Some Bitcoin words you might hear
Bitcoin provides a new approach to payments and, as such, there are some new words that might become a part of your vocabulary.
Bitcoin
Bitcoin - with capitalization, is used when describing the concept of Bitcoin, or the entire network itself. e.g. "I was learning about the Bitcoin protocol today."
bitcoin - without capitalization, is used to describe bitcoins as a unit of account. e.g. "I sent ten bitcoins today."; it is also often abbreviated BTC or XBT.
BTC
BTC is a common unit used to designate one bitcoin.
Satoshi
A satoshi is the smallest unit of bitcoin recorded on the block chain. One bitcoin is equal to 100,000,000 satoshis, allowing very small payments to be expressed precisely. The unit is named after Bitcoin's pseudonymous creator, Satoshi Nakamoto.
Bit
Bit is a common unit used to designate a sub-unit of a bitcoin - 1,000,000 bits is equal to 1 bitcoin (BTC). This unit is usually more convenient for pricing tips, goods and services.
Address
A Bitcoin address is similar to a physical address or an email. It is the only information you need to provide for someone to pay you with Bitcoin. An important difference, however, is that, for privacy reasons, an address should ideally be used only once to receive funds.
Wallet
A Bitcoin wallet is loosely the equivalent of a physical wallet on the Bitcoin network. The wallet actually contains your private key(s) which allow you to spend the bitcoins allocated to it in the block chain. Each Bitcoin wallet can show you the total balance of all bitcoins it controls and lets you pay a specific amount to a specific person, just like a real wallet. This is different to credit cards where you are charged by the merchant.
Private Key
A private key is a secret piece of data that proves your right to spend bitcoins from a specific wallet through a cryptographic signature. Private keys can be stored on a personal computer (software wallet), on a dedicated device (hardware wallet), or backed up as a recovery phrase. Private keys must never be revealed as they allow you to spend bitcoins for their respective Bitcoin wallet.
Recovery Phrase
A recovery phrase, also called a seed phrase or mnemonic, is a sequence of words from which a wallet can be fully restored. It allows the owner to back up and restore an entire wallet without copying individual keys. The recovery phrase must be stored securely, since anyone who obtains it can access the corresponding bitcoins.
Signature
A cryptographic signature is a mathematical mechanism that allows someone to prove ownership. In the case of Bitcoin, a Bitcoin wallet and its private key(s) are linked by some mathematical magic. When your Bitcoin software signs a transaction with the appropriate private key, the whole network can see that the signature matches the bitcoins being spent. However, there is no way for the world to guess your private key to steal your hard-earned bitcoins.
Cryptography
Cryptography is the branch of mathematics that lets us create mathematical proofs that provide high levels of security. Online commerce and banking already uses cryptography. In the case of Bitcoin, cryptography is used to make it impossible for anybody to spend funds from another user's wallet or to corrupt the block chain. It can also be used to encrypt a wallet, so that it cannot be used without a password.
P2P
Peer-to-peer refers to systems that work like an organized collective by allowing each individual to interact directly with the others. In the case of Bitcoin, the network is built in such a way that each user is broadcasting the transactions of other users. And, crucially, no bank is required as a third party.
Node
A Bitcoin node is any computer that connects to the Bitcoin network. A full node independently downloads and verifies every block and transaction against the consensus rules, allowing its operator to use Bitcoin without trusting third parties. Running a full node is a key practice for verifying the Bitcoin protocol firsthand.
Block Chain
The block chain is a public record of Bitcoin transactions in chronological order. The block chain is shared between all Bitcoin users. It is used to verify the permanence of Bitcoin transactions and to prevent double spending.
Block
A block is a record in the block chain that contains and confirms many waiting transactions. Roughly every 10 minutes, on average, a new block including transactions is appended to the block chain through mining.
UTXO
UTXO stands for Unspent Transaction Output. Bitcoin balances are not stored as account totals; instead, each wallet holds a set of UTXOs that can be spent in future transactions. Every transaction consumes existing UTXOs as inputs and creates new UTXOs as outputs.
Transaction Fee
A transaction fee is a small amount of bitcoin paid by the sender to incentivize miners to include the transaction in a block. Fees are not fixed; users can choose how much to pay, and transactions with higher fees tend to be confirmed faster, especially when the network is busy.
Mining
Bitcoin mining is the process of making computer hardware do mathematical calculations for the Bitcoin network to confirm transactions and increase security. As a reward for their services, Bitcoin miners can collect transaction fees for the transactions they confirm, along with newly created bitcoins issued through the block subsidy, which is reduced at each halving. Mining is a specialized and competitive market where the rewards are divided up according to how much calculation is done. Not all Bitcoin users do Bitcoin mining, and it is not an easy way to make money.
Hash Rate
The hash rate is the measuring unit of the processing power of the Bitcoin network. The Bitcoin network must make intensive mathematical operations for security purposes. The global hash rate is commonly expressed in terahashes (Th/s), petahashes (Ph/s), or exahashes (Eh/s) per second — meaning trillions, quadrillions, or quintillions of calculations per second.
Halving
The halving is the scheduled reduction by half of the block subsidy, occurring every 210,000 blocks (roughly every four years). The block subsidy started at 50 BTC in 2009 and has halved at each event since. The halving enforces Bitcoin's predictable issuance schedule and its 21-million-coin supply cap.
Confirmation
Confirmation means that a transaction has been processed by the network and is highly unlikely to be reversed. Transactions receive a confirmation when they are included in a block and for each subsequent block. Even a single confirmation can be considered secure for low value transactions, although for higher value transactions, it makes sense to wait for 6 confirmations or more. Each confirmation exponentially decreases the risk of a reversed transaction.
Double Spend
If a malicious user tries to spend their bitcoins to two different recipients at the same time, this is double spending. Bitcoin mining and the block chain are there to create a consensus on the network about which of the two transactions will confirm and be considered valid.
SegWit
Segregated Witness (SegWit) is a protocol upgrade activated in 2017 that separates signature data from transaction data. It improves block space efficiency, fixes transaction malleability, and provides the foundation for second-layer protocols such as the Lightning Network. SegWit addresses commonly start with 3 (P2SH-wrapped) or bc1q (native SegWit).
Taproot
Taproot is a protocol upgrade activated in 2021 that improves Bitcoin's privacy, efficiency, and scripting flexibility. It introduces Schnorr signatures and enables more efficient and private transactions. Taproot addresses commonly start with bc1p.
Lightning Network
The Lightning Network is a second-layer payment protocol built on top of Bitcoin that enables fast, low-cost transactions through payment channels. Channels open and close on the Bitcoin block chain, while payments between participants happen off-chain without each one being recorded individually.
