Learn & Reference

Glossary of Bitcoin and market terms

The vocabulary this site uses, defined in plain language. The entries cover both the protocol — blocks, subsidies, halvings, proof of work — and the market language that surrounds it, from basis points and drawdowns to compound growth and volatility. Each definition is written to be understood on its own, and each points to the related terms that make it clearer.

A glossary is only useful if it explains rather than defines. The entries below are written as short pieces of prose, not as dictionary fragments, because most of these terms only make sense in relation to one another: a halving is meaningless without the block subsidy, and the block subsidy is meaningless without block height. Where a term has a precise technical meaning the definition gives it, and where the market uses a word more loosely than the protocol does, the definition says so.

The terms are drawn from the writing across the site. If you meet a word in an article that is not here, that is a gap worth closing, and the editorial standards page explains how corrections and additions are handled.

Browse the entries

16 terms, grouped alphabetically. Jump to a letter, or read straight through.

B

Basis point: One hundredth of a percentage point, written as 1 bp. A move from 4.00 per cent to 4.25 per cent is a change of 25 basis points. Basis points are used throughout this site because they express both large and small percentage changes exactly, without the rounding that creeps into decimal percentages.; See alsoDrawdownVolatility
Block height: The number of blocks in the chain between the genesis block and a given block, counting the genesis block as height zero. Because a block is produced roughly every ten minutes, block height is also a coarse clock: the halvings occur at fixed heights, so their dates are known in advance to within a few weeks.; See alsoHalvingBlock subsidy
Block subsidy: The new bitcoin created in each block and paid to the miner who finds it, alongside transaction fees. The subsidy began at fifty bitcoin per block and halves every 210,000 blocks, which is what gives bitcoin its fixed and diminishing issuance schedule.; See alsoHalvingBlock height

C

CAGR: Compound annual growth rate, the single constant annual rate that would take a starting value to an ending value over a given number of years. It is a smoothing device, not a description of the path taken: a series that fell by eighty per cent and then rose tenfold can still show a healthy CAGR.; See alsoDrawdownDollar-cost averaging
Circulating supply: The number of bitcoin that have been mined and are spendable, as distinct from the total supply that will ever exist. Issuance adds to circulating supply with every block, while coins believed lost reduce the amount that can actually change hands.; See alsoBlock subsidyHalving

D

Dollar-cost averaging: Buying a fixed money amount at fixed intervals regardless of price, so that more units are acquired when the price is low and fewer when it is high. The method removes the need to time an entry and converts volatility from a threat into the mechanism that lowers the average cost.; See alsoLump sumVolatility
Drawdown: The decline from a previous peak to a subsequent trough, expressed as a percentage of the peak. A drawdown is measured peak to trough and is only complete when a new peak is reached; until then the asset is described as underwater.; See alsoRecoveryVolatility

H

Halving: The scheduled reduction of the block subsidy by half, which occurs automatically every 210,000 blocks, roughly every four years. The halving is the mechanism that caps bitcoin's total supply at twenty-one million and makes its issuance schedule predictable decades in advance.; See alsoBlock subsidyBlock height
Hashrate: The total computational work per second being applied to mining, measured in hashes per second. Hashrate is a rough proxy for how much capital and energy the network is committing to secure itself, and it has risen through every price cycle so far.; See alsoProof of workMining

L

Lump sum: Investing an entire amount at a single moment rather than spreading it over time. A lump sum maximises exposure to the asset's long-run return but also maximises the consequence of the entry date, which is why it is usually compared against dollar-cost averaging over the same window.; See alsoDollar-cost averagingVolatility

M

Market cycle: The recurring sequence of accumulation, advance, distribution and decline that has characterised bitcoin's price history. Cycles are descriptive rather than mechanical: the four observed episodes differ in length and depth, and the halving is only one of several influences on each.; See alsoDrawdownHalving
Mining: The process of repeatedly hashing a block header with different nonces until the result falls below a target set by the network, which earns the miner the block subsidy and fees. Mining is what orders transactions and makes rewriting history expensive.; See alsoHashrateProof of work

P

Proof of work: A consensus mechanism in which participants demonstrate that a measurable quantity of computation was expended. In bitcoin the work is the hashing required to produce a valid block, and the accumulated work in the longest chain is what a node uses to decide which history to accept.; See alsoMiningHashrate

R

Recovery: The return of the price to its previous peak after a drawdown. Recovery time is measured from the peak, not from the trough, and it is usually longer than the decline itself: the deepest bitcoin drawdowns took between two and three years to recover.; See alsoDrawdownMarket cycle

S

Sharpe ratio: A measure of return earned per unit of risk taken, calculated as the excess return over a risk-free rate divided by the volatility of returns. Bitcoin's high volatility means its Sharpe ratio depends heavily on the measurement window chosen.; See alsoVolatilityCAGR

V

Volatility: The dispersion of returns around their average, usually quoted as an annualised standard deviation. Bitcoin's realised volatility has fallen as the market has deepened, but it remains several times that of large equity indices, which is the single most important fact for anyone sizing a position.; See alsoDrawdownSharpe ratio

Put the terms to work

Definitions are the beginning of understanding, not the end of it. These pages use the vocabulary above in context.