Bitcoin Basics · Lesson 17

Bitcoin Glossary: 60+ Terms Explained in Plain English

Bitcoin.diy Editorial·March 1, 2026

Bitcoin Glossary: 60+ Terms Explained in Plain English

Bitcoin has its own language. Walk into any conversation about it and you will hear "UTXO," "mempool," and "multisig" tossed around like everyone just knows what they mean.

They don't. They learned it. Now you will too.

This glossary covers 60+ terms you will actually encounter. Each definition tells you what the thing is, why it matters, and where to go deeper. Bookmark this page. You will be back.

A

Address A string of letters and numbers you share so someone can send you bitcoin. Think of it like an email address, but for money. Addresses start with 1 (legacy), 3 (SegWit-compatible), or bc1 (native SegWit or Taproot). You can generate as many as you want from a single wallet, and for privacy, you should use a fresh one for each transaction.

Altcoin Any cryptocurrency that is not Bitcoin. Ethereum, Solana, Dogecoin, all of them. The term comes from "alternative coin." Bitcoin.diy focuses on Bitcoin, so we will not cover altcoins here.

ASIC Short for Application-Specific Integrated Circuit. A specialized computer built to do one thing: mine bitcoin. Unlike your laptop, an ASIC cannot browse the web or run apps. It just solves hash puzzles around the clock. This is why you cannot profitably mine bitcoin on a home computer anymore. See also: Mining, Hash Rate.

B

Base Fee The minimum fee rate (measured in sats per virtual byte) needed for a transaction to enter the mempool. When the network is quiet, base fees drop to 1 sat/vB. During high demand, they climb. Your wallet estimates this for you, but understanding it helps you time transactions and save money.

Bear Market A prolonged period of falling prices and grim sentiment. People panic sell, social media fills with doom, and pundits declare Bitcoin dead. Bear markets have happened many times in Bitcoin's history, and the price has always recovered to new highs. That does not guarantee the future, but the pattern is worth knowing.

BIP (Bitcoin Improvement Proposal) The formal process for proposing changes to Bitcoin. Each BIP gets a number (BIP 39, BIP 141, BIP 340) and describes a specific upgrade or standard. Think of BIPs as Bitcoin's version of a suggestion box, except every suggestion gets publicly debated before anything changes. Notable examples include BIP 39 (seed phrases), BIP 141 (SegWit), and BIP 340 (Schnorr signatures).

Bitcoin (BTC) The world's first and largest cryptocurrency, created in 2009 by the pseudonymous Satoshi Nakamoto. Bitcoin is a decentralized digital currency that lets you send value to anyone, anywhere, without a bank or government approving the transaction. BTC is its ticker symbol. See our What Is Bitcoin guide if you are just getting started.

Block A bundle of verified transactions permanently added to the blockchain. A new block is created roughly every 10 minutes. Think of it like a page in a ledger. Once a page is full and added to the book, you cannot rip it out or change what is written.

Blockchain The complete ledger of every Bitcoin transaction ever made, organized into blocks that are chained together using cryptography. Every full node stores a complete copy. This is the technology that makes Bitcoin trustless, because nobody can alter the record without everyone else noticing.

Block Explorer A website or tool that lets you look up any transaction, address, or block on the blockchain. Popular explorers include mempool.space and blockstream.info. If you want to verify that your transaction went through or check the balance of an address, a block explorer is how you do it.

Block Height The sequential number of a block in the chain. Block 0 is the genesis block. If the current block height is 900,000, that means 900,000 blocks have been mined since Bitcoin launched. You will see block height referenced when people talk about halvings or specific on-chain events.

Block Reward The bitcoin that miners earn for successfully adding a new block. This reward started at 50 BTC per block in 2009 and gets cut in half roughly every four years (the halving). As of the April 2024 halving, it is 3.125 BTC per block. This is how new bitcoin enters circulation.

Bull Market The opposite of a bear market. Prices rise, optimism runs high, and everyone feels like a genius. New investors flood in, your uncle starts asking about crypto, and social media fills with price predictions. Enjoy it, but do not let euphoria replace common sense.

C

Change Address When you spend bitcoin, you often send more than the exact amount needed (because of how UTXOs work). The leftover amount gets sent back to you at a new address in your wallet called the change address. Your wallet handles this automatically. It is similar to paying with a $20 bill for a $12 item and getting $8 back.

CoinJoin A privacy technique where multiple users combine their transactions into one, making it harder to trace which inputs belong to which outputs. Think of it like shuffling cards. Wasabi Wallet and JoinMarket are popular tools for CoinJoins. It does not make your bitcoin anonymous, but it significantly improves privacy.

Cold Storage Keeping your bitcoin offline, completely disconnected from the internet. This makes it nearly impossible for hackers to steal your coins remotely. Hardware wallets are the most common form of cold storage. If you are holding any meaningful amount, cold storage is not optional. See our Self-Custody Guide for setup help.

Confirmation When your transaction gets included in a block, that is one confirmation. Each new block mined after that adds another confirmation. More confirmations means more security. For small purchases, one confirmation is usually fine. For large amounts, most people wait for six.

Custodial A setup where someone else holds your bitcoin for you. When you buy bitcoin on an exchange and leave it there, the exchange is the custodian. It is convenient, but you are trusting them not to get hacked, go bankrupt, or freeze your account. "Not your keys, not your coins" exists for a reason. See also: Non-Custodial.

D

DCA (Dollar-Cost Averaging) Buying a fixed dollar amount of bitcoin on a regular schedule, regardless of price. Instead of trying to time the market, you buy $50 every week or $200 every month. Over time, you average out the highs and lows. It is boring, simple, and effective.

Decentralized No single person, company, or government controls it. Bitcoin is decentralized because thousands of nodes around the world validate transactions independently. There is no CEO of Bitcoin, no headquarters, and no customer support line. That is the whole point.

Difficulty Adjustment Every 2,016 blocks (roughly two weeks), Bitcoin automatically adjusts how hard the mining puzzle is. If miners are finding blocks too fast, difficulty goes up. If too slow, it goes down. This keeps the average block time at about 10 minutes regardless of how much computing power joins or leaves the network. It is one of Bitcoin's most elegant design choices.

Dust A tiny amount of bitcoin so small that it costs more in transaction fees to spend than it is worth. Dust amounts depend on current fee rates, but generally anything under a few hundred sats can qualify. Some wallets let you consolidate dust during low-fee periods.

DYOR "Do Your Own Research." You will see this everywhere in crypto. It means do not blindly trust influencers, YouTube thumbnails, or strangers on social media. Read primary sources, understand what you are buying, and verify claims yourself.

E

Exchange A platform where you buy, sell, and trade bitcoin. Centralized exchanges like Coinbase, Kraken, and Binance are the most popular on-ramps for beginners. They are convenient but custodial. Once you buy, consider moving your bitcoin to your own wallet. See our Exchange Reviews for options.

F

Fiat Government-issued currency like the US dollar, euro, or yen. It is called "fiat" because its value comes from government decree, not from being backed by a physical commodity. When Bitcoiners say "fiat," they usually mean it with a slight eye-roll.

Fork (Hard Fork / Soft Fork) A change to Bitcoin's rules. A soft fork is backward-compatible, meaning old nodes still accept new blocks (SegWit was a soft fork). A hard fork is not backward-compatible and creates a permanent split if some nodes reject the change. Bitcoin Cash (BCH) resulted from a hard fork in 2017. Bitcoin itself has never had a contentious hard fork of its main chain.

Full Node A computer running Bitcoin software that stores and validates the entire blockchain. Full nodes enforce Bitcoin's rules by checking every transaction and block to make sure nobody is cheating. Running one is the ultimate way to verify things yourself. You can run one on a Raspberry Pi. See also: Node.

G

Genesis Block The very first block in the Bitcoin blockchain, mined by Satoshi Nakamoto on January 3, 2009. It contains a now-famous embedded headline from The Times: "Chancellor on brink of second bailout for banks." This is block 0, and every Bitcoin block since traces back to it.

H

Halving The event where Bitcoin's block reward gets cut in half, happening every 210,000 blocks (roughly four years). Halvings reduce the rate of new bitcoin creation, making it increasingly scarce. The most recent halving was in April 2024, reducing the reward from 6.25 to 3.125 BTC per block. Historically, halvings have preceded major price increases, though past performance does not guarantee future results.

Hardware Wallet A physical device that stores your private keys offline. Popular options include Ledger, Trezor, and Coldcard. You connect it to your computer when you want to send a transaction, approve it on the device itself, then disconnect. Your keys never touch the internet. Check our Wallet Reviews for top picks.

Hash Rate The total computing power being used to mine bitcoin, measured in hashes per second. A higher hash rate means more miners are competing, which makes the network more secure. When you hear "Bitcoin's hash rate hit an all-time high," it means the network is stronger than ever.

HODL A misspelling of "hold" from a legendary 2013 Bitcoin forum post where a user ranted about holding through a crash. It became a rally cry. HODLing means buying bitcoin and refusing to sell through dips, crashes, and chaos. It has been retroactively turned into an acronym: "Hold On for Dear Life."

Hot Wallet A Bitcoin wallet connected to the internet. Mobile apps and browser extensions are hot wallets. They are convenient for daily spending but more vulnerable to hacking than cold storage. Keep spending money in a hot wallet, savings in cold storage.

I

Invoice (Lightning) A payment request on the Lightning Network. When someone wants you to pay them over Lightning, they generate an invoice (usually a QR code or a long string starting with lnbc). You scan or paste the invoice in your wallet to pay. Invoices typically expire after a set time.

K

KYC (Know Your Customer) The identity verification process required by most regulated exchanges. You submit your ID, a selfie, proof of address, and sometimes more. KYC exists because of anti-money-laundering laws. Some Bitcoiners avoid KYC platforms for privacy reasons and use peer-to-peer exchanges instead. See also: P2P.

L

Layer 1 The base Bitcoin blockchain itself. When someone says "Layer 1," they mean on-chain transactions processed and settled directly on the main Bitcoin network. Layer 1 is secure and decentralized but relatively slow and expensive for small everyday payments. See also: Layer 2, On-Chain.

Layer 2 Any protocol built on top of Bitcoin's base layer to make it faster or cheaper. The Lightning Network is the most well-known Layer 2 solution. Instead of putting every coffee purchase on the main blockchain, Layer 2 handles small transactions off-chain and settles the net result on Layer 1 periodically. Read our Lightning Network Explained for a deep dive.

Lightning Network Bitcoin's primary Layer 2 solution for fast, cheap payments. It creates payment channels between users so transactions happen almost instantly for fractions of a cent in fees. Perfect for buying coffee, tipping creators, or sending small amounts across the world. More wallets and merchants support Lightning every year. See our Lightning Network Guide.

Liquidity How easily you can buy or sell bitcoin without significantly moving the price. High liquidity means lots of buyers and sellers, tight spreads, and smooth trading. Low liquidity means your order could cause the price to swing. Major exchanges have high liquidity.

M

Mainnet The real, live Bitcoin network where actual transactions with real value happen. As opposed to testnet, which is for developers testing with fake bitcoin. When someone says their app works "on mainnet," it means it is live and handling real money.

Market Cap The total value of all bitcoin in circulation. You calculate it by multiplying the current price by the number of coins that exist. If bitcoin is $60,000 and there are 19.6 million BTC in circulation, the market cap is about $1.18 trillion. It is a useful snapshot of Bitcoin's size relative to other assets.

Mempool The waiting room for unconfirmed transactions. When you send bitcoin, your transaction goes to the mempool first, where it waits until a miner picks it up and includes it in a block. When the mempool is congested, fees rise because everyone competes for limited block space. You can check the current state at mempool.space.

Mining The process of using specialized computers (ASICs) to validate transactions and add new blocks to the blockchain. Miners compete to solve a cryptographic puzzle, and the winner earns the block reward plus transaction fees. Mining is what keeps Bitcoin secure and decentralized.

Multisig (Multi-Signature) A security setup that requires multiple private keys to authorize a transaction. For example, a 2-of-3 multisig means you need any 2 out of 3 keys to sign. It is like a safety deposit box that needs two keys from two different people. Great for businesses, shared funds, or extra personal security. See our Multisig Explained guide.

N

Node A computer running Bitcoin software that participates in the network. Nodes relay transactions, validate blocks, and enforce the rules. Full nodes store the entire blockchain; lightweight nodes store only block headers. The more nodes there are, the more decentralized and resilient the network becomes.

Nonce A number that miners change repeatedly while trying to find a valid block hash. It stands for "number used once." Mining is essentially the process of guessing different nonce values until one produces a hash below the current target. It is brute-force trial and error at massive scale.

Non-Custodial A wallet or service where you control your own private keys. Nobody else can access, freeze, or confiscate your bitcoin. Non-custodial wallets give you full control and full responsibility. Lose your seed phrase, lose your coins. See our Self-Custody Guide for how to do it right.

O

On-Chain Anything that happens directly on the Bitcoin blockchain. An on-chain transaction is recorded in a block and visible to everyone. As opposed to off-chain transactions (like those on the Lightning Network), which happen outside the main blockchain and settle on-chain later.

Ordinals A protocol introduced in 2023 that lets people inscribe data (images, text, files) onto individual satoshis. Each sat gets a unique serial number based on the order it was mined, and you can attach content to it. Ordinals sparked debate in the Bitcoin community about whether this is a good use of block space. Think of it as NFTs on Bitcoin, though many Bitcoiners dispute the comparison.

P

Passphrase An optional extra word (sometimes called the "25th word") added to your seed phrase for additional security. It creates an entirely separate set of wallets. Even if someone finds your seed phrase, they cannot access funds protected by a passphrase. Powerful but dangerous: forget the passphrase and your bitcoin is gone forever.

Peer-to-Peer (P2P) Directly between two people, with no middleman. Bitcoin itself is peer-to-peer: you send coins directly to another person without a bank in between. P2P exchanges like Bisq and RoboSats let you buy bitcoin directly from sellers without a centralized platform. See also: Exchange.

Private Key A secret number that proves you own your bitcoin and lets you spend it. Think of it as the master password to your money. Never share it. Never screenshot it. Never type it into a website. If someone gets your private key, they can take everything. Your wallet manages private keys behind the scenes, so you rarely interact with the raw key. See also: Public Key, Seed Phrase.

Proof of Work (PoW) The consensus mechanism Bitcoin uses to secure the network. Miners must expend real computational energy to solve a puzzle before they can add a block. This makes it extremely expensive to attack the network, because you would need more computing power than everyone else combined. It is energy-intensive by design, not by accident.

PSBT (Partially Signed Bitcoin Transaction) A standard format (defined in BIP 174) for passing unsigned or partially signed transactions between devices or participants. PSBTs are critical for multisig setups and cold storage workflows, where the device that creates the transaction is different from the one that signs it. Think of it as a transaction blueprint that collects signatures step by step before being broadcast to the network.

Public Key Derived from your private key using one-way math. Your public key generates your Bitcoin addresses. You can share it freely. Think of it like a mailbox: anyone can drop bitcoin into it, but only you have the key to open it and take the contents out.

R

Replace-by-Fee (RBF) A feature that lets you bump the fee on an unconfirmed transaction so miners prioritize it. If your transaction is stuck in the mempool because you set the fee too low, RBF lets you rebroadcast it with a higher fee. Most modern wallets support RBF. It only works while the transaction is still unconfirmed.

S

Satoshi (sat) The smallest unit of bitcoin. One bitcoin equals 100 million sats. Named after Bitcoin's creator, Satoshi Nakamoto. When bitcoin costs $60,000, one sat is worth $0.0006. People increasingly price things in sats because whole bitcoin amounts look intimidating. You do not need to buy a whole bitcoin. You can start with a few thousand sats.

Schnorr Signatures A cryptographic signature scheme activated with the Taproot upgrade in 2021. Schnorr signatures are smaller, faster to verify, and allow key aggregation (combining multiple signatures into one). This makes multisig transactions cheaper and more private. Defined in BIP 340.

Seed Phrase (Recovery Phrase) A list of 12 or 24 words that serves as the master backup of your entire wallet. If your phone breaks, laptop dies, or hardware wallet gets lost, you can recover everything with these words. Write them down on paper or stamp them into metal. Never store them digitally. Never share them. This is the single most important thing to protect. Read our Seed Phrase Explained guide.

SegWit (Segregated Witness) A 2017 upgrade to Bitcoin that reorganized how transaction data is stored, making transactions smaller and cheaper. SegWit also fixed a transaction malleability bug that made Layer 2 solutions like the Lightning Network possible. If your address starts with bc1q, you are using SegWit. Most modern wallets default to it.

Self-Custody Holding your own bitcoin in a wallet where you control the private keys. No exchange, no bank, no third party. Just you and your keys. This is the purest form of Bitcoin ownership and the reason Bitcoin exists. You are your own bank, which means you handle your own security. See our Self-Custody Guide for the full walkthrough.

Sidechain A separate blockchain that is pegged to Bitcoin, allowing bitcoin to move between the two. Liquid Network (by Blockstream) is the most well-known Bitcoin sidechain. Sidechains enable features like faster settlements and confidential transactions without changing Bitcoin's base layer. They require trust in a federation of operators, which is a tradeoff compared to the main chain.

T

Taproot A November 2021 upgrade to Bitcoin that improved privacy, efficiency, and smart contract capabilities. Taproot makes complex transactions (like multisig) look the same as simple ones on the blockchain, which is great for privacy. Addresses starting with bc1p use Taproot. Most modern wallets support it. See also: Schnorr Signatures.

Testnet A separate Bitcoin network used by developers to test software without risking real money. Testnet coins have no value. If someone asks you to send "testnet bitcoin," it is free. If someone asks you to send real bitcoin to "test something," it is a scam.

Timelock A condition that prevents bitcoin from being spent until a certain block height or date is reached. Timelocks are used in the Lightning Network, inheritance planning, and certain smart contract setups. They let you program rules like "this bitcoin cannot move until January 2026." Defined primarily in BIP 65 (CLTV) and BIP 112 (CSV).

Transaction Fee The fee you pay to have your transaction included in a block. Fees go to miners as an incentive. When the network is busy, fees rise because there is competition for limited block space. When it is quiet, fees drop. Most wallets let you choose your fee level: pay more for faster confirmation, pay less if you can wait. See also: RBF.

U

UTXO (Unspent Transaction Output) This is how Bitcoin actually tracks balances. You do not have an "account" with a balance like a bank. Instead, your wallet holds a collection of UTXOs, each representing bitcoin you received but have not spent yet. When you send bitcoin, your wallet combines UTXOs as inputs and creates new ones as outputs. Understanding UTXOs helps explain why fees sometimes vary and why change addresses exist.

W

Wallet Software or hardware that lets you send, receive, and store bitcoin. Wallets manage your private keys and interact with the blockchain on your behalf. They come in many forms: mobile apps, desktop programs, hardware devices, and even paper. Your wallet does not actually "store" bitcoin. It stores the keys that prove the bitcoin is yours. See our Wallet Reviews for recommendations.

Watch-Only Wallet A wallet that can view your balance and receive bitcoin but cannot spend it, because it does not hold your private keys. Watch-only wallets are useful for monitoring your cold storage balance without exposing your keys to an internet-connected device. You import your xpub to set one up.

Whale Someone who holds a massive amount of bitcoin, enough to potentially move the market with a single trade. When a whale buys or sells, you can sometimes see the price react. Whale-watching (tracking large wallet movements) is a whole subculture in crypto.

Whitepaper The original document where Satoshi Nakamoto described Bitcoin in 2008. Titled "Bitcoin: A Peer-to-Peer Electronic Cash System," it is only nine pages long and surprisingly readable. It laid out the entire concept: decentralized currency, proof of work, the blockchain. Every serious Bitcoiner should read it at least once.

X

xpub (Extended Public Key) A master public key that can generate all the individual addresses in your wallet. Sharing your xpub with someone gives them the ability to see every address and transaction in that wallet, making it a privacy risk. Never share your xpub publicly. It is used for setting up watch-only wallets, coordinating multisig setups, and accounting tools.

Keep Learning

This glossary covers the essentials and beyond, but Bitcoin is deep. The more you learn, the more confident you will feel making decisions about your money.

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