Ultimate Comprehensive Guide to Bitcoin Privacy & Key Cryptographic Concepts

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Account-based vs UTXO Model

The account-based model (used by Ethereum) maintains a global balance for each user’s address, making transactions appear like transfers between accounts. Bitcoin’s UTXO (Unspent Transaction Output) model, however, breaks transactions into distinct units called UTXOs. Each UTXO is either fully spent or remains unspent until it’s used. The UTXO model provides greater privacy and more straightforward validation, as every input in Bitcoin has a clear source, facilitating better tracking and eliminating double-spending issues.

Address Derivation Path

Address derivation paths are sequences that help generate Bitcoin addresses from a wallet's master key, ensuring consistency and security. Defined using hierarchical deterministic (HD) wallets like those following the BIP-32 standard, derivation paths ensure users can recreate their wallet addresses if they have the root seed. It enables users to manage multiple addresses from a single private key while enhancing privacy by using different addresses for each transaction without losing recoverability.

Address Reuse

Address reuse is the practice of using the same Bitcoin address for multiple transactions, which is highly discouraged for privacy and security reasons. By reusing an address, you expose more data, allowing observers to link transactions together, track balances, and potentially identify wallet owners. Address reuse also makes it easier for hackers or malicious parties to identify and target individuals. Ideally, a new Bitcoin address should be generated for every transaction to maximize privacy.

Alert Key

The alert key was a special private key used by Bitcoin developers to broadcast urgent messages or alerts to all network participants. Introduced to address significant security threats or protocol updates, it provided a way for developers to communicate essential information. However, due to concerns about centralization and the potential misuse of the key to issue false alerts, the alert key system was deprecated in 2016, with developers emphasizing decentralization and autonomous security of the network.

Anchoring

Anchoring refers to embedding data from one blockchain into another, like storing a cryptographic hash of data from a secondary blockchain onto Bitcoin’s blockchain. This mechanism allows other systems to take advantage of Bitcoin’s security, providing an immutable proof of the existence or validity of data at a given time. For example, sidechains can anchor data to the Bitcoin blockchain for timestamping or security, linking their operations back to Bitcoin's more secure network.

Anti-DoS Mechanisms

Anti-Denial of Service (DoS) mechanisms are safeguards implemented in Bitcoin to prevent network disruption from malicious attacks. These include imposing transaction fees that discourage spamming, validating nodes rejecting suspicious activity, rate limiting to cap excessive requests from specific nodes, and using checkpoints to prevent attackers from overwhelming nodes with invalid data. These mechanisms are critical in ensuring the network remains reliable, secure, and functional even in the face of adversarial attacks aimed at overwhelming or destabilizing the system.

Asymmetric Cryptography (related to Bitcoin key pairs)

Asymmetric cryptography is a cryptographic technique that uses a pair of keys: a public key and a private key. In Bitcoin, a public key is derived from a private key and is used to generate Bitcoin addresses where users can receive funds. The private key is kept secret and is used to sign transactions, authorizing the transfer of Bitcoin. This method ensures security, as only the private key holder can access and control the Bitcoin tied to a given address.

Atomic Broadcast

Atomic broadcast in Bitcoin refers to the mechanism that ensures transaction information is broadcast and received by all nodes in a reliable manner. When a transaction is broadcast, atomic broadcast guarantees that either all participants receive it or none do, supporting consensus across the network. It helps prevent discrepancies and ensures consistency in the transaction data seen by each node, which is crucial for maintaining the integrity and trustworthiness of Bitcoin's decentralized ledger.

Autonomy of Nodes

Bitcoin nodes operate autonomously, meaning each node independently verifies every transaction and block against the Bitcoin protocol's rules without relying on other nodes' trustworthiness. This autonomy ensures that no central authority dictates consensus, and nodes are free to decide whether to accept or reject a block. By following consensus rules independently, nodes collectively contribute to Bitcoin's decentralized security, ensuring that the entire network maintains a single, agreed-upon version of the blockchain.

Autopilot Protocol (Lightning Network)

The Autopilot protocol is a feature of the Lightning Network designed to simplify the process of opening payment channels by automatically selecting nodes with which to connect. It assesses factors like node reliability and centrality to ensure optimal connectivity, enhancing payment routing and network efficiency. This makes it easier for users, especially those new to the Lightning Network, to establish well-connected channels without manually deciding which peers to connect to, ultimately improving the user experience.

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B

Base58Check Encoding

Base58Check is an encoding format used to represent Bitcoin addresses, consisting of a set of 58 alphanumeric characters that exclude easily confusable characters (like 0, O, l, and I). It includes a checksum to detect input errors, reducing the risk of mistyped addresses. Base58Check encoding is primarily used for human-readable addresses, making them easier to handle and minimizing the possibility of mistakes when copying or typing Bitcoin addresses manually.

Batching (Bitcoin transactions)

Batching is a technique used by Bitcoin users, particularly exchanges, to combine multiple payments into a single transaction. Instead of creating separate transactions for each recipient, multiple outputs are combined in one batch, significantly reducing transaction fees and the number of on-chain transactions. Batching increases the overall efficiency of the blockchain, reduces congestion, and helps minimize the environmental impact by requiring less computational work for each individual payment.

Bech32 (Bitcoin address format)

Bech32 is a Bitcoin address format introduced as part of the SegWit upgrade. It uses lowercase alphanumeric characters and a distinct checksum, making addresses easier to read and resistant to common input errors. Bech32 addresses start with "bc1" and support native SegWit, which provides lower transaction fees and improved scalability. The Bech32 format also ensures more efficient use of block space, enhancing the overall capacity of the Bitcoin network.

BIP (Bitcoin Improvement Proposal)

A Bitcoin Improvement Proposal (BIP) is a standardized document proposing new features, improvements, or changes to Bitcoin’s protocol. BIPs are drafted by community members and reviewed and debated openly before implementation. They help ensure that modifications to the Bitcoin network are well-documented, thoroughly vetted, and transparent. Notable examples include BIP 39 (mnemonic phrases) and BIP 141 (SegWit), which introduced significant advancements in Bitcoin usability and performance.

BIP 32 Key Hierarchy

BIP 32 defines a standard for Hierarchical Deterministic (HD) wallets, which generate a tree-like structure of keys from a single seed phrase. This key hierarchy allows users to manage multiple addresses using one master seed, simplifying backup and recovery. With BIP 32, users can generate new addresses for each transaction, enhancing privacy, while still being able to restore all addresses and funds by using a single seed phrase if necessary.

BIP 44 Path

BIP 44 defines a specific derivation path structure used in HD wallets to organize different types of cryptocurrencies or accounts under a single seed phrase. It standardizes how wallets generate multiple coin types, accounts, and addresses from a master key. This organization allows users to manage different accounts (like personal or business) within the same wallet while maintaining easy backup and recovery through a single root seed.

Bitnodes

Bitnodes is a project aimed at counting and tracking the number of Bitcoin full nodes in the network. Full nodes validate every transaction and block, contributing to the network's security and decentralization. The Bitnodes platform provides valuable insights into network health and global distribution of nodes, allowing users to monitor Bitcoin’s decentralization level and identify geographical concentrations of nodes, which helps understand the robustness of the overall network.

Bitcoin Core

Bitcoin Core is the reference software used to run a Bitcoin full node, initially created by Satoshi Nakamoto. It includes a wallet and a complete copy of the blockchain, enabling users to validate transactions independently. Bitcoin Core developers work on implementing improvements, bug fixes, and security updates to the Bitcoin protocol. It is the most widely used client for interacting with the Bitcoin network, ensuring decentralization and adherence to Bitcoin's original principles.

Blind Signatures (Bitcoin mixing)

Blind signatures are cryptographic techniques used in Bitcoin mixing services to provide anonymity for users. When using blind signatures, transaction data is signed without revealing the actual details to the signer, thereby preventing correlation between inputs and outputs. This approach is crucial in privacy-enhancing protocols, as it helps users obfuscate the source of their funds while ensuring the correct execution of transactions, making it difficult for third parties to trace Bitcoin transactions.

Block Reward Halving

A block reward halving is an event that occurs approximately every four years, reducing the reward miners receive for validating a new Bitcoin block by half. This process controls Bitcoin's supply growth rate and mimics gold's scarcity, with a capped supply of 21 million bitcoins. For example, in 2020, the block reward halved from 12.5 BTC to 6.25 BTC, gradually reducing the creation of new bitcoins and contributing to scarcity-driven value.

Block Template

A block template is a data structure used by miners containing candidate transactions for a new block. Miners use block templates to create valid blocks by finding a suitable nonce that satisfies the proof-of-work requirements. These templates include the block header, transaction list, and metadata. Mining pools often provide block templates to miners to maximize efficiency, ensuring that the best set of transactions is selected based on fees and block size.

Bloom Filters (used in SPV nodes)

Bloom filters are probabilistic data structures used in Simplified Payment Verification (SPV) nodes to filter blockchain data and request only relevant transactions. SPV nodes use Bloom filters to query full nodes for transactions involving specific addresses without revealing the actual addresses, thus preserving privacy. Although not 100% accurate, Bloom filters are efficient in reducing the data SPV nodes need to process while ensuring a reasonable degree of privacy and usability.

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C

Chain Reorganization

Chain reorganization occurs when the Bitcoin network replaces blocks from the blockchain to resolve conflicting versions. This typically happens when two miners find valid blocks simultaneously, creating a temporary fork. Nodes adopt the longest chain, causing one set of blocks to be discarded and transactions to be re-mined. Chain reorganization can potentially lead to double-spending risks if a confirmed transaction becomes part of an abandoned block.

Chaincode (extended public keys in Bitcoin)

Chaincode is an additional piece of data used in Hierarchical Deterministic (HD) wallets when deriving child keys from a parent extended key. It ensures the generated keys are unique and secures the hierarchical structure by providing extra entropy. Chaincode, along with an extended public or private key, allows users to generate multiple addresses without exposing the private key, maintaining the security of the overall wallet.

CheckLockTimeVerify (CLTV)

CheckLockTimeVerify (CLTV) is a Bitcoin scripting operation that enforces time-based conditions on transactions. It prevents a specific output from being spent until a set time or block height is reached. For example, a user can set a CLTV condition to lock their funds for one year, providing programmable, time-locked payments that enhance security and enable more complex use cases, like delayed payments or trustless escrow contracts.

CheckSequenceVerify (CSV)

CheckSequenceVerify (CSV) is a Bitcoin script opcode that enforces relative time locks on transactions. Unlike CLTV, which uses absolute time, CSV is based on the relative age of a transaction output. For example, a CSV condition can require that a specific number of blocks be mined before an output can be spent, enabling features like payment channels and more flexible smart contracts on the Bitcoin blockchain.

CheckTemplateVerify (CTV)

CheckTemplateVerify (CTV) is a proposed Bitcoin upgrade that allows users to define specific rules for how their Bitcoin can be spent in the future. CTV enhances scalability and efficiency by enabling "covenants," which restrict how outputs can be spent, allowing for more efficient batching and congestion control. CTV also helps implement advanced contracts, like pre-approved payments, while reducing transaction complexity and improving network efficiency.

Child Pays for Parent (CPFP)

Child Pays for Parent (CPFP) is a fee-bumping mechanism used to expedite the confirmation of Bitcoin transactions stuck with low fees. In CPFP, a user creates a child transaction with a high fee to incentivize miners to include both the child and its unconfirmed parent transaction. This approach ensures that both transactions are confirmed quickly, especially useful when a prior transaction has an insufficient fee to attract miners.

Coinbase Transaction

A coinbase transaction is the first transaction in a new block, created by miners as a reward for successfully mining the block. It includes the block subsidy (newly created bitcoins) and transaction fees collected from other transactions within the block. Unlike regular transactions, the coinbase transaction has no inputs, as it generates new coins. Coinbase transactions also allow miners to include arbitrary data, often used to mark pool identification or messages.

ndlr: In Bitcoin and other proof-of-work blockchains, the term "coinbase transaction" refers to the first transaction in a newly mined block, used to reward the miner. It is an essential part of the mining process. Not to be confused with Coinbase Exchange a popular cryptocurrency exchange platform where users can buy, sell, and trade various cryptocurrencies. It is unrelated to the concept of a coinbase transaction, other than sharing the name.

Colored Coins (Bitcoin-based assets)

Colored coins are tokens issued on the Bitcoin blockchain that represent real-world assets like stocks, property, or loyalty points. By attaching metadata to Bitcoin transactions, colored coins create additional use cases beyond simple currency transfers. For example, a colored coin could represent shares in a company, and ownership of those coins indicates ownership of those shares, providing a way to tokenize physical or digital assets on the Bitcoin blockchain.

CoinJoin (Bitcoin privacy)

CoinJoin is a privacy-enhancing technique that combines multiple Bitcoin transactions from different users into a single transaction, obscuring the flow of funds. By merging inputs and outputs, it becomes difficult for external observers to trace which input corresponds to which output, significantly improving privacy. CoinJoin is often used by users wishing to enhance anonymity, as it prevents transaction analysis tools from easily linking addresses and transactions.

Cold Storage (Bitcoin)

Cold storage refers to keeping Bitcoin private keys offline, away from internet access, to protect them from hacking. Examples of cold storage include hardware wallets, paper wallets, or even storing keys on a computer not connected to the internet. Cold storage is particularly suited for long-term holding, providing maximum security for large Bitcoin holdings since offline storage mitigates online vulnerabilities and reduces the risk of theft.

Compact Blocks

Compact Blocks is a protocol enhancement aimed at reducing bandwidth consumption and speeding up block propagation among Bitcoin nodes. Instead of transmitting entire blocks, nodes send a compact version containing short transaction identifiers, which peers can use to reconstruct the block using transactions they already have. This approach reduces redundancy and accelerates block propagation, enhancing overall network efficiency and reducing the risk of forks caused by delayed block transmission.

Compact-Sized Integer (Bitcoin protocol)

Compact-sized integers are a type of variable-length encoding used in the Bitcoin protocol to efficiently store numbers. The size of the encoding depends on the value, with smaller values taking fewer bytes to store. This efficient representation helps reduce the size of blockchain data, allowing for more transactions to fit into each block and minimizing bandwidth requirements when transmitting transaction data among nodes.

Confidential Transactions (Bitcoin sidechains)

Confidential Transactions (CT) is a feature that hides transaction amounts, ensuring privacy for users by concealing how much Bitcoin is being transferred. Although not implemented in Bitcoin's main blockchain, CT is used in sidechains like Liquid, which is designed for financial institutions. CT uses cryptographic commitments to maintain privacy while allowing network participants to verify that transactions are valid without revealing sensitive information like transaction amounts.

Convergence in Consensus (Bitcoin)

Convergence in consensus refers to the process where Bitcoin nodes reach agreement on the current state of the blockchain. Nodes independently verify and validate new transactions and blocks, and, through the consensus algorithm, they eventually converge to a single chain as the valid history. This convergence ensures all participants in the network have a consistent view of the blockchain, preventing forks and maintaining the security and stability of the system.

CPFP Carving (Bitcoin fee replacement)

CPFP carving is a technique used in Bitcoin where a high-fee child transaction incentivizes miners to include both the parent and child transactions. In CPFP carving, the child transaction "carves" space for its parent by offering a higher overall reward to miners. This approach is especially useful when the parent transaction's fee is too low, allowing users to get stuck transactions confirmed by effectively increasing the total fee for both transactions.

Cryptocurrency Mixer (related to Bitcoin)

A cryptocurrency mixer, also known as a tumbler, is a service that mixes Bitcoin from different users to enhance privacy by breaking the link between sending and receiving addresses. By pooling and redistributing funds, mixers make it difficult for third parties to trace transactions and associate them with specific users. While mixers are often used for privacy, they have also drawn scrutiny for facilitating money laundering by obscuring the origin of funds.

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D

Depth of Chain (Bitcoin)

The depth of a chain refers to the number of blocks between a specific block and the most recent block in the Bitcoin blockchain. For instance, if a block has a depth of 100, it means there are 100 subsequent blocks on top of it. The depth indicates how secure and confirmed a block is, as more confirmations make a block increasingly difficult to replace, thereby reducing the chances of reorganization or double-spending.

Deterministic RNG (Random Number Generator for Bitcoin)

Deterministic Random Number Generator (RNG) is a predictable algorithm used to produce a sequence of numbers that appears random. In Bitcoin, deterministic RNG is crucial for generating private keys consistently and securely, ensuring that the same input always produces the same output. This consistency is essential for wallet backup and restoration, as it helps derive the same sequence of keys, ensuring users can reliably recover their Bitcoin.

Deterministic Wallet (Bitcoin HD wallet)

A deterministic wallet, also known as a Hierarchical Deterministic (HD) wallet, generates Bitcoin addresses and keys from a single root seed. Using a BIP-32 or BIP-44 structure, HD wallets allow users to create an unlimited number of addresses from the same seed phrase, simplifying backup and recovery. Even if individual keys are lost, the entire wallet can be restored using the original seed, making key management easier and more secure.

Difficulty Retargeting

Difficulty retargeting is a process in which Bitcoin adjusts the complexity of mining every 2,016 blocks (approximately two weeks). The goal is to maintain an average block generation time of 10 minutes, regardless of fluctuations in the number of miners or their computational power. If blocks are mined too quickly, difficulty increases; if too slowly, it decreases, ensuring a stable and predictable rate of new Bitcoin blocks being added to the blockchain.

Discreet Log Contracts (DLC)

Discreet Log Contracts (DLCs) are a type of smart contract on Bitcoin that allows parties to create complex financial agreements, such as options or bets, without revealing contract details on the blockchain. DLCs use oracles to verify contract conditions without exposing the underlying data, enhancing both privacy and security. For example, two parties can create a contract based on future events like a sports outcome, with the results verified by an oracle.

Distributed Timestamp Server (Bitcoin concept)

The distributed timestamp server is a foundational concept of Bitcoin that ensures transaction integrity by ordering transactions in chronological sequence. Bitcoin nodes timestamp new transactions, grouping them into blocks and hashing them into a chain, creating an immutable ledger. This mechanism prevents double-spending by proving that transactions occurred in a specific order, ensuring consistency across the network and providing a public record of all Bitcoin activities.

Double-SHA256 (Bitcoin hashing)

Double-SHA256 is the hashing function used in Bitcoin to secure transactions and blocks. It involves applying the SHA-256 hashing algorithm twice, resulting in a cryptographic hash that is highly secure and resistant to collision attacks. By hashing twice, Bitcoin reduces vulnerabilities in the hashing process, providing enhanced security for digital signatures, transaction verification, and proof-of-work consensus. This hashing method ensures data integrity and authenticity throughout the Bitcoin blockchain.

Dust Limit (Bitcoin transaction limit)

The dust limit is the minimum amount of Bitcoin that can be sent in a transaction before it is considered uneconomical due to fees exceeding the transferred value. Transactions below this limit are known as "dust" and are usually not relayed by nodes. The dust limit prevents spam and ensures that transaction fees justify the effort required to include the transaction in a block, helping maintain network efficiency.

Dust Transactions (Bitcoin)

Dust transactions refer to transactions involving tiny amounts of Bitcoin, often less than the network's dust limit. These transactions are typically too small to be economically viable, as the fees for including them exceed their value. Dust transactions are sometimes used maliciously to clog the network, but generally, they represent remnants of Bitcoin that are difficult to spend due to prohibitive fees. Wallets often consolidate dust to reduce costs and avoid network spam.

E

Electrum Wallet

Electrum Wallet is a lightweight Bitcoin wallet known for its speed, simplicity, and security. It uses Simplified Payment Verification (SPV) to verify transactions, meaning it does not require downloading the entire blockchain. Electrum allows users to generate HD (Hierarchical Deterministic) wallets, which makes backups simple via seed phrases. It also supports advanced features like multi-signature and cold storage, making it suitable for both beginners and advanced users.

Elliptic Curve Digital Signature Algorithm (ECDSA)

ECDSA is a cryptographic algorithm used in Bitcoin to generate digital signatures. It uses elliptic curves to create a private-public key pair, allowing users to prove ownership of funds and authorize transactions. ECDSA ensures data integrity, preventing anyone without the private key from spending Bitcoin tied to a specific address. It is an efficient and secure method for signing transactions, fundamental to maintaining Bitcoin's trustless and decentralized nature.

Entropy (Bitcoin wallet generation)

Entropy in Bitcoin wallet generation refers to randomness used to create secure private keys. High entropy means more unpredictability, reducing the likelihood of key compromise. For example, generating a Bitcoin wallet from a random seed phrase requires high entropy to ensure that no two wallets share the same private key, thus protecting users from brute-force attacks. Proper entropy ensures wallet security and makes private keys unguessable.

Entropy Source (Bitcoin key generation)

An entropy source is a source of randomness used to generate Bitcoin private keys securely. This randomness is crucial because predictable keys can lead to wallet vulnerabilities. Common entropy sources include hardware-based randomness (e.g., mouse movements or environmental noise) or software-based pseudo-random number generators. A good entropy source ensures that private keys are unpredictable, safeguarding Bitcoin funds from attackers who may try to guess the key.

Extended Private Key (xPrv)

An extended private key (xPrv) is part of the BIP-32 HD wallet standard, allowing the derivation of an entire hierarchy of private keys and addresses from a single root key. With an xPrv, users can generate multiple addresses for receiving Bitcoin without reusing keys, enhancing privacy and simplifying wallet management. However, xPrv should be kept secure, as anyone with access to it can derive all associated private keys and spend funds.

Extended Public Key (xPub)

An extended public key (xPub) is also derived from the BIP-32 standard, enabling the generation of multiple public keys and addresses without exposing the corresponding private keys. xPub keys are useful for generating new addresses to receive Bitcoin without needing the private keys, making them ideal for tracking payments securely. xPub is often used by businesses and services to manage customer payments while keeping funds safe from unauthorized access.

Extrinsic Incentive (Bitcoin network)

Extrinsic incentives are external rewards that motivate Bitcoin miners and participants to secure the network. These incentives include block rewards (newly created Bitcoin) and transaction fees paid by users. By providing extrinsic incentives, the Bitcoin protocol ensures that miners have a financial reason to contribute computational power to validate transactions, maintain network security, and support the proof-of-work consensus mechanism, ultimately fostering a healthy and secure ecosystem.

F

Faucet (Bitcoin testnets)

A Bitcoin faucet is a service that gives out small amounts of Bitcoin, typically used on testnets to help developers and users experiment with transactions without using real funds. Testnet faucets provide free testnet Bitcoin, allowing developers to test applications, experiment with scripts, or simulate transactions in a risk-free environment. Faucets play an important role in ensuring accessibility to testnet coins without monetary cost, enabling robust testing before deployment on the main network.

Federated Sidechain (e.g., Liquid Network for Bitcoin)

A federated sidechain is a separate blockchain linked to the Bitcoin main chain, operated by a federation of trusted entities. The Liquid Network, for example, is a federated sidechain used for fast, confidential transactions and asset issuance. Users can move Bitcoin to and from the Liquid sidechain, enabling features like quicker settlements and confidential transactions while leveraging Bitcoin’s security. It provides additional functionality without modifying the main Bitcoin blockchain.

Fee Estimation (Bitcoin transaction fees)

Fee estimation is the process of determining the optimal fee for a Bitcoin transaction to ensure timely confirmation. Bitcoin fees vary based on network congestion, with higher fees incentivizing miners to prioritize transactions. Wallets and nodes use algorithms to estimate appropriate fees by analyzing current mempool data and recent block inclusion rates, helping users avoid overpaying while ensuring that their transactions are confirmed within their desired timeframe.

Full Node (Bitcoin)

A Bitcoin full node is a computer running Bitcoin software that stores the entire blockchain, verifies transactions, and enforces consensus rules. Full nodes are vital for the Bitcoin network's security and decentralization, as they independently verify all blocks and transactions, ensuring their validity without relying on third-party trust. Full nodes relay verified transactions to other nodes and contribute to the integrity and resilience of the Bitcoin network by maintaining a complete and consistent ledger.

Fully Noded Wallet (Bitcoin)

A fully noded wallet is a Bitcoin wallet that connects directly to a full node instead of relying on third-party services for transaction validation. This setup ensures maximum privacy and trustlessness, as the wallet owner independently verifies transactions using their own full node. Unlike lightweight wallets, fully noded wallets do not share transaction details with external nodes, making them a secure and private way for users to interact with the Bitcoin blockchain.

G

GPG Key (used in Bitcoin ecosystem)

A GPG key (GNU Privacy Guard) is a cryptographic key used in the Bitcoin ecosystem for secure communication, code signing, and verifying authenticity. Developers use GPG keys to sign Bitcoin software releases, allowing users to verify the integrity of the downloaded code. GPG keys ensure that the software is legitimate and has not been tampered with, providing a secure method for maintaining trust in the Bitcoin community and software development process.

Gossip Protocol (Bitcoin peer-to-peer)

The Gossip Protocol is a peer-to-peer communication method used in Bitcoin to propagate information, such as new transactions and blocks, across the network. Each node relays information to its connected peers, allowing updates to spread quickly and redundantly. This decentralized approach ensures that all nodes are kept in sync, reduces the risk of central points of failure, and enhances network reliability and robustness by distributing data across multiple participants.

GreenAddress (Bitcoin wallet)

GreenAddress is a Bitcoin wallet focused on user security and convenience, offering features like multi-signature transactions, instant confirmations, and two-factor authentication (2FA). GreenAddress uses a multi-signature setup where the user holds one private key, and GreenAddress co-signs with another key, ensuring that no single party has full control over the funds. It also provides hardware wallet support and a user-friendly interface, making it popular for users seeking enhanced security features.

H

Hardware Wallets (for Bitcoin storage)

A hardware wallet is a physical device used to store Bitcoin securely by keeping private keys offline. These wallets are designed to prevent unauthorized access, making them highly resistant to hacking and malware. Examples include Ledger and Trezor wallets. Hardware wallets are ideal for long-term storage as they reduce exposure to online threats, providing a secure way to manage Bitcoin holdings with an added layer of physical security.

Hash Function Output Length (Bitcoin SHA-256)

The hash function output length for Bitcoin's SHA-256 is 256 bits, represented as a 64-character hexadecimal string. The SHA-256 hash function is used to secure transactions and blocks in Bitcoin, providing a fixed-length, unique output for any input. The 256-bit output helps maintain data integrity, prevent tampering, and ensure that Bitcoin's proof-of-work system remains secure by making it computationally infeasible to generate the same hash for different inputs.

Hash Time-Locked Contracts (HTLC, used in Bitcoin)

Hash Time-Locked Contracts (HTLC) are advanced Bitcoin smart contracts that require certain conditions to be met before a transaction can be executed. HTLCs use cryptographic hashes and time locks to create a conditional payment system. They are used in atomic swaps and payment channels to ensure that either the payment is completed or refunded within a specified time frame, providing a trustless mechanism for executing transactions across different participants or blockchains.

Hashrate (Bitcoin mining)

Hashrate refers to the total computational power used to mine Bitcoin and secure the network. It is measured in hashes per second (H/s) and represents the number of attempts made to solve the cryptographic puzzle required for adding a new block. A higher hashrate indicates more competition among miners and greater security for the network, as it becomes more challenging for an attacker to gain enough control to manipulate the blockchain.

Hierarchical Deterministic Wallet (HD Wallet)

A Hierarchical Deterministic (HD) wallet is a type of Bitcoin wallet that generates all of its addresses and keys from a single seed phrase using BIP-32 or similar standards. This allows users to easily back up and restore their entire wallet using the seed phrase. HD wallets also enhance privacy by generating a new address for each transaction while keeping the overall management straightforward with a single master seed.

Hierarchical Security Model (Bitcoin wallets)

The hierarchical security model in Bitcoin wallets refers to the tiered security approach employed by Hierarchical Deterministic (HD) wallets. The model enables different levels of keys for different purposes: a master private key at the top for full wallet control and child keys derived for individual transactions or accounts. This structure allows for more flexible control, such as providing viewing-only rights for an account without revealing private keys used for spending.

Hot Wallet (Bitcoin storage)

A hot wallet is a Bitcoin wallet connected to the internet, used for storing and managing smaller amounts of Bitcoin for day-to-day transactions. Examples include mobile wallets and exchange wallets. Hot wallets are convenient for frequent use but are more vulnerable to hacks and malware compared to offline wallets. Therefore, they are recommended for holding small amounts of Bitcoin while cold wallets are used for larger, long-term holdings due to higher security.

Hybrid Wallet (Bitcoin)

A hybrid wallet is a Bitcoin wallet that combines features of both hot and cold storage. It offers the accessibility of hot wallets for regular transactions while ensuring enhanced security with some level of offline storage. For example, a hybrid wallet may use an offline private key but have an online interface for managing transactions, providing a balance between convenience and security. Hybrid wallets are often used for wallets that require partial multisig setups or increased redundancy.

I

Inbound Peer (Bitcoin nodes)

An inbound peer is a node that initiates a connection to another Bitcoin node to share information, such as transactions and blocks. Inbound peers are crucial for maintaining the Bitcoin network's decentralized structure, as they help propagate data across nodes and ensure redundancy. Full nodes typically allow a limited number of inbound connections to maintain network security while ensuring that the blockchain is distributed effectively across multiple network participants.

Input Script (Bitcoin transactions)

The input script, also known as the unlocking script or ScriptSig, is part of a Bitcoin transaction that proves ownership of the funds being spent. It contains the digital signature and public key, which are used to satisfy the conditions specified in the output script of the previous transaction. The input script authorizes the spending of UTXOs, allowing the transfer of Bitcoin from one address to another.

Instant Finality (related to Bitcoin Lightning Network)

Instant finality refers to the feature of the Bitcoin Lightning Network that allows payments to be considered final immediately upon being completed. Unlike on-chain Bitcoin transactions that require multiple confirmations, the Lightning Network offers rapid settlement without the risk of chain reorganizations. This makes the Lightning Network particularly useful for micropayments and other scenarios requiring quick, final payments, providing an experience similar to traditional instant payment systems.

Instant Payments (Bitcoin Lightning Network)

Instant payments in the Bitcoin Lightning Network refer to off-chain transactions that are completed within seconds. By using pre-established payment channels, participants can make instant transfers without waiting for block confirmations. This is ideal for everyday transactions, such as buying coffee or paying for services, where quick settlement is essential. The Lightning Network helps scale Bitcoin by reducing congestion on the main chain while maintaining security.

Invoice Metadata (Lightning Network)

Invoice metadata in the Lightning Network refers to additional information included in a payment request, such as the amount due, a description of the payment, and an expiration time. The metadata helps the receiver provide more context for the payment and ensures that the payer knows exactly what the invoice is for. Lightning invoices are usually represented in a human-readable format called Bolt11, which makes payments user-friendly and efficient.

Invoice Payment Protocol (Bitcoin)

The Invoice Payment Protocol is a mechanism that standardizes how invoices are created and processed for Bitcoin payments. It includes details like the payment amount, merchant information, and additional metadata, ensuring that users send the correct amount to the intended recipient. The protocol is intended to improve user experience by reducing errors and increasing the reliability of transactions, providing a more business-friendly framework for merchants accepting Bitcoin.

Involuntary Chain Split (Bitcoin forks)

An involuntary chain split occurs when the Bitcoin blockchain diverges into two chains due to a disagreement over consensus rules or a bug, without any deliberate intention to create a fork. Such splits can result in temporary forks until one chain becomes longer and is accepted as the main chain. Involuntary chain splits can lead to double-spending risks and confusion within the network until consensus is re-established.

J

JoinMarket (Bitcoin privacy tool)

JoinMarket is an open-source privacy tool that facilitates CoinJoin transactions to improve Bitcoin transaction privacy. It connects users wanting privacy with those willing to provide liquidity in exchange for a fee, creating mixed transactions that obfuscate the link between inputs and outputs. JoinMarket is unique in its market-driven approach to incentivizing liquidity providers, making privacy more accessible while ensuring transaction participants' identities and coin flows remain difficult to trace.

JIT Compiler (related to Bitcoin smart contracts)

A Just-In-Time (JIT) compiler is used in blockchain virtual machines, such as those in Bitcoin smart contract implementations, to optimize script execution. It converts script bytecode into native machine code at runtime, which significantly enhances performance by reducing execution time and computational costs. While JIT compilation is more common in advanced blockchain environments like Ethereum, it can also be applied to optimize complex Bitcoin smart contract operations.

Juggling Outputs (Bitcoin privacy enhancement)

Juggling outputs is a privacy-enhancing technique used in Bitcoin transactions to mix and redistribute outputs in a way that conceals the original sender-receiver relationship. By randomly reshuffling outputs across multiple transactions and participants, juggling makes it difficult for observers to trace which input matches which output, thus preserving privacy. This method is often used in conjunction with other privacy tools like CoinJoin to further enhance transaction obfuscation and anonymity.

K

Key Regeneration (Bitcoin wallets)

Key regeneration is the process of generating new private-public key pairs in Bitcoin wallets, usually derived from an original seed phrase. With Hierarchical Deterministic (HD) wallets, users can regenerate all past and future keys from the same root seed. This makes wallet recovery easy if a user loses their wallet but still has the seed phrase, ensuring they can regain access to their Bitcoin holdings without compromising security.

Key Stretching (Bitcoin key security)

Key stretching is a technique used to make a weak secret key (like a password) more secure by transforming it into a stronger, longer key. In Bitcoin, key stretching is often applied to improve the security of passphrases used for wallet encryption. It involves repeated hashing of the original key, which makes brute-force attacks significantly harder, thereby protecting wallet data from being compromised by attackers using high-speed computational resources.

Keypool (Bitcoin wallet)

A keypool is a pool of pre-generated Bitcoin addresses maintained by a wallet to ensure that new addresses are always available for transactions without needing immediate computation. When a user needs a new receiving address, one is fetched from the keypool. This method allows for efficient address management and enhances privacy, as the wallet can generate multiple unique addresses while reducing computational delays during transactions.

Knowledge Proof of Reserves (Bitcoin audit)

Knowledge Proof of Reserves is an auditing mechanism used by Bitcoin custodians or exchanges to prove they hold the assets they claim without disclosing sensitive details. It involves using cryptographic proofs to show ownership of Bitcoin addresses containing reserves. This helps verify solvency, providing users with confidence that the exchange has sufficient funds to cover user balances, while also maintaining customer privacy and minimizing the exposure of internal wallet structures.

L

Libbitcoin (Bitcoin library)

Libbitcoin is an open-source Bitcoin development library that provides tools for building Bitcoin applications. It offers a set of APIs and utilities for developers to create wallets, nodes, and other services interacting with the Bitcoin blockchain. Designed for flexibility and scalability, Libbitcoin facilitates easy integration of Bitcoin functionality in custom applications, making it a valuable resource for developers building bespoke Bitcoin-related software beyond the capabilities of standard Bitcoin Core.

Lightning Atomic Swaps (Bitcoin)

Lightning Atomic Swaps are cross-chain transactions performed using the Bitcoin Lightning Network, enabling users to exchange one cryptocurrency for another without a trusted intermediary. The process uses Hash Time-Locked Contracts (HTLCs) to ensure that the trade is either completed or canceled, preserving both parties' funds. Atomic swaps enhance privacy, interoperability, and efficiency by enabling direct peer-to-peer exchanges without centralized exchanges or third-party custody.

Lightning Channel (Bitcoin scaling solution)

A Lightning channel is a private payment channel established between two parties that allows them to conduct multiple off-chain Bitcoin transactions. By locking an initial balance on the main Bitcoin blockchain, users can make numerous instant payments with reduced fees through the channel. Only the opening and closing transactions are recorded on-chain, which alleviates congestion on the Bitcoin network, making the Lightning Network an effective scalability solution for fast, micro Bitcoin transactions.

Lightning HTLC Routing (Bitcoin)

Lightning HTLC (Hash Time-Locked Contract) Routing is a mechanism that enables payments to be securely routed across multiple nodes in the Lightning Network. HTLCs lock funds until specific conditions are met, such as revealing a preimage to a hash, ensuring trustless routing between intermediary nodes. This enables payments to be made across the network without the intermediaries knowing or accessing the transaction details, thereby enhancing privacy and payment efficiency.

Lightning Network Daemon (LND)

The Lightning Network Daemon (LND) is an implementation of the Lightning Network protocol for Bitcoin, developed by Lightning Labs. LND allows users to run a Lightning node, manage payment channels, and facilitate fast, low-cost Bitcoin transactions. It provides developers with APIs to integrate Lightning payments into their applications, making it a crucial tool for leveraging Bitcoin’s scalability solution. LND is one of the most popular and widely-used implementations of the Lightning Network.

Liquid Sidechain (Bitcoin)

The Liquid Sidechain is a Bitcoin-based sidechain developed by Blockstream to enable faster transactions, confidential trading, and the issuance of tokenized assets. The Liquid network is federated, meaning it is operated by trusted members called functionaries. Bitcoin can be moved to and from the Liquid sidechain, allowing users to benefit from faster block times (around one minute) and private transactions, which are especially useful for financial institutions and trading platforms.

LN Penalty (Lightning Network penalty mechanism)

LN Penalty is a mechanism in the Lightning Network that enforces honesty among participants in a payment channel. If one party tries to broadcast an old, invalid channel state, the other party can claim all the funds as a penalty. This provides a strong financial incentive to act honestly. The penalty system ensures that both parties adhere to the latest, correct state of the channel, preserving the security and integrity of the Lightning Network.

Locktime (Bitcoin transaction)

Locktime is a parameter in Bitcoin transactions that specifies the earliest time or block height at which the transaction can be added to the blockchain. This feature allows users to create time-locked transactions that cannot be spent until a specific condition is met, such as reaching a particular block number. Locktime is commonly used for advanced functions like escrow transactions, enabling delayed payments or implementing complex smart contract-like features in Bitcoin.

Logarithmic Difficulty Adjustment (Bitcoin)

Logarithmic Difficulty Adjustment in Bitcoin refers to the algorithm that adjusts mining difficulty in response to the network’s hashrate changes. This adjustment ensures that new blocks are mined approximately every 10 minutes. The difficulty is increased or decreased logarithmically to prevent large swings in the rate of block production, helping stabilize the network and maintaining a predictable issuance of new bitcoins despite fluctuations in the number of active miners.

Loop In/Out (Lightning Network liquidity service)

Loop In/Out is a service by Lightning Labs to manage liquidity within the Lightning Network channels. "Loop In" involves bringing on-chain Bitcoin into a Lightning channel to increase inbound capacity, while "Loop Out" involves moving funds from a Lightning channel to an on-chain address to free up outbound capacity. These services help users maintain balanced channels, ensuring efficient payment routing and a reliable Lightning Network experience without closing and reopening channels.

M

Master Public Key (Bitcoin HD wallet)

A master public key in a Hierarchical Deterministic (HD) Bitcoin wallet allows users to derive an entire series of public keys and addresses without exposing the master private key. This is especially useful for tracking transactions and receiving payments securely, as it permits the creation of new receiving addresses while keeping private keys offline, which enhances privacy and reduces the risk of key compromise.

Mempool Priority (Bitcoin transactions)

Mempool priority refers to how Bitcoin transactions are prioritized in the mempool (transaction pool) before they are added to a block. Transactions with higher fees typically get priority, as miners prefer to include transactions that offer better rewards. Priority is also influenced by transaction size and fee per byte, with high-fee, small-size transactions being more likely to be confirmed quickly, especially during times of network congestion.

Merkle Block (Bitcoin SPV proof)

A Merkle block is a lightweight representation of a full Bitcoin block used in Simplified Payment Verification (SPV) to prove the inclusion of specific transactions without downloading the entire block. It contains the block header and a Merkle proof path that enables SPV nodes to verify that a transaction exists within a block. This provides a compact way for lightweight clients to validate transactions while maintaining a degree of security.

Merkle Proof Path (Bitcoin transaction verification)

A Merkle proof path is a sequence of hashes that allow a user to verify that a specific transaction is included in a given Bitcoin block. The proof path links a transaction’s hash to the Merkle root of the block. SPV nodes use Merkle proof paths to verify transactions without downloading the entire blockchain, reducing storage and processing requirements while still confirming that the transaction is valid.

Merged Mining (Bitcoin-compatible altcoins)

Merged mining allows miners to simultaneously mine Bitcoin and compatible altcoins that use the same proof-of-work algorithm, such as Namecoin. This process involves solving the proof-of-work for both chains with a single computation, effectively mining both coins without extra energy consumption. Merged mining provides security benefits to the altcoin by leveraging Bitcoin's hash power while giving miners additional rewards for their efforts.

Mini Private Key (Bitcoin wallet)

A mini private key is a shortened form of a Bitcoin private key, often used for physical Bitcoin or paper wallets. Mini private keys are typically 22 characters long, making them easier to handle and print while still generating the corresponding full 256-bit private key. They serve as a compact way to secure private keys but need to be handled carefully, as losing the key means losing access to the corresponding Bitcoin.

Mixer Services (Bitcoin privacy)

Mixer services, also known as tumblers, are third-party services used to enhance privacy in Bitcoin transactions by mixing coins from multiple users to break the link between sending and receiving addresses. By pooling and redistributing funds, mixers make it difficult for blockchain analysis tools to trace the flow of Bitcoin and link it to individual users, improving anonymity but also attracting scrutiny for potential use in illicit activities.

Multisig Script (Bitcoin multisignature transactions)

A multisig (multisignature) script is a type of Bitcoin script used to create addresses that require multiple private keys to authorize a transaction. It defines how many keys out of a total set are needed to spend the funds. For example, a 2-of-3 multisig script would require any two out of three keyholders to sign a transaction. Multisig scripts enhance security by reducing the risk of a single point of failure.

Multi-Party Computation (specific to Bitcoin security)

Multi-Party Computation (MPC) is a cryptographic technique used in Bitcoin to enable multiple participants to jointly compute a function over their inputs while keeping those inputs private. In Bitcoin, MPC is applied to key management and transaction signing, allowing users to collaborate in signing a transaction without any participant revealing their private key. This method enhances security, making it ideal for collaborative wallets and enterprise-level Bitcoin custodians.

Multisignature Redeem Script (Bitcoin)

A multisignature redeem script is a Bitcoin script that defines the conditions under which funds from a multisig address can be spent. It specifies the required public keys and the number of keys needed to authorize spending. The redeem script is hashed to create the multisig address, and when spending, it must be provided to prove that the transaction meets the required signing criteria, allowing the funds to be unlocked.

N

Nakamoto Consensus

Nakamoto Consensus is the consensus mechanism used by Bitcoin, combining Proof of Work (PoW) with economic incentives to maintain the integrity of the blockchain. Miners solve complex computational puzzles to propose new blocks, and the longest chain with the most accumulated work is considered the valid chain. Nakamoto Consensus ensures the network’s security and prevents double-spending by requiring significant computational effort for modifying past transactions.

Network Consensus (Bitcoin nodes)

Network consensus refers to the process by which Bitcoin nodes agree on the current state of the blockchain. Consensus is achieved through the validation of blocks and transactions based on a set of predefined rules (e.g., PoW, transaction structure). Every node independently verifies new data, ensuring a consistent blockchain state across the network. Achieving consensus among decentralized nodes is fundamental to Bitcoin's trustless and secure environment.

Network Round-Trip Time (RTT, Bitcoin network)

Network Round-Trip Time (RTT) is the time taken for a signal (such as a transaction or block) to travel from one Bitcoin node to another and back. RTT impacts the speed of data propagation in the network, affecting how quickly blocks and transactions are shared. Lower RTT contributes to faster block propagation, reducing the risk of orphan blocks, while higher RTT may delay data sharing and network synchronization.

Node Incentives (Bitcoin)

Node incentives refer to the reasons why participants operate Bitcoin nodes. Full nodes maintain the complete blockchain, contributing to network security and decentralization. While running a node does not provide direct financial rewards like mining, it offers intrinsic incentives, such as increased privacy, transaction validation, and ensuring adherence to Bitcoin's rules. These incentives help keep the Bitcoin network secure and decentralized by encouraging users to verify and propagate valid transactions and blocks.

Node Propagation (Bitcoin network)

Node propagation in Bitcoin is the process by which new transactions and blocks are disseminated across the network. When a node receives a new transaction or block, it verifies it and then relays it to connected peers. This propagation ensures that all nodes have an updated copy of the blockchain and current mempool transactions, maintaining the network's integrity, consistency, and decentralization. Efficient propagation reduces orphan blocks and keeps the entire network synchronized.

Non-Interactive Proofs (Bitcoin verification)

Non-interactive proofs are cryptographic proofs that allow one party to prove to another that a statement is true without any back-and-forth communication. In the context of Bitcoin, non-interactive proofs are used to verify data like ownership or transaction validity without revealing the underlying information. This technique is valuable for privacy-preserving systems, such as zk-SNARKs, and can help reduce bandwidth requirements since only a single proof is needed for verification.

Non-Standard Transactions (Bitcoin protocol)

Non-standard transactions are Bitcoin transactions that do not follow the typical template defined by Bitcoin’s consensus rules. They may use custom scripts or structures, making them less common and not relayed by most nodes by default due to potential security risks. Non-standard transactions are often used for testing, advanced smart contract implementations, or unique use cases, but they require miners to accept them directly for inclusion in a block.

Nonce Incremental Search (Bitcoin mining)

Nonce incremental search is a process used by Bitcoin miners to find a valid hash for a new block by iteratively adjusting the nonce value. The nonce is a number added to the block header, and miners change it to generate different hash outputs. The goal is to find a hash below the difficulty target, proving sufficient computational work. Incremental nonce adjustments are part of the trial-and-error process in Bitcoin’s Proof of Work consensus.

NLockTime (Bitcoin transactions)

NLockTime is a parameter in Bitcoin transactions that specifies the earliest time or block height when the transaction can be included in the blockchain. NLockTime allows for time-locked transactions, meaning funds cannot be spent until the specified condition is met, which is useful for escrow arrangements or delayed payments. If NLockTime is set, the transaction remains valid but unspendable until the designated block height or time is reached.

O

One-Time Address (Bitcoin privacy)

A one-time address is a Bitcoin address that is used only once to receive a transaction. By generating a new address for each transaction, users can significantly enhance their privacy. This method prevents blockchain observers from linking multiple transactions to the same address, making it more difficult to trace the movement of funds and deduce personal information, thereby improving the anonymity of users engaging in Bitcoin transactions.

Onion Routing (Bitcoin transaction privacy)

Onion routing is a privacy-enhancing technique used to obscure the path of Bitcoin transactions across the network. In onion routing, data is encrypted in multiple layers and sent through several nodes, with each node decrypting only its layer before passing the data to the next node. This approach conceals the origin, destination, and content of transactions, making it difficult for anyone to trace the transaction's source or recipient.

Open-Source Cryptography Libraries (used in Bitcoin)

Open-source cryptography libraries are collections of cryptographic tools and functions made publicly available for Bitcoin development. Examples include OpenSSL and libsecp256k1, used to implement Bitcoin’s cryptographic functions like digital signatures and public-key generation. The transparency of open-source libraries allows community scrutiny for vulnerabilities, ensuring the security and reliability of Bitcoin’s cryptographic operations, which is vital for maintaining user trust and system integrity.

OpenTimestamps (Bitcoin timestamping)

OpenTimestamps is a protocol that uses the Bitcoin blockchain to provide proof that a piece of data existed at a specific time. By creating a cryptographic hash of the data and embedding it in a Bitcoin transaction, OpenTimestamps creates an immutable timestamp. This method allows users to verify the existence of a document or file without revealing its contents, providing a decentralized, tamper-proof way to prove when information was created.

OP_RETURN (Bitcoin script)

OP_RETURN is an operation code (opcode) in the Bitcoin script that allows data to be embedded in a Bitcoin transaction. Transactions with OP_RETURN cannot be spent, effectively marking the output as invalid for further spending. OP_RETURN is often used for purposes like storing metadata, creating timestamps, or anchoring data to the blockchain. Its inclusion in transactions helps prevent output reuse, serving as a mechanism for storing auxiliary information without affecting coin balances.

Orphan Block (Bitcoin mining)

An orphan block is a valid Bitcoin block that is not part of the longest blockchain, usually because two miners found blocks simultaneously, creating a temporary fork. When nodes resolve the fork by selecting the longest chain, the competing block becomes orphaned. Although valid, orphan blocks are excluded from the main chain, and miners who created them receive no reward. Orphan blocks are a natural result of the decentralized mining process.

Output Descriptor (Bitcoin wallet)

An output descriptor is a human-readable string used to describe how to generate addresses and redeem conditions for Bitcoin wallet outputs. It specifies the address type (e.g., P2PKH, P2SH) and scripts necessary to spend the output. Output descriptors are useful in Bitcoin wallets for managing complex addresses, tracking different output types, and ensuring compatibility with multi-signature or advanced wallet configurations while providing a more organized wallet management experience.

Output Script Encoding (Bitcoin transactions)

Output script encoding, also known as the scriptPubKey, is a part of Bitcoin transactions that defines the conditions that must be met to spend the output. It includes information such as the public key hash and operation codes to validate transactions. Output scripts are crucial for implementing various spending rules, including pay-to-public-key-hash (P2PKH) or multi-signature requirements, ensuring that only authorized parties can spend specific Bitcoin outputs.

Overlay Network (Bitcoin)

An overlay network in Bitcoin refers to the logical network formed by nodes communicating and sharing information like transactions and blocks over the internet. The overlay network is built on top of the physical internet infrastructure, allowing nodes to propagate blockchain data. This structure ensures efficient and decentralized communication, enabling Bitcoin’s peer-to-peer protocol to function without a central server, providing fault tolerance, and maintaining network resilience and security.

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P

P2P Encryption Layer (Bitcoin network)

The Peer-to-Peer (P2P) encryption layer in the Bitcoin network is responsible for securing communication between nodes. This layer uses cryptographic protocols to encrypt data, ensuring that transactions, blocks, and other messages exchanged between nodes remain confidential and resistant to eavesdropping or tampering. P2P encryption helps maintain privacy, protects against network attacks, and ensures the integrity of messages as they propagate across the decentralized Bitcoin network

P2PK (Pay-to-PubKey, Bitcoin)

Pay-to-PubKey (P2PK) is an early type of Bitcoin transaction in which coins are locked to a public key. To spend the funds, the owner must present a valid digital signature from the corresponding private key. Although it offers simplicity, P2PK has largely been replaced by Pay-to-PubKey-Hash (P2PKH) transactions, which provide enhanced privacy by using a hash of the public key rather than the public key itself.

P2SH (Pay-to-Script Hash, Bitcoin)

Pay-to-Script Hash (P2SH) is a Bitcoin transaction type that allows more complex locking scripts, such as multi-signature or time-lock conditions. Instead of including the entire script in the transaction output, P2SH uses a hash of the script, simplifying transactions and allowing for increased privacy. To spend P2SH outputs, the spender must provide the script and satisfy its conditions, making it useful for advanced use cases like escrow or shared wallets.

Payment Channel (Lightning Network)

A payment channel is a two-party connection in the Bitcoin Lightning Network that allows for off-chain transactions. By locking funds in a multi-signature address, participants can conduct numerous low-cost, instant payments between themselves without broadcasting each transaction to the blockchain. Only the final settlement is recorded on-chain, enhancing scalability by reducing network congestion. Payment channels are fundamental to the efficiency of the Lightning Network.

PayJoin (Bitcoin privacy)

PayJoin, also known as P2EP (Pay-to-EndPoint), is a privacy-enhancing Bitcoin transaction method that allows the sender and recipient to combine inputs into a single transaction. Unlike CoinJoin, which involves multiple participants, PayJoin uses only two parties, making the resulting transaction appear like a normal payment. This technique increases privacy by obscuring the link between inputs and outputs, making it harder for blockchain analysis tools to determine which inputs belong to whom.

Payment Points (Lightning Network)

Payment points in the Lightning Network are public keys used in the creation of Hashed Time-Locked Contracts (HTLCs) for routing payments. Each payment point corresponds to an intermediate node along the payment path, and it is used to lock funds during the payment process. Payment points are critical for ensuring that multi-hop payments can be routed securely across multiple nodes without revealing sensitive information about the route.

Peer Discovery Protocol (Bitcoin)

The peer discovery protocol in Bitcoin allows new nodes to find existing peers to connect to the network. This process ensures that nodes can join the decentralized Bitcoin network and participate in propagating transactions and blocks. Bitcoin nodes use various mechanisms for peer discovery, including DNS seeders and exchanging peer lists with already-connected nodes, which helps maintain the network's resilience and ensures continuous growth in node connectivity.

Phantom Chains (Bitcoin)

Phantom chains refer to hypothetical or experimental blockchain systems that run parallel to the Bitcoin main chain without altering its structure. These chains aim to improve scalability or introduce new functionalities while still referencing Bitcoin's core properties, such as security and immutability. Phantom chains are not part of the main network but could be used to conduct experiments, develop side applications, or prototype scaling solutions without affecting Bitcoin's base layer.

Pooled Mining (Bitcoin mining)

Pooled mining is a collaborative mining strategy in which multiple miners combine their computing power to increase the chances of successfully mining a Bitcoin block. When a block is found, the rewards are distributed among participants based on their contribution to the pool's overall hash rate. Pooled mining allows smaller miners to earn more consistent rewards compared to solo mining, where the probability of successfully finding a block may be too low.

Pre-signed Transaction Broadcast (Bitcoin)

Pre-signed transaction broadcast involves creating a Bitcoin transaction, signing it in advance, and then holding it for future broadcasting. This approach is often used for conditional payments, such as in payment channels or time-locked agreements, where the transaction should only be broadcast under specific circumstances. Pre-signed transactions allow flexibility and can serve as an insurance mechanism or as a tool for executing planned transactions based on predetermined triggers.

Preimage (Bitcoin HTLC)

In Bitcoin's HTLC (Hash Time-Locked Contract), a preimage is the original piece of data that produces a hash used to lock funds. To complete the HTLC, the recipient must reveal the correct preimage, thus fulfilling the hash condition. The use of preimages in HTLCs ensures that payments are only made when specific criteria are met, providing a trustless, secure mechanism for cross-chain atomic swaps and routing payments in the Lightning Network.

Proof of Burn (specific to Bitcoin)

Proof of Burn (PoB) is a consensus mechanism where participants "burn" a portion of their cryptocurrency (send it to an unspendable address) to demonstrate commitment and earn mining privileges or new tokens. In the context of Bitcoin, PoB could be used for distributing new assets or participating in altcoin networks. By burning Bitcoin, participants prove that they have incurred a cost, creating a decentralized way to allocate resources or tokens.

Public Auditability (Bitcoin)

Public auditability refers to Bitcoin's transparency, where anyone can view and verify transactions and blocks on the blockchain. This characteristic allows users to audit the entire Bitcoin ledger, ensuring that transactions are correctly recorded and no double-spending or fraud has occurred. Public auditability is a key feature of Bitcoin's trustless system, providing users with the ability to independently verify the network's integrity without relying on intermediaries.

Pseudonymous Identity (Bitcoin usage)

Bitcoin transactions are pseudonymous, meaning that users are identified by their public keys or addresses rather than personal information. While this provides a layer of privacy, the blockchain is transparent, and transactions can be traced. If a Bitcoin address becomes linked to a real identity, all associated transactions can be traced back to that user. Pseudonymous identity offers some level of anonymity but still requires careful use to avoid being deanonymized.

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Q

Quantitative Tightening (Bitcoin supply control)

Quantitative Tightening in Bitcoin refers to the fixed and deflationary nature of Bitcoin’s supply schedule, in which the total number of bitcoins is capped at 21 million. Unlike traditional monetary systems that may use quantitative tightening to reduce money supply, Bitcoin’s supply control is embedded in its protocol through halving events every four years, reducing the block reward by half, effectively tightening supply and creating scarcity over time.

Quantum Hardness (Bitcoin security)

Quantum hardness refers to the resistance of cryptographic algorithms used in Bitcoin against attacks from quantum computers. Bitcoin relies on SHA-256 hashing and the Elliptic Curve Digital Signature Algorithm (ECDSA), which are believed to be quantum-hard for now. However, advances in quantum computing could eventually threaten these algorithms. Quantum hardness is the property that ensures Bitcoin’s cryptographic primitives remain secure against quantum-based attacks, preserving the integrity of transactions and keys.

Quantum Proofing Techniques (Bitcoin)

Quantum proofing techniques are methods proposed to make Bitcoin resistant to future quantum computing threats. These include adopting quantum-resistant cryptographic algorithms, such as lattice-based cryptography, to replace or supplement existing protocols like ECDSA. Quantum proofing aims to secure Bitcoin's keys, signatures, and hashing methods against the capabilities of quantum computers, ensuring that private keys cannot be easily compromised by future quantum attacks.

Quantum-Resistant Cryptography (Bitcoin future-proofing)

Quantum-resistant cryptography refers to cryptographic techniques that remain secure even in the face of powerful quantum computers. Bitcoin's current cryptographic methods, like ECDSA, could be vulnerable to quantum attacks, but quantum-resistant alternatives, such as hash-based or lattice-based cryptography, aim to provide future-proofing. By adopting quantum-resistant cryptographic schemes, Bitcoin can maintain transaction security and user privacy, even as advancements in quantum computing become a reality.

Queryable State (Bitcoin blockchain)

The queryable state in the Bitcoin blockchain refers to the ability to query the network's current state, including balances, transaction details, and other ledger information. While Bitcoin's blockchain is publicly available, queryability is limited, as data is stored in a distributed, immutable ledger. Tools like block explorers and APIs are used to make querying easier, enabling users to gather specific information about transactions and addresses for tracking and verification purposes.

Quorum of Nodes (Bitcoin)

A quorum of nodes in Bitcoin refers to a sufficient number of nodes required to validate and confirm a transaction or block. In the Bitcoin network, consensus does not require all nodes to agree but relies on a significant number of honest nodes agreeing on the current state of the blockchain. This quorum ensures that the longest valid chain is adopted, maintaining the integrity and security of the decentralized ledger despite potential malicious actors.

Quorum Slices (Bitcoin network)

Quorum slices are subsets of nodes within the Bitcoin network that play a role in the decentralized validation of blocks and transactions. While Bitcoin does not explicitly use quorum slices like some consensus protocols, it relies on groups of miners and nodes cooperating to verify new blocks. Each node independently validates transactions based on network rules, and the majority acceptance of valid blocks forms a decentralized consensus, analogous to how quorum slices function in other blockchain systems.

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R

Raiden Network Protocol (related to Bitcoin Lightning)

The Raiden Network Protocol is an Ethereum-based scaling solution similar in function to Bitcoin's Lightning Network. Although it is specific to Ethereum, it provides a comparable approach for enabling off-chain transactions, thereby reducing congestion on the main blockchain. In Bitcoin’s context, the Lightning Network fulfills the same purpose—facilitating quick, low-cost payments off-chain by creating secure payment channels between participants.

Randomized Path Selection (Bitcoin privacy)

Randomized path selection is a privacy technique used in the Bitcoin network to make transactions less traceable. When routing payments, this technique involves selecting multiple random nodes to transmit the transaction, making it harder for observers to link the origin and destination. This method, commonly implemented in privacy-focused tools like the Lightning Network or CoinJoin, increases the difficulty for third parties to track transaction paths and analyze blockchain data.

Rate Limiting (SPV Nodes, Bitcoin)

Rate limiting in SPV (Simplified Payment Verification) nodes refers to the restriction of the number of queries or requests a node can make to full nodes. SPV nodes rely on full nodes for transaction verification, but excessive querying can overwhelm full nodes. Rate limiting helps manage network load, ensuring fair use of resources and maintaining balance in the Bitcoin network by preventing misuse or denial-of-service attacks from lightweight nodes.

Redeem Script (Bitcoin)

A redeem script is part of a Bitcoin transaction that specifies the conditions under which an output can be spent. For Pay-to-Script Hash (P2SH) transactions, the redeem script is revealed by the spender, detailing the required signatures or unlocking conditions. This allows for complex spending rules, such as multi-signature, escrow arrangements, or other custom conditions, making Bitcoin transactions more versatile and adaptable for advanced use cases.

Regtest (Regression Testing Mode, Bitcoin)

Regtest, or regression testing mode, is a feature of the Bitcoin software that allows developers to create a private blockchain environment for testing purposes. Unlike the mainnet or testnet, regtest is entirely under the control of the user, allowing them to instantly create blocks, control mining difficulty, and test features without real-world constraints. It is an essential tool for developers experimenting with Bitcoin applications and protocols without impacting the live network.

Remote Procedure Call (RPC) Interface (Bitcoin node communication)

The Remote Procedure Call (RPC) interface is used for communication between software applications and a Bitcoin node. It allows developers to interact with the node programmatically, execute commands, retrieve blockchain data, send transactions, and perform administrative tasks. Bitcoin Core’s RPC interface provides access to a wide range of node functions, making it an essential tool for developers building applications that require direct interaction with the Bitcoin blockchain.

Replace-by-Fee (RBF, Bitcoin)

Replace-by-Fee (RBF) is a feature in Bitcoin that allows a user to replace an unconfirmed transaction with a new one that has a higher fee. RBF is used to expedite transactions that are stuck due to low fees, making them more attractive to miners. By enabling RBF, users can increase the probability of timely confirmation when network congestion is high, providing a more flexible approach to transaction fee management.

Replay Protection (Bitcoin forks)

Replay protection is a mechanism used to prevent transactions from being replayed on multiple blockchains after a fork. When a cryptocurrency splits into two chains, without replay protection, a transaction on one chain can be valid on the other, leading to unintended transfers. Replay protection involves creating unique signatures for each chain, ensuring that transactions are only recognized on their intended blockchain, preventing confusion and potential financial loss.

Restoring Wallet from Mnemonic (Bitcoin wallets)

Restoring a wallet from a mnemonic involves using a seed phrase—typically 12, 18, or 24 words—to regenerate a Bitcoin wallet’s private keys and addresses. The mnemonic phrase is generated when the wallet is created and serves as a backup that allows users to restore their wallet if they lose access. Mnemonic recovery ensures that users can regain full control of their funds and transactions securely without relying on third-party services.

RFC6979 Deterministic Signatures (Bitcoin ECDSA)

RFC6979 is a standard for generating deterministic signatures in Bitcoin's Elliptic Curve Digital Signature Algorithm (ECDSA). Instead of using a random value to create the signature, RFC6979 generates the value deterministically based on the private key and message being signed. This approach reduces the risk of key leakage due to weak randomness, ensuring that the same message always results in the same signature, thus enhancing the security of Bitcoin transactions.

Ring Signatures (Bitcoin privacy)

Ring signatures are a cryptographic technique that allows a signer to create a digital signature on behalf of a group, without revealing which member signed the transaction. While not implemented in Bitcoin's base layer, ring signatures are used in privacy-focused cryptocurrencies like Monero. The technique could theoretically be applied in Bitcoin to enhance privacy by making it impossible for third parties to determine which participant's private key was used to produce the signature.

Routing Fees (Lightning Network)

Routing fees are fees paid to intermediate nodes in the Bitcoin Lightning Network that facilitate the routing of payments between two parties. When a payment is sent across multiple channels, each node that participates in forwarding the payment charges a small fee for providing liquidity and maintaining the network. Routing fees incentivize node operators to keep channels open and operational, thus contributing to the efficiency and scalability of the Lightning Network.

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S

Satoshi (Bitcoin unit)

A satoshi is the smallest unit of Bitcoin, equivalent to 0.00000001 BTC (one hundred-millionth of a Bitcoin). Named after Bitcoin's creator, Satoshi Nakamoto, this unit is used to facilitate microtransactions and represent very small amounts of Bitcoin. As the value of Bitcoin grows, satoshis are increasingly used in day-to-day transactions to make smaller payments more practical and understandable in comparison to using fractions of a Bitcoin.

Schnorr Signature (Bitcoin signature scheme)

 Schnorr signatures are an alternative to the traditional ECDSA signatures used in Bitcoin, offering benefits such as smaller signature sizes, faster verification, and support for signature aggregation. They enhance privacy by enabling multiple signatures to be combined into a single signature, reducing transaction data size. Schnorr signatures were introduced to Bitcoin via the Taproot upgrade and are instrumental in enhancing scalability, privacy, and efficiency in the Bitcoin network.

Script Verification Cost (Bitcoin)

Script verification cost refers to the computational resources required to validate Bitcoin transaction scripts. This cost varies depending on the complexity of the script, which may involve conditions like multi-signature requirements or custom spending rules. Miners must evaluate these scripts to confirm transactions, and higher script complexity can increase the time and energy needed for verification, potentially affecting transaction fees and processing efficiency.

ScriptPubKey (Bitcoin)

ScriptPubKey, also known as an output script, is a part of a Bitcoin transaction that defines the conditions that must be met to spend the associated output. Typically, it contains a cryptographic hash of a public key, and when the correct signature is provided in the input script, the output can be unlocked. ScriptPubKey ensures that only the rightful owner of the funds can spend them, adding a layer of security to Bitcoin transactions.

Seed Entropy Bits (Bitcoin wallets)

Seed entropy bits refer to the randomness used to generate a Bitcoin wallet's seed phrase. The seed phrase is derived from a series of entropy bits, usually 128 to 256 bits long, which ensures a high level of randomness and security. The higher the entropy, the more difficult it becomes for an attacker to guess the resulting seed phrase, making the wallet secure against brute-force attacks and ensuring the uniqueness of the generated keys.

Seed Phrase (Bitcoin wallet recovery)

A seed phrase, also known as a recovery phrase, is a series of 12, 18, or 24 words used to generate the private keys for a Bitcoin wallet. The phrase serves as a backup, allowing users to restore access to their wallet if they lose access to their device. Seed phrases must be stored securely, as anyone with access to them can gain control of the associated Bitcoin funds.

Segregated Witness Script Versioning (SegWit, Bitcoin)

Segregated Witness (SegWit) is a Bitcoin protocol upgrade that separated transaction signatures (witness data) from the main transaction data. Script versioning allows for future upgrades by enabling new script features without causing backward compatibility issues. SegWit improves Bitcoin’s scalability by reducing the size of transaction data, enabling more transactions per block, and also addresses the transaction malleability issue, paving the way for second-layer solutions like the Lightning Network.

Signature Aggregation (Bitcoin multisig)

Signature aggregation is a process that combines multiple signatures into a single, compact signature in a multi-signature Bitcoin transaction. This approach, supported by Schnorr signatures, reduces the amount of data that needs to be stored on the blockchain, improving efficiency and reducing transaction fees. Signature aggregation is especially beneficial in multi-signature wallets, where several parties are required to sign a transaction, enhancing privacy by making it difficult to distinguish multi-signature from single-signature transactions.

Signature Witness Stack (Bitcoin transactions)

The signature witness stack is part of the witness data in SegWit-enabled Bitcoin transactions. It contains signatures and other data needed to satisfy the conditions specified in the output script (ScriptPubKey). The witness stack separates the transaction validation data from the main transaction, reducing the overall size of transactions and enabling more efficient verification. This structure helps improve scalability and minimizes the impact of signature data on block size.

Simple Payment Verification (SPV, Bitcoin)

Simple Payment Verification (SPV) allows lightweight Bitcoin clients to verify transactions without downloading the entire blockchain. SPV clients download block headers and request Merkle proofs for specific transactions, ensuring that they are included in valid blocks. This makes SPV suitable for users with limited storage or bandwidth, providing a trust-minimized way to verify transactions while relying on the security provided by full nodes.

Soft Fork (Bitcoin upgrade)

A soft fork is a backward-compatible upgrade to the Bitcoin protocol that introduces new features or rules without invalidating existing transactions and blocks. Soft forks allow nodes that have not upgraded to continue participating in the network. An example is the SegWit upgrade, which introduced new transaction structures without disrupting older nodes. Soft forks ensure a smooth transition for the network while enabling the implementation of new improvements.

SPV Wallets (Bitcoin)

SPV wallets are lightweight Bitcoin wallets that use Simplified Payment Verification to validate transactions without downloading the entire blockchain. They rely on full nodes for block verification and use Merkle proofs to confirm transactions. SPV wallets are convenient for users with limited resources, such as mobile devices, as they provide a balance between security and usability without the need to maintain the complete blockchain history.

Stale Block Rate (Bitcoin mining)

The stale block rate refers to the percentage of blocks that are mined but not included in the longest Bitcoin blockchain due to another miner finding a valid block at nearly the same time. These blocks, known as stale or orphaned blocks, do not contribute to the main chain. A lower stale block rate indicates more efficient network propagation, while a higher rate may indicate slower communication or network congestion among miners.

State Channels (Bitcoin Lightning Network)

State channels are off-chain solutions that enable two parties to transact privately without broadcasting each interaction to the Bitcoin blockchain. These channels remain open as long as needed, allowing participants to conduct multiple transactions before closing the channel and recording the final state on-chain. State channels are a key feature of the Lightning Network, improving scalability, reducing transaction fees, and enabling near-instant payments

Static Channel Backup (Lightning Network)

Static Channel Backup is a feature of the Lightning Network that helps users recover their channel information if they lose access to their Lightning node. The backup file contains the channel state necessary to initiate a forced close of the payment channel, ensuring users can reclaim their funds. This backup is crucial for safeguarding users' funds in case of hardware failure or accidental loss of data

Stealth Address (Bitcoin privacy)

Stealth addresses are a privacy-enhancing feature that allows users to receive Bitcoin payments without revealing their public address to observers. A sender generates a unique one-time address for each transaction using the receiver’s stealth address and shared information. The receiver can later identify and spend the funds using their private key. Stealth addresses make it challenging for third parties to link multiple payments to the same recipient, improving transaction privacy.

Submarine Swaps (Bitcoin Lightning)

Submarine swaps are a type of atomic swap that allows users to exchange funds between the Bitcoin blockchain and the Lightning Network. They enable users to convert on-chain Bitcoin to off-chain Lightning channels (or vice versa) without trusting a third party. By using Hash Time-Locked Contracts (HTLCs), submarine swaps ensure that either both parts of the swap are completed, or neither is, providing a trustless way to move funds between layers.

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T

Taproot (Bitcoin upgrade)

Taproot is a major Bitcoin protocol upgrade that enhances privacy, efficiency, and flexibility by introducing a new scripting feature called Schnorr signatures. Taproot allows complex transactions, such as multi-signature contracts, to look like standard transactions on-chain, improving privacy. It also enables smaller transaction sizes, reducing fees, and allows for more complex smart contracts. Taproot was implemented to enhance scalability, user privacy, and broaden Bitcoin's potential use cases.

Threshold Signatures (Bitcoin)

Threshold signatures are cryptographic techniques that require multiple parties to collaborate to produce a valid signature without any individual having full control over the private key. In Bitcoin, threshold signatures are used to increase security in multi-party settings, such as custodial services or multi-signature wallets. This setup reduces the risk of key compromise since no single participant has access to the complete key, providing a secure and decentralized signing mechanism.

Timelock (Bitcoin transactions)

A timelock is a feature in Bitcoin that restricts the spending of funds until a certain condition is met, such as a specific time or block height. There are two primary types of timelocks: CheckLockTimeVerify (CLTV) and CheckSequenceVerify (CSV). Timelocks are used in advanced contracts like Lightning Network payment channels or escrow agreements, ensuring that transactions are only executed when predefined conditions are fulfilled, adding flexibility and security to Bitcoin transactions.

Tor Hidden Services (Bitcoin privacy)

Tor hidden services are used by Bitcoin nodes and wallets to enhance privacy by masking the IP addresses of participants. By routing Bitcoin traffic through the Tor network, users can protect their identity and prevent transaction tracing or surveillance by third parties. Tor hidden services allow Bitcoin nodes to operate as "hidden services," making it challenging for anyone to determine the physical location of the node or track its activity.

Tor V3 Nodes (Bitcoin privacy)

Tor V3 nodes are an updated version of Tor hidden services that offer improved privacy and security for Bitcoin transactions. Bitcoin nodes using Tor V3 addresses benefit from longer, more secure cryptographic keys and enhanced resistance against attacks. Tor V3 nodes help maintain the anonymity of Bitcoin users by obfuscating IP addresses, ensuring that their activity on the Bitcoin network cannot be easily traced back to them.

Transaction Clustering Analysis (Bitcoin privacy)

Transaction clustering analysis is a technique used to analyze Bitcoin transactions to identify patterns and link multiple addresses to the same entity. Blockchain analysts use this method to group transactions based on shared characteristics, such as common ownership or repeated use of change addresses. Transaction clustering poses a privacy risk to Bitcoin users, as it can reveal relationships between transactions and compromise anonymity.

Transaction Graph Privacy (Bitcoin)

Transaction graph privacy refers to the protection of the transaction history and relationships between addresses in the Bitcoin blockchain. Maintaining transaction graph privacy is challenging because all Bitcoin transactions are public, allowing analysts to trace connections between addresses. Privacy-enhancing techniques, such as CoinJoin or stealth addresses, are used to obfuscate the transaction graph and protect users from being deanonymized through blockchain analysis.

Transaction Malleability (Bitcoin)

Transaction malleability is a vulnerability in Bitcoin's protocol that allows slight modifications to the transaction ID (hash) without changing the actual transaction. This flaw could lead to issues like double spending or incorrect tracking of transaction statuses. The Segregated Witness (SegWit) upgrade was introduced to fix transaction malleability by moving the signature data outside the transaction, making the transaction ID immutable and eliminating this vulnerability.

Transaction Pool (Bitcoin mempool)

The transaction pool, commonly known as the mempool, is a temporary holding area where Bitcoin transactions wait to be confirmed by miners. Each Bitcoin node maintains its own mempool, which contains unconfirmed transactions that have been validated but not yet included in a block. The mempool allows miners to prioritize transactions based on their fee rates, ensuring that higher-fee transactions are processed faster, especially during times of network congestion.

Transaction Size Limit (Bitcoin protocol)

The transaction size limit is a restriction in the Bitcoin protocol that sets a maximum size for individual transactions, typically measured in bytes. Bitcoin has a block size limit of 1 megabyte, and transactions must fit within this constraint. Larger transactions, such as those with many inputs or outputs, may need to be broken down or optimized to stay within the allowed size. Limiting transaction size helps maintain network efficiency and prevent spam attacks.

Two-Factor Authentication (2FA) Wallet (Bitcoin)

A Two-Factor Authentication (2FA) wallet is a type of Bitcoin wallet that adds an extra layer of security by requiring two forms of verification to authorize a transaction. In addition to the standard private key, users must verify transactions using a secondary factor, such as a one-time code sent to their phone or email. 2FA wallets provide enhanced protection against unauthorized access, making them a preferred choice for securing Bitcoin holdings.

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U

Unconfirmed Transaction (Bitcoin)

An unconfirmed transaction is a Bitcoin transaction that has been broadcast to the network but has not yet been included in a block by a miner. Transactions remain in the mempool until they are confirmed, which typically depends on the offered transaction fee and current network congestion. Unconfirmed transactions are at risk of being delayed or replaced (e.g., via Replace-by-Fee), and they are not fully secure until confirmed by several blocks.

Unilateral Close (Lightning Channel)

A unilateral close is a process in which one participant in a Lightning Network channel independently closes the channel without the cooperation of the other party. This typically involves broadcasting the most recent channel state to the Bitcoin blockchain for settlement. Unilateral channel closures may occur due to disputes or communication issues, and they often incur higher on-chain fees and a waiting period to prevent fraudulent actions by either party.

Universal Basic Income (UBI) Token (Bitcoin-related experiment)

The Universal Basic Income (UBI) Token is an experimental concept that involves using blockchain technology, including Bitcoin, to distribute a recurring income to participants. The idea is to create a decentralized, programmable UBI system to provide financial stability to individuals without requiring government intervention. Bitcoin's blockchain can be used for transparent distribution, ensuring fair and verifiable payouts, potentially offering an alternative solution for income inequality.

Unspent Transaction Output (UTXO Set)

Unspent Transaction Outputs (UTXOs) are the individual chunks of Bitcoin that have been received but not yet spent. Each UTXO represents a specific amount of Bitcoin controlled by a private key, and the sum of all UTXOs in a wallet represents its balance. The UTXO set refers to the collection of all unspent outputs across the Bitcoin blockchain. UTXOs are the fundamental building blocks of Bitcoin transactions, ensuring transparency and traceability.

URI Scheme for Bitcoin (bitcoin:)

The URI scheme for Bitcoin (e.g., "bitcoin:") is a standardized format for generating payment links or QR codes that simplify the process of sending Bitcoin. It includes information such as the recipient's address, the amount, and optional parameters like a label or message. By clicking on a "bitcoin:" link, users can automatically fill in payment details in their Bitcoin wallet, streamlining transactions and reducing the likelihood of errors.

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V

Vanity Address Generation (Bitcoin)

Vanity address generation involves creating a Bitcoin address that contains a recognizable pattern, such as a name or specific sequence of characters. This process requires brute-force computation to find a public-private key pair that matches the desired address prefix, making it computationally expensive. Vanity addresses are often used for marketing or personalization purposes but come with privacy risks if not generated securely, as the key generation process can be vulnerable to compromise.

Vanity Generation Service (Bitcoin)

Vanity generation services are third-party providers that generate vanity Bitcoin addresses on behalf of users. These services use specialized software to find an address with a user-specified pattern or prefix. Due to privacy and security concerns, users must be cautious when using such services, as they involve sharing part of the key generation process, which could potentially lead to the private key being compromised if the service is not trustworthy.

Verification Script (Bitcoin)

A verification script, also known as a scriptSig in Bitcoin transactions, is the component that provides the data needed to satisfy the conditions set by the output script (scriptPubKey). It typically includes the digital signature and public key necessary to unlock the associated output. The verification script ensures that only the rightful owner of the funds can spend them by proving that they hold the corresponding private key, thereby maintaining transaction security.

Verifiable Delay Functions (VDF, Bitcoin)

Verifiable Delay Functions (VDFs) are cryptographic functions that take a certain amount of time to compute but are easy to verify once completed. In Bitcoin, VDFs can be used to introduce a verifiable delay to prevent certain types of attacks, such as front-running. They add a proof of computational effort, ensuring fairness in processes like block creation or transaction ordering, and have potential applications in enhancing Bitcoin's consensus mechanisms.

Verifiable Delay Signature (VDS, Bitcoin)

Verifiable Delay Signature (VDS) is a cryptographic primitive used to create a signature that involves a time delay. In the context of Bitcoin, VDS could be used to add a predictable delay to block generation or transactions, ensuring a fair ordering of events. The delay makes it difficult for attackers to manipulate the blockchain, as they would need to complete the computational work before generating a valid signature, enhancing overall network security.

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Z

Zerocoin Minting Process (Bitcoin privacy concept)

The Zerocoin minting process was an experimental privacy protocol initially proposed as an extension to Bitcoin to enhance anonymity. In this process, users could "mint" a Zerocoin by converting their bitcoins into a special coin that would later be redeemed, breaking the link to the original transaction. By doing so, it would effectively anonymize the transaction history. Though not implemented in Bitcoin, this concept later evolved into privacy-focused cryptocurrencies like Zcoin.

Zero Confirmation Risk (Bitcoin)

Zero confirmation risk refers to the uncertainty of accepting an unconfirmed Bitcoin transaction. When a transaction has zero confirmations, it means it has not yet been included in a mined block, making it vulnerable to double-spending attacks or replacement by another transaction. Merchants and services that accept zero-confirmation transactions are taking a risk, as there is no guarantee that the transaction will ultimately be included in the blockchain.

Zerocash (related, experimental privacy solution)

Zerocash is an experimental protocol that enhances Bitcoin's privacy features by concealing the sender, recipient, and amount of a transaction. Unlike Bitcoin's transparent blockchain, Zerocash uses advanced cryptographic techniques like zk-SNARKs to ensure complete anonymity. Although it wasn't implemented in Bitcoin, the principles of Zerocash were later applied in other privacy-focused cryptocurrencies like Zcash, which offer significantly enhanced privacy compared to Bitcoin's pseudonymous model.

zk-SNARKs (Bitcoin-related application)

zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) are cryptographic proofs that allow one party to prove knowledge of certain information without revealing it. In Bitcoin, zk-SNARKs have potential applications in enhancing privacy by proving transaction validity without disclosing sensitive details like sender, recipient, or transaction amount. zk-SNARKs are widely used in privacy-centric cryptocurrencies like Zcash, aiming to provide confidential yet verifiable transactions.

zk-STARKs (Bitcoin scalability/privacy)

zk-STARKs (Zero-Knowledge Scalable Transparent Argument of Knowledge) are cryptographic proofs similar to zk-SNARKs, but they offer scalability and transparency without relying on trusted setup processes. zk-STARKs are considered an advanced technology for privacy and scalability solutions in blockchain applications. They could potentially enhance Bitcoin by enabling scalable privacy-preserving transactions, ensuring both confidentiality and efficient processing without the complex setup required by zk-SNARKs

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70 Essential Bitcoin Terms: A Beginner's Glossary to Understanding Bitcoin (Lexicon)

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Comprehensive Ethereum Lexicon: Guide to 100+ Essential and Advanced Ethereum Terms (Lexicon)

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Fidelity Ethereum Fund (FETH): The Complete Investor’s Guide (Explainer)