Glossary

Concise definitions for terms used throughout the book. Each entry links to the chapter that covers it in depth. Read the entry here for a quick reminder, read the linked chapter for the mechanism.

This glossary grows alongside the book. If a term you expected is missing, the chapter that defines it may not be written yet. Check PROGRESS.md.

A

ASIC: Application-Specific Integrated Circuit; a chip designed to do exactly one computation (SHA-256d hashing, for Bitcoin) extremely efficiently. See ASICs.

Address: A string derived from a public key (through hashing and encoding) that identifies where funds can be sent. Not itself a key. See Addresses.

Austrian economics: An economic school founded by Carl Menger, developed further by Ludwig von Mises, Friedrich Hayek, and Murray Rothbard, emphasizing spontaneous market order and skepticism of centrally managed money. See Money and Economics.

AMM (Automated Market Maker): A smart contract that prices trades algorithmically from a pool's current token reserves, rather than matching buy and sell orders. See Automated Market Makers.

Access control: Rules that decide which accounts or contracts may call sensitive functions such as minting, upgrading, pausing, or changing configuration. See Access Control.

Approval: On-chain authority granted to a spender or operator to move tokens owned by another address. See Approval Attacks.

Archive node: A node configuration that retains historical state so old balances and contract calls can be answered directly. See Archive Nodes.

B

BIP (Bitcoin Improvement Proposal): A published proposal or information document for Bitcoin; publication does not itself mean adoption or community consensus. See BIPs.

Block reward / subsidy: The newly created bitcoin a miner receives for a block, separate from transaction fees. Halves every 210,000 blocks. See Block Rewards.

Byzantine fault: A failure mode where a system component behaves arbitrarily or maliciously, potentially sending contradictory information to different peers, rather than simply stopping. See Byzantine Faults.

Bit Gold: Nick Szabo's 1998 proposal for digital scarcity based on chained proof-of-work solutions. Never implemented. See Bit Gold.

b-money: Wei Dai's 1998 proposal for decentralized digital cash, cited in the Bitcoin whitepaper. Never implemented. See b-money.

Blind signature: A cryptographic technique that lets a signer sign a message without seeing its contents, used in David Chaum's DigiCash to give digital cash unlinkable privacy. See David Chaum and DigiCash.

Block height: A block's position in the chain, counted from the genesis block at height 0. See Block Height.

Block: A batch of transactions bundled together, hashed, and linked to the previous block, forming the blockchain. See Blocks.

Blob: Ethereum's dedicated, temporarily-retained data type for rollup batch data, introduced by EIP-4844 with its own separate fee market. See Blobs.

Bridge: Infrastructure moving value or messages between two separate blockchains, via a verification mechanism ranging from a trusted multisig to a trust-minimized light client. See Bridges.

C

Cold storage: Keeping private keys entirely offline, never present on any internet-connected device. See Cold Storage.

Custodial wallet: A wallet where a third party holds the private keys on the user's behalf. See Custodial vs Non-Custodial Wallets.

Collision (hash): Two different inputs that produce the same hash output. Must exist mathematically for any hash function; security depends on nobody being able to find one. See Hash Collisions.

Consensus: The general problem of getting multiple independent, possibly-adversarial parties to agree on a single value or history. See Consensus.

Commitment scheme: A way to lock in a hidden value now and reveal it later, without being able to change it after the fact. See Commitments.

Cantillon effect: The uneven, sequential impact of new money entering an economy: those who receive it first benefit at the expense of those who receive it last, after prices have adjusted. See The Cantillon Effect.

Central bank: The institution responsible for managing a currency's money supply and, typically, for supervising the banking system and acting as lender of last resort. See Central Banking.

CBDC (Central Bank Digital Currency): A digital liability of a central bank designed for retail payment or wholesale settlement. See CBDCs.

Chain reorganization ("reorg"): When a node switches from one version of the recent chain to a different, competing version it now considers more valid. See Chain Reorganizations.

Confirmation: How many blocks have been mined on top of the block containing a given transaction; a rough, growing measure of how unlikely that transaction is to be reversed. See Probabilistic Finality.

Consensus rules: Validity conditions enforced by every node; violating one makes a block or transaction invalid network-wide, unlike a local policy rule. See Consensus Rules.

Coinbase transaction: The special first transaction in a block, which creates new coins and pays them to the block's creator, rather than spending existing coins. See Coinbase Transactions.

Commodity money: Money whose value derives from a physical good with non-monetary uses, such as gold or silver. See Commodity Money.

Cypherpunk: A participant in the cryptography- and privacy-focused mailing list and movement active from 1992 onward, whose members included several of Bitcoin's direct intellectual predecessors. See The Cypherpunk Movement.

Constant product formula: The x * y = k pricing rule behind the most widely deployed class of AMM, requiring the product of a pool's two reserves to stay fixed across any swap. See Constant Product Formula.

Collateralization ratio: The value of collateral locked against a loan, expressed relative to the amount borrowed; the inverse of loan-to-value. See Collateral.

Canonical bridge: A rollup's own official bridge to L1, which inherits security directly from the rollup's fraud-proof or validity-proof mechanism rather than a separate trust assumption. See Canonical Bridges.

Checkpoint: A persisted block position and hash recording how far a pipeline or indexer has applied canonical data. See Indexers.

Cache invalidation: Removing or replacing cached results when their block context or underlying state is no longer current. See Caching.

D

DAO (Decentralized Autonomous Organization): An organization whose treasury or administrative authority is managed in part through contracts and participant governance. See DAOs.

Decimals: An ERC-20 display convention (not a protocol rule) specifying how many places to divide a raw token balance by for human-readable display; USDC uses 6, most tokens use 18. See Balances.

Difficulty: A normalized measure of how hard it currently is to find a valid block hash, expressed relative to Bitcoin's easiest-ever target. See Mining Difficulty.

Digital signature: Cryptographic proof that a private key holder authorized a specific message, verifiable by anyone with the public key. See Digital Signatures.

Deflation: A sustained fall in the general price level, meaning a currency's purchasing power rises over time. See Inflation and Deflation.

Double-spending: The problem of a digital unit of value being spent more than once, since digital data can be copied. The central problem Bitcoin's design solves without a trusted third party. See Why Digital Cash Was Hard.

DEX (Decentralized Exchange): A protocol letting users trade tokens directly against a smart contract, with no company operating an order book or holding custody of funds between trades. See Decentralized Exchanges.

Data availability: The guarantee that a rollup's underlying transaction data is actually published somewhere anyone can retrieve it, distinct from the guarantee that the data describes a correct state transition. See Data Availability.

E

EOA (Externally Owned Account): An Ethereum account controlled by a private key, as opposed to a contract account. See Externally Owned Accounts.

ECDSA: Elliptic Curve Digital Signature Algorithm. Bitcoin's original signature scheme, still the most widely used. See ECDSA.

Elliptic curve: A curve of the form y² = x³ + ax + b over a finite field, used as the mathematical basis for Bitcoin and Ethereum's keys and signatures. See Elliptic Curves.

EIP-712: A standard for structured, human-readable typed-data signatures, with a domain separator preventing cross-application replay. See Typed Data and EIP-712.

EIP (Ethereum Improvement Proposal): A standards document for Ethereum core protocol, networking, interfaces, or application conventions. See EIPs.

E (continued)

EVM (Ethereum Virtual Machine): The stack-based, Turing-complete virtual machine that executes contract bytecode. See The EVM.

F

Front running: Observing a pending transaction and arranging for another transaction to execute before it to capture an ordering advantage. See Front Running.

Finality: The property of a transaction or block becoming permanent and irreversible; deterministic, probabilistic, or economic depending on the consensus mechanism. See Finality.

Fraud proof: A submitted proof that a rollup's published state claim is wrong, produced through an interactive process that narrows a dispute down to one cheaply-verifiable execution step. See Fraud Proofs.

Fiat money: Currency with value derived from legal tender laws and institutional credibility rather than a commodity backing. See Fiat Money.

Fractional reserve banking: A banking system in which banks hold only a fraction of deposits as reserves, lending out the rest. See Banking and Credit.

Flash loan: A loan with no collateral requirement, drawn and repaid, with a fee, entirely within a single transaction; if it isn't repaid, the whole transaction reverts. See Flash Loans.

G

Gas: Ethereum's unit for metering computational work; every EVM operation costs a fixed amount, bounding execution of an otherwise Turing-complete virtual machine. See Gas.

Genesis block: Block 0, the first block in the Bitcoin blockchain, mined by Satoshi Nakamoto on January 3, 2009, and hardcoded into the client software rather than discovered through normal validation. See The Genesis Block.

Gold standard: A monetary system in which a currency's value is formally defined as, and redeemable for, a fixed quantity of gold. See Commodity Money.

H

Hard fork: A protocol rule change incompatible with old software; requires every node to upgrade or risk a permanent chain split. See Hard Forks.

HD wallet (Hierarchical Deterministic): A wallet that derives an entire tree of keys from a single seed, standardized by BIP-32. See HD Wallets.

Hot wallet: A wallet whose private keys are ever present on an internet-connected device. See Hot Wallets.

Halving: The event, every 210,000 blocks (roughly four years), when Bitcoin's block subsidy cuts in half. See The Halving.

HTLC (Hashed Timelock Contract): A conditional payment that combines a hash lock and a timelock, enabling trust-minimized multi-hop routing on the Lightning Network. See HTLCs.

Hash function: A function mapping arbitrary-size input to fixed-size output, deterministically and unpredictably. See Hash Functions.

Hard money: A currency whose supply is difficult or slow to expand. See Hard Money and Sound Money.

Hashcash: Adam Back's 1997 anti-spam system using proof-of-work, cited directly in the Bitcoin whitepaper as the model for Bitcoin's mining puzzle. See Hashcash.

I

Idempotency: The property that applying the same operation more than once has the same effect as applying it once. See Event Processing.

Indexer: A service that reads ordered chain data and builds a query-oriented database from it. See Indexers.

K

KYC (Know Your Customer): Procedures through which a covered service identifies and verifies customers under its applicable rules and risk program. See KYC and AML.

Inflation: A sustained rise in the general price level, meaning a currency's purchasing power falls over time. See Inflation and Deflation.

Impermanent loss: The value gap between an AMM liquidity provider's withdrawn position and what simply holding the same original tokens, unpooled, would have been worth; caused by the constant-product formula rebalancing a pool's reserves as price moves. See Impermanent Loss.

L

Lightning Network: A network of bidirectional Bitcoin payment channels connected via HTLCs, enabling fast, low-fee off-chain payments settled periodically on-chain. See Lightning Network.

Liquidation: The automated process that closes out an undercollateralized loan position before its debt can exceed its collateral's value, performed by any address in exchange for a bonus. See Liquidations.

Liquidity pool: The smart contract holding an AMM's two token reserves, the balances the constant-product formula prices trades against. See Liquidity Pools.

LP token: A token minted to a liquidity provider representing a proportional claim on a pool's reserves, burned to withdraw. See Liquidity Pools.

L1 / L2: Layer 1 (a base blockchain, like Ethereum mainnet) and Layer 2 (a separate system built on top of it, inheriting its security through a specific, verifiable mechanism rather than a fresh trust assumption). See L1 vs. L2.

M

MEV (Maximal Extractable Value): Value obtained through transaction inclusion, exclusion, or ordering by searchers and actors involved in block construction. See MEV.

Multisig: A wallet requiring more than one private key to authorize spending. See Multisig.

Mempool: The set of valid, unconfirmed transactions a node currently knows about and is prepared to relay or mine. Local to each node, not a single global list. See The Mempool.

Mining: Competing to create new blocks by searching for valid proof-of-work. See Mining.

Merkle proof: A small set of sibling hashes proving a specific item's inclusion in a Merkle tree, without needing the full dataset. See Merkle Proofs.

Merkle root: The single hash at the top of a Merkle tree, summarizing an entire dataset. See Merkle Trees.

Merkle tree: A tree of hashes that summarizes a large dataset into one root hash, enabling compact inclusion proofs. See Merkle Trees.

Medium of exchange: A function of money: something widely accepted in trade, avoiding the need for a double coincidence of wants. See Functions of Money.

Monetary policy: Actions a central bank takes to influence the money supply, interest rates, and credit conditions. See Monetary Policy.

Money supply: The total quantity of money in an economy, measured in tiers (M0, M1, M2) by liquidity. See Money Supply.

N

Nonce: A 4-byte block header field miners vary while searching for a valid proof-of-work hash; also, in ECDSA, the random or deterministic value used in each signature. See Nonce.

Network effect: A property where a good becomes more valuable to each user as more people use it; money is a network good. See Network Effects in Money.

O

Oracle: A mechanism that makes external or derived information, such as an asset price, available to a smart contract. See Oracles and Oracle Manipulation.

Oracle: Infrastructure that gets external data, most often asset prices, onto a blockchain in a form a smart contract can read, since a contract cannot query an external API directly. See Oracles.

Optimistic rollup: A rollup that accepts a published state claim by default, giving anyone a challenge period to dispute it with a fraud proof before it's treated as final. See Optimistic Rollups.

P

Preimage resistance: The property that makes a hash function one-way: given an output, no practical method exists to find an input that produces it, other than brute-force search. See Preimage Resistance.

Private key: A secret, randomly generated number that authorizes spending and derives a public key. Must never be shared. See Private and Public Keys.

Public key: A value mathematically derived from a private key, safe to share, used to verify signatures. See Private and Public Keys.

Proof-of-work: A mechanism requiring a party to perform a costly, difficult-to-fake computation to earn a privilege (sending an email past a spam filter, or extending the Bitcoin blockchain). Cheap to verify, expensive to produce. See Hashcash and Proof of Work.

Pseudonymous: Identified by a persistent label (a public key or address) that is not directly tied to a real-world identity, as opposed to fully anonymous (no persistent label at all) or fully identified. Describes Bitcoin's privacy model. See The Bitcoin Whitepaper.

Q

Quantity theory of money: The theory that the price level is fundamentally determined by the relationship between the money supply, its velocity, and real output (M × V = P × Y). See Money Supply.

R

Reentrancy: Nested execution caused when a contract calls external code before settling its own state and the external code calls back into it. See Reentrancy.

Regression theorem: Ludwig von Mises's argument that money's value must trace back to a good's prior non-monetary use. Central to a specific, unresolved debate about Bitcoin. See The Regression Theorem.

RPOW (Reusable Proof of Work): Hal Finney's 2004 system letting Hashcash-style proof-of-work tokens be exchanged for transferable, signed tokens. See Hashcash.

Rollup: An L2 system that executes transactions off L1, then publishes the underlying data and a way to verify correctness (fraud or validity proofs) back to L1. See Rollups.

Replay protection: Data and state that prevent a valid signed message or cross-chain message from being executed more than once or in the wrong domain. See Malicious Signatures.

RPC (Remote Procedure Call): An interface through which software requests node data or actions, commonly using JSON-RPC for Ethereum and Bitcoin Core. See RPC.

S

Self-custody: Control of the keys or authorization policy required to move assets without asking a custodian. See Self-Custody.

SegWit (Segregated Witness): A 2017 soft fork that moved signature data out of the main transaction structure, fixing malleability and changing fee accounting. See SegWit.

Soft fork: A protocol rule change that tightens consensus rules in a way old software still accepts. See Soft Forks.

Smart contract: Code deployed to a blockchain that executes deterministically when called, holding its own state and, optionally, funds. See Smart Contracts.

Sandwich attack: A transaction-ordering attack that trades before and after a victim to move the victim's execution price and capture the difference. See Front Running.

secp256k1: The specific elliptic curve Bitcoin and Ethereum use for all keys and signatures. See secp256k1.

Schnorr signature: A signature scheme added to Bitcoin via Taproot, notable for enabling signature aggregation. See Schnorr Signatures.

Seed phrase: 12 or 24 words encoding the entropy behind an HD wallet's master key, standardized by BIP-39. See Seed Phrases.

Satoshi Nakamoto: The pseudonym used by Bitcoin's creator. Real-world identity unknown. See Who Was Satoshi Nakamoto?.

Store of value: A function of money: an asset that can be saved and retrieved later without significant loss of purchasing power. See Functions of Money.

Sybil attack: An attack where one party creates many fake identities to gain disproportionate influence over a system that assumes one identity equals one vote. See Sybil Attacks.

Slippage: The difference between a trade's expected price and its actual executed price, driven by the trade's own price impact on a pool's reserves and by other trades landing before it. See Slippage.

Stablecoin: A token designed to hold a roughly constant value relative to some reference, almost always the US dollar, via fiat-backed reserves or crypto over-collateralization. See Stablecoins.

Sequencer: The component of a rollup that orders and provisionally executes transactions before they're batched and published to L1; centralized on every major rollup as of 2026. See Sequencers.

T

Timelock: A contract or protocol rule that delays an approved action before execution, giving observers time to inspect it and users time to react. See On-Chain Governance.

Travel Rule: A FATF standard requiring specified originator and beneficiary information to accompany qualifying transfers between covered institutions. See KYC and AML.

Taproot: A 2021 soft fork bringing Schnorr signatures to Bitcoin, making complex spending conditions indistinguishable on-chain from simple ones. See Taproot.

Trusted third party: An intermediary (bank, payment processor, issuer) required by a system to resolve disputes or prevent fraud, at the cost of that party being able to freeze, reverse, or surveil activity. See Why Digital Cash Was Hard.

TWAP (Time-Weighted Average Price): A price averaged over a trading window rather than read instantaneously, used as an on-chain oracle specifically because it's far more expensive to manipulate than a pool's spot price. See Oracles.

U

UASF (User-Activated Soft Fork): A soft fork activated by node operators enforcing new rules on a set date, independent of miner signaling. See User-Activated Soft Forks.

UTXO (Unspent Transaction Output): A specific output from a past transaction not yet spent. Bitcoin has no account balances; a wallet's balance is the sum of its spendable UTXOs. See The UTXO Model.

Unit of account: A function of money: the standard used to measure and compare the value of goods, debts, and contracts. See Functions of Money.

Utilization rate: The fraction of a lending pool's deposits currently borrowed out, the variable that algorithmically drives both deposit and borrow interest rates. See Lending.

V

Validator: A registered participant in Ethereum's proof-of-stake consensus, backed by a 32 ETH deposit, responsible for proposing blocks and attesting. See Validators.

Velocity of money: How many times, on average, a unit of currency is spent within a given period. See Money Supply.

Validity proof: A cryptographic proof, submitted alongside a rollup batch, demonstrating its new state root correctly followed from the previous state and the batch's transactions. See Validity Proofs.

W

Webhook: An HTTP delivery mechanism used by a service to notify another system of an event, with authentication, retries, and duplicate handling supplied above the transport. See Webhooks.

Z

Zero-knowledge proof: A method for proving a statement is true without revealing anything beyond that fact. See Zero-Knowledge Proofs.

ZK rollup: A rollup that proves its state transitions correct upfront with a validity proof, rather than assuming correctness and relying on a challenge period. See ZK Rollups.