Bitcoin Glossary
A List of Bitcoin Terms and Their Definitions
Written by Lightning Pay Team
Updated Dec 1, 2024
Bitcoin
A decentralized digital currency that operates on a peer-to-peer network without the need for a central authority. Transactions are verified by network nodes through cryptography and recorded on a public ledger called the blockchain.
Bitcoin Address
A string of alphanumeric characters representing a destination for sending or receiving Bitcoin. Think of it like a digital bank account number.
Blockchain
A distributed ledger consisting of blocks of transactions linked together in chronological order. It ensures transparency and immutability.
Broker
A service that facilitates the buying and selling of Bitcoin, often directly between the broker and the customer, rather than matching buyers and sellers like an exchange. Brokers typically offer a simpler interface and set prices rather than using order books.
Cold Storage
A method of storing Bitcoin offline to protect it from hacking or cyberattacks. Private keys are kept offline for signing transactions. Examples include hardware wallets and paper wallets.
Censorship Resistance
The ability of a system, like Bitcoin, to prevent any single party or authority from blocking or altering transactions, ensuring that all participants can freely send and receive value without interference.
Difficulty Adjustment
A mechanism that ensures the Bitcoin network maintains a steady production of new blocks, approximately every 10 minutes, by adjusting how hard it is to solve the proof-of-work puzzle.
Dollar Cost Averaging
An Investment strategy that involves consistently purchasing a fixed dollar amount of an asset—like Bitcoin—at regular intervals, regardless of its current price.
Double Spend
An attempt to spend the same Bitcoin in two transactions simultaneously. The Bitcoin network prevents this through consensus.
Exchange
A platform where users can buy, sell, and trade Bitcoin and other cryptocurrencies, often pairing them with fiat currencies or other crypto assets. Exchanges act as intermediaries and typically hold users' funds in custody.
Fiat
Government-issued currency that is not backed by a physical commodity like gold or silver. Its value is derived from the trust and authority of the issuing government.
Hard Fork
A non-backward-compatible change to Bitcoin's protocol that creates a permanent divergence in the blockchain. Nodes that do not upgrade cannot validate blocks or transactions following the new rules.
Hodl
A term originating from a misspelling of "hold," it represents the strategy of holding Bitcoin through market volatility rather than selling.
Immutable
A property of the blockchain that ensures once data (such as a transaction) is recorded, it cannot be changed or deleted.
Inflation
The increase in the supply of money within an economy, which can reduce the purchasing power of each unit of currency over time, often leading to higher prices for goods and services.
Lightning Network
A second-layer solution built on top of Bitcoin that enables fast, low-cost transactions by creating off-chain payment channels. Here's a full explanation of the Lightning Network from the Lightning Pay team.
Lightning Address
A human readable address, resembling an email address, which gives a lightning payer instructions on how to reach your node, request a payment invoice and pay a given receiver on the Lightning Network.
LNURLw
A withdrawal request that uses the LNURL protocol. The payer provides sufficient detail in a string of characters or QR code that the receiver can send a request to the payer, and securely be paid the correct amount.
Mempool
A collection of unconfirmed Bitcoin transactions waiting to be included in a block by miners. Every node on the network stores and broadcasts its own mempool, so while there is a lot of overlap, there isn't truly one single mempool, but many.
Miner
An individual or entity using specialized hardware to validate transactions and secure the Bitcoin network by adding new blocks to the blockchain. Miners are rewarded in Bitcoin.
Node
A computer connected to the Bitcoin network that validates and relays transactions and blocks. Full nodes store a complete copy of the blockchain.
Private Key
A secret alphanumeric code that grants access to a Bitcoin wallet and allows the owner to sign transactions. It must be kept secure.
Proof of Work (PoW)
The consensus mechanism used by Bitcoin, requiring miners to solve complex mathematical problems to validate transactions and add blocks to the blockchain.
Public Key
A cryptographic code derived from the private key, used to generate Bitcoin addresses and verify transactions. It can be shared without compromising security.
Satoshi
The smallest unit of Bitcoin, equal to 0.00000001 BTC. Named after Bitcoin's creator, Satoshi Nakamoto.
Satoshi Nakamoto
The pseudonymous creator(s) of Bitcoin. Their true identity remains unknown (though we know it's not Craig Wright).
Seed Phrase
A set of 12–24 words generated by a Bitcoin wallet, used to back up and recover private keys.
SegWit (Segregated Witness)
A Bitcoin protocol upgrade that improved scalability and transaction speed by separating signature data from transaction data.
Self-Custody
The practice of holding and managing your own Bitcoin private keys, giving you full control over your funds without relying on third parties like exchanges or custodial wallets.
Soft Fork
A backward-compatible upgrade to Bitcoin's protocol, where only previously valid blocks or transactions are made invalid. It allows non-upgraded nodes to still recognize new blocks.
Sound Money
Money that maintains its value over time and is resistant to manipulation or inflation. Bitcoin is often described as sound money due to its capped supply of 21 million coins.
Timechain
An alternative term for the blockchain, emphasizing its role as a chronological ledger.
UTXO (Unspent Transaction Output)
The amount of Bitcoin remaining after a transaction, which can be used in future transactions. The best article we have that explains this in further detail is our explanation about Saving fees with Lightning.
Wallet
A digital tool used to store and manage Bitcoin. Wallets can be hot (connected to the internet) or cold (offline for added security). Wallets can manage traditional on-chain transactions, or wallets can be capable of making transactions on the Lightning Network. See our Lightning Wallet Overview for more details on Lightning capable wallets.
Whitepaper
The original document published by Satoshi Nakamoto in 2008 that outlined the concept and workings of Bitcoin.
21 Million Cap
The maximum supply of Bitcoin that will ever exist, ensuring its scarcity and resistance to inflation.