Glossary

Automated Clearing House: the U.S. network for batched bank transfers such as payroll and bill payments. Cheap but slow, and some payments can be returned days later.

A human-readable encoding of a spending condition. Address types differ: P2PKH, P2SH, P2WPKH, and P2TR are not interchangeable.

Receiving more than one payment to the same address. It lets anyone link those payments together, and once one payment is spent, the public key guarding the rest is visible on the blockchain.

Malware that replaces a copied address with the thief’s, or a look-alike address planted in your history so you copy the wrong one. Always check the whole address.

A signing device that never connects to a computer or network. Transactions move to and from it by QR code or memory card.

Anti-Money Laundering: laws and checks meant to detect and report suspicious flows of money.

Something owned that has value or is expected to produce value, such as property, shares, gold, bitcoin or cash.

A property of a good hash function: a tiny change in the input produces a completely different output.

Encoding formats for segwit addresses (bc1…). Bech32 is used for segwit v0; Bech32m is used for Taproot.

Bank Identification Number: the first digits of a card number, which identify the bank that issued the card.

Bitcoin Improvement Proposal. A design document that describes a protocol change, process, or convention.

A proposal for a new output type, Pay-to-Merkle-Root (P2MR): like Taproot but without the key-path spend, so an unspent output does not publish a public key. Spending can still reveal keys in the script used. A first step against quantum attacks; post-quantum signatures are left to later proposals.

BIP32 defines hierarchical deterministic (HD) key derivation. BIP39 encodes entropy plus checksum as words, then derives a seed from those words and an optional passphrase.

Bank for International Settlements: an organization owned by central banks that acts as a bank and forum for them.

A digital money and open payment network with no central issuer. Its rules cap the supply at 21 million coins, and anyone can verify transactions and the supply by running a node. “Bitcoin” names the network; “bitcoin” or BTC names the unit.

A batch of transactions plus a header. Miners propose blocks; nodes validate them before adding them to the chain.

The 80-byte summary of a block: version, previous block hash, merkle root, time, difficulty target, and nonce.

New bitcoin created in each block. It started at 50 BTC and halves every 210,000 blocks.

The chain of blocks, each linked to the one before it by a hash, that records every Bitcoin transaction. Changing old history would mean redoing all the proof of work after it.

U.S. Bureau of Labor Statistics: the agency that publishes CPI, wage and employment data.

A loan in the form of a tradable security. The issuer, often a government, promises to pay interest and return the principal on a set date.

The 1944 agreement that tied major currencies to the U.S. dollar and the dollar to gold at $35 an ounce. It ended in 1971, after which major currencies became fully fiat.

The ticker symbol for the bitcoin unit. One BTC is 100,000,000 satoshis.

The observation that newly created money benefits those who receive it first, such as banks, governments and asset holders, before prices rise. Those who receive it last, such as wage earners and savers, face the higher prices.

A company such as Visa or Mastercard that routes card payments between the merchant’s bank (acquirer) and the cardholder’s bank (issuer) and sets the rules.

Central Bank Digital Currency: a digital form of a country’s fiat money issued directly by its central bank. Unlike bitcoin, its supply and rules are set by the issuer.

Cambridge Bitcoin Electricity Consumption Index: an estimate of Bitcoin mining’s electricity use, published by the University of Cambridge.

The ability to transact despite attempts to block access or inclusion. Bitcoin has no issuer approval gate; network restrictions, coordinated miners and custodians can still obstruct use.

A public institution that issues a country’s currency, sets short-term interest rates, supervises banks and acts as lender of last resort. Examples are the Federal Reserve, the European Central Bank and the National Bank of Ethiopia.

When nodes switch to a competing valid chain with more accumulated proof of work. Shallow reorgs are normal; deep ones are rare and costly.

An output that sends the leftover from a spent coin back to your own wallet, because coins (UTXOs) are always spent whole.

A reversal of a card payment ordered by the cardholder’s bank, often after a dispute. It can happen weeks or months after the purchase.

Exchanging and reconciling payment instructions between institutions before settlement, working out who owes whom.

Choosing which UTXOs a wallet spends. It affects fees, privacy, and which coins are linked together.

The first transaction in every block, created by the miner to pay itself the block subsidy plus the fees. Its coins can only be spent after 100 more blocks. Not to be confused with the company of the same name.

Keeping spending keys offline, usually on a hardware wallet or air-gapped device.

A bank that takes deposits and makes loans to the public and businesses. When it makes a loan, it creates a new deposit, which is new money.

A way to announce a new block by sending short transaction ids instead of every transaction, since peers usually already have them in their mempools. It makes blocks spread much faster.

Inclusion in a block is the first confirmation. Each later block adds one. More confirmations generally reduce reversal risk; they do not eliminate it.

Independent nodes applying the same rules and converging on the same valid chain. It is not a vote.

A bank that holds accounts for other banks and settles cross-border payments on their behalf, usually for a fee.

The risk that the other side of an agreement, such as a bank, custodian or exchange, fails to do what it promised.

Child Pays for Parent. Spending an output of a low-fee transaction with a high-fee child can make both attractive to miners.

Consumer Price Index: an official measure of the average change in prices paid by consumers for a basket of goods and services. Rising CPI means each unit of money buys less.

An arrangement where a lender provides money, goods or services now in exchange for a promise of repayment later, usually with interest. Most new money in the banking system is created when banks extend credit.

A policy of holding a currency at a fixed exchange rate to another, usually the U.S. dollar. Defending a peg needs reserves; when they run out, the peg can break suddenly.

A wallet or account where a company holds the private keys for you. You own a claim on the company, not the bitcoin itself.

Who controls the keys that can move coins: a custodian, you, or a shared multisig policy.

Card Verification Value: the three- or four-digit security code printed on a payment card.

Reducing the real content or value of money: historically by mixing cheaper metal into coins, today by expanding the supply of currency.

An amount owed by a borrower to a lender. It must be repaid, usually with interest. One person’s debt is another person’s asset.

When a government spends more than it collects in taxes in a year. The gap is usually covered by borrowing, which adds to the national debt.

A sustained fall in the general price level, so each unit of money buys more over time.

An official reduction of a currency’s value against other currencies, so imports cost more and savings in that currency buy less abroad.

Every 2,016 blocks (about two weeks), nodes raise or lower the mining target so that blocks keep arriving about every ten minutes on average.

The threshold a block hash must beat. A lower target means more expected work per block.

When people or a whole country use U.S. dollars instead of the local currency, often after the local currency has lost trust.

Trying to spend the same UTXO twice. A valid chain cannot contain both spends. Unconfirmed mempool acceptance is not final: a conflicting replacement may be accepted under local policy.

An output so small that spending it would cost more in fees than it is worth. Many nodes refuse to relay transactions that create dust.

Elliptic Curve Digital Signature Algorithm, used for pre-Taproot Bitcoin signatures over secp256k1.

Surrounding one node with attacker-controlled peers so it sees a false picture of the network. Many independent connections defend against it.

A business where you can buy and sell bitcoin for fiat money. Coins left on an exchange are held by it, not by you.

The price of one currency in terms of another, such as how many birr buy one U.S. dollar.

The central bank of the United States, created in 1913. Its Federal Open Market Committee (FOMC) sets U.S. interest-rate policy and can expand the money supply by buying government bonds and other assets.

The Federal Reserve’s real-time gross settlement system for large U.S. dollar payments. Transfers are final when completed.

The fee per unit of transaction weight, usually satoshis per virtual byte (sat/vB).

Latin for “let it be done”. Fiat money is money because a government declares it legal tender, not because it can be redeemed for gold or any other commodity. The dollar, euro, pound, yen and birr are fiat. Its use depends on institutions, legal and tax arrangements, and public acceptance.

What a government does with taxes, spending and borrowing.

Federal Open Market Committee: the 12-member group within the Federal Reserve that votes on U.S. interest rates and asset purchases.

A system where banks hold only a fraction of their deposits as reserves. In modern banking, a new loan creates a new deposit rather than lending out existing ones. Deposits are claims on the bank, not money held in a vault for each customer.

Federal Reserve Economic Data: a free database of economic statistics run by the Federal Reserve Bank of St. Louis. These lessons use it for money-supply, price, wage and house-price data.

Software that downloads and validates the chain and enforces the rules for itself.

Interchangeability of equal units. Bitcoin units are interchangeable under protocol rules, while public history can lead intermediaries to discriminate between particular coins.

Foreign exchange: converting one currency into another. Banks and providers usually add a markup to the exchange rate.

Gross Domestic Product: the total value of goods and services produced in a country in a year.

Block 0, the first block of the Bitcoin blockchain, mined in January 2009. It is the only block with no previous block; every other block links back to it.

A monetary system where currency can be exchanged for a fixed amount of gold. The U.S. ended international dollar-to-gold convertibility in 1971.

The reduction of the block subsidy by half every 210,000 blocks, roughly every four years.

Money whose supply is difficult to increase, such as gold or bitcoin. Soft or easy money can be created cheaply and quickly by whoever controls it.

A small dedicated device that keeps private keys offline and signs transactions, showing the address and amount on its own screen. Often called a hardware wallet.

A fixed-size digest of data produced by a one-way function such as SHA-256.

The number of hash attempts per second across the mining network.

A wallet that derives many keys from one seed using a hierarchical deterministic scheme (BIP32).

A wallet whose signing keys are on a networked device. Convenient, but a larger online attack surface.

Extremely rapid price inflation, commonly defined as prices rising at least 50% in a single month. Examples include Germany (1923), Hungary (1946), Zimbabwe (2008) and Venezuela (2016–2019 and 2020).

International Monetary Fund: an international organization that lends to countries in financial trouble, usually with conditions, and monitors the world’s monetary system.

Price inflation is an increase in a price index over time. Money-supply growth counts additional units; it is a different measurement.

A reference to a previous UTXO plus the data needed to unlock it, usually a signature and public key.

The fee the merchant’s bank pays the cardholder’s bank on each card payment. It is part of the merchant discount rate.

The price of borrowing money, expressed as a percentage of the amount borrowed per year. Central banks influence short-term rates to steer lending and prices.

A third party between the payer and the payee, such as a bank, card network, payment processor or correspondent bank. Each one can add fees, delays, checks or the power to block or reverse a payment.

An international standard format for financial messages, used by SWIFT and many payment systems.

Know Your Customer: rules requiring banks and exchanges to verify customers’ identities before serving them.

The number of zeros at the start of a hash written in binary. A lower target needs more leading zeros, and each extra zero bit doubles the expected work. Real Bitcoin compares the hash with an exact numeric target (nBits); counting zeros is a teaching approximation.

Money that, by law, must be accepted to settle debts in a country.

A client that verifies some data itself but trusts servers for other data instead of validating the full chain.

A payment network built on top of Bitcoin that uses payment channels for fast, low-fee payments, with final settlement on the Bitcoin blockchain.

How quickly and cheaply something can be spent or exchanged for the amount you need without accepting a large discount.

A broad measure of a country’s money supply: cash, checking deposits, savings deposits, small time deposits and retail money-market funds. U.S. M2 is published by the Federal Reserve.

Merchant discount rate: the total percentage a merchant pays to accept a card payment, covering interchange, network and acquirer fees.

The role of money as a go-between in trade: you sell your work for money, then use that money to buy from someone else, without needing a direct swap.

A node’s local set of valid unconfirmed transactions. There is no single global mempool.

A single hash that commits to every transaction in a block. It is stored in the block header.

A participant who spends electricity and hardware on proof of work to propose new blocks, earning the block subsidy and transaction fees.

Repeatedly hashing a block header to find a nonce that meets the difficulty target.

A group of miners who combine their hash power and share the rewards, giving each a steadier income. The pool operator chooses which transactions go into its blocks.

What a central bank does to influence money and credit: setting interest rates, buying or selling assets, and setting rules for bank reserves.

Something generally accepted in payment for goods, services and debts. It serves as a medium of exchange, a unit of account and a store of value.

Moving criminal money through accounts and businesses to hide where it came from. A long-standing UN estimate puts it at $800 billion to $2 trillion every year, mostly through banks and cash.

Informal term for creating new money. Today it is mostly digital: central banks create reserves and commercial banks create deposits when they lend.

The total amount of money in an economy. It is measured in layers: base money (cash and bank reserves), M1 (cash in circulation plus checking deposits and, in the U.S. since 2020, savings deposits) and M2 (adds small time deposits and retail money-market funds).

A spending condition that requires several keys, any M of N such as 2-of-3 or 3-of-5, to authorize a transaction.

A computer running Bitcoin software that relays transactions and blocks. A full node also checks every rule for itself.

The variable field miners change while searching for a valid proof-of-work hash.

A Bitcoin saying: if someone else holds the private keys, you are trusting them to give your bitcoin back.

Originating and Receiving Depository Financial Institution: the sender’s bank and the receiver’s bank in an ACH payment.

Office of Foreign Assets Control: the U.S. Treasury office that enforces economic sanctions and maintains lists of blocked people and entities.

SWIFT charge codes that decide who pays transfer fees: OUR (the sender pays all), SHA (shared: each side pays its own bank) and BEN (the receiver pays all).

A new spendable coin created by a transaction, with an amount and a spending condition.

Pay to Public Key Hash: a legacy address type that locks coins to a hash of the public key.

Pay to Script Hash: a legacy address type that commits to a script rather than a public key.

Pay to Taproot: a Taproot output that uses a tweaked x-only public key and Bech32m encoding.

Pay to Witness Public Key Hash: a segwit v0 address type, usually starting with bc1q.

An optional extra word or phrase added to a seed phrase (sometimes called the “25th word” of a 24-word phrase). The same seed phrase with a different passphrase opens a completely different wallet; lose the passphrase and those coins are gone.

Another node your node is directly connected to. Nodes pass transactions and blocks from peer to peer until the whole network has them.

Tricking someone with a fake website, email, app or “support agent” into revealing a seed phrase or approving the wrong payment.

An investment fraud that pays earlier investors with money from newer investors, run by an operator who promises returns. It collapses when new money stops.

Point of sale: the place and device where a customer pays, such as a card terminal in a shop.

Legal limits on what sellers may charge. They do not change what people value, so they tend to cause shortages when set too low and surpluses when set too high.

A secret 256-bit number that authorizes spending. Lose it and the coins are gone; leak it and they can be stolen.

An alternative to proof of work in which coin holders, rather than miners spending energy, take turns proposing blocks. Bitcoin uses proof of work; some campaigns have pushed it to switch.

A costly proof that a miner performed hash attempts. It secures the chain by making history expensive to rewrite.

Partially Signed Bitcoin Transaction: a format for passing transaction details and signatures between coordinating wallets and signers. It does not need to contain a seed phrase or private key.

The public half of a key pair, used to verify signatures and derive some address types.

The goods and services a unit of money can buy. It can fall even when the number of units in an account is unchanged.

A central bank creating new reserves to buy large amounts of government bonds or other assets, pushing more money into the financial system.

The risk that a large future quantum computer could work out a private key from a visible public key. No such machine exists yet; Bitcoin can upgrade to quantum-resistant address types.

Replace-by-Fee: replacing an unconfirmed transaction under mempool fee and policy rules. BIP125 described opt-in signaling; Bitcoin Core 28 enabled full-RBF by default and Core 29 removed the opt-out. Wallet support and node policy still matter.

Removing zeros from a currency, for example swapping 1,000 old notes for 1 new note. It changes the labels, not the lost purchasing power.

A private test mode of Bitcoin where blocks can be made instantly and the coins have no value. The Network Lab uses regtest-style addresses.

Each node’s own rules for which valid transactions it keeps and passes on, such as a minimum fee rate. Policy is not consensus: a transaction a node will not relay can still be valid in a block.

The smallest unit of bitcoin: 0.00000001 BTC.

Limited supply relative to demand. Scarcity alone does not make something money; it also needs to be wanted and widely accepted.

The signature scheme used by Taproot (BIP340), offering smaller signatures and key aggregation.

U.S. Securities and Exchange Commission: the federal regulator for securities markets.

BIP39 words encode entropy plus a checksum. Words and an optional passphrase derive a wallet seed. Recovery also needs any passphrase and relevant wallet setup information. Never enter real words into a website.

Segregated Witness (BIP141): a soft fork that moved witness data outside the legacy block size accounting and enabled new script versions.

Holding the keys to your own bitcoin instead of trusting an exchange or other custodian. “Not your keys, not your coins.”

The point at which a payment is final and the money has actually moved between the institutions involved. A payment can look complete to you well before it settles.

The hash of the transaction fields that a signature commits to. Different sighash types cover different fields.

Taking over someone’s phone number by fooling or bribing a mobile carrier, then using it to reset their exchange and email accounts.

A soft fork tightens rules and stays compatible with old nodes; a hard fork changes rules in a way old nodes reject.

A token on a blockchain designed to track a currency, usually the US dollar, such as USDT or USDC. It is a claim on the company that issues it, and most illicit crypto volume now uses stablecoins.

The role of money in carrying purchasing power from today into the future. Money that loses purchasing power stores value poorly.

Attacking the tools people trust instead of the people: a poisoned software update, a tampered device or a fake download.

Society for Worldwide Interbank Financial Telecommunication: the messaging network banks use to send international payment instructions. It moves messages, not money; correspondent accounts settle the funds.

A 2021 upgrade (BIP341) enabling Schnorr signatures, key aggregation, and more private script paths.

A rule that stops coins or a transaction from being valid until a set block height or time has passed (locktime), or until enough blocks have passed since an input was confirmed.

A transfer of value between parties. In banking, it is an instruction recorded by banks and settled later. In Bitcoin, it is a signed message that spends existing coins (UTXOs) and creates new outputs, final once buried under enough blocks.

A transaction’s name on the network: a double SHA-256 hash of its data without the witness. The wtxid includes the witness.

User-Activated Soft Fork: a soft fork activated by nodes enforcing new rules from a set date, rather than waiting for miners to signal readiness.

The role of money as a common measuring stick, so different goods can be priced and compared in the same units.

The currency code for the U.S. dollar. Currency codes follow ISO 4217, such as EUR for the euro and ETB for the Ethiopian birr.

Unspent Transaction Output: a specific coin locked to a spending condition. Wallets spend UTXOs, not balances.

The importance a person places on a good for meeting a want or need. Value is a judgment in the mind of the person, not a physical property of the object, which is why the same thing can be worth different amounts to different people.

The unit for a transaction’s size when paying fees. Witness data counts less than other data, so SegWit transactions are cheaper. A block holds up to 4,000,000 weight units, about 1,000,000 vB.

A description of output scripts and the keys and derivation information used to construct them. A public descriptor helps a watch-only wallet find outputs; protect it for privacy.

A wallet that tracks addresses and balances from an xpub without holding spending keys.

The part of a SegWit transaction that holds signatures and public keys. It proves the spender may unlock the coins, and is kept apart from the transaction id.

Using physical threats or violence to force someone to hand over their bitcoin. Keeping holdings private and spreading control reduce the risk.

An extended public key that can derive public keys and addresses without revealing the private keys.

Year to date: from the start of the current year up to today.

The maximum number of bitcoin that will ever exist, enforced by every node checking the block subsidy schedule. The last new coins are expected around 2140.

Controlling most of the mining power to rewrite recent blocks, for example to reverse one’s own payment. It cannot steal other people’s coins or change the rules, and costs billions in machines and energy.