Bitcoin Glossary: 28 Key Terms Explained

Bitcoin is a digital form of money that operates without a central bank, government, or any intermediary — you can send it directly to anyone in the world, at any time, without asking permission.

It was created in 2009 by a person (or group) using the pseudonym Satoshi Nakamoto. Unlike the Swiss franc, which the Swiss National Bank can print in any quantity, Bitcoin's total supply is capped at 21 million units by code — permanently. No central authority can change that.

What makes Bitcoin distinctive is that its rules are enforced not by a government but by thousands of computers worldwide running the same software. No single party controls it.

A blockchain is a shared record of every Bitcoin transaction ever made, maintained simultaneously by thousands of computers around the world.

Think of it as a ledger — the same kind a bank uses internally to record who owns what — except this one is public, permanent, and not controlled by any single institution. Every 10 minutes or so, a new batch of transactions gets added in a sealed package called a “block.” Once added, it cannot be altered. Each block references the one before it, forming a chain.

The blockchain is what makes Bitcoin trustworthy without requiring a trusted middleman. You don't need to trust any bank, company, or government because you (or anyone) can verify every transaction independently.

One satoshi — abbreviated “sat” — is the smallest unit of Bitcoin: one hundred millionths of a single bitcoin (0.00000001 BTC). The name comes from Bitcoin's pseudonymous creator, Satoshi Nakamoto.

The unit exists for practical reasons: as Bitcoin's price rises, buying a whole bitcoin becomes unaffordable for most people. You don't need to buy a whole one. Just as you can own CHF 50 without owning a full kilo of gold, you can own 50,000 sats without owning a full bitcoin.

If you're buying Bitcoin for the first time, you're almost certainly buying a fraction — and that's completely normal.

Run Bitcoin's software on any computer and you have a node — an independent copy of the entire blockchain, checking every transaction against the rules.

There are estimated to be over 15,000 publicly reachable Bitcoin nodes worldwide. Each one checks every transaction and every block against Bitcoin's rules. If someone tried to create a transaction that violates those rules — say, spending money they don't have — every node would reject it independently.

This is the architecture that removes the need for a central authority. No single node is in charge; they all enforce the same rules and check each other's work.

Bitcoin mining is the process by which new transactions are verified, grouped into blocks, and added to the blockchain — and it's also how new bitcoins enter circulation.

Miners are computers (specialized hardware) that compete to solve a mathematical puzzle. The first one to solve it gets to add the next block of transactions to the blockchain and earns a reward in newly created bitcoin plus transaction fees.

What matters for you as a Bitcoin holder is that mining is what secures the network. The cost of attacking Bitcoin — rewriting its history or creating fraudulent transactions — would require more computing power than all the miners combined.

Built into Bitcoin's code from the start, the halving cuts the reward miners receive for adding a new block in half — approximately every four years.

When Bitcoin launched in 2009, miners received 50 BTC per block. After the fourth halving in April 2024, the reward dropped to 3.125 BTC per block. This will continue until around 2140, when the 21 millionth bitcoin is mined.

The halving is the mechanism that enforces Bitcoin's fixed supply — the 21 million cap is the mathematical result of this halving schedule.

Every 10 minutes on average, the Bitcoin network packages a batch of recent transactions into a sealed unit called a block and adds it permanently to the blockchain.

Each block contains several thousand transactions, a reference to the previous block, a timestamp, and the solution to the mathematical puzzle the winning miner solved.

When you send Bitcoin, your transaction enters a waiting area called the mempool and stays there until a miner includes it in a block. Once included in a block, your transaction has one “confirmation.”

A Bitcoin transaction is an instruction, recorded on the blockchain, that transfers ownership of bitcoin from one address to another.

Every transaction on the Bitcoin blockchain is public. Anyone can look up any transaction using a blockchain explorer. What they'll see is addresses and amounts, not names. This is why Bitcoin is often described as pseudonymous rather than anonymous.

Once confirmed in a block, a Bitcoin transaction is irreversible. There is no “undo.” This is worth understanding before you send — double-check the address.

Your Bitcoin wallet doesn't hold bitcoin — it holds the cryptographic keys that prove your right to move it.

Bitcoin always exists on the blockchain. Your wallet holds the keys that prove your right to move the bitcoin associated with your addresses. Lose the keys, lose access to the bitcoin.

For Swiss users, the distinction between custodial and self-custodial wallets has a practical dimension: under Swiss wealth tax rules, your Bitcoin holdings must be declared regardless of where they're held. Ready to get started? Learn how to buy Bitcoin in Switzerland.

Every bitcoin address is controlled by a private key — a long string of characters, essentially a very large random number, that proves your ownership and authorizes you to spend whatever bitcoin is held there.

Whoever holds the private key controls the bitcoin associated with it. Unlike a bank password, there is no “forgot my password” reset. If you lose your private key (and your seed phrase, which generates it), the bitcoin is permanently inaccessible.

The phrase “not your keys, not your coins” reflects this reality: if you hold bitcoin on an exchange, you don't hold the private key — the exchange does.

A public key is derived from your private key using mathematics, and it's used to generate your Bitcoin addresses — the codes you share with others when you want to receive bitcoin.

The relationship between private key and public key is one-way: your public key can be calculated from your private key, but the reverse is not computationally possible. You can share your public key (or the address derived from it) with the world, and no one can use that information to determine your private key or steal your funds.

When you set up a Bitcoin wallet, it generates a list of 12 or 24 ordinary words. That list is your seed phrase — the master backup that can regenerate all of your private keys if your wallet is lost, stolen, or damaged.

Anyone who has them has full access to your bitcoin. Anyone who doesn't — including you, if you lose them — cannot recover your funds. Writing your seed phrase down on paper and storing it safely is the single most important act in Bitcoin self-custody.

This is especially relevant in Switzerland, where inheritance law requires careful documentation of assets. Bitcoin held in self-custody cannot be recovered by court order — estate planning is a real consideration.

A hot wallet is a Bitcoin wallet that is connected to the internet — either a phone app, a desktop app, or a browser extension.

“Hot” refers to the internet connection, which makes the wallet convenient but introduces risk. Your private keys are stored on a device that touches the internet, which means malware, phishing attacks, or a compromised device could potentially expose them.

Hot wallets are practical for smaller amounts you use regularly. For amounts you're holding as a long-term investment — say, more than CHF 2,000–5,000 — most security-conscious users move funds to cold storage.

Cold storage refers to holding Bitcoin using private keys that are never connected to the internet — making them significantly harder to steal remotely.

When your keys are kept offline, an attacker who compromises your computer or phone cannot reach them. Cold storage is the standard recommendation for any meaningful amount of bitcoin you intend to hold long-term.

For Swiss investors holding bitcoin as part of a wealth strategy, cold storage is the standard recommended approach for any amount above what you'd consider pocket money. See self-custody vs Bitcoin ETF for a full decision framework.

A hardware wallet is a small physical device — similar in size to a USB stick — that generates and stores your Bitcoin private keys offline.

When you want to send bitcoin, you connect the hardware wallet to your computer, review the transaction on the device's own screen, and confirm it physically. The device signs the transaction internally — your private keys remain inside the device, never exposed to software on your PC.

Well-known hardware wallets include Ledger, Trezor, and Coldcard. A hardware wallet typically costs CHF 60–150 and is considered the minimum reasonable security setup for anyone holding a meaningful amount of bitcoin.

Think of a Bitcoin address as your payment identity on the network — a string of 26–62 characters derived from your public key, safe to share with anyone who needs to pay you.

It functions like an IBAN for bitcoin, with a few important differences. Modern Bitcoin addresses come in several formats. The most current format starts with “bc1q” or “bc1p.”

One best practice: don't reuse the same address for multiple transactions. Every time you receive bitcoin, generate a fresh address. Modern wallets do this automatically. Swiss tax authorities have increased their analysis of blockchain data — using fresh addresses each time adds a layer of privacy.

Under the hood, Bitcoin doesn't track balances. It tracks UTXOs — Unspent Transaction Outputs — discrete chunks of bitcoin you own but haven't spent yet.

When someone sends you 0.01 BTC, the network doesn't add to a running total. Instead, it creates a new UTXO: a sealed parcel of 0.01 BTC sitting at your address. If you receive bitcoin five separate times, you have five separate UTXOs — your total balance is the sum of them.

Most users never need to think about UTXOs directly — wallets handle this automatically. But understanding the concept explains why transaction fees can vary.

Every Bitcoin transaction includes a fee paid to the miner who includes it in a block — and unlike bank wire fees, it's not fixed.

Fees are set by market demand. When the network is quiet, fees can be a few cents. When there's congestion — during peak demand periods — fees can spike to several dollars or more per transaction.

Fees are calculated per byte of transaction data, not per bitcoin amount. Sending CHF 10 worth of bitcoin costs the same as sending CHF 10,000. For everyday small payments, the Lightning Network sidesteps this entirely — fees there are fractions of a centime.

Before a transaction reaches the blockchain, it sits in the mempool — short for “memory pool” — a public queue visible to anyone on the network.

When you broadcast a transaction to the Bitcoin network, it waits in the mempool until a miner selects it to include in the next block. Miners prioritize transactions with higher fees.

You can monitor mempool congestion in real time on sites like mempool.space, which shows current fee levels, pending transactions, and estimated confirmation times.

Each block added on top of the one containing your transaction is another confirmation — a measure of how permanent and secure the transaction has become.

When your transaction is first included in a block, it has 1 confirmation. For small, everyday transactions, 1 confirmation is generally sufficient. For larger amounts, the standard is 3–6 confirmations before treating a payment as final.

Once a transaction has several confirmations, undoing it would require the attacker to redo all that computational work — which becomes economically infeasible very quickly.

To add a block to the blockchain, a miner must solve a puzzle. That puzzle-solving process is Proof of Work — and it's the reason Bitcoin's history is so difficult to tamper with.

The “work” is real — it consumes electricity. This is intentional. It means that to rewrite Bitcoin's history, an attacker would need to redo all that computational work for every block they want to change, while simultaneously outpacing the rest of the network.

Activated in 2017, SegWit (Segregated Witness) changed how transaction data is structured — reducing transaction sizes, lowering fees, and fixing a technical bug called transaction malleability.

SegWit addresses start with “bc1q.” If your wallet generates these, it's using SegWit. Many wallets now use SegWit by default.

Taproot is a 2021 Bitcoin upgrade that improved privacy, efficiency, and the flexibility of complex transaction types — including multisig and smart contract-like scripts.

The upgrade made complex multi-condition transactions look identical to simple transactions on the blockchain, improving privacy for all users. Taproot also introduced Schnorr signatures, which are more efficient. Taproot addresses start with “bc1p.”

Built on top of Bitcoin, the Lightning Network handles fast, cheap, private payments — settling in seconds instead of waiting for block confirmations.

The Lightning Network solves Bitcoin's speed limitation by opening payment channels between parties. Two parties lock some bitcoin in a shared account and can send payments back and forth instantly and cheaply, only settling to the blockchain when they choose to close the channel.

Fees on Lightning are tiny — typically a fraction of a centime per transaction. Settlement is instant.

Standard Bitcoin requires one signature to spend. Multisig changes that rule — you define how many keys must sign before a transaction is valid.

For example: “any 2 of these 3 keys must sign for the transaction to be valid.” This is called a 2-of-3 multisig setup.

If one of your keys is stolen or lost, an attacker still can't move your bitcoin without the second key. If one key is lost in a house fire, you still have the remaining two to recover access. You've eliminated the single point of failure.

In December 2013, during a sharp price crash, someone posted to the Bitcoin Talk forum with the title “I AM HODLING” — a typo for “holding.” The post resonated because it captured a real strategy: Bitcoin's long-term price trajectory has repeatedly rewarded those who held through volatility, while active trading has proven difficult even for professionals.

Over time, the community reframed HODL as an acronym: “Hold On for Dear Life.” HODL as an investment philosophy acknowledges Bitcoin's extreme volatility while betting on its long-term value proposition.

Dollar-Cost Averaging (DCA) is an investment approach where you buy a fixed amount of bitcoin at regular intervals — weekly or monthly — regardless of the price.

Rather than trying to buy at the “right” price, you invest a fixed amount on schedule. When the price is high, your fixed amount buys fewer sats. When the price is low, it buys more. Over time, your average purchase price smooths out.

For Bitcoin wealth tax and capital gains rules in Switzerland, DCA buyers are generally well within private investor status — the strategy is straightforward to document.

Ordinals are a method introduced in 2023 that allows arbitrary data — images, text, video clips — to be embedded directly onto the Bitcoin blockchain, effectively creating Bitcoin-native digital collectibles.

This created Bitcoin's equivalent of NFTs, though the Bitcoin community is divided about whether that comparison is helpful or fair. The differences are meaningful: Ordinals data lives on the Bitcoin blockchain itself, and the assets cannot be lost if a company shuts down.

For most Swiss investors approaching Bitcoin as a savings or investment asset, Ordinals are an interesting cultural footnote rather than a practical concern.