Disclosure: some links on this page are affiliate links. If you open an account through one, we may earn a commission at no extra cost to you. It does not change what we recommend. How this site is funded.
Bitcoin comes with its own vocabulary, and much of it is borrowed from cryptography and finance. Here are the terms you are most likely to meet, in alphabetical order, each explained in a sentence or two. Terms that begin with a number come first.
21 million
The maximum number of bitcoin that will ever exist, fixed in the software since 2009. About 95 percent of them have already been created, and the last fraction will not be mined until around the year 2140.
2FA
Two-factor authentication: a login that requires your password plus a second proof, usually a code from an authenticator app or a hardware security key. Use it on every exchange account, and avoid the text-message version.
ACH
The ordinary US bank-to-bank transfer system. On most exchanges it is the free way to deposit dollars, and the slow one: the money can usually be traded at once but may not be withdrawable, as dollars or as bitcoin, for several business days.
Address
A string of letters and numbers, usually starting with “bc1”, that you give to someone so they can send you bitcoin. Your wallet creates a fresh one for each payment; sharing an address is safe, since it cannot be used to spend.
Address poisoning
A scam in which a thief sends a tiny payment from an address that looks almost like one you use, hoping you will later copy it from your transaction history by mistake. Check the first and last several characters of every address before sending. See Avoiding Bitcoin Scams.
Affiliate link
A link that pays the website a commission if you sign up through it. Ours all begin bitcoinbasics.com/go/ and are marked on the page; see our affiliate disclosure.
Altcoin
Any cryptocurrency other than bitcoin. There are thousands, from Ethereum to coins that exist for a week; the name is short for “alternative coin.”
ASIC
Application-specific integrated circuit: a chip built to do exactly one job, in this case bitcoin mining, far faster and more efficiently than a general-purpose computer. Virtually all bitcoin mining today runs on ASICs.
Bitcoin vs bitcoin
Capitalized, Bitcoin is the network and the software, like “the Internet.” Lowercase, bitcoin is the asset you can own and send, like “dollars.” Many writers, including this site, follow that convention.
Block
A batch of transactions, added to the blockchain roughly every 10 minutes by a miner. Each block references the one before it, which is what makes the chain a chain.
Block reward
The new bitcoin a miner earns for adding a block, plus the fees from the transactions inside it. Since the April 2024 halving the new-coin part has been 3.125 bitcoin per block.
Blockchain
The public ledger of every bitcoin transaction ever made, stored as a chain of blocks and copied onto thousands of computers worldwide. Anyone can read it; nobody can quietly alter it.
BTC
The ticker symbol for bitcoin, used on exchanges and price charts the way USD stands for the dollar.
Capital gain
The profit when you sell, swap, or spend bitcoin for more than you paid for it. In the US it is taxable, at a lower rate if you held the coins for more than a year.
Cold storage
Keeping private keys on a device that never connects to the internet, typically a hardware wallet. It is the standard way to hold bitcoin you do not plan to spend soon.
Confirmation
A transaction has one confirmation when it is included in a block, and one more for every block added after that. Each confirmation makes reversing it harder; most services treat one to six as final.
Cost basis
What you originally paid for a particular amount of bitcoin, including fees. Your taxable gain is the sale price minus the cost basis, so keep records of every purchase.
Custodial
An account or wallet in which a company holds the private keys for you, as an exchange does. Convenient, but you own a claim on the company rather than the bitcoin itself.
DCA
Dollar-cost averaging: buying a fixed dollar amount on a regular schedule, say $25 every Friday, regardless of price. It removes the stress of guessing the right moment to buy.
DeFi
Decentralized finance: lending, borrowing, and trading services that run as software on a blockchain, mostly Ethereum, instead of through a company. Higher yields often come with higher risk of bugs and hacks.
Difficulty
A number the Bitcoin software adjusts every two weeks so that, no matter how much mining power joins or leaves, blocks keep arriving about every 10 minutes.
ETF
Exchange-traded fund: a fund that holds bitcoin and trades on a stock exchange, so you can get price exposure in a brokerage or retirement account. US spot bitcoin ETFs launched in January 2024. You own fund shares, not bitcoin.
Exchange
A company where you trade dollars for bitcoin and back, such as Kraken or Coinbase. In the US, exchanges must verify your identity and report sales to the IRS.
Fee
Two kinds: the network fee paid to miners for including your transaction in a block, which rises when the network is busy, and the trading or withdrawal fee an exchange charges for its service.
Fiat
Government-issued money such as the US dollar or the euro, so called because it has value by decree (“fiat” is Latin for “let it be done”) rather than being backed by a commodity.
Fork
A change to a blockchain’s rules. A “soft fork” is backward-compatible; a “hard fork” is not and can split the network into two coins, as happened when Bitcoin Cash split from Bitcoin in 2017.
Gas
Ethereum’s name for transaction fees, paid in ether. Bitcoin does not use the term, but you will see it whenever Ethereum comes up.
Genesis block
The very first block of the Bitcoin blockchain, created by Satoshi Nakamoto on January 3, 2009. It contains a newspaper headline from that day about bank bailouts.
Halving
Every 210,000 blocks, about every four years, the number of new bitcoin created per block is cut in half. The most recent halving was in April 2024; the next is expected around spring 2028.
Hardware wallet
A small dedicated device that holds your private key offline and signs transactions without ever revealing the key to your computer. The usual tool for cold storage.
Hash
A fixed-length fingerprint computed from any piece of data. Change one character of the input and the hash changes completely, which is how Bitcoin detects tampering and how mining works.
Hash rate
The total computing power miners are pointing at the Bitcoin network, measured in hashes per second. Higher hash rate means the network is more expensive to attack.
HODL
Slang for holding bitcoin through price swings rather than trading it, born from a typo of “hold” in a 2013 forum post. A “hodler” is a long-term holder.
Hot wallet
A wallet whose private key lives on an internet-connected device such as your phone. Handy for spending, riskier for savings.
KYC
“Know your customer”: the legal requirement that exchanges verify who you are, usually with a photo ID and a selfie, before you can trade. It is why US exchanges ask for your Social Security number.
Layer 2
A system built on top of a blockchain that handles transactions faster or cheaper and settles back to the base layer. The Lightning Network is Bitcoin’s main layer 2.
Lightning Network
A payment network on top of Bitcoin that moves bitcoin through pre-funded channels, so payments settle in about a second for a fraction of a cent. See our Lightning Network page.
Limit order
An instruction to an exchange to buy or sell only at a price you name, or better. It may never fill, but you control the price.
Maker and taker fees
The two prices on an exchange’s trading screen. A maker order waits on the order book at a price you set and pays the lower fee; a taker order fills immediately against someone else’s and pays the higher one. Both are usually far cheaper than the simple “buy” button.
Market order
An instruction to buy or sell right now at whatever the current price is. It fills immediately, usually at a slightly worse price than a limit order.
Mempool
The waiting room of transactions that have been broadcast but not yet included in a block. When the mempool is crowded, fees rise, because miners pick the best-paying transactions first.
Miner
A person or company running specialized computers that compete to add the next block to the blockchain and collect the block reward.
Mining
The process of bundling transactions into a block and racing to find a hash that meets the current difficulty target. It is how new bitcoin enters circulation and how the network agrees on the order of transactions.
Multisig
Short for multi-signature: a wallet that requires more than one private key to spend, for example any two of three. Losing one key does not lose the coins, and stealing one key does not steal them.
NFT
Non-fungible token: a blockchain record that points to a unique item, such as a piece of digital art, mostly on Ethereum. Unlike bitcoin, where every coin is interchangeable, each NFT is one of a kind.
Node
A computer running the Bitcoin software that keeps a full copy of the blockchain and checks every transaction and block against the rules. Anyone can run one, and tens of thousands of people do.
Non-custodial
A service that never holds your bitcoin: you keep the keys, and purchases are sent straight to your own wallet. The opposite of custodial. It removes the risk of the company failing or freezing your coins, and makes you responsible for not losing them.
Off-chain
Any transaction that happens outside the blockchain, such as a Lightning payment or a trade between two accounts on the same exchange. Fast and cheap, but not recorded on the public ledger.
On-chain
A transaction recorded directly on the Bitcoin blockchain, confirmed by miners and visible to everyone. The most secure kind of bitcoin transaction, and the slowest.
Phishing
A fake email, text, website, or “support agent” designed to trick you into revealing a password, a two-factor code, or a seed phrase. The most common way accounts get emptied.
Pig butchering
A long-running investment scam: a stranger builds a friendship or romance over weeks, then introduces a fake trading platform that shows invented profits until you try to withdraw. See Avoiding Bitcoin Scams.
Private key
The secret number that lets you spend the bitcoin at your addresses. Whoever holds the private key controls the coins, which is why it must never be shared.
Proof of reserves
Evidence an exchange publishes to show it actually holds the bitcoin it owes its customers, ideally in a form customers can check against the blockchain themselves. Few exchanges do it; it is worth asking whether yours does.
Proof of stake
A way of securing a blockchain in which participants lock up coins as collateral instead of burning electricity. Ethereum switched to it in 2022; Bitcoin does not use it.
Proof of work
Bitcoin’s way of securing the blockchain: miners must spend real computing power to add a block, so rewriting history would cost more than it could gain.
Public key
A number derived from your private key that can be shared freely. Addresses are made from public keys, and the public key lets the network check your signature without learning your private key.
QR code
The square barcode a wallet displays to share an address or a Lightning invoice. Scanning one avoids typing, and typing errors, entirely.
Recovery phrase
Another name for a seed phrase: the 12 or 24 words that restore a wallet. Nobody legitimate will ever ask you for it.
Satoshi Nakamoto
The pseudonym of the person or group who published the Bitcoin whitepaper in 2008, launched the network in 2009, and disappeared from public view in 2011. Their identity has never been confirmed.
Satoshi (sat)
The smallest unit of bitcoin: one hundred-millionth of a coin, so there are 100,000,000 sats in one bitcoin. Prices for small things are often quoted in sats.
Seed phrase
The 12 or 24 English words a wallet gives you when you create it. They encode your private key, so they can restore your wallet on any device, and anyone who has them can take your bitcoin.
SegWit
Segregated Witness, a 2017 upgrade that reorganized how transaction data is stored, fitting more transactions into each block and making the Lightning Network practical. Addresses starting with “bc1q” use it.
Self-custody
Holding your own private keys, in a wallet only you control, rather than leaving bitcoin with an exchange. Summed up as “not your keys, not your coins.”
SIM swap
An attack in which a thief persuades your phone company to move your number to their SIM card, then receives your text-message login codes. The reason to use an authenticator app rather than texts for two-factor login. See Keeping Your Bitcoin Safe.
Smart contract
A program stored on a blockchain that runs automatically when its conditions are met. It is the foundation of Ethereum’s DeFi and NFT ecosystems; Bitcoin supports only simple versions by design.
Spread
The gap between the price at which an exchange will buy bitcoin from you and the price at which it will sell to you. A hidden cost on top of the stated fee, and often the larger of the two on simple “buy” buttons.
Stablecoin
A cryptocurrency designed to hold a fixed value, usually one US dollar, backed by reserves held by the issuer. Tether (USDT) and USD Coin (USDC) are the largest.
Taproot
A 2021 Bitcoin upgrade that made complex transactions such as multisig cheaper and more private by making them look like ordinary ones on the blockchain. Addresses starting with “bc1p” use it.
Transaction
A signed message that moves bitcoin from one or more addresses to others. Once it is confirmed in a block it cannot be reversed by anyone.
UTXO
Unspent transaction output: a specific chunk of bitcoin sitting at an address, waiting to be spent. Your wallet balance is really the sum of your UTXOs, much as your cash is a collection of individual bills.
Wallet
The app or device that holds your private keys, shows your balance, and creates transactions. It does not hold coins, which live on the blockchain; it holds the keys that control them.
Watch-only wallet
A wallet set up with only your public information, so it can show your balance and incoming payments but cannot spend. Useful for keeping an eye on bitcoin held in cold storage without exposing its keys.
Whitepaper
The nine-page paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” that Satoshi Nakamoto published on October 31, 2008, describing how Bitcoin works. It is still available at bitcoin.org and is surprisingly readable.
Next
- What is bitcoin?: the beginner’s starting point, where most of these terms appear in context.
- Wallets and self-custody: keys, seed phrases, and hardware wallets explained.