Glossary

Bitcoin terms, explained

Come across a word you don't recognise? Here we gather the terms around Bitcoin, saving and money, from the most common to the most technical. Filter by level to find what's worth reading for you.

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All terms. Filter by level if you want to start simple or dig deeper.

A

Address: A string that works like an account number for receiving bitcoin. You can share it freely; it doesn't reveal your private key.

B

BIP (Bitcoin Improvement Proposal): A formal proposal to change or standardise something in Bitcoin. How upgrades are discussed and documented.
Bitcoin: A digital, decentralised money system with a predetermined maximum supply of 21 million. No single actor controls it.
Block: A batch of transactions added to the blockchain roughly every ten minutes.
Block reward: The new bitcoin plus fees that go to whoever finds a block. The new portion halves every 210,000 blocks.
Blockchain: The shared, chronological ledger of all bitcoin transactions. Blocks are linked together so the history becomes very hard to change.

C

Censorship resistance: The property that no single actor can block a valid transaction or freeze your money. It follows from decentralisation.
Coinbase transaction: The first transaction in each block, which creates the new bitcoin (the block reward) for the miner. Not to be confused with the Coinbase exchange.
CoinJoin: A privacy technique where several users combine their payments into one shared transaction to make tracing harder.
Cold storage: Keeping keys offline, without an internet connection. Reduces the risk of theft compared with a wallet that's always online.
Confirmation: The number of blocks built on top of the block holding your transaction. More confirmations make the transaction ever harder to reverse.
CPFP (Child Pays For Parent): Speeding up a stuck transaction by spending its output with a high fee, so miners include both.
Custodial service: When someone else, e.g. an exchange, holds your private keys for you. Convenient, but you have to trust the custodian.

D

DCA (regular saving): Dollar Cost Averaging: buying a fixed amount at regular intervals instead of everything at once. Smooths out the price over time.
Difficulty adjustment: Every 2016 blocks (~two weeks) the network adjusts the difficulty so blocks keep arriving roughly every ten minutes.
Dust: UTXO amounts so small that it can cost more in fees to spend them than they're worth.

E

Exchange: A marketplace where you buy and sell bitcoin for fiat. Usually an intermediary that holds your keys until you withdraw your bitcoin.

F

Fiat currency: State-issued money like the krona, euro and dollar. The supply can be increased by central banks, which can erode purchasing power over time.
Full node: A node that downloads and independently verifies the whole blockchain against the rules. Running your own node means you can trust, not ask.

H

Halving: Roughly every four years the rate at which new bitcoin are created is halved. This makes the supply predictable and ever scarcer.
Hardware wallet: A physical device that keeps your private keys offline and signs transactions internally. A popular way to store securely.
Hash function (SHA-256): A one-way function that turns data into a fixed ”fingerprint”. Bitcoin uses SHA-256 in mining and to link blocks.
Hash rate: The combined computing power that secures the network. A higher hash rate makes the chain more expensive and harder to attack.
HD wallet / derivation path: A hierarchical deterministic wallet (BIP32) that derives endless keys from a single seed along a derivation path.
HODL: Slang for holding your bitcoin for the long term instead of trading short term. It comes from a misspelling of ”hold”.
Hot wallet: A wallet connected to the internet. Convenient for everyday use, but more exposed than offline storage.

I

Inflation: When the general price level rises so that each unit of money buys less. In Sweden it's measured with the consumer price index (CPI).

K

KYC (know your customer): Regulatory requirements that force services to verify your identity. It affects your privacy because purchases are then tied to you.

L

Lightning Network: A layer on top of Bitcoin for fast and cheap payments, suited to small everyday purchases.

M

Maximum supply: There will never be more than 21 million bitcoin. The limit is built into the protocol and can't easily be changed.
Mempool: The waiting room for transactions not yet included in a block. When the mempool is full, fees rise.
Merkle tree: A hash structure that summarises all transactions in a block into a single root hash, enabling efficient verification.
Mining: The process where computers secure the network and create new blocks. Miners are rewarded with new bitcoin and transaction fees.
Multisig (multi-signature): Requires several keys to spend, e.g. 2 of 3. Increases security and is used for shared ownership and better custody.

N

Node: A computer running the Bitcoin software that verifies the rules itself. Many nodes make the network decentralised.
Nonce: The number miners change over and over to find a block hash that meets the difficulty requirement in proof of work.

P

Peer-to-peer (P2P): Directly between participants, without an intermediary. Bitcoin is sent from person to person over a network of equal nodes.
Private key: The secret code that gives control over your bitcoin. Whoever has the private key owns the money — keep it secret.
Proof of work: The method where miners spend real energy to add blocks. It makes cheating expensive and secures the history.
PSBT: Partially Signed Bitcoin Transaction: a standard format for collecting signatures across devices, e.g. a hardware wallet.
Public key: Derived mathematically from the private key and used to create addresses. It can be shared without endangering your money.
Purchasing power: How much in goods and services your money actually buys. It's purchasing power, not the number of units, that shapes your everyday life.

R

RBF (Replace-by-Fee): Replacing an unconfirmed transaction with a new one that has a higher fee, so it confirms faster.

S

Sat (satoshi): The smallest unit of bitcoin. One bitcoin is made up of 100,000,000 sats, so you can save in small steps.
Satoshi Nakamoto: The pseudonym of the unknown person or group who created Bitcoin and was active 2008–2010. The real identity is still unknown.
Scarcity: That something exists in limited quantity. Bitcoin's fixed cap of 21 million makes the scarcity credible and predictable.
Schnorr signatures: A signature scheme introduced with Taproot. More efficient and private than the older ECDSA, and it enables signature aggregation.
Script (Bitcoin Script): The simple, deliberately limited language that sets the conditions for spending bitcoin. Not a free-form programming language.
Seed phrase (recovery phrase): 12–24 words that can recreate your wallet. Write it down and keep it safely offline, never digitally or in a photo.
SegWit: Segregated Witness: an upgrade (2017) that moves signature data and increases capacity, and fixed so-called transaction malleability.
Self-custody: Holding your own keys instead of trusting an exchange. ”Not your keys, not your coins.”
Sound money: Money that keeps its value over time thanks to a scarce and predictable supply. Bitcoin's fixed cap is one example.

T

Taproot: An upgrade (2021) that improves privacy and efficiency and makes complex spending conditions look like ordinary transactions.
The genesis block: The very first block (block 0), created on 3 January 2009. It contains a headline about bank bailouts — a message to posterity.
Timelock: A condition that prevents bitcoin from being spent before a certain time or block height. Used in Lightning and inheritance setups, among others.
Transaction fee: A fee in sat/vB paid to miners to get a transaction into a block. A higher fee gives a faster confirmation.

U

UTXO: Unspent Transaction Output: an ”entry” of bitcoin not yet spent. Your balance is the sum of your UTXOs.

V

Volatility: How much the price swings up and down. Bitcoin is historically volatile in the short run — a reason to think long term.

W

Wallet: Software or hardware that manages your keys and lets you receive and send bitcoin. A wallet ”stores” keys, not coins.
Watch-only wallet: A wallet that only has public keys: it can show balances and receive, but not spend. Good for monitoring without risk.
Whitepaper: The short document Satoshi Nakamoto published in 2008 describing how Bitcoin works. The foundation for everything that followed.

X

xpub (extended public key): A key that can derive all your receiving addresses without being able to spend. Share it carefully — it reveals your whole address history.

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