From The Bitcoin Reference, the plain-language encyclopedia of Bitcoin vocabulary
Glossary
This glossary defines 60 terms used in discussions of Bitcoin, in alphabetical order. Each definition begins with a sentence that stands alone, then adds the detail a careful reader needs. Related entries are linked, so you can follow an idea from one word to the next.
Find an entry
Showing all 60 entries.
No entry matches that search.
Try a shorter or simpler word, such as key, block or fee, or remove a filter.
A Bitcoin address is a short string of letters and digits that describes where a payment can be sent. It is derived from a public key or a script, and it works like a destination label rather than an account that holds a balance.
Read the full entryShow less for Address
Wallets usually create a fresh address for each payment they expect to receive. Newer address formats begin with bc1 and include a checksum, so most typing mistakes are caught before a payment is made.[1]
Reusing a single address again and again is possible, but because the ledger is public, it makes it easier for outsiders to link payments together.
A BIP is a numbered design document that proposes a change to Bitcoin software, describes a standard, or records information for the community. Each proposal is written down, discussed in public and given a number.
Read the full entryShow less for BIP (Bitcoin Improvement Proposal)
Many well-known conventions are described this way: the word-list scheme behind a Seed phrase is BIP 39, and the design of SegWit (Segregated Witness) is BIP 141.[2]
Not every BIP touches the rules of the network. Many describe optional conventions that wallets may follow so that they can work with one another.
This entry is about spelling. For the history of the design, see the entry on the whitepaper.
By common convention, a capital-B Bitcoin names the system as a whole (the protocol, the software and the network), while a lower-case bitcoin names the unit of account within it, abbreviated BTC.
Read the full entryShow less for Bitcoin and bitcoin
This reference follows that convention. Style guides differ, and neither form is wrong; what matters is being consistent within a text.[3]
A block is a bundle of transactions that miners add to the chain as a single group, together with a header that links it to the block before it. New blocks are targeted to arrive about every ten minutes on average.
Read the full entryShow less for Block
Every block commits to its predecessor, so changing an old block would mean redoing the work for that block and for every block built after it. The protocol also limits how much data a block may hold, which makes space in a block a scarce resource and is the reason fees exist.
A block explorer is a website or program that lets you look up blocks, transactions and addresses on the public ledger by entering an identifier.
Read the full entryShow less for Block explorer
Explorers only read public data; they do not hold anyone's funds. A hosted explorer can, however, see which identifiers you look up, so some people run explorer software against their own Node for privacy.
The block header is the compact summary at the top of every block. It holds six fields: a version number, the hash of the previous block's header, the Merkle root of the block's transactions, a timestamp, a compact encoding of the difficulty target (called bits), and the Nonce.
Read the full entryShow less for Block header
The header is only 80 bytes long. Miners hash the header, not the whole block, when they search for a valid Proof of work, and the resulting hash serves as the block's identifier.
Block height is the number of blocks between a given block and the Genesis block. The genesis block has height 0, the block after it has height 1, and so on.
Read the full entryShow less for Block height
Height is how the protocol measures position in the chain and schedules events. The Halving schedule, for example, is defined in blocks (every 210,000 of them) rather than in calendar dates.
The block subsidy is the newly created bitcoin that the protocol allows a miner to claim in each block. It began at 50 bitcoin per block and is cut in half every 210,000 blocks.
Read the full entryShow less for Block subsidy
Together with the fees paid by the block's transactions, the subsidy forms what is often called the block reward. Because the subsidy keeps halving, the total number of bitcoin that can ever be created approaches, but never exceeds, 21 million. In the long run the subsidy shrinks to nothing and miners are paid only through fees.
This entry describes Bitcoin's chain. Other systems use the same word in different ways.
A blockchain is an ordered chain of blocks in which each block contains a cryptographic fingerprint of the one before it. In Bitcoin, the blockchain is the shared public record of every confirmed transaction since the Genesis block.
Read the full entryShow less for Blockchain
Because each block commits to its predecessor, the history cannot be edited without redoing the Proof of work for the altered block and everything after it. Every Full node keeps its own copy and checks it independently.
A change output is an output in a transaction that returns the leftover value to the sender. Because an input must be spent whole, paying less than the full value of an input requires a second output that sends the difference back to an address the sender controls.
Read the full entryShow less for Change output
It works like paying with a banknote that is larger than the price and receiving change. Wallets create change outputs automatically.[4]
This is a protocol term. It has no connection with any company or service that uses a similar name.
The coinbase transaction is the first transaction in every block, created by the miner of that block. It has no real inputs; it collects the Block subsidy plus the block's fees and pays them to addresses of the miner's choosing.
Read the full entryShow less for Coinbase transaction
Each block contains exactly one. Its outputs follow special rules, and they cannot be spent until a waiting period of 100 blocks has passed.
Cold storage means keeping private keys on a device or medium that is never connected to the internet, such as an offline computer, a dedicated signing device or a paper backup.
Read the full entryShow less for Cold storage
Keeping keys offline reduces exposure to online attacks, at some cost in convenience. It does not remove every risk: offline keys can still be lost, damaged or copied, so a careful backup remains essential.
A confirmation is counted for a transaction when it is included in a block, and one more is added for each later block built on top of it. A transaction in the newest block has one confirmation; one in the block before has two.
Read the full entryShow less for Confirmation
More confirmations make a transaction progressively harder to reverse, because reversing it would require redoing the Proof of work for its block and for every block that follows. How many confirmations to wait for is a judgement made by the recipient, depending on the amount and the risk they are willing to accept. A transaction with none is still waiting in the Mempool.
Consensus is the agreement among nodes about which blocks and transactions are valid and which chain counts as the current one. No single party decides it.
Read the full entryShow less for Consensus
It rests on two layers. First, each Full node checks every block against the same published rules, the consensus rules, and rejects anything that breaks them. Second, among the valid chains, nodes follow the one with the most accumulated Proof of work.
Difficulty measures how hard it is to find a block header whose hash falls below the current target. The lower the target, the higher the difficulty.
Read the full entryShow less for Difficulty
Every 2,016 blocks, the network recalculates the target from how long those blocks took, aiming to keep the average gap near ten minutes however much computing power is applied. If blocks arrived faster than planned, difficulty rises; if slower, it falls.[5]
A digital signature is a mathematical proof, produced with a Private key, that the holder authorised a particular transaction. Anyone can check it using the matching Public key, but no one can forge it without the private key.
Read the full entryShow less for Digital signature
The signature covers the transaction's data, so changing even a single detail afterwards makes it invalid. Bitcoin has used the ECDSA signature scheme on the secp256k1 curve from the start, and Taproot added Schnorr signatures on the same curve.
A double spend is an attempt to spend the same coins twice, in two conflicting transactions. Digital files can be copied freely, so any system for digital money needs a way to prevent this.
Read the full entryShow less for Double spend
Bitcoin addresses the problem with a shared ledger. Each output can be spent only once, every node rejects a second attempt, and the order of transactions is fixed by blocks protected by Proof of work. A recipient's protection grows with each Confirmation.
Dust is an output so small that spending it would cost more in fees than it is worth. Because every input adds size to a transaction, tiny outputs can be uneconomical to ever use.
Read the full entryShow less for Dust
By default, nodes decline to relay transactions that create such outputs. This is a relay policy chosen by each node, not a consensus rule, and the exact threshold depends on the output type and on node settings.
In this setting, entropy means the unpredictable randomness used to generate a private key or a seed. A wallet must begin from data that nobody else could guess.
Read the full entryShow less for Entropy
If the source of randomness is weak, keys can be guessed by others, no matter how long they look. This is why reputable wallets draw on the operating system's secure random generator or on dedicated hardware, and why you should not make up your own Seed phrase by choosing words that seem random.
A fee is the difference between the total value of a transaction's inputs and the total value of its outputs. The miner who includes the transaction in a block collects it.
Read the full entryShow less for Fee
Fees are not a separate field and not a percentage of the amount sent. They depend on how much block space a transaction occupies, measured in data size, not on how much value it moves. Because space in each block is limited, transactions compete, and those offering a higher Fee rate are generally included sooner.
The fee rate is the fee paid per unit of transaction size, usually quoted in satoshis per virtual byte (sat/vB). Miners rank waiting transactions by this rate because block space is limited by size, not by value.
Read the full entryShow less for Fee rate
Wallets estimate a suitable rate by looking at what is currently waiting in the Mempool. An estimate is a reasoned guess about the near future, not a guarantee of how quickly a transaction will confirm.
A full node downloads every block and checks every transaction against the consensus rules, starting from the Genesis block, without taking anyone else's word for it. It then relays valid data to its peers.
Read the full entryShow less for Full node
Some full nodes prune old block data to save disk space; they still verify everything as it arrives. This differs from a lightweight wallet, which relies on other parties to tell it what is valid.
The halving is the scheduled cut, by half, of the Block subsidy. It occurs every 210,000 blocks, which at the target interval of ten minutes is about every four years.
Read the full entryShow less for Halving
It happens automatically because it is part of the rules, not because anyone decides it at the time. The first subsidy was 50 bitcoin, and the repeated halvings are what produce the 21 million cap.[6]
A hard fork is a change to the consensus rules that makes previously invalid blocks valid. Nodes that do not upgrade will reject blocks created under the new rules.
Read the full entryShow less for Hard fork
If only part of the network upgrades, the chain can split into two incompatible chains that each continue separately. A hard fork therefore needs near-universal adoption to avoid a split.
A hardware wallet is a dedicated device that stores private keys and signs transactions inside itself, so the keys never touch a connected computer. You review the details on the device's own screen and approve them there.
Read the full entryShow less for Hardware wallet
The device is a signing tool, not a container: the coins remain outputs on the ledger. If the device is lost or broken, the Seed phrase backup is what allows the keys to be recovered.
A hash function turns any input into a fixed-size output called a hash or digest. The same input always gives the same output, while a tiny change to the input gives a completely different one.
Read the full entryShow less for Hash function
A good hash function is one-way: it is not feasible to work backwards from the output to the input, or to find two different inputs with the same output. Bitcoin uses SHA-256 in its Proof of work, in block identifiers and in Merkle trees.
Hash rate is the speed at which hashes are computed, counted in hashes per second. For the network as a whole, it describes how much computing effort is being spent trying to find blocks.
Read the full entryShow less for Hash rate
No one measures every machine directly, so the network hash rate is an estimate derived from the current Difficulty and the observed pace of blocks.
A hot wallet is a wallet whose keys live on a device connected to the internet, such as a phone or a laptop. It is convenient for everyday use.
Read the full entryShow less for Hot wallet
Being connected also means more exposure to malware and theft than keys kept offline. Some people use a hot wallet for small amounts and Cold storage for the rest; this is a common pattern, not a requirement.
An input is a reference, inside a transaction, to an earlier output that is being spent, together with the data (usually a signature) that proves the right to spend it.
Read the full entryShow less for Input
A transaction can have many inputs. Each one consumes an entire unspent output; if only part of its value is needed, the remainder returns through a Change output.
The Lightning Network is a payment system built on top of Bitcoin. Two parties open a payment channel by committing funds in an ordinary on-chain transaction, exchange signed updates between themselves without publishing each one, and settle on the chain when the channel closes.
Read the full entryShow less for Lightning Network
Payments can be routed through a series of connected channels. Because it relies on Bitcoin for final settlement, it is often called a second layer. It has its own trade-offs, such as the need for liquidity in channels and for participants to be online at the right moments.
Locktime is a field in a transaction that sets the earliest time or block height at which the transaction may be included in a block. Until then, nodes will not accept it into a block.
Read the full entryShow less for Locktime
Locktime is one of the building blocks used by more elaborate arrangements, including payment channels.[7]
The mempool, short for memory pool, is the collection of valid but unconfirmed transactions that a node has heard about and is holding while they wait to be included in a block.
Read the full entryShow less for Mempool
There is no single shared mempool. Each node keeps its own, and they differ slightly depending on timing and settings. A transaction leaves a mempool when it is confirmed, replaced by another version, or dropped because it has waited too long or space has run out.
A Merkle tree is a structure that summarises many items in a single fingerprint. Transaction hashes are paired and hashed together, then those results are paired and hashed again, until only one hash remains: the Merkle root.
Read the full entryShow less for Merkle tree
The root is stored in the Block header. This lets someone prove that a transaction belongs to a block by supplying a short list of hashes instead of the whole block, and it means that changing any transaction changes the root.
A miner is a participant, whether an individual or an organisation, who operates hardware and software that attempts to produce valid blocks, and who earns the Block subsidy and the fees if it succeeds.
Read the full entryShow less for Miner
Miners assemble candidate blocks from the Mempool, but they do not set the rules. Nodes reject any block that breaks the consensus rules, even one backed by genuine Proof of work.
Mining is the process of competing to add the next block to the chain. Miners repeatedly hash a candidate Block header, changing the Nonce each time, until a result falls below the current target.
Read the full entryShow less for Mining
It does two jobs at once: it puts transactions into an agreed order inside a chain that is costly to rewrite, and it is the means by which new bitcoin enter circulation. The word is a metaphor; nothing is dug up.
A mining pool is a group of miners who combine their hash rate and share the rewards in proportion to the work each contributed.
Read the full entryShow less for Mining pool
A single small miner might find a block only rarely, so pooling smooths income into a steadier stream. Pool designs differ in who chooses which transactions go into a block, which is one reason the topic is discussed in the community.
A multisignature arrangement is a spending condition that requires signatures from more than one key, for example any two of three specified keys. It is often written as 2-of-3.
Read the full entryShow less for Multisignature
It can share control among several people or protect against the loss or theft of any single key. The trade-off is added complexity: you must back up enough information to recreate the whole arrangement, not just one key.
A node is a computer running Bitcoin software that connects to other nodes, passes along new transactions and blocks, and usually checks them against the rules.
Read the full entryShow less for Node
The network is the collection of its nodes; there is no central server. Anyone with suitable hardware and an internet connection can run one.
The nonce is a number in the block header that miners vary to change the header's hash. The word is short for "number used once".
Read the full entryShow less for Nonce
The field is only 32 bits wide, which allows a limited number of tries, so miners also vary other parts of the block, such as extra data in the Coinbase transaction, to create further attempts.
An output is the part of a transaction that assigns an amount of bitcoin to a spending condition, most often "whoever can provide a valid signature for this key".
Read the full entryShow less for Output
Each output starts out unspent and can later be spent exactly once, as an Input to a future transaction. Outputs are the basic unit of value in Bitcoin's UTXO model.
Peer-to-peer describes a network in which participants communicate directly with one another as equals instead of through a central server.
Read the full entryShow less for Peer-to-peer
Bitcoin nodes each connect to a handful of peers and pass along new transactions and blocks, which then spread across the whole network. With no central server, there is no single point that must be trusted or can be switched off to stop the network.
A private key is a secret number from which the matching Public key is calculated and with which signatures are made. Whoever holds it can spend the coins that it controls.
Read the full entryShow less for Private key
The number is so large that guessing one is not realistic, provided it was generated with good Entropy. Wallets usually derive many private keys from a single Seed phrase, so that one backup covers them all.
Proof of work is a way of showing that a certain amount of computation was spent. In Bitcoin, a miner must find a block header whose double SHA-256 hash is numerically below the current target.
Read the full entryShow less for Proof of work
Finding such a header takes a great many attempts, but anyone can check the result with a single hash. Nodes follow the valid chain with the most accumulated work, which makes rewriting history expensive.
A public key is a number derived from a Private key by one-way mathematics (multiplication on the secp256k1 elliptic curve). It can be shared freely and is used to verify signatures.
Read the full entryShow less for Public key
It is not feasible to work backwards from a public key to the private key. Addresses are built from public keys, or from hashes of them.
A reorganization, often shortened to reorg, happens when a node switches from one chain tip to a different chain with more accumulated work, dropping the blocks of the old branch and adopting those of the new one.
Read the full entryShow less for Reorganization
Short reorganizations of a block or so can occur when two miners find blocks at nearly the same moment. Deeper ones are increasingly improbable. Transactions from dropped blocks return to the Mempool unless the new branch also includes them.
Replace-by-fee (RBF) is a relay policy that allows a sender to replace an unconfirmed transaction with a new version that spends the same inputs and pays a higher fee. A common use is to speed up a transaction that is taking too long.
Read the full entryShow less for Replace-by-fee
Nodes follow this as policy, not as a consensus rule. Because an unconfirmed transaction may be replaced, a recipient who needs certainty should wait for a Confirmation.
The satoshi, often called a sat, is the smallest unit of bitcoin: one hundred-millionth of a bitcoin, or 0.00000001 BTC. One bitcoin equals 100,000,000 satoshis.
Read the full entryShow less for Satoshi (unit)
The protocol itself counts amounts in satoshis; showing them as decimals of a bitcoin is a convenience added by wallets. The unit is named after the pseudonym used by the person or people who published the original design.
Script is Bitcoin's small programming language for spending conditions. Each output carries a locking script, and the person spending it supplies data that makes the script evaluate to true.
Read the full entryShow less for Script
The language is intentionally limited. It has no loops, so every script finishes in bounded time. Most outputs use a handful of standard templates, such as paying to a single key or to a multisignature arrangement.
A seed phrase is a list of words, commonly 12 or 24, that encodes the secret from which a wallet generates all of its keys. It is also called a recovery phrase or mnemonic.
Read the full entryShow less for Seed phrase
Anyone who has the words can recreate the wallet and spend its coins using any compatible software; and if the words are lost with no other backup, access is lost permanently. For that reason they are never typed into websites, shared in messages or kept only in a photograph. The common scheme draws each word from a fixed list of 2,048.
Segregated Witness, usually shortened to SegWit, is an upgrade that moves signature data (the "witness") into a separate part of the transaction, outside the portion used to compute the transaction identifier.
Read the full entryShow less for SegWit (Segregated Witness)
It was introduced as a Soft fork. It fixed a form of transaction malleability, in which a third party could alter a transaction's identifier without invalidating it, and it introduced the weight-based accounting that measures block capacity today. That fix made later developments, such as the Lightning Network, simpler to build.
Self-custody means holding your own private keys, so that only you can authorise spending, instead of trusting a third party to hold them for you.
Read the full entryShow less for Self-custody
It brings control and responsibility together: no company or support desk can reset a lost Seed phrase. The alternative is a custodial arrangement, where a service holds the keys. This reference takes no side; the right choice depends on a person's skills and circumstances.
A soft fork is a change that tightens the rules: blocks that are valid under the new rules are also valid under the old ones. Nodes that have not upgraded keep following the same chain, though they cannot verify the new restrictions themselves.
Read the full entryShow less for Soft fork
Because the change is backward compatible, it can be rolled out without forcing everyone to upgrade at the same moment. It works only if enough of the mining power enforces the new rules.
A stale block is a valid block that is not part of the chain that nodes ultimately follow, because another block at the same height was built upon instead.
Read the full entryShow less for Stale block
It arises when two miners find blocks at almost the same time. The network briefly has two tips, then settles as the next block extends one of them. The miner of the losing block does not receive the subsidy. Such a block is also commonly called an orphan.
Taproot is an upgrade, activated as a Soft fork, that added Schnorr signatures and a new type of output. It allows complicated spending conditions to look like an ordinary single-key payment on the chain when all the parties cooperate.
Read the full entryShow less for Taproot
Addresses of this type begin with bc1p. Besides adding flexibility, the design improves privacy for arrangements that would otherwise reveal their complexity.
A testnet is a separate Bitcoin network used for development and experiments. Its coins are intended to carry no monetary value, so programs can be tested without any risk to real funds.
Read the full entryShow less for Testnet
It uses different address prefixes (for instance tb1), so a test address is not mistaken for a real one.
A transaction is a signed message that transfers value by spending existing outputs, called inputs, and creating new outputs. It is broadcast to the network, waits in mempools, and is finally included in a block.
Read the full entryShow less for Transaction
Each transaction is identified by a transaction ID, which is a hash of its contents. The ledger is essentially the ordered record of all confirmed transactions; nothing is stored as a balance.
A UTXO, or unspent transaction output, is an output that has been created but not yet spent. Bitcoin keeps no account balances; the ledger tracks the set of outputs that remain available to spend.
Read the full entryShow less for UTXO
The balance of a wallet is the sum of the UTXOs it can spend. Spending consumes whole UTXOs and creates new ones, in the way that handing over a banknote produces change. Every Full node maintains the current UTXO set so that it can validate new transactions quickly.
A wallet is software or a device that manages keys, keeps track of which outputs you can spend, and builds and signs transactions on your behalf.
Read the full entryShow less for Wallet
A wallet does not contain coins in the way a leather wallet contains cash. The coins exist as outputs on the public ledger; what the wallet holds are the keys that control them, along with some bookkeeping.
The Bitcoin whitepaper is the short technical paper, published in 2008 under a pseudonym, that proposed the design: a peer-to-peer electronic cash system that uses Proof of work to put transactions in order without a trusted third party.
Read the full entryShow less for Whitepaper
The first block, the Genesis block, followed in January 2009. The paper describes the original idea; the system as it runs today is defined by the software that nodes run and the rules they enforce, including later upgrades.
The opening sentence gives the shortest accurate definition. It is the sentence shown as the term of the day and is meant to be understood without reading anything else.
The paragraphs after it add context, usually including what the word does not mean. Where a word is easily confused with something else, a short italic note below the heading says so.
“See also” lists the entries most worth reading next. Topic labels group entries by subject, and the topic filter above uses them. The pilcrow mark (¶) beside each term is a permanent link to that entry: copy its address and anyone who opens it lands on the same definition.
Notes are marked with a bracketed number such as [1] and collected at the foot of the page. They hold clarifications that would interrupt the definition if placed in the text.
Numbers. Where an entry gives a figure, it is one that is fixed by the design of the system, for example the 21 million supply cap, the 2,016-block difficulty period or the 210,000-block halving cycle. Figures that change from day to day, such as prices or network totals, are deliberately not given.
Notes
An address is not a person's identity. The ledger shows which addresses received and spent outputs, but it records no names. ↑ back to text
Writing a BIP does not make anything happen by itself. A change affects the network only if the software that people actually run adopts it. ↑ back to text
Amounts are tracked by the protocol in satoshis. Showing a figure in bitcoin, with a decimal point, is a display choice made by wallets. ↑ back to text
If the difference between inputs and outputs is not assigned to any output, the miner collects it as a fee. This is why wallet software double-checks amounts before it signs. ↑ back to text
The adjustment period of 2,016 blocks corresponds to roughly two weeks at the ten-minute target. Individual gaps between blocks vary widely around the average. ↑ back to text
A halving reduces the rate at which new bitcoin are issued. It does not halve the coins already in existence, and it does not directly change transaction fees. ↑ back to text
The field is interpreted as a block height when its value is below 500 million, and as a Unix timestamp (seconds since 1 January 1970) otherwise. ↑ back to text