Bitcoin & Mining Key Terms Explained

Overview

New to Bitcoin or mining? You’re not alone. The world of digital currency has its own language, and understanding a few key terms can make everything much clearer. This glossary breaks down common Bitcoin and mining terms in simple, beginner-friendly language.

Bitcoin Basics

Bitcoin (BTC)

A digital form of money that operates without banks or governments. It’s decentralized and runs on a network called the blockchain.

Satoshi

The smallest unit of Bitcoin, equal to 0.00000001 BTC. Just like a cent is to a dollar, a satoshi is to Bitcoin.

Blockchain

A public digital ledger (or record book) that securely tracks every Bitcoin transaction ever made. Think of it as a permanent, transparent spreadsheet that everyone can view but no one can alter.

Wallet

A digital tool (app, hardware device, or software) used to store, send, and receive Bitcoin. Your wallet holds the keys that prove your ownership, not the coins themselves.

Address

Where you receive Bitcoin, it’s like your digital mailing address. A unique string of letters and numbers (usually starting with bc1 or lnbc1) that tells others where to send your Bitcoin.

Cold Wallet (Cold Storage)

A way to store Bitcoin offline, keeping private keys disconnected from the internet for extra security. Often used for long-term storage.

Hot Wallet

A Bitcoin wallet that’s connected to the internet. It’s convenient for everyday use but more vulnerable to hacks than offline (cold) storage.

Seed Phrase (Mnemonic Seed)

A list of simple words that acts as a backup for your Bitcoin wallet. If you lose your device, you can use your seed phrase to restore access to your funds.

Private Key

A secret code that gives you access to your Bitcoin. It’s like the password to your digital safe, never share it. While a private key controls only one address, a seed phrase controls the entire wallet ecosystem.

Public Key

A digital code that works like your Bitcoin “account number.” Others use it to verify your digital signature or send you Bitcoin, without ever seeing your private key.

Fees

A small amount of Bitcoin paid by the sender to reward miners for processing and confirming transactions on the network.

Transaction

A transfer of Bitcoin from one address to another. Each transaction is digitally signed, verified by the network, and then recorded on the blockchain.

Mining Terms

Mining

The process of using computer power to verify Bitcoin transactions and add them to the blockchain. Miners compete to solve math puzzles, and the first to succeed helps keep the network secure and earns rewards.

Miner

A participant who uses computing power to validate transactions and add new blocks to the blockchain, earning Bitcoin rewards for their work.

Hashrate

The total computing power being used across the Bitcoin network to process transactions and secure the blockchain. Higher hashrate equals a stronger network.

Hash Function

A mathematical process that turns any piece of data into a unique, fixed-length code, like a digital fingerprint. Even a tiny change in the data creates a completely different hash.

Block

A “page” in Bitcoin’s digital ledger that groups together recent transactions. Each block includes a timestamp and a link to the block before it, forming the secure chain known as the blockchain.

Block Reward

The Bitcoin miners earn for successfully adding a new block to the blockchain. It includes newly created Bitcoin and transaction fees, and it’s how new Bitcoin enters circulation.

Immutability

Once recorded on the blockchain, information cannot be changed or deleted. This makes Bitcoin’s transaction history permanent and trustworthy.

Difficulty

A measure of how hard it is for miners to solve the math puzzles needed to add a new block to the blockchain. The network adjusts it regularly to keep new blocks coming at a steady pace, about every 10 minutes.

Pooled Mining

A cooperative mining method where many miners combine their computing power to earn rewards more consistently, and split the profits based on how much work each contributes.

Coinbase Transaction

The very first transaction in a block. It’s created by the miner and includes their reward for successfully adding the block to the chain.

Security & Network Terms

Node

A computer that connects to the Bitcoin network and helps keep it running. Nodes check transactions, share information, and make sure the system stays secure and trustworthy.

Decentralized

A system with no single point of control. Instead of relying on one authority, decisions and operations are shared across many independent participants.

Proof-of-Work (PoW)

The process that keeps Bitcoin secure. Miners compete to solve complex puzzles using computer power, and the first to solve it adds the next block and earns Bitcoin as a reward. It’s “proof” they did real work to maintain the network.

Halving

An event that happens about every four years, cutting the reward miners get for adding a new block in half. It slows the creation of new Bitcoin and helps keep the total supply limited to 21 million.

Multisignature (Multisig)

A security feature that requires two or more keys to approve a transaction. It’s like needing multiple signatures to unlock a digital vault.

Digital Signature

A digital stamp of approval that proves a transaction or message is genuine and hasn’t been tampered with, like signing your name online, but cryptographically secure.