Home Glossary Bitcoin Terms for Accountants

Bitcoin Terms for Accountants

Last updated on May 02, 2026

Why this glossary exists

You know accounting. Debits, credits, accruals, GAAP, IFRS. You're comfortable.

Bitcoin throws around terms that may be new: Lightning, sats, mempool, on-chain, hot wallet, cold storage. They're not hard, but they're worth defining clearly.

This glossary covers the core Bitcoin terms in plain English, with an accountant audience in mind.

For the inverse glossary, see Accounting Terms for Bitcoin Users.

The basics

Bitcoin (capital B). The Bitcoin network and protocol.

bitcoin (lowercase b). A unit of currency on the Bitcoin network. Often abbreviated BTC.

Satoshi (sat). The smallest unit of bitcoin. 1 BTC = 100,000,000 sats. Named after the pseudonymous creator. So 5,000 sats is 0.00005 BTC.

Address. A string of letters and numbers that identifies a destination on the Bitcoin network. Like a bank account number, except you can have unlimited addresses for free, and they're publicly visible (but not directly tied to your identity).

Transaction (TX). A record of bitcoin moving from one address to another, broadcast to the network and eventually written to the blockchain.

Wallet. The tool you use to manage bitcoin. Holds the private keys (the secrets needed to spend) and tracks your addresses and balances.

On-chain vs Lightning

On-chain. Transactions that happen directly on the Bitcoin blockchain. They're the original Bitcoin transactions, settled in 10 minutes to an hour, irreversible after a few confirmations.

Lightning Network (Lightning, LN). A second-layer network on top of Bitcoin. Transactions settle in seconds, costs near-zero fees. Used for everyday small payments (a coffee, a tip).

Layer 1 / Layer 2. L1 is on-chain Bitcoin. L2 is Lightning (and other second-layer protocols). Both are "Bitcoin," but the settlement and fee characteristics differ.

For accounting purposes, both are bitcoin. The same bookkeeping rules apply.

Wallet types

Custodial wallet. A third party (usually a company) holds the private keys for you. You log in to their service to manage your bitcoin. Examples: Coinbase, Blink. Like a bank holding your money.

Self-custody wallet. You hold the private keys yourself. No third party can spend your bitcoin. Examples: hardware wallets, software wallets you control. Like cash in your home safe.

Hot wallet. Connected to the internet. Used for daily transactions. Convenient but more exposed to attack.

Cold storage / Cold wallet. Not connected to the internet. Used for long-term storage of larger amounts. Less convenient, more secure.

Hardware wallet. A specific type of cold wallet: a physical device (Trezor, Ledger, Coldcard) that holds keys offline.

For BitBooks, you record balances and transactions in each wallet regardless of type. The custody model affects security, not bookkeeping.

Settlement and confirmations

Confirmation. When a Bitcoin transaction is included in a block (a batch of transactions written to the blockchain). Each subsequent block adds another confirmation.

0 confirmations. Broadcast but not yet in a block. Could theoretically be replaced.

1 confirmation. In the next block (about 10 minutes after broadcast). Generally accepted for small amounts.

6+ confirmations. Considered settled by most exchanges and standards. Roughly an hour after broadcast.

For accounting, "Cleared" status corresponds roughly to "1+ confirmations" for on-chain transactions. Lightning is binary: settled or not.

Mempool. The waiting room for unconfirmed Bitcoin transactions. They sit here until miners include them in a block.

Fees

Network fee (or miner fee, transaction fee). What you pay to get an on-chain transaction included in a block. Scales with transaction size and network congestion. Paid in bitcoin, deducted from the amount you're sending.

Lightning routing fee. The fee paid for a Lightning payment. Typically tiny (a few sats). Covers the routing nodes that forward your payment.

Spread. Difference between the buy and sell price at an exchange. Effectively a fee, separate from explicit transaction fees.

For accounting, network fees go into a "Network Fees" expense account (or similar). For Lightning, you can ignore tiny fees or itemize for high-volume operations.

Mining

Mining. The process of running specialized hardware to validate transactions and earn new bitcoin (and fees). The way new bitcoin enters circulation.

Block reward. The new bitcoin a miner earns for adding a block. Halves roughly every 4 years (the "halving").

Difficulty. A network parameter that adjusts to keep block times around 10 minutes regardless of total mining power.

For accounting, mining income is ordinary revenue at the time of receipt (USD value of the bitcoin received). The bitcoin then has a cost basis equal to its receipt value. Expenses (electricity, hardware, hosting) are operating expenses.

Stablecoins

Stablecoin. A cryptocurrency designed to hold a stable value, usually pegged to a fiat currency. Examples: USDC (Circle's USD-pegged stablecoin), USDT (Tether), DAI (algorithmic).

Stablecoins are NOT bitcoin. They're a separate kind of asset. BitBooks treats them as their own currency (USDC, USDT, etc.).

For accounting, stablecoin transactions follow the same patterns as bitcoin: record amount, record exchange rate to functional currency, track gains/losses on sale (usually negligible since stablecoins are stable).

Multisig and security

Multisig. A wallet that requires multiple signatures to spend. Common: 2-of-3 (any 2 of 3 keys can sign) for shared business control.

Seed phrase / mnemonic. The 12 or 24 words that backup a wallet. Whoever has the seed phrase can recreate the wallet's keys.

For accounting, multisig and seed phrase details aren't relevant. BitBooks doesn't see your seed phrase or your private keys.

Specific Bitcoin features in BitBooks

Bitcoin Connections. BitBooks' feature for linking a wallet provider to your books. Auto-imports transactions. See The Bitcoin Connections System.

Vault password. The password that locks your provider credentials inside Bitcoin Connections. Never leaves your device. See Connecting Your Bitcoin Wallet.

FX revaluation. The accounting practice of marking your bitcoin holdings to current market value periodically. Captures unrealized gains and losses. See Tracking Bitcoin Value Changes.

Display modes. Four ways to show bitcoin amounts in BitBooks: BTC High Precision, BTC Consequence, Bitcoins, Satoshis. See BTC Display Modes.

Tax-related

Cost basis. What you originally paid for the bitcoin. Used to compute gains/losses on sale.

FIFO / LIFO / Specific Identification. Methods for assigning cost basis when you sell some of your holding. Tax-jurisdiction-dependent.

Capital gains/losses. The difference between sale price and cost basis. Realized when you actually sell.

Unrealized gain/loss. The change in market value while you still hold. Whether reportable depends on jurisdiction and standards.

Like-kind exchange. A US tax concept that allowed deferring gains by exchanging similar property. Disallowed for crypto in the US since 2017. (Other jurisdictions vary.)

Common acronyms

  • BTC. Bitcoin (the currency).
  • sats. Satoshis.
  • LN. Lightning Network.
  • TX. Transaction.
  • TXID. Transaction ID. The unique identifier for a Bitcoin transaction.
  • DCA. Dollar-cost averaging. Buying small amounts on a schedule.
  • HODL. Hold (community slang). To not sell.
  • AML / KYC. Anti-Money Laundering / Know Your Customer. Regulatory requirements for some bitcoin services.

What you don't need to know (for accounting purposes)

  • Mining algorithms and hash functions
  • Specific cryptography (elliptic curves, hashing)
  • Block structure and consensus rules
  • Network protocol layers

These don't affect bookkeeping. The accounting works the same regardless of how Bitcoin works under the hood.

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