[Glossary] Bitcoin & Store of Value Terms

CryptoKas

Below is a comprehensive glossary of terms you’ll encounter in Bitcoin & Store of Value discussions. Definitions are clear and concise—ideal for anyone exploring Bitcoin’s role as digital gold.

️ Bitcoin Fundamentals

Bitcoin (BTC): The first cryptocurrency, using a decentralized ledger (blockchain) to track ownership and transfers.
Store of Value: An asset that preserves purchasing power over time; Bitcoin is often called “digital gold.”
Proof-of-Work (PoW): Consensus mechanism where miners solve cryptographic puzzles (SHA-256) to add new blocks.
Block Reward: BTC awarded to the miner who successfully adds a block—initially 50 BTC, halving roughly every 4 years.
Halving: Scheduled event that cuts the block reward in half (next expected around April 2028), reducing issuance rate.
Supply Cap: Bitcoin’s maximum supply is capped at 21 million BTC—no more can ever be created.

Network & Consensus

Hash Rate: Total computing power securing the network, measured in exahashes per second (EH/s).
Difficulty Adjustment: Protocol tweak every 2,016 blocks (~2 weeks) to target a 10 min block time.
Full Node: A server that downloads, verifies, and enforces all network rules—ensures decentralization and trustlessness.
Mempool: “Waiting room” for unconfirmed transactions before they’re included in a block.
Confirmation: Each new block that’s added after a transaction increases its confirmation count—6 confirmations (~1 hour) is widely accepted as secure.

Transaction Structure

UTXO (Unspent Transaction Output): Discrete chunks of BTC from previous transactions; spending consumes UTXOs and creates new ones.
Input / Output: An input points to a UTXO being spent; an output specifies a new UTXO (amount + destination address).
Transaction Fee: Paid to miners to include your transaction in a block—calculated as (input sum – output sum).
SegWit (Segregated Witness): Upgrade that moved signature data out of the base transaction block, reducing size and fees.
Taproot: Latest upgrade enabling more complex scripts and privacy by making multi-sig and smart contracts look like simple transfers.

️ Economic & Monetary Terms

Inflation Rate: Annual increase of BTC supply; declines over time due to halvings, trending toward zero.
Digital Gold Thesis: The view that Bitcoin functions like gold: a scarce, durable, divisible store of value.
Network Effect: Growing utility as more users adopt Bitcoin—each new user adds value for everyone.
Fiat On-Ramp / Off-Ramp: Services (exchanges, OTC desks) where you convert between BTC and government‐issued currencies.
Market Cap: Total value of all BTC in circulation (current price × circulating supply).

Scaling & Layer 2

Layer 2: Protocols built atop Bitcoin to boost speed and lower fees (e.g., Lightning Network).
Lightning Network: A peer-to-peer payment channel network for instant, low-fee BTC transactions.
Channel: A bi-directional payment path between two Lightning nodes; funds are locked on-chain until closed.
Routing: The process of finding a multi-hop path through channels to send a payment across the network.
Watchtower: A third-party service monitoring channels to penalize fraud attempts when you’re offline.

Metrics & Analysis

NVT Ratio: “Network Value to Transactions”—BTC market cap divided by daily on-chain transaction volume; high NVT can signal overvaluation.
Hash Difficulty Ribbon: Bands of historical difficulty that indicate miner capitulation or accumulation phases.
Realized Cap: Sum of BTC value at the price those coins last moved—reflects cost basis of the network.
Supply in Profit/Loss: Percentage of UTXOs whose last move price is above (profit) or below (loss) current price.
Exchange Reserves: Amount of BTC held on exchanges; declines often indicate long-term HODLing.

️ Upgrades & Proposals

BIP (Bitcoin Improvement Proposal): Standardized document describing features or processes (e.g., BIP-32 HD wallets).
Soft Fork: Backward-compatible upgrade—old nodes still accept new blocks (e.g., SegWit).
Hard Fork: Non-compatible split requiring all nodes to upgrade (e.g., Bitcoin Cash).
Consensus Rule Change: Any modification to block validation or transaction rules requiring network adoption.
Testnet / Signet: Alternative networks for testing upgrades without risking real BTC.

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