A competitive market for Bitcoin block space where users bid with fees. Fees rise when demand exceeds block capacity and fall when space is available.

Fee Rate (sat/vB)

Transaction fee in satoshis per virtual byte (sat/vB), setting inclusion priority. Higher sat/vB means faster confirmation; SegWit reduces virtual bytes.

Fee

An amount paid to miners to include a Bitcoin transaction in a block. Fees equal inputs minus outputs and are prioritized by satoshis per virtual byte.

Finality

The irreversibility of a Bitcoin transaction. Each confirmation makes reversal exponentially costlier; six confirmations is widely accepted as finality.

Fork

A divergence in Bitcoin protocol rules. Forks are temporary natural occurrences or deliberate changes categorized as either soft forks or hard forks.

Full Node

A Bitcoin node that downloads and validates every block and transaction against consensus rules, enforcing the protocol without trusting any third party.

Fungibility

A monetary property requiring all units to be interchangeable. Bitcoin's public ledger allows chain analysis firms to flag coins, challenging fungibility.

Gap Limit

The number of consecutive unused addresses an HD wallet scans before stopping derivation. A gap limit too low can cause wallets to miss funds.

Genesis Block

Block 0 of Bitcoin, mined by Satoshi Nakamoto on January 3, 2009. Its coinbase contains a newspaper headline about bank bailouts as timestamp proof.

GPU Mining

Using graphics cards to mine Bitcoin, common from 2010 to 2013. ASICs made GPU mining obsolete for Bitcoin due to their vastly superior SHA-256 efficiency.

Halving

A scheduled event every 210,000 blocks cutting the block reward in half. Halvings enforce Bitcoin's 21 million supply cap and disinflationary issuance.

Hard Fork

A backward-incompatible protocol change making previously invalid blocks valid. Hard forks require all nodes to upgrade or risk a permanent chain split.

Hardware Wallet

A physical device storing private keys in a secure chip and signing transactions offline, protecting keys from malware on internet-connected computers.

Hash Function

A one-way function converting any input into a fixed-size output. Bitcoin uses double-SHA-256 for mining and block IDs, and RIPEMD-160 for address hashes.

Hash Power

The total computational capacity dedicated to Bitcoin mining. Higher hash power raises the cost of a 51% attack, strengthening security of the network.

Hash Rate

Hashes per second computed by a miner or the Bitcoin network. Network hash rate measures mining competition and is a key indicator of blockchain security.

Hash

A fixed-size fingerprint produced by a hash function. Bitcoin uses hashes to identify blocks and transactions, link the chain, and power the proof-of-work.

HD Wallet

A hierarchical deterministic wallet generating all keys from a single seed via BIP32. One seed phrase backup can recover every address the wallet produces.

Hodl Invoice

A Lightning invoice where the recipient deliberately delays settling the HTLC, holding the payment in escrow until an external condition is met before claiming or canceling.

HODL

A Bitcoin term for long-term holding rather than selling, born from a 2013 Bitcointalk forum typo. It reflects conviction in Bitcoin as a store of value.

Hot Wallet

A Bitcoin wallet connected to the internet for convenient transactions. Hot wallets suit small spending amounts but expose keys to malware and attacks.

HTLC

A conditional payment requiring a secret preimage before a timeout. HTLCs enable trustless Lightning multi-hop payments and cross-chain atomic swaps.

Hyperbitcoinization

A theoretical tipping point where Bitcoin becomes the dominant global monetary system through voluntary adoption, displacing fiat currencies.

Immutability

Bitcoin's property where confirmed transactions cannot be altered. Cumulative proof-of-work makes rewriting any past block computationally infeasible.

Inbound Liquidity

The capacity to receive payments on the Lightning Network, determined by the balance held by remote peers in their channels with your node.

Inflation

Bitcoin's decreasing supply issuance via block rewards that halve every four years, trending to zero as the hard cap of 21 million coins is approached.

Input

A transaction component referencing an unspent output (UTXO) being consumed. Each input must include a valid signature proving authorization to spend.

Invoice (Lightning)

A BOLT 11 payment request encoding amount, recipient, payment hash, and expiry for a Lightning Network payment. Single-use invoices are shared as QR codes.

JoinMarket

A decentralized CoinJoin marketplace where makers earn fees providing liquidity and takers pay to mix Bitcoin without any central coordinator.

Key Pair

A Bitcoin ownership unit: a secret private key that signs transactions and a derived public key that verifies signatures and generates receiving addresses.

KYC

Regulatory requirements compelling Bitcoin exchanges to verify user identities. KYC links personal data to bitcoin activity, enabling surveillance.

Layer 1

Bitcoin's base-layer blockchain where transactions are settled by proof of work. Layer 1 optimizes for decentralization and security, not throughput.

Layer 2

Protocols built atop Bitcoin enabling fast, cheap transactions while inheriting base-chain security. Lightning Network is Bitcoin's main Layer 2 solution.

Ledger

Bitcoin's public ledger of all transactions, maintained by thousands of nodes worldwide. No single entity can control or alter the full transaction record.

Lightning Address

An email-like identifier ([email protected]) that maps to an LNURL-pay endpoint, enabling anyone to receive Lightning payments using a simple, memorable address.

Lightning Channel

A two-party channel on the Lightning Network funded by an on-chain 2-of-2 multisig. The parties can exchange unlimited instant off-chain payments.

Lightning Invoice

A single-use BOLT 11 payment request for Lightning containing the amount, payment hash, destination, and expiry. Shared as a QR code or text string.

Lightning Network

Bitcoin's Layer 2 protocol for near-instant, low-cost payments via a network of payment channels secured by HTLCs and settled on the base layer as needed.

Lightning Node

Lightning Network software managing payment channels and routing payments for fees. Popular implementations include LND, Core Lightning, and Eclair.

Lightning Service Provider

An entity that manages Lightning channels, liquidity, and infrastructure on behalf of end users, enabling non-custodial Lightning access without requiring users to run their own nodes.

Liquidity

The distribution of funds in a Lightning Network channel's two sides. Outbound liquidity is what you can send; inbound liquidity is what you can receive.

LNURL

Lightning protocols using HTTP callbacks for static payment QR codes, pull withdrawals, and passwordless login without per-payment invoice generation.

Locking Script

A Bitcoin output script defining spending conditions, called scriptPubKey. Spenders must satisfy it—with a digital signature—to claim the locked funds.

Mainnet

The production Bitcoin network for real-value transactions, running since 2009. Distinct from valueless test networks: testnet, signet, and regtest.

Market Capitalization

Bitcoin's total market value: price times circulating supply. Used to compare Bitcoin to other assets, though permanently lost coins inflate this metric.

Mempool Policy

The configurable rules a Bitcoin node applies to decide which unconfirmed transactions to accept into its mempool, including minimum fee rates, size limits, and relay rules.

Mempool

A Bitcoin node's pool of valid, unconfirmed transactions. Miners pick from it by fee rate; congestion creates a fee market for limited Bitcoin block space.

Merkle Root

A hash atop the block's Merkle tree committing to every transaction. The block header stores it, enabling SPV clients to verify transaction inclusion.

Merkle Tree

A binary hash tree used in Bitcoin blocks where all transaction hashes combine up to the Merkle root, enabling compact SPV proofs of transaction inclusion.

Miner

Bitcoin participant using hashing hardware to find valid proof-of-work blocks. Miners earn the block subsidy plus transaction fees as their block reward.

Mining Difficulty

Bitcoin's parameter controlling how hard it is to find a valid block hash. It adjusts every 2,016 blocks to keep average block time near 10 minutes.

Mining Pool

A cooperative of Bitcoin miners pooling hash power to find blocks reliably and share rewards proportionally, reducing the high variance of solo mining.

Mining Reward

The total compensation a miner earns for producing a valid block: the block subsidy (newly minted BTC) plus all transaction fees included in that block.

Mining

Bitcoin's process of hashing block headers until a hash below the target is found. Mining secures the network, orders transactions, and issues new bitcoin.

Miniscript

A structured layer above Bitcoin Script enabling automated analysis of spending conditions, correctness checks, and safe composition in wallet software.

Mnemonic Phrase

A BIP39 word list of 12 or 24 words that encodes an HD wallet's master seed. The mnemonic restores all associated private keys and funds when needed.

Multi-hop Payment

A Lightning payment routed through intermediate nodes via HTLCs when no direct channel exists. Onion routing ensures intermediaries see only adjacent hops.

Multisig

Bitcoin's M-of-N signing scheme, e.g., 2-of-3. Multisig protects funds by ensuring no single key loss or compromise alone is enough to spend the bitcoin.

MuSig

Schnorr multi-signature protocol where cooperating signers produce one aggregate signature. On-chain it appears identical to a single-key signature.

Network Effect

The property where Bitcoin grows more valuable as adoption increases. Bitcoin's monetary role makes this effect especially powerful and self-reinforcing.

nLockTime

A transaction-level timelock in Bitcoin set by block height or Unix timestamp. Used in payment channels, refund transactions, and Bitcoin script timelocks.

Node Runner

A Bitcoin user who operates their own full node, independently verifying all transactions and blocks to maintain personal sovereignty and network decentralization.

Node

A Bitcoin network computer that independently validates all transactions and blocks against consensus rules, relays valid data, and rejects invalid ones.

Non-Custodial

A Bitcoin wallet in which users hold their own private keys, eliminating third-party risk. Based on the core principle: not your keys, not your coins.

Nonce

A 32-bit block header field miners vary seeking a valid proof-of-work hash. When exhausted, miners change the coinbase extra nonce to continue the search.

Nostr

A decentralized social protocol using key pairs for identity. Popular in the Bitcoin community, it supports Lightning micropayment tips called zaps.

Off-Chain

Activity outside the Bitcoin blockchain. Off-chain solutions like Lightning process payments faster and cheaper, settling on-chain only when necessary.

On-Chain

Transactions written directly on the Bitcoin blockchain and validated by every full node. On-chain provides maximum finality, limited by block space.

Onion Routing

Layered encryption in Lightning where each routing node decrypts only its own layer. No intermediary learns the full path, sender, or final recipient.

OP_CHECKTEMPLATEVERIFY

A proposed Bitcoin opcode (BIP119) enabling covenants by constraining how an output can be spent, allowing pre-committed transaction templates for vaults, congestion control, and more.

OP_RETURN

Bitcoin Script opcode that makes outputs unspendable and allows embedding 80 bytes of data on-chain, used for timestamping and data anchoring.

Opcode

An instruction in Bitcoin Script defining a single stack operation. Bitcoin has over 100 opcodes for hashing, arithmetic, signatures, and flow control.

Open Channel

Creating a Lightning Network channel by locking bitcoin in a 2-of-2 multisig funding transaction on-chain, enabling instant off-chain payments.

Oracle

An entity that feeds real-world data into Bitcoin smart contracts and DLCs. Oracles supply prices and event outcomes for conditional payment settlement.

Ordinals

A satoshi numbering scheme enabling inscriptions that attach arbitrary data to specific sats on-chain, creating NFT-like digital artifacts on Bitcoin.

Orphan Block

A valid mined block excluded from the longest chain because another block at the same height was accepted first by the majority of the network.

Output Linking

A chain analysis heuristic that connects transaction outputs to real-world identities by exploiting patterns in how Bitcoin transactions are constructed.

Output Script Descriptor

Compact notation specifying wallet scripts and key derivation paths. Descriptors make wallet configurations explicit and portable across Bitcoin software.

Output

A transaction component in Bitcoin defining an amount and a locking script. Unspent outputs (UTXOs) collectively represent all current bitcoin ownership.

P2P

Bitcoin P2P network where nodes connect directly. The decentralized mesh propagates transactions and blocks globally with no single point of failure.

P2PKH

Bitcoin's original address format. Addresses start with '1' and lock to a public key hash, requiring the full public key and a valid signature to spend.

P2SH

Address type starting with '3'. Locks outputs to a script hash, enabling multisig and complex conditions without revealing the spending script to senders.

P2TR

Pay-to-Taproot (BIP341) with 'bc1p' addresses. Combines Schnorr signatures with MAST for efficient key-path spends and private script-path alternatives.

P2WPKH

SegWit output using 'bc1q' addresses. Moves signatures to the witness field, reducing transaction fees through the SegWit witness weight discount.

Paper Wallet

Cold storage created by printing Bitcoin private keys on paper. Now considered less secure than hardware wallets due to key generation and usage risks.

Partially Signed Bitcoin Transaction (PSBT)

A standard format (BIP174) for sharing incomplete transactions between signers. PSBTs support multisig coordination, hardware wallet signing, and CoinJoin.

Passphrase

Optional string added to a BIP39 mnemonic to derive a different HD wallet. Each unique passphrase creates distinct keys, adding security and deniability.

PayJoin

Privacy protocol where sender and recipient both contribute inputs, breaking chain analysis. PayJoin looks identical to ordinary Bitcoin payments on-chain.

Payment Channel

Two-party off-chain Bitcoin channel. Funds lock in multisig on-chain; balance updates occur off-chain; only open and close are recorded on the blockchain.

PayNym

A reusable payment code (BIP47) that generates unique addresses for each transaction between two parties, enabling private recurring payments without address reuse.

Penalty Transaction

Lightning transaction claiming all channel funds when a counterparty broadcasts a revoked state. Deters cheating by making dishonesty far more costly.

Point of Sale

Merchant system for accepting Bitcoin in person via Lightning QR code invoices. BTCPay Server enables self-hosted, intermediary-free payment acceptance.

Proof of Reserves

Cryptographic audit technique letting custodians prove enough assets to cover user balances, using signed address messages and Merkle tree proofs.

Proof of Work

Consensus mechanism requiring energy-intensive hash computation to produce blocks. Makes it prohibitively expensive to rewrite confirmed Bitcoin history.

Protocol

The ruleset governing Bitcoin, covering transactions, block validation, difficulty adjustment, supply issuance, and P2P messaging between nodes.

Pruned Node

A full node validating all blockchain history but discarding old blocks to save space. Enforces consensus rules but cannot serve historical data to peers.

Public Key

A Bitcoin key derived from a private key via elliptic curve multiplication. Generates addresses and verifies signatures without revealing the private key.

QR Code

A 2D barcode encoding Bitcoin addresses and Lightning invoices for mobile scanning. QR codes eliminate manual transcription errors and speed up payments.

Raw Transaction

A Bitcoin transaction in serialized hex format containing all inputs, outputs, and witness data. Can be built and signed offline before broadcast.

Rebalancing (Lightning)

Moving funds between Lightning channels to restore routing capacity. Circular self-payments and submarine swaps are the primary rebalancing methods.

Recovery Phrase

A sequence of 12 or 24 BIP39 words that restores an HD wallet and all its keys. The most critical self-custody backup — must be stored securely offline.

Regtest

A Bitcoin testing mode that generates blocks on demand. Provides a private isolated chain with no peers, ideal for development and automated testing.

Reorg

A Bitcoin reorg where nodes switch to a heavier chain. Transactions in abandoned blocks may become unconfirmed, motivating use of multiple confirmations.

Replace-by-Fee (RBF)

A BIP125 mechanism allowing senders to replace stuck unconfirmed mempool transactions with higher-fee versions. The standard fee-bumping tool in Bitcoin.

RGB Protocol

Off-chain smart contract layer anchored to Bitcoin, keeping state off-chain. RGB enables tokens and assets on Bitcoin without bloating the blockchain.

Route Hints

Additional routing information included in a Lightning invoice that helps the sender find a path to the recipient, especially when the recipient's channels are private or unannounced.

Routing (Lightning)

Path-finding in Lightning to route payments via intermediate channels to the recipient. Routing nodes earn small fees for forwarding each payment hop.

RPC

Bitcoin Core's JSON-RPC interface enabling external software to query the blockchain, manage wallets, and broadcast transactions via HTTP or bitcoin-cli.

Satoshi Nakamoto

Bitcoin's pseudonymous creator who published the 2008 whitepaper and launched the network in January 2009. Withdrew in 2011; true identity still unknown.

Satoshi

The smallest unit of bitcoin: 0.00000001 BTC. Named after Bitcoin's creator and the standard denomination in the protocol and Lightning payments.

Sats

Colloquial plural of satoshi (0.00000001 BTC). Widely used for Lightning payments and everyday transactions, making small bitcoin amounts more intuitive.

Schnorr Signature

Taproot's signature scheme (BIP340). More compact than ECDSA, it enables MuSig aggregation so cooperative multisig looks identical to a single-key spend.

Script

Bitcoin's stack-based language for encoding output spending conditions. Non-Turing-complete to ensure bounded, predictable execution on all network nodes.

Seed Phrase

A 12 or 24 word BIP39 mnemonic generating a complete HD Bitcoin wallet. Must be kept offline and never stored digitally — the ultimate self-custody backup.

SegWit

Bitcoin soft fork (2017) separating signature data into a witness field. Fixes transaction malleability, enables Lightning Network, and reduces fees.

Selfish Mining

An attack strategy where a miner withholds newly found blocks to gain an unfair advantage, potentially earning more than their fair share of block rewards.

SHA-256

Bitcoin's core cryptographic hash function producing a fixed 256-bit output. Used in proof-of-work mining, transaction IDs, and Bitcoin address generation.

Sidechain

A separate blockchain pegged to Bitcoin allowing bitcoin to transfer between chains. Enables new features and trade-offs without modifying Bitcoin.

Sighash

Bitcoin signature flag specifying which transaction parts are signed. Types ALL, NONE, SINGLE, and ANYONECANPAY enable flexible collaborative transactions.

Signature

Private-key cryptographic proof authorizing a Bitcoin transaction. Bitcoin uses ECDSA and Schnorr, both verifiable using the corresponding public key.

Signet

A Bitcoin test network where blocks are signed by authorized keys instead of mined. Offers stable block times, avoiding testnet's erratic behavior.

Silent Payments

Privacy protocol (BIP352) deriving a unique on-chain address per payment from a static key. Prevents address reuse without sender-receiver interaction.

Simplified Payment Verification (SPV)

Whitepaper technique for verifying Bitcoin payments via block headers and Merkle proofs. Lightweight clients skip downloading the full blockchain with SPV.

Soft Fork

A backward-compatible Bitcoin consensus change that tightens existing rules. Non-upgraded nodes remain on the chain; SegWit and Taproot were soft forks.

Sound Money

Money that reliably holds its value over time due to scarcity, durability, and resistance to arbitrary manipulation — properties that Bitcoin embodies through its fixed supply and decentralized protocol.

Spending Condition

Requirements in a Bitcoin output's locking script that must be met to spend the funds. Can include signatures, hash preimages, timelocks, and logic.

Splicing

A Lightning protocol feature that allows adding or removing funds from an existing channel without closing it, keeping the channel operational during the on-chain resize.

Spot Bitcoin ETF

An exchange-traded fund that holds actual Bitcoin as its underlying asset, allowing investors to gain BTC exposure through traditional brokerage accounts.

SPV Node

Lightweight Bitcoin node verifying transactions via block headers and Merkle proofs, avoiding the full blockchain to remain practical for mobile wallets.

Stacking Sats

Practice of regularly accumulating bitcoin via dollar-cost averaging. Reflects a long-term savings mindset in Bitcoin focused on satoshi accumulation.

Stealth Address

A cryptographic technique enabling recipients to publish a single address from which senders derive unique one-time addresses, preventing on-chain linkability.

Stock-to-Flow

A scarcity model measuring the ratio of existing supply (stock) to annual production (flow), applied to Bitcoin to quantify its monetary hardness relative to gold and fiat.

Stranded Energy

Energy that would otherwise be wasted — flared gas, curtailed renewables, remote hydro — which Bitcoin miners can monetize by converting it into hash power.

Strategic Bitcoin Reserve

A government-level policy of accumulating and holding Bitcoin as a national reserve asset, analogous to strategic gold reserves.

Submarine Swap

HTLC-based atomic swap between on-chain bitcoin and Lightning sats. Trustlessly moves funds between layers; failed swaps are automatically refunded.

Sweep Transaction

Transaction collecting all UTXOs from a wallet into one output, emptying it. Used for wallet migration, paper wallet import, and consolidating dust UTXOs.

Sybil Attack

An attack where a single adversary creates many fake network identities to gain disproportionate influence over a peer-to-peer system like Bitcoin.

Tainted Coins

Bitcoin flagged by chain analysis firms as illicitly linked, causing regulated services to reject it and undermining Bitcoin's core fungibility property.

Taproot

Bitcoin soft fork activated November 2021 adding Schnorr signatures and MAST, making complex scripts indistinguishable from simple on-chain payments.

Tapscript

BIP342 scripting rules for Taproot script-path spends, replacing OP_CHECKMULTISIG with OP_CHECKSIGADD and adding OP_SUCCESS opcodes for future upgrades.

Testnet

A public Bitcoin test network using valueless coins, allowing developers to test wallets and applications safely without risking real bitcoin on mainnet.

Timechain

Satoshi Nakamoto's original term for the Bitcoin blockchain, emphasizing its role as a chronological chain of timestamped, proof-of-work blocks.

Timelock

A Bitcoin script restriction preventing coins from being spent before a block height or timestamp. Powers Lightning channels, vaults, and recovery scripts.

Token

A digital asset issued on top of a blockchain rather than being its native currency. Bitcoin hosts tokens via Ordinals, RGB, and the Omni Layer protocol.

Tor

The Onion Router, routing traffic through encrypted relays to hide IP addresses. Bitcoin and Lightning nodes use Tor to protect network-level privacy.

Trampoline Routing

A Lightning routing method where lightweight wallets delegate pathfinding to trampoline nodes, reducing graph storage and computation on mobile devices.

Transaction Fee

The amount paid to miners equal to total inputs minus outputs of a transaction. Fees priced in sat/vB will become miners' sole income after all halvings.

Transaction ID (TXID)

A unique 64-character hex identifier for each Bitcoin transaction, computed by double SHA-256. SegWit excludes witness data to prevent malleability.

Transaction Malleability

A pre-SegWit flaw where signatures could be modified without invalidating a transaction, changing its TXID. SegWit fixed this via witness segregation.

Transaction

A signed data structure transferring bitcoin by consuming UTXOs as inputs and creating new UTXOs as outputs, with input-output difference as the miner fee.

Turbo Channel

A Lightning Network zero-conf channel usable before its funding transaction is confirmed on-chain, typically offered by Lightning service providers.

Unconfirmed Transaction

A Bitcoin transaction broadcast to the network and held in the mempool but not yet mined into a block. Replaceable via RBF and not guaranteed to confirm.

Unrealized Gains

Paper profits on Bitcoin holdings that have increased in value above their cost basis but have not yet been sold or converted to fiat currency.

UTXO Set

All unspent transaction outputs representing every spendable bitcoin at a given moment. Full nodes maintain the UTXO set to validate incoming transactions.

UTXO

Unspent Transaction Output, Bitcoin's basic unit of ownership. Each UTXO holds a specific amount locked by a script; wallets must spend them entirely.

Vanity Address

A Bitcoin address containing a chosen word or pattern, found by brute-forcing key pairs. Each extra character requires exponentially more computation.

Vault

A Bitcoin custody scheme using timelocks to create a cancellation window for unauthorized withdrawals, providing a second line of defense against theft.

Verification

The process by which every Bitcoin full node independently checks that transactions and blocks follow all consensus rules, enabling trustless validation.

Version Bits

A BIP9 mechanism using version field bits for miners to signal soft fork readiness. Up to 29 upgrade proposals can be tracked and activated independently.

Wallet

Software or hardware managing Bitcoin private keys to generate addresses and sign transactions. Wallets hold keys — actual coins exist as UTXOs on-chain.

Watch-Only Wallet

A Bitcoin wallet with only public keys that monitors balances and generates receive addresses but cannot sign. Essential for cold storage monitoring.

Watchtower

Service monitoring the blockchain for Lightning users, detecting fraudulent closures and broadcasting penalty transactions to protect offline users' funds.

Whale

An entity holding enough bitcoin that its trades move market prices. Whale on-chain activity is tracked by analysts as a potential market-moving indicator.

Whitepaper

The nine-page document by Satoshi Nakamoto from 2008, proposing peer-to-peer electronic cash secured by proof of work without any trusted intermediary.

Witness Discount

A SegWit rule counting witness bytes at one-quarter the weight of regular bytes, incentivizing SegWit adoption and increasing block transaction capacity.

Witness

Authorization data, typically signatures, segregated from the transaction in SegWit. Excluded from TXID to fix malleability and earn a fee discount.

xpub

A BIP32 extended public key that derives all child addresses in an HD wallet. Sharing an xpub lets services monitor balances without spending authority.

Yield

Returns earned from bitcoin via Lightning routing or lending. Most yield products carry counterparty risk the Bitcoin community strongly warns against.

Zero-Confirmation Transaction

A Bitcoin transaction in the mempool but not yet mined. Accepting 0-conf payments risks double-spend attacks, tolerable for small sales but not large ones.

Zero-Knowledge Proof

A cryptographic protocol proving a statement is true without revealing underlying data. ZKPs have Bitcoin uses in privacy and scalable state verification.