Bitcoin Basics

Act of Freedom: Refers to Bitcoin transactions being seen as acts of personal liberty due to the autonomy and privacy they offer.

Address: A unique string of letters and numbers (e.g., 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa) that acts like an email address for Bitcoin. It’s where bitcoins are sent or received. Think of it as your Bitcoin “mailbox.”

ASICs (Application-Specific Integrated Circuits): Specialized hardware used for Bitcoin mining, designed to solve the complex mathematical problems required to add transactions to the blockchain.

Bitcoin (BTC): A decentralized digital currency created in 2009 by Satoshi Nakamoto, without a central bank or single administrator. It allows peer-to-peer transactions verified by network nodes through cryptography and recorded in a public ledger called a blockchain. Imagine it as “digital cash” you control directly.

Bitcoin Depot: A platform or service that provides educational resources on Bitcoin.

Bitcoin Halving: An event occurring approximately every four years where the reward for mining new blocks is halved, controlling Bitcoin’s supply. Also known as “Halving.”

BitcoinTalk: One of the oldest Bitcoin forums, initially created by Satoshi Nakamoto.

Blockchain: The technology behind Bitcoin—a growing list of records, called blocks, linked using cryptography. It’s a public, tamper-proof record of all transactions, stored across many computers. Picture it as a giant, uneditable notebook where every Bitcoin payment is written down forever.

Block: A group of Bitcoin transactions bundled together and added to the blockchain about every 10 minutes. Think of it as a page in the blockchain notebook, filled with transaction details.

Block Subsidy: The reward given to miners for adding new blocks to the blockchain. Also known as “Block Reward.”

Cold Storage: Storing Bitcoin private keys offline (e.g., on a USB drive, paper wallet, or hardware wallet) to protect them from online thefts. Imagine storing cash in a safe instead of a wallet you carry around.

Consensus: The agreement among Bitcoin’s network participants on the validity of transactions and blocks, achieved through rules like proof-of-work. It’s how Bitcoin decides what’s “true” without a boss.

Cryptocurrency: A digital or virtual currency (like Bitcoin) that uses cryptography for security, making it hard to fake or double-spend. Think of it as money that only exists online but is super secure.

Cryptography: The practice and study of techniques for secure communication in the presence of third parties. Bitcoin uses it to protect transactions and wallets—like a secret code locking your digital cash.

Decentralization: Bitcoin’s structure, meaning no single person or group (like a bank or government) controls it. Instead, it’s run by a global network of users. Picture a community potluck where everyone brings something, and no one’s in charge.

Decentralized Finance (DeFi): Financial services performed on a blockchain with no central authority.

Difficulty: A measure of how hard it is to mine a new Bitcoin block. It adjusts every two weeks to keep blocks coming every 10 minutes, no matter how many miners join. It’s like a game that gets tougher as more players compete.

Double-Spending: The risk of spending the same digital money twice. Bitcoin prevents this with the blockchain, ensuring each coin is only spent once—like tearing a dollar bill after using it.

Economic Freedom: The ability for individuals to transact and manage their finances without interference from centralized authorities.

Encryption: The process of converting data into a code to prevent unauthorized access.

Fiat Currency: Currency that a government has declared to be legal tender, not backed by a physical commodity.

Financial Privacy: The protection of personal financial information through methods like Bitcoin’s pseudonymous transactions.

Financial Sovereignty: The concept of having control over one’s financial assets without reliance on banks or governments.

Fork: A split in the blockchain when some users adopt new rules (e.g., Bitcoin Cash split from Bitcoin in 2017). Think of it as a group of friends arguing over game rules and starting two separate games.

Genesis Block: The first block of data in the Bitcoin blockchain, also known as Block 0, created by Satoshi Nakamoto.

Halving: An event every four years (or 210,000 blocks) when the block reward for miners cuts in half (e.g., from 12.5 BTC to 6.25 BTC in 2020). It controls Bitcoin’s supply, making it scarcer over time—like a factory slowing production.

Hard Money: Money with a fixed or limited supply, resistant to inflation, exemplified by Bitcoin.

Hardware Wallet: A physical device (e.g., Ledger or Trezor) that stores Bitcoin private keys offline for security. Imagine it as a tiny, high-tech safe for your digital money.

Hash: A function that converts an input of any size into a fixed-size string of characters.

Hash Rate: The total computational power used to mine and process transactions on the Bitcoin network.

Hashing: A process that turns data (like a transaction) into a fixed-length string of characters using math (e.g., SHA-256). It’s like a fingerprint for data—unique and impossible to reverse-engineer.

HODL: A slang term in the Bitcoin community, meaning to “Hold On for Dear Life.” It refers to the strategy of holding onto Bitcoin long-term, despite market volatility, rather than selling during price dips. The term originated from a misspelled forum post in 2013.

Hot Wallet: A Bitcoin wallet connected to the internet (e.g., on your phone or computer), making it convenient but less secure than cold storage. Think of it as a pocket wallet you use daily.

Hyperinflation: An extremely rapid or out-of-control increase in prices, often referenced in discussions of Bitcoin as a hedge against currency debasement.

Immutability: The characteristic of blockchain where once data is recorded, it cannot be changed, providing security and trust in the system.

Inflation: An increase in the general level of prices for goods and services, reducing the purchasing power of money. Bitcoin is often discussed as a counter to this.

Inflation Control: Mechanisms or policies to manage or reduce inflation, where Bitcoin’s fixed supply is seen as a natural control.

KYC (Know Your Customer): Rules some exchanges follow to verify users’ identities (e.g., requiring ID scans). It’s like showing your driver’s license to open a bank account, but not all Bitcoin use requires it.

Ledger: A record of financial transactions, in Bitcoin’s case, it’s the blockchain.

Lightning Network: A second-layer solution on top of the Bitcoin blockchain that enables faster and cheaper transactions by handling them off-chain, settling only the final result on the blockchain. Picture it as paying with a tab at a bar instead of cash every drink.

Liquidity: The ease with which an asset, like Bitcoin, can be bought or sold in the market without affecting its price.

Market Capitalization: Bitcoin’s total value, calculated as price per BTC times total supply (e.g., $20,000 x 19 million BTC = $380 billion). It’s like measuring a company’s worth by its stock price and shares.

Mempool: A collection of all valid transactions waiting to be confirmed by the Bitcoin network.

Miner: A person or computer that solves complex math problems to add blocks to the blockchain, earning bitcoins as a reward. Think of them as accountants who get paid to keep the ledger updated.

Mining: The process of using powerful computers to verify Bitcoin transactions and earn rewards by adding blocks to the blockchain. It’s like panning for gold, but with math and electricity instead of rivers and shovels.

Mining Power (Hash Power): The amount of computational power a miner or a group of miners contributes to the Bitcoin network.

Monetary Policy: The policy adopted by the monetary authority of a country to control either the interest rate payable for very short-term borrowing, or the money supply, often compared to Bitcoin’s algorithmic supply control.

Multi-Signature (Multi-Sig): A security feature requiring multiple private keys to authorize a transaction (e.g., 2-of-3 keys). It’s like needing two people to turn keys to open a vault.

Node: A computer connected to the Bitcoin network that validates and relays transactions and blocks. Full nodes enforce rules; think of them as librarians keeping the network’s records straight.

Non-Fungible Tokens (NFTs): Unique digital assets on the blockchain, although not directly related to Bitcoin, the concept stems from similar technology.

Open Source: Software with source code that anyone can inspect, modify, and enhance. Bitcoin’s core protocol is open-source.

Peer-to-Peer (P2P): A distributed architecture where users interact directly without middlemen (e.g., sending BTC from one wallet to another). It’s like handing cash to a friend instead of using a bank.

Private Key: A secret code (e.g., a long string of random characters) that lets you spend your bitcoins. Lose it, and your money’s gone; share it, and it’s stolen. It’s your Bitcoin “password”—guard it!

Proof-of-Work (PoW): Bitcoin’s method for securing the network—miners solve puzzles to prove they’ve spent energy, making attacks expensive. Imagine proving you ran a marathon to earn a prize.

Pseudonymity: Bitcoin transactions use addresses, not names, offering privacy but not full anonymity (activity can sometimes be traced). It’s like using a nickname online—people might still figure out it’s you.

Public Key: A code paired with your private key, used to create your Bitcoin address. It’s safe to share, like giving someone your mailbox number so they can send you a letter.

Reserve Currency: A foreign currency held by central banks and major financial institutions to facilitate international trade. Some speculate Bitcoin could become one.

Satoshi: The smallest unit of Bitcoin (0.00000001 BTC), named after its creator. If 1 BTC = $20,000, 1 satoshi = $0.0002—like pennies to a dollar.

Satoshi Nakamoto: The pseudonymous creator(s) of Bitcoin, who published the whitepaper in 2008 and disappeared in 2011. Think of them as a genius inventor who left behind a blueprint and vanished.

Scalability: The capacity of a system like Bitcoin to handle growth, particularly in terms of transaction volume.

Seed Phrase: A list of words used to restore access to a Bitcoin wallet if the private key is lost, essentially a backup of your private key.

Security: Measures to protect Bitcoin from theft, loss, or unauthorized access, primarily through cryptographic means.

Segregated Witness (SegWit): An upgrade to the Bitcoin protocol that increases block capacity, improving transaction speed and reducing fees.

Smart Contracts: Self-executing contracts with the terms directly written into code, not central to Bitcoin but part of the broader blockchain discussion.

Supply and Demand: The economic forces driving Bitcoin’s price: only 21 million BTC will ever exist (fixed supply), and demand fluctuates with interest. It’s like rare art—fewer pieces, higher value if people want it.

Timestamp: A digital record of the time when a transaction or block was created in the Bitcoin blockchain.

Transaction: The transfer of value between Bitcoin wallets.

Transaction Fee: A small payment (e.g., 0.0001 BTC) to miners for processing your Bitcoin transfer. It’s optional but speeds things up—like tipping a waiter for faster service.

Trustless: A system where transactions do not require trust in a central authority or intermediary; Bitcoin operates on this principle.

Unit of Account: One of the functions of money, where Bitcoin could potentially serve, although currently challenged by its volatility measured by fiat money.

Volatility: The rate at which the price of Bitcoin increases or decreases over time; often a point of contention and discussion.

Wallet: Software or hardware that stores your Bitcoin private and public keys, letting you send and receive BTC. Think of it as a digital purse for your crypto cash.

Whitepaper: The original 2008 document by Satoshi Nakamoto explaining Bitcoin’s design. It’s the “recipe” for Bitcoin—like the Constitution for a new country.

X (Twitter): A platform where most of the Bitcoin proponents and skeptics share insights, news, and opinions; several accounts are listed for educational purposes.