Glossary
If a word comes up in one of the guides and you’re not sure what it means, look it up here. Every definition is written for everyday Australians.
If a guide uses a word you do not know, use this page in one of three ways: browse by category, jump to a letter, or search your browser for the word. Each definition explains the term and points you to the best next guide if you want the full version.
A
Address (Bitcoin)
A string of letters and numbers that functions as a destination for a bitcoin transaction. Think of it like a bank account number that anyone can see and send money to, but only the account holder can withdraw from. A Bitcoin address is generated from a private key. Anyone can send bitcoin to an address. Only the holder of the corresponding private key can spend what arrives there. Unlike a bank account number, a Bitcoin address can be used once or many times, and generating a fresh address for each transaction is considered better practice for privacy.
WHY IT MATTERS
Anyone can send. Only the keyholder can spend. A Bitcoin address is the only piece of account information that is safe to share publicly. Sharing it cannot give anyone access to the funds. Only the corresponding private key can do that.
Air-Gapped
A device that has never been connected to the internet and has no wireless capability. The gap between the device and any network is physical, not just a setting that could be switched back on. This makes it more secure than a standard cold wallet because there is no history of network exposure that could have left traces or vulnerabilities. Some people use permanently air-gapped computers to sign Bitcoin transactions, keeping private keys completely isolated. The trade-off is convenience: moving data on and off the device requires physical media such as a USB drive or QR code.
WHY IT MATTERS
Physical separation is stronger than any software setting. A device that was never connected to the internet has never been exposed to remote threats. A device that was connected and later disconnected carries the history of that exposure. Air-gapping removes the attack surface entirely.
Amortisation
The schedule by which a loan is paid down over time. In the early years of a mortgage, most of each repayment goes to interest rather than reducing the amount owed. The proportion shifts gradually toward principal as the loan matures. On a typical 30-year Australian mortgage, it can take over a decade before the majority of each repayment is reducing the debt rather than servicing the interest. This structure means the bank collects the most interest when the balance is highest, and extra repayments made early have a disproportionately large effect on the total interest paid over the life of the loan.
WHY IT MATTERS
Most of what you repay in the early years goes to the bank, not the debt. The structure is deliberate: interest is calculated on the outstanding balance, so the bank collects the most when the balance is highest. Understanding this explains why extra repayments made early have a disproportionately large effect on the total cost of the loan.
ASIC (Australian Securities and Investments Commission)
Australia’s corporate and financial services regulator. ASIC licenses and oversees financial services businesses, including Bitcoin exchanges that operate as financial services providers. It also handles consumer protection complaints related to financial products. When a Bitcoin exchange holds an Australian Financial Services Licence, ASIC is the body responsible for enforcing the obligations that come with it. ASIC publishes guidance on how it treats digital assets, and its position has evolved as Bitcoin has become more mainstream in Australia.
WHY IT MATTERS
ASIC’s remit covers the behaviour of licensed exchanges, not Bitcoin itself. If you have a complaint about how an exchange treated you, ASIC is the relevant body. If you lost bitcoin because of your own custody decisions, it is not. Knowing where ASIC’s authority starts and stops tells you where formal consumer protection applies and where it does not.
Asset
Something that holds or grows in value over time. Property, shares, and gold are common examples. When the money supply expands, the additional money tends to flow into assets first, before it reaches wages or consumer prices. This is the mechanism behind the Cantillon Effect. Asset prices rise in nominal terms while the purchasing power of cash held in a savings account falls relative to those prices. Someone who owns assets sees their nominal wealth increase. Someone who holds only cash sees their real wealth decrease. The gap between the two widens each time the money supply expands.
WHY IT MATTERS
Asset owners gain when money is created. Cash holders lose. When the money supply expands, new money flows into assets before it reaches wages. Property prices rise. Share prices rise. The cash sitting in a savings account buys fewer assets each time this happens. In an expanding money system, asset ownership is the structural condition for maintaining real purchasing power. Holding only cash means holding a unit that is systematically diluted by every expansion.
ATO (Australian Taxation Office)
The Australian government agency responsible for tax administration and collection. The ATO treats Bitcoin as property rather than currency, which has significant implications for how it is taxed. Buying, selling, trading, and spending Bitcoin can all trigger tax obligations. The ATO has published guidance specifically on digital assets and data-matches transactions with exchanges. Keeping accurate records from the first purchase is the practical requirement that flows from this classification.
WHY IT MATTERS
The ATO knows about Bitcoin purchases made on registered exchanges. AUSTRAC and the ATO share data. Every purchase made on a registered Australian exchange with identity verification leaves a permanent record accessible to the tax office. Accurate record keeping from the first transaction is not optional.
AUSTRAC
The Australian Transaction Reports and Analysis Centre. AUSTRAC is the government agency responsible for anti-money laundering and counter-terrorism financing regulation. Any Bitcoin exchange operating in Australia must register with AUSTRAC and comply with its reporting obligations. This is the regulatory reason why exchanges collect identity documents from every customer before allowing trading. AUSTRAC can and does share data with the ATO, which is why Bitcoin purchases made on registered Australian exchanges leave a permanent record.
WHY IT MATTERS
Registration with AUSTRAC is why exchanges collect identity documents. Any Bitcoin exchange operating in Australia must comply with anti-money laundering obligations. The identity data collected is shared with the ATO. Bitcoin purchases made on registered Australian exchanges are permanently linked to the buyer’s identity.
Austerity
A government policy of reducing public spending or raising taxes in order to reduce a budget deficit. Austerity is the opposite of stimulus. Where stimulus injects money into the economy, austerity contracts it. Governments typically turn to austerity when debt levels become difficult to service, when lenders demand it as a condition of continued borrowing, or when inflation has made further money creation politically untenable. The effects fall unevenly: services that lower-income households depend on are often reduced while the debt itself, typically held by wealthier institutions and individuals, is protected.
WHY IT MATTERS
The cost of austerity falls unevenly. When governments cut spending to reduce deficits, the services reduced are typically those that lower-income households depend on most. The debt being managed, often held by wealthier institutions and individuals, is protected. The mechanism shifts the cost of past spending onto those least able to absorb it.
Auditability
A property of money that describes whether its total supply and transaction history can be independently verified. In Bitcoin, anyone running a node can confirm exactly how many bitcoin exist and trace every transaction ever made.
WHY IT MATTERS
The numbers cannot be faked. In the fiat system, money supply figures are published by central banks and accepted on trust. In Bitcoin, the ledger is public and the supply is verifiable by anyone with a computer. No central bank has ever offered that.
B
Bailout
When a government or central bank uses public money to rescue a failing institution, typically a bank or large corporation, to prevent wider economic damage.
WHY IT MATTERS
You pay for risks you never took. Bailouts transfer the cost of institutional failure to taxpayers through direct spending, money creation, or both. The institution survives. The people who made the bad decisions often keep their jobs and their prior earnings. The public absorbs the loss. This is the mechanism behind privatising gains and socialising losses.
Bank Run
A situation where a large number of depositors attempt to withdraw their funds simultaneously. Because banks operate on fractional reserve banking, they hold only a fraction of deposits as physical cash at any time. If enough people withdraw at once, the bank cannot meet demand. The awareness that others are withdrawing accelerates further withdrawals, which is what turns a concern into a crisis. This structural vulnerability is why governments introduced deposit guarantees and why central banks act as lenders of last resort. Neither mechanism would be necessary if banks held deposits in full.
WHY IT MATTERS
Every bank is vulnerable to the same structural problem. Because banks lend out most of what is deposited, they cannot return all deposits at once. Deposit guarantees and central bank backstops exist to manage this vulnerability, not eliminate it. Without them, any widespread loss of confidence could become a bank run. Bitcoin held in self-custody has no equivalent structural fragility.
Bear Market
A prolonged period of falling asset prices, typically defined as a decline of 20% or more from recent highs. Bear markets occur across shares, property, and Bitcoin. The term describes both the direction of prices and the general sentiment during that period. Bear markets in Bitcoin have historically been severe in percentage terms but have recovered to new highs over longer timeframes. Past patterns do not guarantee future outcomes.
WHY IT MATTERS
The depth of Bitcoin’s bear markets catches most new holders off guard. A 70 to 80% drawdown feels different in practice than it does on a chart. The psychological pressure to sell during a sustained decline is real, and many people do. The distinction that matters is between temporary price decline and permanent loss of capital. They are not the same thing, but they feel the same when you are in the middle of one.
Bitcoin
A fixed-supply digital currency that runs on a global network of computers with no central authority. No single company, government, or person controls it. The total supply is capped at 21 million and cannot be changed by anyone. New bitcoin is created at a predictable, declining rate through mining until the cap is reached. Transactions are recorded on a public ledger called the blockchain and verified by thousands of independent nodes. Bitcoin was created in 2009 by a person or group using the name Satoshi Nakamoto, who has never been identified.
WHY IT MATTERS
Fixed supply, no central authority, no one can print more. Bitcoin was designed as a response to the structural problems of the fiat monetary system: supply that can be expanded by decision, currencies controlled by governments and central banks, and the inability to hold savings without the value being eroded over time. Understanding money is the prerequisite for understanding why Bitcoin was built.
Block
A bundle of Bitcoin transactions that have been verified and added to the blockchain. A new block is added roughly every ten minutes. Each block references the one before it, creating a chain where every transaction is linked back to the beginning. Once a transaction is in a block and more blocks are added after it, reversing it would require redoing all the computational work that followed. This is what makes confirmed Bitcoin transactions tamper-resistant rather than merely recorded.
WHY IT MATTERS
Each block adds another layer of security to every transaction before it. Once a transaction is in a confirmed block with more blocks added after it, the computational work and electricity required to reverse it grows with every subsequent block. This is what makes Bitcoin transactions practically irreversible without requiring trust in any central authority.
Block Reward
The new bitcoin issued to the miner who successfully adds a block to the blockchain. This is the only mechanism through which new bitcoin enters circulation. There is no central bank, no treasury, and no authority that decides how much to issue. The amount is set by code. The reward decreases automatically over time through the halving and will eventually reach zero, after which miners are compensated only through transaction fees. This predetermined schedule is one of the properties that makes Bitcoin’s supply genuinely fixed.
WHY IT MATTERS
This is the only mechanism through which new bitcoin enters circulation. No committee decides when to issue more. No treasury creates it by decision. The schedule is fixed in code: a predetermined amount per block, halving every four years, until the cap of 21 million is reached. Every unit of bitcoin that will ever exist was issued by this mechanism.
Blockchain
The public record of every Bitcoin transaction ever made, stored simultaneously on thousands of computers around the world. Each group of transactions is bundled into a block, and each block is mathematically linked to the one before it. Altering any past transaction would require redoing all the computational work that followed it across the majority of the network. No single party controls the record. Anyone can read it. No one can secretly change it.
WHY IT MATTERS
No single party controls this record and no one can secretly change it. Every node holds a full copy. Any attempt to alter a past transaction would require rewriting all subsequent blocks faster than the honest network continues to build forward. The record is public, permanent, and tamper-resistant by design.
Bond
A loan made to a government or company by an investor, in exchange for regular interest payments and return of the principal at a set future date. When governments need to borrow beyond what taxes collect, they issue bonds. The interest rate on those bonds is influenced by the central bank’s cash rate and the market’s assessment of the borrower’s ability to repay. Central banks can suppress bond yields artificially by buying bonds in large quantities, which is the mechanism behind yield suppression and a core tool of financial repression.
WHY IT MATTERS
When central banks buy bonds, they are creating new money to suppress rates. The government borrows. The central bank creates money to buy that debt. This keeps the government’s borrowing costs low while expanding the money supply. Savers who hold cash or conservative investments are on the wrong side of this mechanism.
Bretton Woods
Bretton Woods was an international monetary agreement reached in July 1944. The US dollar was anchored to gold at US$35 per ounce, and all other major currencies were pegged to the dollar. Only foreign central banks could exchange dollars for gold at the official rate. The arrangement gave the postwar world a stable monetary reference point and ran for roughly 27 years. On 15 August 1971, the United States suspended dollar-to-gold convertibility. That suspension has never been reversed.
WHY IT MATTERS
Bretton Woods is the system whose ending created the money Australians use today. When the USD lost its gold link in 1971, every currency pegged to it, including the Australian dollar, lost its anchor too. The constraint shifted from geology to policy. Understanding Bretton Woods explains why 1971 is the date that comes up repeatedly in any serious discussion of modern inflation, purchasing power, and monetary history.
Learn more: The History of Money: Why It Keeps Breaking →
Bull Market
A prolonged period of rising asset prices. The term applies to shares, property, and Bitcoin. Bull markets are driven by combinations of economic growth, money supply expansion, and investor sentiment. When central banks hold interest rates low and expand the money supply, cheap credit tends to flow into assets, contributing to sustained price rises. Bull markets end when one or more of those conditions reverse.
WHY IT MATTERS
Money supply expansion fuels asset prices more than most people realise. When the RBA holds rates low and the money supply expands, cheap debt flows into assets. Property prices rise. Share prices rise. This produces nominal gains across portfolios while the purchasing power of the underlying currency falls. The gains are real in nominal terms and may be far smaller in real terms.
Byzantine Fault Tolerance
The ability of a distributed system to reach agreement even when some participants are acting dishonestly or failing. The name comes from a theoretical problem in computer science about coordinating generals who cannot trust all messengers. Bitcoin’s network is Byzantine fault tolerant because it reaches consensus on the valid transaction history without requiring any participant to be trusted. Dishonest participants cannot corrupt the record as long as they do not control the majority of the network’s computing power. This is a technical underpinning of Bitcoin’s trustless design.
WHY IT MATTERS
Bitcoin reaches agreement without trusting any single participant. In a traditional system, trust flows through a central authority. Bitcoin’s network reaches consensus through mathematics and economic incentives rather than trusting any individual node or miner. This is the technical property that allows a decentralised network to function reliably even when some participants act dishonestly.
C
Cantillon Effect
The observation that newly created money does not enter the economy evenly. Those who receive new money first, typically banks and large financial institutions, can spend it before prices adjust. By the time that money filters through to wages and everyday bank accounts, prices have already risen. The people at the end of the chain receive money with less purchasing power than those at the front. The effect was described by economist Richard Cantillon in the 18th century and remains directly relevant to how modern monetary expansion works. When the RBA conducts quantitative easing, it creates money and uses it to buy bonds from financial institutions. Those institutions benefit immediately. The Australian household with a savings account earning below-inflation interest feels the price effects later, with no corresponding gain. Bitcoin’s fixed supply means no new money can be created to distribute unevenly.
WHY IT MATTERS
New money does not reach everyone at the same time or in the same way. Those closest to the source of new money, typically banks and financial institutions, spend it before prices have adjusted. By the time the same money filters through to wages, prices have already risen. The Cantillon Effect is the mechanism behind why monetary expansion tends to widen the gap between asset owners and wage earners.
Learn more: Money Is Stored Time and Effort →
Capital Gains Tax (CGT)
A tax on the profit made when an asset that has increased in value is disposed of. The ATO treats Bitcoin disposals as CGT events. Disposal includes selling, trading, gifting, and spending.
WHY IT MATTERS
Every Bitcoin disposal is a potential tax event in Australia. Selling, trading, gifting, and spending bitcoin all trigger CGT obligations under ATO rules. The gain is calculated as the disposal price minus the cost base. Without accurate records, calculating this correctly is impossible. The CGT discount applies if the asset was held for more than 12 months.
Capital Controls
Government restrictions on the movement of money across borders. Capital controls can take the form of limits on how much currency can be taken out of a country, taxes on foreign transfers, or outright bans on moving funds abroad. They are typically imposed during currency crises or periods of financial instability to prevent capital flight. Bitcoin held in self-custody can cross borders as information rather than as a physical asset.
WHY IT MATTERS
Governments impose capital controls when they cannot trust their own currency. When a currency is under pressure, capital controls prevent people from moving savings to stronger currencies or assets. They are a sign that the monetary system is failing its citizens. Bitcoin held in self-custody is information that does not require approval to move across borders.
CGT Discount
A reduction in the taxable capital gain available to Australian residents who have held an asset for more than 12 months. Individuals can reduce their capital gain by 50% before it is added to their taxable income. This applies to Bitcoin held for more than 12 months before disposal. The CGT discount is one of the most significant tax considerations for long-term Bitcoin holders in Australia.
WHY IT MATTERS
Holding for more than 12 months halves the taxable gain. The 50% CGT discount for Australian individuals who hold an asset for more than 12 months before disposal is one of the most significant tax considerations for Bitcoin holders. A $10,000 gain on bitcoin held for 13 months produces $5,000 of assessable income rather than $10,000.
Censorship Resistance
A property of money that describes whether transactions can be blocked or reversed by a third party. In Bitcoin, no single government, company, or individual can prevent a valid transaction from being processed.
WHY IT MATTERS
No one can freeze your bitcoin or block a valid transaction. In the traditional system, banks can freeze accounts, payment processors can refuse transactions, and governments can seize funds. Bitcoin transactions broadcast to a global network of independent nodes will be processed as long as they are valid and pay a fee. This property matters most when financial access is restricted.
Cold Wallet (Cold Storage)
A Bitcoin wallet that stores private keys on a device that is not connected to the internet. Hardware wallets are the most common form of cold storage. Because the private keys are offline, they cannot be accessed remotely by hackers or malware. Cold storage is the standard approach for holding meaningful amounts of bitcoin intended for long-term holding rather than regular spending.
WHY IT MATTERS
Offline storage removes the remote attack surface entirely. A private key that is never exposed to an internet-connected device cannot be stolen remotely. Cold storage is the standard approach for any meaningful amount of bitcoin not needed for immediate spending. The trade-off is that access requires more steps than an online wallet.
Collateral
An asset pledged as security against a loan. If the borrower fails to repay, the lender can seize the collateral. Property is the most common form of collateral for Australian mortgages. The value of collateral relative to the loan amount is called the loan-to-value ratio.
WHY IT MATTERS
Property as collateral is why the bank can take the house. When a mortgage is used to purchase property, the property is pledged as security. If repayments are not met, the lender has a legal claim over the asset used as collateral. Understanding this relationship is fundamental to understanding how debt works in the Australian housing market.
Coin Clipping
Coin clipping was the practice of shaving small amounts of precious metal from the edges of gold or silver coins, then spending those coins at full face value. The shaved metal was pocketed and resold. Ridged edges on coins, called reeding, were introduced as a defence: a clipped coin would show damage around the rim, making the tampering visible. Modern coins still carry this ridging, though they contain no precious metal worth shaving.
WHY IT MATTERS
Coin clipping is the most visible version of a pattern that runs through every monetary system. The people who controlled the supply found a way to quietly expand it and kept the difference. In medieval Europe it was physical shaving. In the twentieth century it was official debasement. In the modern system it is monetary policy. The mechanism shifted. The structure stayed the same.
Learn more: The History of Money: Why It Keeps Breaking →
Coinbase Transaction
The first transaction in every Bitcoin block. It is created by the miner who successfully adds the block, and it pays the miner the block reward plus the fees from all transactions in that block. The coinbase transaction has no inputs, only outputs. It is the only mechanism through which new bitcoin is created.
WHY IT MATTERS
This is where all new bitcoin originates. Every block begins with a coinbase transaction that creates new bitcoin and pays it to the miner. There is no other source. No central bank, no treasury, no authority beyond the protocol itself creates bitcoin. The coinbase transaction is the proof that Bitcoin’s issuance is mechanical, not discretionary.
Compound Interest
Interest calculated on both the original principal and the accumulated interest from previous periods. On savings, compound interest grows a balance faster over time. On debt, it means the total owed grows faster if repayments do not keep up. A credit card balance that is not fully paid off each month compounds against the cardholder. A savings account earning compound interest grows in favour of the saver. The direction depends entirely on whether compound interest is working for or against the holder.
WHY IT MATTERS
Compounding works in both directions with equal force. On savings it grows the balance. On debt it grows what is owed. A credit card balance that is not paid in full each month compounds against the cardholder at rates that can reach 20% per year or more. The same mechanism that builds wealth in a savings account can accelerate debt if it is not managed.
Confirmations
The number of blocks added to the blockchain after the block containing a specific transaction. Each additional block adds a layer of security because reversing the transaction would require redoing the work of all subsequent blocks. One confirmation means the transaction is in a block. Six confirmations is a common threshold for treating a transaction as effectively irreversible.
WHY IT MATTERS
Each additional confirmation makes a transaction harder to reverse. One confirmation means a transaction is in a block. Six confirmations is the widely accepted threshold for treating a transaction as settled. The energy cost of undoing six confirmed blocks is prohibitive for any attacker who does not control the majority of the network’s computing power.
Convertibility
Convertibility is the right to exchange a currency or paper receipt for a fixed quantity of a physical asset, typically gold. When a currency is convertible, the issuer is legally obligated to hand over the underlying asset on demand. When convertibility is suspended, the paper remains in circulation but the physical backing no longer constrains how much can be issued. Most major currencies suspended gold convertibility during the First World War. The final global convertibility link was cut in August 1971.
WHY IT MATTERS
Convertibility is what turned paper money from a claim on something real into a promise with no physical limit. Before convertibility ended, expanding the money supply required finding more gold. After it ended, expansion required only a policy decision. Every modern currency, including the Australian dollar, operates without convertibility. The supply is managed by commitment, not constrained by any asset the holder can demand in return.
Learn more: The History of Money: Why It Keeps Breaking →
Counterparty Risk
The risk that the other party in a financial arrangement will fail to meet their obligations. When bitcoin is held on an exchange, the exchange is the counterparty. If the exchange becomes insolvent, is hacked, freezes withdrawals, or is shut down by regulators, the account holder is exposed to that failure. Self-custody eliminates counterparty risk because there is no third party involved.
WHY IT MATTERS
Every third party that holds bitcoin introduces a risk the holder cannot control. An exchange can freeze withdrawals. A custodian can go bankrupt. A platform can be hacked. These are not theoretical risks. They have occurred repeatedly across well-known platforms. Self-custody eliminates counterparty risk by removing the third party from the arrangement.
Cost Base
The original price paid for an asset, including any fees paid at the time of purchase. The ATO uses the cost base to calculate whether a gain or a loss was made when bitcoin is disposed of.
WHY IT MATTERS
Without a cost base, calculating tax owed is impossible. The ATO calculates capital gains by subtracting the cost base from the disposal price. If records of the original purchase price and any associated fees are not kept, the cost base cannot be established. The ATO may then use the least favourable interpretation available.
CPI (Consumer Price Index)
A measure of inflation that tracks the average change in prices paid for a basket of consumer goods and services over time. The Australian Bureau of Statistics publishes CPI data quarterly. The RBA uses the CPI to assess whether inflation is within its 2 to 3% target range. The basket includes housing, food, transport, health, and other categories. Because the basket is a constructed average, the CPI may not reflect the actual price changes experienced by any individual household.
WHY IT MATTERS
The CPI measures the average, not any individual’s actual experience. The basket of goods used to calculate CPI is a constructed average across a wide population. A household with high housing costs in a major city may experience inflation that runs significantly above the published figure. CPI is a policy tool as much as a statistical measure, and the methodology behind it affects the number that gets reported.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Credit Money
Money created by commercial banks through the process of lending. When a bank issues a loan, it creates a new deposit in the borrower’s account. This deposit is new money that did not exist before the loan was made. Most money in circulation in modern economies is credit money, not physical cash or central bank reserves. The total amount of credit money in the system expands when lending increases and contracts when loans are repaid or defaulted on.
WHY IT MATTERS
Most money in circulation was created by a bank issuing a loan. When a bank approves a mortgage and credits the borrower’s account, that deposit is new money. It did not come from another account. It was created in the act of lending. This is how the money supply expands and why total debt in the system is always larger than the total money available to repay it.
Credit Rating
An assessment of a borrower’s ability to repay debt. For individuals, this is typically expressed as a credit score. For governments and corporations, credit ratings are issued by agencies such as Moody’s and Standard and Poor’s. A lower rating indicates higher perceived risk, which typically results in higher interest rates demanded by lenders. Australia’s sovereign credit rating affects the interest rate the government pays on its bonds.
WHY IT MATTERS
Australia’s credit rating affects the interest rate the government pays. A sovereign credit rating is an assessment of a government’s ability to repay its debt. A lower rating means higher borrowing costs. Higher borrowing costs on a large national debt increase the government’s incentive to inflate the debt away rather than repay it, which reduces the real purchasing power of the currency.
Currency Devaluation
A deliberate reduction in the value of a currency relative to other currencies or to goods and services. Governments and central banks devalue currency by creating more of it or by policy decision.
WHY IT MATTERS
Your time gets cheaper without your permission. Money is stored time and energy. When a currency is devalued, the hours already worked buy less than they did when they were earned. A 20% devaluation means 20% of stored labour has been taken. The same number remains in the account. It just does less. This is why devaluation is sometimes described as a hidden tax on savings, and a silent drain on stored time.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Custody
Control over the private keys that prove Bitcoin ownership. Whoever holds the private keys controls the bitcoin. When bitcoin sits on an exchange, the exchange holds the keys, not the account holder.
WHY IT MATTERS
Custody determines who actually controls the bitcoin. Whoever holds the private keys controls the bitcoin. A balance shown on an exchange is a claim against the exchange, not direct ownership of bitcoin on the blockchain. The distinction becomes concrete when an exchange freezes withdrawals or becomes insolvent.
D
Debasement
The reduction of a currency’s value by expanding its supply or reducing its intrinsic content. Historically, governments debased coins by reducing their gold or silver content while keeping the face value the same. A coin that once contained a full ounce of silver would be reissued with half an ounce, effectively halving its purchasing power while the nominal value appeared unchanged. The ruler used to measure everything got shorter, but the numbers on it stayed the same. In a fiat money system, debasement occurs through money supply expansion rather than physical dilution. More units are created. Each existing unit buys proportionally less.
WHY IT MATTERS
The number stays the same. The purchasing power falls. Debasement is not announced and does not require consent. It happens mechanically whenever more units of currency are created. Historical coin-clipping was visible. Modern monetary debasement is invisible in the account balance and visible only in what that balance will buy.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Debt
Money borrowed that must be repaid with interest. In the current monetary system, most money in circulation is created as debt by commercial banks when they issue loans. The money is created at the moment the loan is approved and enters the borrower’s account. When the loan is repaid, that money is extinguished from circulation. The interest paid to the bank is not extinguished with it. That interest represents a claim on money that was never created as part of the original loan, which means the total debt outstanding in the system is always larger than the total money supply available to repay it.
WHY IT MATTERS
The system is structurally designed so the debt can never be fully repaid. Every dollar in circulation was created as a loan. The interest owed on those loans was never created. That gap has to be covered somewhere, which means more borrowing, more money creation, and more inflation. Savers holding cash watch their purchasing power erode to service a debt that was not theirs to begin with.
Decentralised
Operated across a distributed network rather than controlled by a single authority. Bitcoin has no headquarters, no CEO, and no server that can be shut down. Thousands of independent nodes around the world each maintain a full copy of the transaction history and enforce the rules independently. No single entity can change the rules, censor transactions, or take the network offline.
WHY IT MATTERS
No single point of failure means no single point of attack. A centralised system can be shut down, censored, or corrupted at its centre. Bitcoin’s network has thousands of independent nodes in dozens of countries. There is no headquarters to raid, no server to seize, and no executive to pressure. The rules are enforced by every participant simultaneously.
Deficit
When government spending exceeds tax revenue in a given period. Governments cover deficits by borrowing, typically by issuing bonds. Persistent deficits increase national debt over time. Australia has run a federal budget deficit in most years since the 2008 global financial crisis.
WHY IT MATTERS
Persistent deficits increase the incentive to inflate. When a government spends more than it collects in taxes, it borrows. As the accumulated debt grows, so does the interest cost of servicing it. At some point, inflation becomes an attractive mechanism to reduce the real value of that debt without formal default. The cost falls on everyone holding the currency.
Deflation
Deflation is a sustained decrease in the general price level of goods and services. When deflation occurs, the same amount of money buys more over time rather than less. In a free market, deflation tends to be the natural direction. As technology improves and production becomes more efficient, things generally get cheaper. This is the normal reward for innovation.
WHY IT MATTERS
The system is built to prevent the thing that would benefit savers most. In a free market, prices tend to fall over time as technology improves and production gets cheaper. That efficiency should pass to savers as lower prices. Instead, central banks target 2 to 3 percent inflation annually to cancel that out. Add natural deflation running in the opposite direction, and savers are already behind before anything else is factored in.
On top of that, the money supply expands through credit creation and asset purchases. That additional money pushes prices up further than official figures tend to capture. The gap between what the headline number says and what households actually experience is where purchasing power quietly disappears.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Deposit Guarantee
A government guarantee that protects bank depositors up to a set amount if their bank fails. In Australia, the Financial Claims Scheme guarantees deposits up to $250,000 per account holder per bank. The guarantee is funded by the government, which means in a systemic failure the cost falls on taxpayers. The scheme exists because fractional reserve banking means banks do not hold enough cash to repay all depositors simultaneously.
WHY IT MATTERS
The guarantee only works if the problem is not too widespread. The Australian Financial Claims Scheme guarantees deposits up to $250,000 per account holder per bank. In a systemic failure affecting multiple banks simultaneously, the guarantee would need to be funded by the government, ultimately through taxation or money creation. The scheme addresses individual bank failures, not system-wide collapses.
Difficulty Adjustment
An automatic recalibration built into Bitcoin that changes how hard it is to mine a new block. It runs roughly every two weeks (every 2,016 blocks) and responds to how much computing power is on the network.
WHY IT MATTERS
It stops anyone from speeding up the clock. Bitcoin is designed to produce one block roughly every 10 minutes, regardless of how many miners join or leave. If a wave of miners floods the network, the difficulty rises so blocks still take 10 minutes. If miners drop off, it falls. Without this, a wealthy miner could flood the network with hardware, mine blocks faster than intended, and grab a disproportionate share of new bitcoin. The difficulty adjustment keeps issuance on schedule regardless of how much hardware exists. This is also what makes Bitcoin’s supply schedule predictable decades in advance.
Learn more: Bitcoin Basics →
Divisibility
Money needs to be splittable into smaller amounts without losing value. Bitcoin is divisible to eight decimal places. The smallest unit is called a satoshi (0.00000001 BTC).
WHY IT MATTERS
A whole bitcoin is not the entry point. One bitcoin contains 100 million satoshis. Any fraction can be bought, sent, or received. This removes the psychological barrier that the price of a single bitcoin is too high. Gold is difficult to divide. Cash has fixed denominations. Bitcoin can be split to any practical amount.
Dollar Cost Averaging (DCA)
An approach to purchasing an asset by buying a fixed dollar amount at regular intervals, regardless of the price. The approach spreads purchases across time rather than concentrating them at a single point. It is commonly used by people who want to avoid making a single large purchase at one point in time.
WHY IT MATTERS
The method is about timing purchases differently, not timing the market. Instead of buying a large amount at once, DCA spreads purchases across regular intervals. It is a mechanical approach, not a prediction about price direction. Whether it is appropriate for any individual depends on personal circumstances this site cannot assess.
Learn more: Bitcoin in Australia →
Dunbar’s Number
The idea, proposed by British anthropologist Robin Dunbar, that humans can maintain around 150 stable social relationships at any one time. Beyond that threshold, coordinating trust and cooperation between individuals becomes unreliable without a shared system to manage it.
WHY IT MATTERS
Money is that system. In a small community where everyone knows each other, you can trade on reputation and personal trust. You know who is reliable, who will repay a debt, who to avoid. Once a group grows beyond roughly 150 people, that personal knowledge breaks down. Strangers need a way to exchange value without requiring a prior relationship. Money solves that problem – it lets two people who have never met and will never meet again complete a transaction, because both trust the medium rather than each other. Understanding this reframes what money actually is: not a government invention or a financial product, but a social technology that scales trust beyond the limits of human memory.
Learn more: Money Basics →
Durability
Good money survives time, wear, and the elements. Physical currencies wear out, corrode, or degrade. Bitcoin is information stored across thousands of computers worldwide. It does not rust, tear, rot, or degrade.
WHY IT MATTERS
Bitcoin from 2009 works exactly the same as bitcoin mined today. Paper currency wears out. Coins corrode. Even gold requires careful storage. Bitcoin is information stored across thousands of computers worldwide. As long as the network exists, the bitcoin exists. The challenge shifts from physical durability to key management.
Duress Wallet
A secondary Bitcoin wallet set up in advance with a small balance, intended to be handed over under physical threat. The attacker sees real bitcoin and is more likely to leave. The main holdings remain in a separate wallet they do not know about.
WHY IT MATTERS
A decoy that protects the real savings. If someone physically forces a person to hand over their bitcoin, having a duress wallet means they can comply without revealing main holdings. The attacker gets a small, believable amount and has no reason to think there is more. The concept matters more than the method: plan for the worst case before it happens.
Dust
A very small amount of bitcoin, typically below the threshold where the transaction fee required to spend it would exceed its value. Dust can accumulate in wallets from transactions that send tiny amounts. It is generally not worth attempting to spend and can complicate wallet management.
WHY IT MATTERS
Unspendable amounts accumulate silently in wallets. Dust is a side effect of receiving small amounts across many transactions. Because Bitcoin fees are calculated on transaction size rather than value, a very small UTXO may cost more to spend than it is worth. Dust does not disappear. It stays in the wallet as a balance too small to use.
E
Encryption
The process of converting data into a form that cannot be read without the correct key. Bitcoin wallets and hardware devices use encryption to protect private keys. When a wallet is encrypted with a PIN or password, the raw key data is scrambled and requires the correct input to unlock. Encryption protects against unauthorised access to a physical device but does not protect against a compromised seed phrase.
WHY IT MATTERS
A PIN-protected wallet is encrypted. A lost seed phrase is still gone. Encryption protects the private key data on a device from being read without the correct password or PIN. It does not protect against someone who has the seed phrase, because the seed phrase bypasses the encryption entirely. Device protection and seed phrase protection are separate layers of security.
Equity
The value of an asset minus the debt secured against it. In property, equity is the difference between the market value of the home and the outstanding mortgage balance. In shares, equity represents ownership in a company. Building equity in property over time is a common approach to long-term wealth accumulation in Australia.
WHY IT MATTERS
Equity in Australian property is often illusory in real terms. A home that has doubled in price over 20 years shows strong equity growth in nominal terms. If the Australian dollar lost significant purchasing power over the same period, the real gain may be far smaller. Equity measured in nominal dollars does not account for what those dollars can actually buy.
ETF (Exchange-Traded Fund)
A listed investment product that tracks an underlying asset and trades on a stock exchange. A Bitcoin ETF gives investors exposure to Bitcoin’s price without requiring them to hold bitcoin directly. Some ETFs are physically backed, meaning they hold real bitcoin in custody. Others are synthetic. The key difference from self-custody is that the investor holds units in a fund, not bitcoin itself. The fund manager holds the bitcoin or the contractual exposure.
WHY IT MATTERS
A Bitcoin ETF gives price exposure without giving ownership. Buying units in a Bitcoin ETF means holding a financial product that tracks Bitcoin’s price. It does not mean holding bitcoin. The fund manager holds the bitcoin or the contractual exposure. The ETF holder is a creditor of the fund, not a bitcoin holder. In a fund failure, the ETF holder is subject to the same counterparty risk as any other financial product.
Exchange
A platform where Australian dollars can be used to buy and sell bitcoin. Exchanges hold bitcoin on behalf of customers until they withdraw it to a personal wallet. When bitcoin sits on an exchange, the exchange controls the private keys, not the account holder. The account shows a balance, but that balance is a claim on the exchange’s holdings, not direct ownership of bitcoin on the blockchain. If the exchange is hacked, goes bankrupt, freezes withdrawals due to regulatory action, or restricts access for any other reason, access to that bitcoin is at the exchange’s discretion. Several major exchanges have failed in exactly this way.
WHY IT MATTERS
Leaving bitcoin on an exchange means the exchange controls it. An exchange holds the private keys. The account holder holds a claim. That claim is only as good as the exchange’s solvency, honesty, and regulatory standing. Exchanges have failed through hacks, insolvency, and regulatory shutdown. The bitcoin shown in an account is not confirmed on-chain until it is withdrawn to a personal wallet.
Executive Order 6102
Executive Order 6102 was a decree signed by US President Franklin D. Roosevelt on 5 April 1933. It required American citizens to surrender their personal gold coins, bullion, and gold certificates to the Federal Reserve at a fixed price of US$20.67 per ounce, under penalty of fine or imprisonment. Private ownership of gold was effectively prohibited in the United States from 1933 until 1974, when the restriction was lifted.
WHY IT MATTERS
Executive Order 6102 is the first step in the documented removal of gold as a constraint on the US money supply. From every individual in 1933, to foreign central banks only in 1944 under Bretton Woods, to no one after August 1971: the right to exchange dollars for gold was progressively removed. Understanding this sequence explains why the supply limit on modern money is a policy commitment, not a physical fact.
Learn more: The History of Money: Why It Keeps Breaking →
F
Fiat Money
Currency backed by government decree rather than a physical commodity. The word fiat comes from Latin, meaning ‘let it be done.’ The government declares it legal tender, and the declaration is what gives it value rather than any underlying asset. Supply can be expanded by decision, which dilutes the value of every unit already in circulation. Before 1971, the US dollar was redeemable for gold at a fixed rate, which constrained how much could be created. When that link was cut, the remaining constraint on money creation became political rather than physical. Most modern money is fiat, including the Australian dollar. Bitcoin was designed as an alternative to the fiat model: fixed supply, no issuing authority, and no mechanism for any party to create more.
WHY IT MATTERS
Every fiat currency ever issued has lost purchasing power over time. Without a physical constraint on supply, the only check on money creation is political will, and that check has never held indefinitely. The Australian dollar has lost the majority of its purchasing power since the 1970s. That is not a side effect of the system. It is a structural feature of it.
Learn more: Why Your Money Buys Less Every Year →
Finality
A property of money that describes whether a completed transaction can be reversed by a third party. Once a Bitcoin transaction has enough confirmations, it is practically irreversible. No bank, government, or company can undo it.
WHY IT MATTERS
Settlement means settlement. In the traditional system, transactions can be reversed days or weeks later through chargebacks, disputes, or legal orders. In Bitcoin, once a transaction is confirmed and buried under subsequent blocks, reversing it would require more computing power than the rest of the network combined. Both parties get certainty that the transaction is done.
Financial Repression
A policy of deliberately keeping interest rates below the rate of inflation. The mechanism transfers wealth from savers to debtors without a formal tax, a vote, or a visible line item. When a savings account earns 2% and inflation runs at 5%, the saver loses 3% of real purchasing power per year. The government, as the largest debtor in most economies, benefits directly. Its debt shrinks in real terms without needing to be repaid in full. The policy was widespread after the Second World War to reduce war debt, and was reintroduced at scale after 2008 through the combination of near-zero interest rates and money supply expansion.
WHY IT MATTERS
Savers are taxed without a tax being declared. When a savings account earns 2% and inflation runs at 5%, the saver loses 3% of real purchasing power per year. No legislation is required. No vote is taken. The mechanism is the deliberate policy decision to hold rates below inflation. The government, as the largest debtor, benefits directly as its debt shrinks in real terms.
Fiscal Policy
Government decisions about spending and taxation. Expansionary fiscal policy increases spending or cuts taxes to stimulate the economy. Contractionary fiscal policy does the opposite to reduce inflation or debt. Fiscal policy is set by elected governments, as distinct from monetary policy, which is set by central banks. The two interact: large government deficits often require central bank support through bond buying, which expands the money supply.
WHY IT MATTERS
Government spending decisions shape the monetary environment savers operate in. Large government deficits typically require central bank support through bond buying, which expands the money supply. Expansionary fiscal policy funded by money creation is one of the mechanisms that produces inflation. The combination of fiscal expansion and monetary accommodation is how purchasing power is eroded at scale.
Float (exchange rate)
A float, in monetary terms, is when a currency’s exchange rate is determined by supply and demand in foreign exchange markets rather than fixed by government policy. The Australian dollar was floated in December 1983 under the Hawke government. Before that, its value was set by the government, pegged first to sterling, then to the US dollar, and then to a trade-weighted basket of currencies. After the float, the dollar’s value fluctuates daily against other currencies based on market activity.
WHY IT MATTERS
The 1983 float completed Australia’s move to a fully trust-based monetary system. With external pegs removed, the main constraint on the supply of Australian dollars shifted entirely to the Reserve Bank of Australia’s policy decisions. The dollar’s value is now set by markets and managed by institutional commitment. No external anchor, no fixed peg, and no physical asset places an independent limit on how many Australian dollars can exist.
Learn more: The History of Money: Why It Keeps Breaking →
Fork
A change to Bitcoin’s software rules. A soft fork is a backward-compatible change that tightens the rules, accepted by the existing network. A hard fork creates an incompatible change that splits the network into two separate chains if there is not broad consensus. Bitcoin has experienced several hard forks, which created separate coins. Those coins are not Bitcoin and share no ongoing technical relationship with the Bitcoin network.
WHY IT MATTERS
A hard fork that lacks consensus creates a separate coin, not an upgrade to Bitcoin. Several hard forks have produced alternative coins using Bitcoin’s original code. Those coins are not Bitcoin. They do not inherit Bitcoin’s network, its security, or its adoption. A soft fork tightens the existing rules and does not split the network if it achieves broad consensus.
Fractional Reserve Banking
The system where banks hold only a fraction of deposits as reserves and lend out the rest. When a bank issues a loan, it creates new money that did not exist before. The depositor’s account balance does not decrease. The borrower’s account receives new funds. Both balances exist simultaneously, backed by the same underlying deposit. This is the primary mechanism through which the commercial banking system expands the money supply far beyond what the central bank directly creates. This structure makes the system inherently fragile under conditions of mass withdrawal, which is why bank runs and deposit guarantees exist. Bitcoin’s network has no equivalent. There is no fractional reserve. Every bitcoin that exists is accounted for on the blockchain.
WHY IT MATTERS
The money shown in a savings account was lent out the moment it was deposited. Banks do not store deposits. They lend most of them. The deposit balance in the account is a claim on the bank, not physical money held in a vault. The banking system as a whole holds only a fraction of what it owes depositors. This is the structural reason bank runs are possible and deposit guarantees are necessary.
Full Node
A computer running the complete Bitcoin software that stores the entire transaction history and independently validates every transaction and block against the protocol rules. Full nodes are the enforcement layer of the network. They do not take anyone’s word for whether a transaction is valid. They check it themselves. Running a full node is how a participant can verify their own transactions without relying on a third party.
WHY IT MATTERS
Running a full node is how a participant enforces the rules independently. A full node does not take anyone’s word for whether a transaction is valid. It checks every transaction and block against the protocol rules itself. Nodes are the enforcement layer of the network. The more nodes there are, the harder it is for any miner or developer to change the rules without broad consensus.
Fungibility
Every unit of money should be identical to every other unit. One dollar should spend the same as any other dollar, regardless of where it came from. One satoshi is identical to any other satoshi. No unit carries extra value or a history that makes it worth less.
WHY IT MATTERS
If units are not equal, the money does not work properly. Fungibility means a banknote should not need to have its history checked before it is accepted. One unit should spend the same as any other. Bitcoin is fungible. One satoshi is identical to any other satoshi, and no single unit carries more or less value based on where it has been. This is one of the properties that makes Bitcoin function as money rather than as a collectible or a tracked asset.
G
GDP (Gross Domestic Product)
The total monetary value of all goods and services produced in an economy over a given period, typically a year or quarter. GDP is the most widely used measure of economic size and growth. When GDP grows, the economy is expanding. When it shrinks for two consecutive quarters, it is technically a recession. GDP measures activity in nominal terms, so a period of high inflation can produce GDP growth even if real output has not increased.
WHY IT MATTERS
GDP can grow in nominal terms while the average person gets poorer in real terms. Because GDP is measured in currency, a period of high inflation can produce strong nominal GDP growth even if the actual volume of goods and services produced has not increased. Real GDP strips out the inflation component. Nominal GDP growth reported without the inflation adjustment can be misleading.
Genesis Block
The very first block in the Bitcoin blockchain, mined by Satoshi Nakamoto on 3 January 2009. It is also called block zero. Embedded in its data is a headline from The Times newspaper: ‘Chancellor on brink of second bailout for banks.’ The inclusion is widely interpreted as a commentary on the fragility of the traditional banking system that Bitcoin was designed as an alternative to.
WHY IT MATTERS
The embedded headline connects Bitcoin’s creation to the banking system it was designed to address. Satoshi Nakamoto chose to embed a news headline about a bank bailout in the genesis block. The timing, 3 January 2009, places Bitcoin’s creation in the immediate aftermath of the 2008 global financial crisis. The message is widely interpreted as commentary on the system Bitcoin was built in response to.
Gold Standard
A monetary system in which a currency’s value is directly tied to a fixed quantity of gold. Under a gold standard, governments could only issue as much money as they held gold in reserve, which placed a hard limit on how much the money supply could expand. Most countries abandoned the gold standard during the twentieth century. The United States severed the last link in 1971 when President Nixon ended the convertibility of the US dollar to gold, leaving all major currencies as fiat money with no fixed constraint on issuance.
WHY IT MATTERS
The gold standard was a physical limit on money creation. Once it was removed, the constraint on how much money governments and central banks could create became a matter of policy rather than supply. The expansion of the money supply since 1971 is part of the structural backdrop to the cost of living pressures most Australians experience today.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Gresham’s Law
The principle that bad money drives out good money when both circulate at the same face value. If two currencies are equally accepted in exchange but one holds its value better than the other, people tend to spend the weaker currency and hold the stronger one. The weaker money circulates more. The stronger money is hoarded. Named after Thomas Gresham, a 16th-century English financier.
WHY IT MATTERS
Bad money circulates. Good money disappears. When two currencies are accepted at the same face value, people spend the weaker one and hold the stronger one. The weaker currency dominates circulation because no one wants to spend the good money if the bad money will serve the same purpose. This is why debased coins historically drove out sound ones, and why people today hold property rather than cash when they want to preserve value.
H
Halving
The event where the bitcoin block reward is cut in half. A halving occurs roughly every four years, or every 210,000 blocks. The first reward was 50 bitcoin per block. After successive halvings, the reward has declined on a fixed schedule. The halving continues until all 21 million bitcoin have been issued, at which point miners are rewarded only by transaction fees. The halving is one of the mechanisms that makes Bitcoin’s supply schedule predictable decades in advance.
WHY IT MATTERS
The supply schedule is fixed and publicly known decades in advance. No committee decides when to reduce the block reward. The halving happens automatically at every 210,000 blocks, roughly every four years, regardless of price, political conditions, or any individual’s preference. This predictability is one of the properties that makes Bitcoin’s monetary policy fundamentally different from every fiat currency.
Hard Money
Money whose supply is difficult or impossible to expand. Gold is the historical example. Its supply grows slowly because mining is physically costly and the ore must actually exist in the ground. The constraint is real. Bitcoin is the digital equivalent. Its supply is fixed by code at 21 million and enforced by every node on the network. No government, company, or individual can override it. Hard money preserves purchasing power over time because the unit cannot be diluted by creating more of it. Contrast this with soft money like the Australian dollar, where the supply can be and regularly is expanded by policy decision.
WHY IT MATTERS
Hard money makes saving in the currency itself a rational choice. When money cannot be easily expanded, holding it does not mean watching purchasing power erode. Gold served this role historically. Its supply grows slowly because mining is costly and the ore must exist. Bitcoin is designed to be the digital equivalent: a fixed cap, enforced by code, that no authority can override. The contrast with the Australian dollar, which has expanded significantly over the past two decades, is direct.
Hardware Wallet
A physical device, usually about the size of a USB drive, that stores Bitcoin private keys offline. The keys are generated and stored on the device and never leave it in usable form. Transactions are signed on the device before being broadcast. Even if the computer connected to it is infected with malware, the private keys remain secure on the hardware wallet.
WHY IT MATTERS
Private keys stored on a hardware wallet never touch an internet-connected system. Even if the computer connected to the hardware wallet is compromised, the private keys remain on the device. Transactions are signed on the hardware wallet itself before being broadcast. This makes remote theft of the keys effectively impossible without physical access to the device.
Hedge
An investment or position intended to reduce risk from an adverse price movement in another asset. Holding gold has historically been used as a hedge against currency debasement. Some people hold Bitcoin for similar reasons. A hedge does not eliminate risk. It reduces exposure to a specific downside scenario at the cost of some potential upside.
WHY IT MATTERS
A hedge reduces a specific risk, not all risk. Holding gold as a hedge against currency debasement reduces exposure to purchasing power erosion but does not protect against the specific risks of holding gold. A hedge always involves trade-offs. The value of a hedge depends on whether the risk it is designed to reduce actually materialises.
HODL
A term originating from a misspelling of ‘hold’ in an early Bitcoin forum post, now used to describe a long-term holding approach regardless of price movements. HODL describes a decision to hold bitcoin through market volatility rather than trade it. It is informal language common in Bitcoin communities.
WHY IT MATTERS
Knowing the term helps you follow Bitcoin conversations without getting distracted by the slang. It carries no strategic implication and is not a recommendation. It is simply the informal shorthand the community settled on for holding rather than trading, and it comes up often enough that not knowing it creates unnecessary confusion.
Hot Wallet
A Bitcoin wallet that is connected to the internet. Mobile and desktop wallets are typically hot wallets. They are more convenient for regular transactions but more exposed to online threats than cold wallets. Hot wallets are generally suitable for smaller amounts intended for active use, not long-term storage.
WHY IT MATTERS
Convenience comes with increased exposure to online threats. A hot wallet is connected to the internet, which means it is accessible to malware and remote attacks. For small amounts intended for regular spending, this trade-off is often acceptable. For meaningful long-term holdings, cold storage removes the attack surface that a hot wallet carries.
Hyperinflation
Extreme and rapidly accelerating inflation that destroys the practical value of a currency. There is no universally agreed threshold, but hyperinflation is generally defined as monthly inflation exceeding 50%. Historical examples include Germany in the 1920s and Zimbabwe in the 2000s. In both cases, the currency became functionally useless for everyday transactions within a short period. Hyperinflation is typically triggered by governments printing large amounts of money to cover spending they cannot finance through taxes or borrowing.
WHY IT MATTERS
Hyperinflation destroys the unit of account function of money. When prices double monthly, money cannot serve its purpose as a store of value or a reliable unit for pricing goods and services. People move to barter, foreign currencies, or any asset that holds value better than the local currency. Hyperinflation is not gradual purchasing power erosion. It is the collapse of the monetary system itself.
I
Inflation
The reduction in what a dollar can buy, caused by an increase in the money supply. When more dollars are created, each existing dollar represents a smaller share of the same pool of goods and services. Prices rise to reflect the larger number of dollars competing for the same things. A weekly grocery shop that cost $200 in 2019 might cost $280 in 2024 not because the groceries changed, but because the dollars used to buy them are worth less. The number in a savings account stays the same. The amount that number can buy falls. Bitcoin’s fixed supply of 21 million means no authority can create more of it. This is why some people hold it as a long-term store of value.
WHY IT MATTERS
Inflation is the erosion of stored time. Money represents the hours you traded for it. When purchasing power falls, those hours buy less than they did when you earned them. The number in your account stays the same. The effort it represents shrinks. That gap between the number and what it can actually buy is where stored time quietly disappears.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Inflation Tax
The loss of purchasing power experienced by holders of a currency when the money supply is expanded. Unlike a formal tax, it requires no legislation, no vote, and no line item on a budget. The mechanism is straightforward: more money is created, so each existing unit buys less. The cost falls on everyone holding that currency. The benefit flows to whoever receives the newly created money first, typically governments and financial institutions. An Australian with $50,000 in a savings account earning 2% in a year when inflation runs at 6% has lost roughly $2,000 in real purchasing power. That loss does not appear on any tax return. It is not called a tax by any official. The effect on purchasing power is the same as if it were.
WHY IT MATTERS
The mechanism is a tax. It just does not appear on any tax return. When the money supply expands, the purchasing power of every existing unit falls. The person holding savings absorbs the cost. The government, which benefits from the spending that new money creation finances, collects the equivalent of a tax without passing legislation or taking a vote. The effect on real wealth is identical.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Interest Rate
The cost of borrowing money, expressed as a percentage of the amount borrowed per year. The RBA sets the cash rate, which is the benchmark that flows through to mortgages, savings accounts, and business loans. When the RBA raises rates, borrowing becomes more expensive and economic activity tends to slow. When rates fall, borrowing becomes cheaper. Savings accounts offer returns linked to the cash rate. When the cash rate is below inflation, savings accounts produce negative real returns regardless of their nominal rate.
WHY IT MATTERS
When the cash rate is below inflation, saving in cash is a losing proposition. A savings account earning 1% in a year when inflation runs at 5% produces a real return of negative 4%. The balance grows in nominal terms while shrinking in purchasing power. The RBA sets the cash rate based on its inflation and growth targets. When those targets conflict, the result can be sustained periods where savers cannot keep pace with inflation through conventional savings products.
K
KYC (Know Your Customer)
Identity verification required by Australian law when opening an account with a regulated Bitcoin exchange. Typically includes a government-issued photo ID, proof of address, and sometimes a liveness check. KYC requirements exist because AUSTRAC classifies Bitcoin exchanges as financial services providers subject to anti-money laundering obligations. Every purchase made through a KYC-verified account is linked to the account holder’s identity and retained permanently. AUSTRAC shares data with the ATO, meaning the tax office has access to transaction records held by exchanges.
WHY IT MATTERS
Every KYC-verified purchase is permanently linked to the buyer’s identity. AUSTRAC requires registered Australian exchanges to collect and retain identity information. That information is shared with the ATO. Bitcoin purchased on a registered Australian exchange leaves a trail that includes the buyer’s identity, the amount, the price, and the date. This data persists regardless of what happens to the bitcoin after purchase.
L
Legal Tender
Currency that must be accepted by law as payment for debts in the jurisdiction where it is issued. The Australian dollar is legal tender in Australia. This designation is what obliges businesses and individuals to accept it as valid payment. Bitcoin is not legal tender in Australia, which means accepting it as payment is optional for any business or individual.
WHY IT MATTERS
Bitcoin is not legal tender in Australia, which means accepting it is voluntary. A business can choose to accept bitcoin as payment. It is not legally obliged to. The Australian dollar must be accepted for debt settlement. This distinction matters for understanding Bitcoin’s current role in Australia as a store of value and investment asset rather than a widely used medium of exchange.
Lender of Last Resort
A central bank’s role as the provider of emergency funds to financial institutions that cannot obtain credit elsewhere during a crisis. When banks face a liquidity shortage, the central bank can lend against collateral to prevent a cascade of failures. This function was formalised after repeated banking crises in the 19th and 20th centuries demonstrated that the absence of a backstop turned manageable problems into systemic collapses.
WHY IT MATTERS
The backstop only works because it is backed by the ability to create money. A central bank can always lend to a bank in distress because it can create the money required. This makes bank runs less likely by removing the fear that no lender exists. It also means the risk of institutional failure is ultimately socialised, because money creation dilutes the purchasing power of every existing unit of currency.
Lightning Network
A payment network built on top of Bitcoin that enables faster and cheaper transactions by conducting them off the main blockchain. Two parties open a payment channel by committing bitcoin to a shared address on-chain. They can then send payments between each other instantly without broadcasting each one to the network. Only the opening and closing of the channel are recorded on-chain. The Lightning Network is primarily used for small, frequent payments.
WHY IT MATTERS
Bitcoin on-chain cannot efficiently handle millions of small daily transactions. The Lightning Network addresses this by moving payments off-chain between parties who have opened a payment channel. Coffee-sized transactions are handled on Lightning. The main chain handles settlement. This separation allows Bitcoin to serve both as a secure settlement layer and as a practical payment network for everyday amounts.
Liquidity
The ease with which an asset can be converted to cash without significantly affecting its price. Cash is the most liquid asset. Property is relatively illiquid because selling takes time and the price is negotiated. Bitcoin on a major exchange is highly liquid during normal market conditions. Liquidity can change rapidly during market stress when buyers disappear.
WHY IT MATTERS
Bitcoin trades on global markets 24 hours a day, seven days a week, with no exchange close and no intermediary required. Unlike property, which can take months to sell, or shares, which stop trading at market close, bitcoin can be converted at any time. There is no application, no settlement delay, and no institution standing between the holder and the transaction. As with any asset, liquidity can thin during periods of severe market stress, but the market itself never shuts.
M
M3 (Broad Money)
M3 is the broadest official measure of money in circulation. It includes physical cash, bank deposits, and a range of other financial instruments that can be readily converted into spending. Central banks and statisticians use M3 to track how much money exists across the whole economy at any given time. When M3 grows faster than the output of goods and services, each unit of money represents a smaller share of what is available to buy.
WHY IT MATTERS
M3 is the scoreboard for money creation. When commercial banks issue loans and central banks expand their balance sheets, M3 rises. That expansion does not create more goods or services. It means more money is competing for roughly the same output, which pushes prices up over time. Watching M3 tells you something prices alone cannot: whether the dollar you hold today has been diluted since the day you earned it.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Managed Fund
A pooled investment vehicle where many investors’ money is combined and managed by a professional fund manager who makes decisions about what assets to buy and sell. Returns are shared among investors proportionally. Management fees reduce net returns. Most Australians are exposed to managed funds indirectly through their superannuation.
WHY IT MATTERS
The fund manager charges fees regardless of whether returns beat inflation. Most Australians hold managed funds indirectly through superannuation, often without knowing the fee structure or what assets are held. A fund earning 6% while charging 1.5% in fees in a year when inflation runs at 5% returns roughly the same in real terms as a savings account. The nominal gain can obscure the real picture.
Learn more: Bitcoin in Australia →
Marginal Cost of Production
The cost of producing one additional unit of a good or service. Technology tends to push this cost toward zero over time for digital and many physical goods.
WHY IT MATTERS
Technology makes things cheaper. The monetary system fights that. As technology improves, it costs less to produce nearly everything: food, clothing, electronics, information. In a sound money system, this would mean prices fall and savings buy more over time. In the current system, central banks create new money to keep prices rising despite these efficiency gains. The gap between what things should cost and what they do cost is largely explained by monetary expansion.
Market Cap (Market Capitalisation)
The total value of an asset calculated by multiplying the current price by the number of units in circulation. For Bitcoin, market cap equals the current price per bitcoin multiplied by the number of bitcoin in existence. It is a rough measure of relative size but does not represent the total amount of money that would be needed to buy all bitcoin, since each purchase would move the price.
WHY IT MATTERS
Market cap overstates the amount of money required to move a price. Bitcoin’s market cap is calculated by multiplying the current price by the number of bitcoin in existence. But buying all bitcoin at the current price would not be possible because each purchase would move the price upward. Market cap is a useful measure of relative size between assets, not a precise measure of total value.
Medium of Exchange
Money only works if other people will accept it. Both parties in a transaction need to trust that the money has value and will be accepted by others in the future. Without that confidence, it is not functioning as money.
WHY IT MATTERS
Without this property, money is just an object. Fiat currencies are widely accepted because governments mandate them as legal tender and tax systems require them. Bitcoin’s acceptance as a medium of exchange is still growing. But there is a known pattern in monetary history: when people hold two forms of money, they tend to spend the weaker one and keep the stronger one. Because Bitcoin has a fixed supply and cannot be debased, many people treat it as the harder money worth holding rather than spending. This is not a flaw. It reflects how people behave when they recognise something as a better store of value.
Learn more: The Three Tests Your Money Fails →
Mempool
The pool of unconfirmed transactions waiting to be included in a block. When a transaction is broadcast to the Bitcoin network, it enters the mempool. Miners select transactions from the mempool to include in the next block, typically prioritising those with higher fees. During periods of high network activity, the mempool can become congested and transactions may wait longer for confirmation.
WHY IT MATTERS
Transaction fees rise and fall with mempool congestion. When many transactions are waiting to be confirmed, miners have more to choose from and prioritise those paying higher fees. During periods of high demand, fees can rise significantly. During quiet periods, they can be very low. The mempool is the real-time market for Bitcoin block space.
Mining
The process by which new blocks are added to the Bitcoin blockchain and new bitcoin is issued. Miners compete to solve a computational puzzle that requires real energy expenditure. The first miner to solve the puzzle adds the next block and earns the block reward plus transaction fees. Mining secures the network by making it prohibitively expensive to alter past transactions, and it is the only mechanism through which new bitcoin enters circulation.
WHY IT MATTERS
The energy cost is what makes Bitcoin’s history tamper-resistant. To rewrite any past transaction, an attacker would need to redo all the computational work from that point forward faster than the honest network continues to build. The physical cost of that energy is what makes the attack economically impractical rather than just technically difficult. This is the mechanism behind Bitcoin’s security.
Monetary Inflation vs Price Inflation
Two related but distinct phenomena that are commonly conflated. Monetary inflation is the expansion of the money supply. Price inflation is the rise in consumer prices measured by the CPI. Monetary inflation precedes price inflation with a lag. New money enters the economy through financial institutions and asset markets before it reaches the prices of groceries, rent, or fuel. This is why large-scale money creation in 2020 did not produce immediate price rises at the supermarket checkout, but contributed to sharp consumer price increases in 2021 and 2022 as the money worked its way through the economy. The distinction matters for understanding why asset owners tend to benefit from monetary expansion before wage earners do.
WHY IT MATTERS
The money is created years before the grocery price rises. Large-scale money creation in 2020 contributed to sharp consumer price increases in 2021 and 2022 as the money worked through the economy. Asset owners saw prices rise first. Wage earners felt the consumer price rises later. The lag between monetary inflation and price inflation is the mechanism behind why wealth concentration follows monetary expansion.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Monetary Policy
Decisions made by a central bank about interest rates and the money supply. In Australia, monetary policy is set by the RBA. The primary tool is the cash rate. When inflation is above the RBA’s target, it raises rates to slow borrowing and spending. When economic growth slows, it cuts rates to encourage activity. The RBA also uses quantitative easing as an additional tool when rates alone are insufficient.
WHY IT MATTERS
The RBA’s tools can stimulate growth or reduce inflation, but not always both simultaneously. When inflation is high and growth is weak, the tools are in direct conflict. Raising rates slows growth. Cutting rates worsens inflation. This tension is the defining challenge of central banking and the situation that produces stagflation. Understanding monetary policy is central to understanding why savings in the current system consistently lose real value.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Money Supply
The total amount of money in circulation at any given time, including physical cash, bank deposits, and credit created through lending. The money supply is not fixed. It expands when central banks create new money through tools like quantitative easing, and when commercial banks issue loans through fractional reserve banking. When the money supply expands faster than the economy grows, each dollar represents a smaller share of available goods and services. This shows up as rising prices over time. Bitcoin’s supply, by contrast, is fixed at 21 million by code that no authority can override.
WHY IT MATTERS
The money supply grows by design, and that growth dilutes every existing unit. Most money in circulation was created by commercial banks issuing loans or by central banks through quantitative easing. Neither mechanism increases the underlying pool of goods and services. More money chasing the same output pushes prices up. Bitcoin’s supply, fixed at 21 million, means the denominator cannot be changed.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Moral Hazard
A situation where someone takes on more risk because they know they will not bear the full consequences if things go wrong. In finance, this typically applies to institutions that expect to be bailed out.
WHY IT MATTERS
The safety net changes the behaviour. When a bank knows it will be rescued by the government if it fails, it has less incentive to manage risk carefully. The potential profits from risky bets go to the bank. The potential losses go to taxpayers. This pattern repeated through the 2008 Global Financial Crisis and continues wherever institutions operate with implicit government backing.
Mortgage
A loan secured against property. In Australia, most home purchases are financed through a mortgage from a bank or non-bank lender. The property serves as collateral, meaning the lender can take possession if repayments are not made. The interest rate, loan term, and amortisation schedule determine the total cost of the loan over its life.
WHY IT MATTERS
A mortgage is the largest application of the amortisation mechanism most Australians will experience. Because most repayments go to interest in the early years, paying down the principal requires sustained effort over a long period. The bank collects the most interest when the balance is highest. Understanding this structure helps explain why extra early repayments are disproportionately effective.
Multisig (Multi-Signature)
A Bitcoin wallet configuration that requires more than one private key to authorise a transaction. A common setup is 2-of-3, meaning any two of three designated keys must sign. This removes single points of failure: losing one key does not mean losing access, and an attacker who obtains one key cannot move the funds alone. Multisig is more complex to set up than a standard single-key wallet but significantly reduces certain categories of risk for larger holdings.
WHY IT MATTERS
Requiring multiple keys means no single loss is catastrophic. With a standard single-key wallet, losing the seed phrase means losing everything. With a 2-of-3 multisig setup, losing one key does not compromise access, because two of the three remaining keys can still authorise transactions. An attacker who obtains one key cannot move the funds alone. The trade-off is increased setup complexity.
N
National Debt
The total accumulated debt owed by a government, built up through years of spending more than it collects in taxes. It is financed by issuing bonds to investors, including foreign governments and central banks. Australia’s national debt has grown substantially since 2008. Governments rarely repay national debt outright. They manage it by keeping interest costs low, growing the economy, or inflating it away over time.
WHY IT MATTERS
Governments rarely repay national debt. They manage it through inflation. The practical strategy for dealing with large national debt is not repayment but real-value reduction. When nominal GDP grows faster than the debt, the debt-to-GDP ratio falls. When inflation reduces the real value of fixed debt, the government benefits at the expense of creditors and currency holders.
Negative Gearing
A strategy where an investment property generates less rental income than it costs to hold, producing a loss that can be deducted from taxable income. The investor accepts a short-term cash loss on the expectation of a long-term capital gain. The tax deduction reduces the after-tax cost of carrying the loss. Negative gearing is structurally embedded in Australian property investment and is one of several policies that increase demand for investment properties relative to owner-occupied homes.
WHY IT MATTERS
Negative gearing is structurally embedded in Australian property investment. The combination of tax deductions on investment property losses and the 50% CGT discount for assets held over 12 months creates strong incentives for property investment over other savings vehicles. These structural incentives increase demand for investment properties relative to owner-occupied homes, which affects prices for all buyers.
Negative Real Interest Rates
The condition where the nominal interest rate is lower than the rate of inflation, producing a negative real return. A savings account earning 2% while inflation runs at 5% has a real interest rate of negative 3%. The saver’s balance grows in nominal terms but shrinks in purchasing power. Negative real interest rates are the direct outcome of financial repression, where central banks deliberately hold rates below inflation to reduce the real cost of government debt.
WHY IT MATTERS
A savings account can lose real value while showing a positive balance. When nominal interest rates are below inflation, the account balance grows while purchasing power shrinks. A 2% return in a year of 5% inflation is a 3% real loss. The account statement shows a positive number. The actual capacity to buy things with that money has declined. This is not a temporary anomaly. It is the designed outcome of financial repression.
Learn more: Money Is Stored Time and Effort →
Net Worth
The difference between what is owned and what is owed. Net worth is typically measured in nominal currency terms. When the currency loses purchasing power, a rising nominal net worth may not represent a real gain in what those assets can actually buy.
WHY IT MATTERS
Nominal net worth can rise while real purchasing power falls. A rising nominal net worth denominated in a currency losing purchasing power may not represent a real improvement in what those assets can buy. Measuring net worth in a currency that is being debased is like measuring distance with a ruler that gets shorter each year. The number grows. The actual distance covered does not.
Node
A computer on the Bitcoin network that stores a copy of the blockchain and validates transactions and blocks against the protocol rules. Nodes do not take instructions from miners or developers. They independently enforce the rules. The more nodes there are, the harder it is for any single party to alter those rules or the transaction history.
WHY IT MATTERS
Nodes are the enforcement layer of the network. Miners produce blocks. Nodes decide whether to accept them. A block that violates the rules is rejected by nodes regardless of the miner’s computing power. This is why no miner, developer, or government can change Bitcoin’s rules without broad consensus across the node network. The nodes are the final arbiters of what is valid.
Nominal
The face value of something expressed in currency, without adjusting for inflation. A wage that rises from $80,000 to $85,000 has increased nominally by $5,000. Whether that increase represents more actual purchasing power depends on what happened to prices over the same period. If inflation ran at 7% that year, the wage earner’s real purchasing power fell despite the nominal rise. Nominal figures are what bank statements, super fund reports, and salary offers show. Real figures describe what those dollars can actually buy.
WHY IT MATTERS
Official economic figures are almost always nominal. Wages, GDP, investment returns, and account balances are reported in nominal terms. Inflation is reported separately. Combining them to get a real figure requires an additional step that most reporting skips. This systematically overstates economic progress, particularly during periods of high inflation.
Learn more: Money Is Stored Time and Effort →
Nonce
A number that miners change repeatedly when attempting to solve the computational puzzle required to add a block to the blockchain. Mining involves cycling through billions of nonce values until the resulting hash meets the required target. The nonce itself has no value. It is simply a variable that changes the output of the hash function until a valid result is found.
WHY IT MATTERS
Mining is the process of finding one valid nonce among billions of possibilities. Each attempt to find a valid nonce consumes real energy. The difficulty adjustment ensures that finding a valid nonce takes the network approximately ten minutes regardless of how much computing power is applied. The nonce has no intrinsic value. It is simply the variable that makes the process work.
Not Your Keys, Not Your Coins
A phrase summarising the custody principle in Bitcoin. If a third party holds the private keys to bitcoin, the account holder does not hold bitcoin. They hold a claim on bitcoin. That claim depends on the third party remaining solvent, honest, and operational. When FTX collapsed in 2022, account holders discovered that the bitcoin shown in their accounts did not exist as real bitcoin held in their names. The balance was an accounting entry against a custodian that could no longer honour it. The phrase is not commentary on whether exchanges are reputable. It names the structural difference between holding a claim and holding the asset itself.
WHY IT MATTERS
The balance on an exchange is a promise, not bitcoin. When FTX collapsed in 2022, customers discovered that their account balances did not represent bitcoin held in their names. The bitcoin had been lent out or otherwise misused. The lesson is structural, not reputational. Any custodian holding bitcoin is a counterparty. Self-custody means holding the private keys directly, which removes the exchange as a counterparty.
O
On-Chain
A transaction or event that is recorded directly on the Bitcoin blockchain. On-chain transactions are verified by the network, included in a block, and become part of the permanent public record. Contrast with off-chain transactions, such as those conducted through the Lightning Network, which are settled on-chain only when a payment channel is closed.
WHY IT MATTERS
On-chain settlement is final in a way that no bank transfer is. A Bitcoin transaction confirmed on-chain and buried under subsequent blocks is practically irreversible without the cooperation of the majority of the network’s computing power. A bank transfer can be reversed, frozen, or disputed by the institution. The finality of on-chain settlement is a property that does not exist in the traditional financial system.
Opportunity Cost
The value of the best alternative foregone when making a decision. Holding cash has an opportunity cost: whatever that cash could have earned in another asset. Holding any asset has an opportunity cost: whatever the next best option would have returned. Every financial decision involves an opportunity cost, whether it is acknowledged or not.
WHY IT MATTERS
Holding cash has an opportunity cost. So does holding any asset. Every decision not to hold an asset is a decision to hold something else. In a period of monetary expansion where asset prices rise, holding cash means watching purchasing power fall against both inflation and asset prices simultaneously. Every financial position carries an opportunity cost, whether acknowledged or not. Holding cash in a period of monetary expansion means the opportunity cost includes both inflation erosion and rising asset prices.
Learn more: Money Is Stored Time and Effort →
Orange Pill
A reference to The Matrix (the 1999 film) used in Bitcoin culture to describe the moment someone stops accepting the conventional narrative about money and begins to understand how the monetary system actually works, and why Bitcoin exists as a response to it.
WHY IT MATTERS
It describes a shift in understanding, not a purchase. Being ‘orange pilled’ does not mean someone bought bitcoin. It means they looked at how money is created, who benefits from that process, and what it costs everyone else, and they cannot unsee it. It is informal language, not a technical term, but it comes up often enough in Bitcoin communities that it helps to know what people mean.
P
Passphrase (25th Word)
An optional extra word or phrase added to a seed phrase. It creates a completely separate wallet from the same 12 or 24 words. If the passphrase is forgotten, the bitcoin in that wallet is permanently inaccessible with no recovery option.
WHY IT MATTERS
A passphrase and a seed phrase require equal protection, but people often treat them differently. Backing up the seed phrase and storing the passphrase only in memory creates a single point of failure. If the passphrase is forgotten, the bitcoin in that wallet is gone with no recovery path. Both need a physical backup, stored separately.
Peer-to-Peer (P2P)
A network structure where participants transact directly with each other without an intermediary. Bitcoin operates as a peer-to-peer network. A transaction can be sent from one person to another anywhere in the world without passing through a bank, payment processor, or any other intermediary. The protocol handles verification through the distributed network of nodes and miners rather than a central authority.
WHY IT MATTERS
Bitcoin removes the intermediary from the transaction entirely. In the traditional system, every bank transfer passes through multiple institutions. Each is a point of potential censorship, delay, or failure. A Bitcoin transaction moves directly from sender to recipient, verified by the distributed network rather than any institution. No permission is required from any intermediary.
Permissionless
A property of money or a network that allows anyone to participate without needing approval from a gatekeeper. Anyone can send, receive, or hold bitcoin without applying, being approved, or meeting requirements set by an institution.
WHY IT MATTERS
No application. No approval. No minimum balance. In the traditional system, opening a bank account, sending an international transfer, or accessing financial services requires identity verification and institutional approval. Bitcoin requires none of that to use. A person with a phone and an internet connection can receive bitcoin anywhere in the world. This principle applies to everyone, not only those excluded from traditional banking.
Petrodollar
The informal system by which oil is priced and traded globally in US dollars. Established in the 1970s after agreements between the United States and Saudi Arabia, the petrodollar system creates sustained global demand for US dollars because any country that wants to buy oil must first acquire dollars. This demand underpins the dollar’s status as the world’s primary reserve currency and allows the United States to borrow at lower interest rates than it otherwise could.
WHY IT MATTERS
The petrodollar system creates structural global demand for US dollars. Any country that wants to buy oil on global markets must first acquire US dollars. This persistent demand props up the dollar’s value and allows the United States to run deficits and borrow at rates that would not otherwise be available. The petrodollar arrangement is one of the pillars of the dollar’s reserve currency status.
Phishing
An attack that uses fake communications or websites designed to look legitimate in order to steal credentials, seed phrases, or login details. Bitcoin-related phishing attacks often impersonate exchanges, wallet software, or customer support. A common variant involves search engine ads that lead to convincing copies of legitimate exchange websites. No legitimate service will ever ask for a seed phrase.
WHY IT MATTERS
No legitimate service will ever ask for a seed phrase. Bitcoin phishing attacks typically impersonate exchanges, wallet providers, or customer support. The goal is always the seed phrase or login credentials. A seed phrase entered into any website, email form, or app that is not the original wallet software gives the attacker complete and permanent access to all associated bitcoin.
Portability
Money needs to move. Gold is heavy. Cash is bulky and restricted at borders. Bitcoin is information. It can be sent anywhere in the world in minutes, regardless of the amount, with no physical weight or border crossing required.
WHY IT MATTERS
Moving $10 and moving $10 million costs roughly the same. Gold is heavy and expensive to transport securely. Cash is bulky and restricted at borders. Bank transfers require intermediaries and can take days. Bitcoin is information. Moving it costs the same whether the amount is ten dollars or ten million, and it arrives in the same timeframe regardless of distance or amount.
Principal
The original amount borrowed in a loan, before interest. Loan repayments are split between reducing the principal and paying interest. In the early years of a mortgage, most repayments go to interest. Over time the proportion shifts toward reducing the principal.
WHY IT MATTERS
In the early years of a mortgage, most repayments do not reduce the principal. On a standard Australian mortgage, the majority of each repayment covers interest on the outstanding balance rather than reducing the amount owed. The proportion shifts only gradually. This structure means years of repayments can pass with the principal declining very slowly.
Private Key
A secret number that proves ownership of bitcoin and authorises transactions. A private key is generated when a wallet is created. Anyone who has the private key has complete control over all the bitcoin associated with it. Private keys are typically managed through a seed phrase rather than directly. The private key never leaves the wallet device in a well-designed custody setup.
WHY IT MATTERS
Whoever has the private key has the bitcoin. No exceptions. A private key cannot be retrieved, reset, or recovered by any exchange, wallet provider, or authority. It is not a password that can be changed. It is a mathematical secret that either exists in the right hands or does not. Protecting it is the entirety of Bitcoin security.
Programmability
A property of money that describes whether its rules can be defined and enforced by code rather than by institutions. Bitcoin’s monetary policy, including its supply cap, issuance schedule, and transaction rules, is embedded in software that every participant can verify.
WHY IT MATTERS
Rules run on maths, not promises. In the fiat system, monetary policy is decided by committees and can be changed at any meeting. In Bitcoin, the rules are written in open-source code. Changes require overwhelming network consensus, not a vote by a small group. This is why Bitcoin’s supply schedule is predictable decades in advance while central bank policy changes year to year.
Proof of Stake
A consensus method used by some networks (not Bitcoin) where the right to validate transactions is given to participants based on how much currency they lock up as collateral. The more they hold, the more influence they have. There is no physical cost to participate. Influence is determined entirely within the digital system itself.
WHY IT MATTERS
Proof of stake has no anchor in the physical world. Security comes from locking up coins, but those coins only have value because of the network you are trying to secure. The system is circular. It costs nothing in the real world to accumulate influence, which means the wealthiest participants gain the most control with no external check. Bitcoin’s proof of work is different in kind, not just degree. Miners must expend real energy to earn the right to add blocks. That energy exists outside the network. It is a physical cost that cannot be faked, replicated cheaply, or conjured from within the system itself. This grounds Bitcoin’s security in the laws of physics rather than in abstract digital rules.
Proof of Work
The mechanism Bitcoin uses to add new blocks to the blockchain. Miners expend real computing energy attempting to solve a mathematical puzzle. The puzzle requires physical work in the form of electricity and hardware. The work is verifiable by any other participant instantly. The winning miner adds the next block and earns the block reward. The energy expenditure is what makes the blockchain tamper-resistant. To rewrite any past transaction, an attacker would need to redo all the computational work from that point forward faster than the honest network continues to build.
WHY IT MATTERS
Energy expenditure is what makes Bitcoin’s history tamper-resistant. To change any past transaction, an attacker must redo all the computational work from that point forward faster than the honest network builds ahead of them. That work costs real electricity and hardware. The physical cost is the security. There is no shortcut. This is the mechanism that allows a trustless network to function without relying on any authority.
Property Rights
The legal and practical ability to own, control, and transfer assets without interference. Strong property rights are considered the foundation of a functioning economy because they protect the fruits of someone’s labour and enable voluntary exchange.
WHY IT MATTERS
In the traditional system, property rights depend on legal frameworks that can be changed by governments. If someone can take it, it is not truly owned. Bank accounts can be frozen. Assets can be seized. Currency can be devalued. Bitcoin stored in self-custody requires the private key to move. This adds a layer of ownership that does not depend on institutional permission.
Public Key
A cryptographic key derived from a private key, which can be shared publicly without exposing the private key. Bitcoin addresses are derived from public keys. Sharing a public key or address allows others to send bitcoin to it. It does not allow them to spend it. The private key is required to authorise any outgoing transaction.
WHY IT MATTERS
A public key can be shared freely without exposing the private key. Bitcoin addresses are derived from public keys. Sharing an address allows anyone to send bitcoin to it. It does not give them any ability to access or spend what arrives. The private key is required for that. The separation of public and private keys is the cryptographic foundation of Bitcoin ownership.
Purchasing Power
What a dollar can actually buy. A dollar that bought a litre of milk in 2000 buys less than a litre of milk today. The number of dollars has not changed. What has changed is the amount of milk each dollar commands. When the money supply expands faster than the economy grows, each dollar represents a smaller share of the same pool of goods and services. Wages measured in that currency may rise in nominal terms while buying the same or less than before. Purchasing power is the real measure of financial progress. Nominal figures alone do not capture it.
WHY IT MATTERS
Real financial progress is measured in what money can buy, not what it reads. A salary that grows 5% in a year when inflation runs at 7% is a real pay cut. A super balance that increases 10% over five years while the dollar loses 20% of its purchasing power over the same period is a net loss in real terms. Nominal figures are what bank statements show. Purchasing power is what matters.
Learn more: Money Is Stored Time and Effort →
Q
Quantitative Easing (QE)
A process where a central bank creates new money and uses it to buy assets, typically government bonds, from financial institutions. This expands the money supply without any corresponding increase in goods or services. The new money enters the economy through the financial system rather than directly into wages or consumer spending. Banks and investment funds that sell bonds to the central bank receive new money, which they can deploy into other assets. This drives up asset prices across shares, property, and investment portfolios. Consumer prices tend to rise later, after a lag. The RBA conducted quantitative easing during 2020 and 2021, buying Australian government bonds to hold interest rates low during the pandemic.
WHY IT MATTERS
QE creates money and gives it first to financial institutions, not households. The new money enters the economy at the top of the financial system. It inflates asset prices before it reaches wages or consumer goods. The people who own assets benefit immediately. The people who hold savings in cash accounts feel the price effects later, after the purchasing power has already been diluted.
Quantitative Tightening (QT)
The reverse of quantitative easing. The central bank reduces its balance sheet by selling bonds back to the market or allowing them to mature without reinvesting. This withdraws money from the financial system and puts upward pressure on interest rates. QT is used to slow an economy and reduce inflation after a period of expansion.
WHY IT MATTERS
QT removes money from the financial system, putting downward pressure on asset prices. When central banks shrink their balance sheets by selling bonds or letting them mature, the money used to buy those bonds is withdrawn from circulation. This tightens financial conditions, raises yields, and tends to reduce the asset price inflation created by the preceding QE period.
R
Real (Real Return, Real Value)
A figure adjusted for inflation to reflect actual purchasing power rather than the raw dollar amount. A savings account earning 3% per year while inflation runs at 5% has a nominal return of 3% and a real return of negative 2%. The account balance grows. The purchasing power of that balance shrinks. Real figures strip out the inflation adjustment so comparisons across time are meaningful. Most official economic reporting uses nominal figures because they are simpler to present. Real figures are what matter to the person spending the money.
WHY IT MATTERS
Real returns show what actually happened to purchasing power. Nominal figures are simple to present and widely quoted. Real figures require adjusting for inflation, which produces a less flattering picture. A property investment that doubled in nominal terms over 20 years in a period of significant inflation may have produced a much smaller gain in real purchasing power. Real is the relevant measure for anyone trying to assess whether savings are actually growing.
Learn more: Money Is Stored Time and Effort →
Record Keeping
The practice of maintaining accurate records of all Bitcoin transactions for tax purposes. The ATO requires records of the date of each transaction, the amount in Australian dollars at the time, the purpose of the transaction, and the other party involved. Without accurate records, calculating a cost base for CGT purposes becomes difficult or impossible. Records should be kept for at least five years after the relevant tax return is lodged.
WHY IT MATTERS
The ATO requires records that most people do not think to keep. Every Bitcoin disposal is a potential CGT event. Calculating the gain or loss requires knowing the purchase price and date in Australian dollars at the time of each transaction. Exchanges may not retain records indefinitely. Keeping independent records from the first purchase is the only way to ensure the data is available when needed.
Recession
A period of economic contraction, technically defined as two consecutive quarters of negative GDP growth. During a recession, spending falls, unemployment rises, and businesses reduce investment. Central banks typically respond by cutting interest rates and expanding the money supply to stimulate activity.
WHY IT MATTERS
The standard response to recession expands the money supply further. When the economy contracts, central banks cut rates and governments increase spending to stimulate activity. Both responses tend to expand the money supply and add to government debt. The stimulus is real in the short term. The monetary expansion required to fund it dilutes purchasing power over the longer term.
Reeding
Reeding is the pattern of ridges milled into the edge of a coin during production. The practice was introduced as a defence against coin clipping: the act of shaving small amounts of precious metal from coin edges to steal the metal while passing the lightened coin at full face value. A clipped coin would show damage around its rim, making the tampering visible. Modern Australian coins still carry reeding, though they contain no precious metal worth shaving.
WHY IT MATTERS
Reeding is a five-hundred-year-old fraud detection system still in circulation after the fraud it was built to stop moved elsewhere. The ridges solved a specific problem with physical coins. The problem, quietly expanding the money supply to extract value from holders, did not go away. It shifted to instruments that leave no visible mark on any coin’s edge.
Learn more: The History of Money: Why It Keeps Breaking →
Reserve Currency
A currency held in significant quantities by governments and central banks around the world for use in international trade and debt settlement. The US dollar is the dominant global reserve currency. Reserve currency status creates persistent global demand for dollars, which allows the United States to borrow at lower rates and run larger deficits than it otherwise could.
WHY IT MATTERS
Reserve currency status is a privilege that comes with costs and obligations. The United States can borrow at lower rates than its debt level would otherwise justify because global demand for dollars is sustained by its reserve currency status. This privilege has structural costs described by the Triffin Dilemma: the country must run persistent deficits to supply dollars to the world, which hollows out domestic manufacturing over time.
Reserve Bank of Australia (RBA)
Australia’s central bank. The RBA sets the cash rate, which is the benchmark interest rate that flows through to mortgages, savings accounts, and loans across the economy. It also manages the money supply through monetary policy tools including asset purchases. When the RBA raises rates, borrowing becomes more expensive and economic activity tends to slow. The RBA conducted quantitative easing during 2020 and 2021, creating new money to buy government bonds. The RBA’s inflation target is 2 to 3%. When inflation exceeds that target, the RBA raises rates. When economic growth slows, it lowers them. The two objectives can conflict, which is the situation that produces stagflation.
WHY IT MATTERS
The RBA’s tools are limited and its objectives can conflict. The RBA cannot both fight inflation and support growth simultaneously if the two goals pull in opposite directions. Raising rates reduces inflation but increases mortgage stress and unemployment. The RBA’s decisions affect every Australian with a mortgage, a savings account, or a superannuation balance, which is effectively the entire adult population.
Learn more: What Causes Inflation (and Why Prices Never Come Back Down) →
Risk
The possibility of an outcome that is worse than expected, including loss of capital, loss of purchasing power, or loss of access to assets. Risk is not synonymous with volatility. An asset can be volatile without representing a high risk of permanent loss. An asset can appear stable while presenting a high risk of gradual purchasing power erosion. Different types of risk include market risk, counterparty risk, custody risk, and inflation risk.
WHY IT MATTERS
Volatility and permanent loss are not the same risk. Bitcoin is volatile. A savings account denominated in a currency losing purchasing power to inflation is not volatile but carries a reliable risk of gradual wealth erosion. The relevant question for any asset is whether the risk is temporary price fluctuation or structural loss of real value. The two are often confused.
Learn more: Bitcoin in Australia →
S
Satoshi (sat)
The smallest unit of bitcoin. One bitcoin is divisible into 100 million satoshis. Named after Bitcoin’s pseudonymous creator, Satoshi Nakamoto. Expressing small amounts in satoshis is more practical than expressing them as a decimal fraction of a bitcoin.
WHY IT MATTERS
Bitcoin is not priced per whole coin for most practical purposes. Expressing small amounts in satoshis is more intuitive than using eight decimal places of a bitcoin. As Bitcoin’s price increases in fiat terms, satoshis become the more natural unit for everyday transaction amounts. One dollar buys a specific number of satoshis at any given price.
Scarcity
A property of money that describes whether the supply is limited. Scarce money cannot be created freely. Bitcoin has a hard cap of 21 million. Fiat currencies have no supply limit.
WHY IT MATTERS
If more can always be created, what is held is always being diluted. Gold is scarce because mining it requires effort and the earth has a finite supply. Bitcoin is scarce because the code enforces a maximum of 21 million coins and the network consensus makes that limit practically unchangeable. Fiat currency is not scarce. Central banks create new units regularly. Scarcity is what gives a store of value its ability to hold purchasing power over time.
Seed Phrase
A list of 12 or 24 common words generated when a Bitcoin wallet is created. The seed phrase mathematically encodes all the private keys in that wallet. Anyone who has the seed phrase has complete access to all the bitcoin those keys control, regardless of what device it was originally generated on. If the device is lost or destroyed, the seed phrase recovers full access. If the seed phrase is lost without a backup, access to the bitcoin is permanently gone with no recovery option. Standard practice is to write it on paper and store it physically in a secure location. No legitimate wallet provider, exchange, or support service will ever ask for a seed phrase.
WHY IT MATTERS
This list of words is more important than the device. The seed phrase is not a password. It is the master key. Whoever has it has the bitcoin, regardless of what hardware or software was used to generate it. If it is lost, the bitcoin is gone permanently. If someone else gets it, the bitcoin is gone immediately. Physical backup, stored securely, is the single most important action in Bitcoin self-custody.
Seigniorage
The profit made by a government or central bank from issuing currency. When money is created, the face value exceeds the cost of creation. The difference is seigniorage. In a physical currency system, seigniorage was the difference between the metal value and the face value of a coin. In a fiat system, it is effectively the purchasing power that flows to the issuer when new money is spent into the economy before prices adjust.
WHY IT MATTERS
The issuer of money captures value at the moment of creation. When new money is created and spent into the economy before prices adjust, the issuer acquires real goods and services in exchange for units of currency that cost almost nothing to produce. This is seigniorage: the gap between the face value of new money and the cost of creating it. In a fiat system, it is captured by governments and central banks.
Seizure Resistance
A property of money that describes whether it can be physically confiscated by a third party without the owner’s cooperation. Bitcoin cannot be seized without access to the private key, which only the owner controls.
WHY IT MATTERS
A bank account can be frozen with a phone call. Bitcoin held in self-custody cannot. Governments and institutions can freeze bank accounts, seize property, and confiscate physical assets through legal process. Bitcoin stored in self-custody requires the private key to move. Without it, the bitcoin is inaccessible to anyone. This does not place bitcoin above the law, but it changes the enforcement mechanism from seizure to negotiation.
Self-Custody
Holding Bitcoin private keys directly rather than leaving bitcoin on an exchange or with a third party. When private keys are held personally, no one else can access, freeze, or seize the bitcoin without physical access to the keys. When bitcoin is held on an exchange, the exchange holds the keys. The account holder has a claim on bitcoin, not bitcoin itself. That distinction becomes concrete when exchanges freeze withdrawals, go insolvent, or are hacked. Self-custody gives full control and full responsibility simultaneously.
WHY IT MATTERS
Full control and full responsibility arrive simultaneously. There is no customer support line for a lost seed phrase. No authority can restore access. No court order can recover bitcoin that was held in self-custody and lost. This is the trade-off. In exchange for removing every counterparty risk, the holder accepts complete personal responsibility for protecting access to the keys.
Shrinkflation
When a product’s price stays the same but its quantity or size is quietly reduced. The number on the shelf does not change. What you take home does. Shrinkflation is a way of raising the effective price of something without triggering the psychological resistance that comes with a visible price increase. It appears most commonly in packaged food and household goods. It is not tracked separately in official inflation figures, meaning the CPI can understate how much less everyday purchases actually deliver over time.
WHY IT MATTERS
The price looks the same. The product is not. Shrinkflation is one of the mechanisms through which the real cost of living rises faster than headline figures suggest. A packet that contained 200 grams and now contains 170 grams at the same price has increased in effective cost by roughly 15%, without any change to the sticker. Multiplied across hundreds of products over years, the cumulative effect on a household budget is material.
Singlesig (Single-Signature)
A standard Bitcoin wallet setup where one private key controls the funds. One key to sign, one key to protect. This is how most wallets work by default.
WHY IT MATTERS
Simpler to use, but one point of failure. With singlesig, if the one key or seed phrase is lost, access is lost permanently. If someone else gets the key, they can take everything. Singlesig is suitable for most beginners and moderate amounts. For larger holdings or higher security needs, multisig reduces the single point of failure risk.
Soft Money
Money whose supply can be easily expanded by a central authority. Most fiat currencies are soft money. The Australian dollar supply can be increased by policy decision through the RBA and the commercial banking system. Contrast with hard money, where supply is constrained by physical or technical limits.
WHY IT MATTERS
A currency that can always be expanded is a store of value that is always being diluted. The Australian dollar supply has expanded significantly over the past two decades. Every expansion dilutes the purchasing power of every existing unit. Holding savings in soft money means accepting that the monetary unit itself is working against the saver over time.
Sound Money
Money that cannot be easily expanded, maintains purchasing power over time, and is not controlled by any single authority. Gold was the historical benchmark. Its supply grows slowly because mining is physically costly and the ore must actually exist. Sound money creates conditions where saving in the currency itself is not a losing proposition. Most Australians have intuitively searched for sound money alternatives through property ownership, holding assets that are relatively fixed in supply while the currency around them expands. Bitcoin is designed to be sound money in digital form: fixed supply, no central issuer, and supply growth that follows a predetermined schedule ending at 21 million.
WHY IT MATTERS
When money cannot be debased, holding it does not require a backup strategy. Most Australians hold property because cash loses ground and assets hold it better. Sound money removes that need: the savings vehicle and the store of value are the same thing. That is what the property obsession is actually pointing toward, and why Bitcoin, designed to be sound money in digital form, addresses the same underlying problem.
Stagflation
The simultaneous occurrence of high inflation, stagnant economic growth, and elevated unemployment. It creates a policy dilemma: the usual response to inflation is raising interest rates, which slows growth and increases unemployment further. The usual response to slow growth is lowering rates, which worsens inflation. The 1970s produced the most prominent historical example. Elements of stagflation returned to public discussion during 2022 and 2023.
WHY IT MATTERS
Stagflation breaks the standard policy toolkit. Central banks raise rates to fight inflation and cut rates to support growth. Stagflation requires both simultaneously, which is impossible. The 1970s stagflation in Australia and globally showed that monetary policy cannot always solve a supply-driven crisis without making the other half of the problem worse.
Stock (Share)
A unit of ownership in a company. Holding a stock makes the holder a part-owner of that company, entitled to a share of profits distributed as dividends and subject to gains or losses as the company’s value changes. Stocks are traded on exchanges like the ASX. Unlike a bond, a stock does not guarantee any return. Unlike an ETF, a stock represents ownership of one specific company rather than a basket of assets.
WHY IT MATTERS
A share is an ownership stake, not a guaranteed return. Unlike a bond, a share does not promise any fixed payment. Returns depend entirely on the company’s performance and market conditions. Shares can and do fall to zero in company failures. Unlike property, shares are highly liquid but carry full exposure to individual company risk unless held through a diversified fund.
Store of Value
Money should hold its value across time. Good money does. Bad money quietly loses purchasing power every year it is held. This is the most important monetary property for anyone who earns today and needs to spend in the future.
WHY IT MATTERS
Saving in a weak store of value means working twice for the same goal. If money loses 5% of its purchasing power each year, a saver needs to earn returns above 5% just to stay in the same place, before tax. Over a decade, that erosion compounds. This is why store of value is the most important monetary property for anyone who earns today and needs to spend in the future.
Learn more: The Three Tests Your Money Fails →
Superannuation
Australia’s compulsory retirement savings system. Employers are required to contribute a percentage of wages into a super fund on behalf of employees. The funds are invested and held until retirement age. Most Australians have most of their long-term savings in superannuation, often in a default balanced fund that holds a mixture of shares, bonds, and property. A super fund that earns 6% per year in a period of 5% inflation is only growing by 1% in real terms. Understanding the difference between nominal returns and real purchasing power is central to assessing whether retirement savings are on track.
WHY IT MATTERS
A super balance that grows in nominal terms can still lose purchasing power. A fund earning 6% in a year when inflation runs at 5% grows the balance by 1% in real terms. After fees, that real return may be negative. Australians are required to save for retirement in a system that expresses returns in nominal terms. Evaluating those returns requires adjusting for inflation to understand real progress.
Supply Cap (21 Million)
The hard limit on the total number of bitcoin that will ever exist. No more than 21 million bitcoin can be created. This limit is enforced by the code and verified by every node on the network.
WHY IT MATTERS
No one can print more. In the fiat system, there is no cap on how much new money can be created, and new money is created constantly. Bitcoin’s supply cap is the opposite: a fixed ceiling that no government, company, or developer can change without the agreement of the entire network. This is what makes Bitcoin scarce by design rather than by promise. Any bitcoin held represents a known, unchanging fraction of the total supply.
Surplus
When government revenue exceeds spending in a given period, producing a positive fiscal balance. A surplus allows a government to pay down existing debt or build reserves. Budget surpluses are relatively rare for most governments and have been particularly uncommon in Australia since the 2008 global financial crisis.
WHY IT MATTERS
Surpluses are rare because the incentives run against them. Governments that run surpluses reduce spending or raise taxes, both of which are politically unpopular. The incentive structure of democratic politics tends toward deficits in most years. A surplus allows debt reduction or reserve building, both of which reduce the long-term pressure toward inflation but offer no immediate political benefit.
Systemic Risk
The risk that the failure of one institution or market triggers a cascade of failures across the broader financial system. Because modern financial institutions are deeply interconnected through lending, derivatives, and payment systems, a significant failure can spread rapidly. The 2008 global financial crisis demonstrated systemic risk in practice when problems in US mortgage markets propagated through global financial institutions.
WHY IT MATTERS
Interconnection turns individual failures into system-wide crises. The 2008 global financial crisis began in US mortgage markets. Because major financial institutions held interconnected exposure to the same assets, the failure spread globally within weeks. Systemic risk is not visible in normal conditions. It materialises when a large enough failure begins to cascade through the connections that were not visible before.
T
2FA (Two-Factor Authentication)
A security method that requires two separate forms of verification before granting access to an account. Typically a password plus a time-based code generated by an authenticator app. 2FA significantly reduces the risk of account compromise if a password is leaked. An authenticator app is more secure than SMS-based 2FA, which can be vulnerable to SIM-swapping attacks.
WHY IT MATTERS
An authenticator app is significantly more secure than SMS-based 2FA. SMS codes can be intercepted through SIM-swapping attacks, where an attacker convinces a phone provider to transfer a number to a device they control. Authenticator app codes are generated locally on the device and are not transmitted over the phone network. Using an authenticator app rather than SMS for exchange accounts reduces this specific attack surface.
Tax Event
Any transaction that triggers a tax obligation under Australian law. For Bitcoin, tax events include selling bitcoin for Australian dollars, trading bitcoin for another asset, using bitcoin to purchase goods or services, and gifting bitcoin. Simply holding bitcoin is not a tax event. The ATO treats each disposal as a potential CGT event.
WHY IT MATTERS
Simply holding bitcoin is not a tax event. Almost everything else is. The ATO treats each disposal as a potential CGT event. Disposal includes selling for Australian dollars, trading for another asset, using bitcoin to buy goods or services, and gifting. Moving bitcoin between wallets that are both controlled by the same person is not typically a disposal, but the circumstances affect this.
Technological Deflation
The natural tendency of technology to reduce the cost of producing goods and services over time, pushing prices down. This is a deflationary force that operates independently of monetary policy.
WHY IT MATTERS
Things should be getting cheaper. They often are not, and that gap is worth understanding. Technology drives production costs down every year. In a stable money system those gains would reach consumers as lower prices. Instead, money supply expands continuously, driven largely by the need to keep growing levels of debt serviceable. New money enters the economy at the top first, through financial institutions and government spending, and prices adjust before it reaches ordinary wages and savings. The productivity gains technology creates are absorbed before they arrive.
Thiers’ Law
The principle that good money drives out bad when people have a choice. The opposite of Gresham’s Law. Thiers’ Law applies in conditions where people can choose which currency to transact in. If one currency holds its value and another depreciates, people tend to prefer the stronger currency for saving and voluntary transactions, even if the weaker currency remains legal tender.
WHY IT MATTERS
When people have a choice, they spend the weak money and save the strong. Thiers’ Law describes voluntary behaviour under conditions of currency competition. It is the opposite of Gresham’s Law, which applies when currencies are forced to circulate at equal face value. Where people are free to choose which currency to hold and which to spend, they tend to hold the one that preserves value better.
Time Preference
The degree to which a person values having something now compared to having it later. High time preference means spending today. Low time preference means deferring consumption to save or invest for the future. A currency that consistently loses purchasing power to inflation discourages saving by making it expensive to wait. A currency that reliably holds its value over time makes saving less costly. The Australian housing market is partly a reflection of high time preference combined with the expectation that property holds value better than cash.
WHY IT MATTERS
Persistent inflation makes high time preference rational. When holding money means losing purchasing power every year, spending now is economically sensible. The incentive to save for the future diminishes when the monetary unit used for saving is consistently eroded. Sound money reduces the cost of deferring consumption, which changes the rational calculation in favour of saving.
Too Big to Fail
A label for institutions so large and interconnected that their collapse would cause widespread economic damage. Governments typically intervene to prevent that collapse, regardless of whether the institution caused its own problems.
WHY IT MATTERS
Size becomes insurance paid for by everyone else. When an institution knows it will be rescued because of its size, it has less reason to manage risk carefully. The profits from risky behaviour go to shareholders and executives. The losses, when they arrive, are absorbed by taxpayers. This creates a system where the biggest players operate with a safety net that smaller businesses and individuals never get.
Transaction Fee (Bitcoin)
A small amount of bitcoin paid to miners to include a transaction in a block. Fees are set by the sender and are not fixed. During periods of high network demand, fees rise as users compete to have their transactions confirmed quickly. During quiet periods, fees can be very low. The fee goes to the miner who includes the transaction in a block, not to any company or developer.
WHY IT MATTERS
Fees are set by the sender and respond to network demand. During periods of high activity, users compete for limited block space by offering higher fees. Miners include the highest-fee transactions first. During quiet periods, fees can be very low. This market mechanism for block space is how Bitcoin scales the incentive for miners as the block reward decreases over time.
Transaction ID (TXID)
A unique identifier for a Bitcoin transaction. Every transaction broadcast to the network is assigned a TXID, which is a hash of the transaction data. A TXID can be used to look up the transaction on a blockchain explorer and check its confirmation status.
WHY IT MATTERS
A TXID allows any transaction to be independently verified on a public blockchain explorer. Because the Bitcoin ledger is public, any transaction can be looked up by its TXID. This allows the sender and recipient to independently confirm that a transaction was broadcast, that it is in the mempool, and that it has been confirmed in a block, without relying on any third party.
Triffin Dilemma
The structural conflict faced by the country that issues the world’s reserve currency. To supply enough currency for global trade, it must run persistent trade deficits, which over time weakens its domestic manufacturing base and increases its national debt.
WHY IT MATTERS
The privilege of printing the world’s money comes with a built-in cost. Named after economist Robert Triffin, who identified the problem in the 1960s. The United States must export more dollars than it takes in, requiring persistent trade deficits. Those deficits hollow out domestic industry because it is cheaper to import than to produce locally when the currency is in high global demand. The country gets cheap imports and global financial influence. It loses manufacturing jobs and accumulates debt. This is a structural consequence of being the reserve currency issuer, not a policy choice.
U
Unconfirmed Transaction
A transaction that has been broadcast to the Bitcoin network but not yet included in a block. It sits in the mempool waiting to be picked up by a miner. Unconfirmed transactions can theoretically be reversed or replaced if they have not been confirmed. Once included in a block, a transaction is confirmed and progressively harder to reverse with each subsequent block.
WHY IT MATTERS
An unconfirmed transaction is not settled. It is a signal that something is coming, not proof that it has arrived. For small, low-risk transactions this distinction rarely matters. For larger amounts, waiting for at least one confirmation, and often more, before treating a payment as final reduces the risk of acting on a transaction that was never included in a block.
Unit of Account
Money needs to work as a standard measuring stick for prices. Most things in Australia are priced in Australian dollars. Most things globally are priced in US dollars. When the measuring stick itself loses value, every measurement it produces becomes misleading.
WHY IT MATTERS
If the ruler is shrinking, every measurement is wrong. When the value of assets is measured in a currency that is losing purchasing power, gains can be an illusion. A house that doubled in price over 20 years looks like a great investment. But if the currency lost 60% of its purchasing power over the same period, the real gain is much smaller, or may be negative. Priced in a stable unit, many assets that appear to appreciate have gone sideways or down. The unit of account chosen changes what is seen.
Learn more: The Three Tests Your Money Fails →
UTXO (Unspent Transaction Output)
The technical unit Bitcoin uses to track ownership. Instead of account balances, Bitcoin records unspent outputs from previous transactions. When bitcoin is received, a UTXO is created. When it is spent, that UTXO is consumed and new ones are created in its place. A wallet’s balance is the sum of all UTXOs associated with its keys.
WHY IT MATTERS
Bitcoin does not use account balances. It uses UTXOs. Instead of a single number representing a balance, a Bitcoin wallet’s total is the sum of multiple unspent outputs from previous transactions. When bitcoin is spent, specific UTXOs are consumed and new ones are created. This model has privacy and efficiency implications that affect how transactions are constructed.
V
Velocity of Money
The rate at which money circulates through the economy, measured as the number of times an average unit of currency is spent in a given period. High velocity means money is changing hands frequently. Low velocity means money is being saved or hoarded. Velocity affects inflation: the same money supply can produce different inflationary effects depending on how quickly it circulates.
WHY IT MATTERS
The same money supply can produce different inflationary effects depending on how fast it moves. A large increase in the money supply that is held in savings or asset markets does not immediately produce consumer price inflation. When confidence returns and that money begins circulating more rapidly, inflationary pressure can emerge quickly. Velocity is the link between money supply and real economic activity.
Verify
To independently confirm that a transaction or claim is valid according to the protocol rules, without relying on a third party’s assurance. In Bitcoin, verification is performed by every node on the network. The principle of verifying rather than trusting is fundamental to how Bitcoin achieves security without a central authority.
WHY IT MATTERS
Bitcoin is designed to be verified, not trusted. The principle of verifying rather than trusting is the foundation of the network’s security model. No node asks another node whether a transaction is valid. Every node checks independently. This removes the need for any trusted authority while maintaining network-wide agreement on the transaction history.
Verifiability
Good money should be verifiable without relying on anyone’s word. Bitcoin’s transactions and total supply can be independently confirmed by anyone running a node. No trust in a third party is required.
WHY IT MATTERS
Fake gold exists. Counterfeit cash exists. Fake bitcoin does not. Gold requires specialist testing to confirm purity. Banknotes require security features that can still be forged. Bitcoin is verified mathematically by the network itself. Every transaction is checked against the rules by every node. If a transaction breaks the rules, the network rejects it automatically.
Learn more: Money Basics →
Volatility
The degree to which an asset’s price fluctuates over a given period. An asset with high volatility experiences large price swings in short timeframes. Bitcoin is significantly more volatile than Australian shares or property. Its price has historically fallen 70 to 80% from peak to trough in bear markets and recovered to new highs over longer timeframes. Volatility is a measure of price movement, not a measure of permanent loss risk. An asset can be volatile without representing permanent loss of capital, and an asset can appear stable in nominal terms while steadily losing purchasing power to inflation.
WHY IT MATTERS
Bitcoin’s volatility and the Australian dollar’s slow debasement are different types of risk. Bitcoin’s price can fall 70% in a bear market and recover to new highs over years. The Australian dollar’s purchasing power has declined steadily and cannot recover. One type of risk is visible and dramatic. The other is invisible and permanent. Understanding both is necessary for comparing them honestly.
W
Wage Price Index (WPI)
A quarterly measure published by the Australian Bureau of Statistics (ABS) that tracks changes in the price of labour across industries and regions. The WPI measures wages independent of changes in employment hours or composition, making it a cleaner measure of wage inflation than total wages paid. The RBA uses the WPI alongside the CPI to assess whether wages are keeping pace with inflation. When the WPI grows slower than the CPI for a sustained period, workers are experiencing a real wage cut even if their nominal pay has increased.
WHY IT MATTERS
Most Australians have never heard of the WPI, but they have felt it. Every time a pay rise arrives and life still does not feel easier, the WPI and CPI gap is likely part of the reason. The data is public and the ABS publishes both figures quarterly. The gap between them over the past two decades is not small, and it is not random. It is the mechanism behind the feeling that doing everything right is still not enough.
Wage-Price Spiral
A self-reinforcing cycle where rising prices cause workers to demand higher wages, which raises business costs, which causes businesses to raise prices further. Each turn of the cycle feeds the next. Central banks watch for wage growth closely during inflationary periods because a wage-price spiral can make inflation persistent and harder to bring down through interest rate increases alone.
WHY IT MATTERS
A wage-price spiral makes inflation structurally harder to reduce. Once wages begin rising to catch up with prices, businesses face higher costs and raise prices further. The cycle becomes self-reinforcing. Breaking it requires either a sharp increase in interest rates that slows the economy significantly or a supply-side shock that reduces costs. The RBA monitors wage growth closely because of this dynamic.
Wallet
Software or hardware that manages Bitcoin private keys and generates addresses. A wallet does not store bitcoin. Bitcoin exists on the blockchain. A wallet stores the keys that prove ownership and allow transactions to be authorised. Losing access to a wallet without a backup of the seed phrase means losing access to the bitcoin permanently.
WHY IT MATTERS
The wallet stores the keys. The bitcoin lives on the blockchain. A common misconception is that moving bitcoin to a new wallet moves it off a previous one. Bitcoin does not move between wallets. The blockchain record changes ownership. A wallet is simply the tool used to manage the keys that authorise that change. Losing the wallet is not the same as losing the bitcoin, as long as the seed phrase is backed up.
Wampum
Wampum was a form of money made from polished shell beads used by Indigenous peoples in pre-colonial North America. The beads held monetary value because producing them required genuine skill and effort. That production cost constrained the supply and gave the beads their function as a store of value and medium of exchange. When European traders arrived with industrially manufactured shell beads, the production cost collapsed, the supply limit dissolved, and wampum lost its monetary function.
WHY IT MATTERS
Wampum demonstrates that production cost is only a reliable supply limit if the cost cannot be eliminated. The same structural failure hit West African glass beads, Roman silver coins, and eventually gold-backed paper. In each case, whoever could make more of the money at lower cost gained an advantage over those who could not. The parties change across centuries. The mechanism does not.
Learn more: The History of Money: Why It Keeps Breaking →
Watch-Only Wallet
A wallet configuration that can view bitcoin balances and transaction history without holding the private keys. A watch-only wallet is connected to a public key or address but cannot sign transactions. It is useful for monitoring a cold storage balance without exposing the private keys to an internet-connected device.
WHY IT MATTERS
A watch-only wallet allows balance monitoring without exposing the keys. A hardware wallet holding the private keys can be monitored from an internet-connected device using only the public key or xpub. The private keys remain offline. The monitoring device can see the balance and transaction history but cannot sign or broadcast any transaction. This separates visibility from control.
Withdrawal Fee
A fee some exchanges charge to send bitcoin from their platform to a personal wallet. This is separate from the Bitcoin network fee, which is the on-chain fee miners receive for processing the transaction.
WHY IT MATTERS
Not every exchange charges one. Withdrawal fee structures vary significantly between exchanges. Some charge a flat fee regardless of the amount. Some charge a percentage. Some cover the network fee. Some charge no withdrawal fee at all. Always check the fee schedule before choosing an exchange, especially for smaller amounts where a flat fee takes a larger proportion.
X
Xpub (Extended Public Key)
A master public key that can generate all the public keys and addresses for a Bitcoin wallet without exposing the private keys. Sharing an xpub with a watch-only wallet allows monitoring of all transactions and balances associated with that wallet. Because an xpub reveals all addresses in a wallet, sharing it reduces privacy.
WHY IT MATTERS
Sharing an xpub reveals every address in a wallet, past and future. An xpub is used to generate all the receiving addresses for a wallet without needing the private keys. This is how watch-only wallets work. Because it reveals the full address history and all future addresses, sharing an xpub significantly reduces the privacy of the wallet it represents.
Y
Yield
The return on an investment expressed as a percentage. On a bond, yield is the annual interest payment divided by the bond’s price. When bond prices rise, yields fall. When prices fall, yields rise. Yield is also used to describe the interest rate on savings accounts or term deposits. Real yield is the nominal yield minus inflation.
WHY IT MATTERS
Real yield is nominal yield minus inflation. In many recent periods, it has been negative. A savings account offering 2% in a year when inflation runs at 5% has a real yield of negative 3%. The account balance grows. The purchasing power of that balance falls. Nominal yield is what banks advertise. Real yield is what matters to the purchasing power of the savings held.
Yield Curve
A chart showing the interest rates on government bonds across different maturity periods, from short-term to long-term. Normally, longer-term bonds carry higher rates to compensate for the longer wait. When short-term rates exceed long-term rates, the curve is said to be inverted. An inverted yield curve has historically preceded recessions, though it is a signal rather than a guarantee.
WHY IT MATTERS
An inverted yield curve signals that markets expect rates to fall, usually because a recession is anticipated. When short-term borrowing costs exceed long-term ones, it suggests markets expect central banks to cut rates in response to economic weakness. An inverted yield curve has preceded most recessions in developed economies. It is a signal, not a guarantee, and the timing of any subsequent recession can vary significantly.
Yield Suppression
The deliberate policy of keeping bond yields below where they would naturally settle in a free market. Central banks achieve this by purchasing bonds, which drives bond prices up and yields down. Lower yields reduce the government’s borrowing costs. They also produce negative real interest rates for savers when yields fall below inflation. Yield suppression is a component of financial repression and was a defining feature of central bank policy between 2008 and 2022.
WHY IT MATTERS
Artificially low yields transfer wealth from savers to debtors. When central banks buy bonds to keep yields below their natural level, they reduce the return available to anyone lending money, including holders of savings accounts and term deposits. The government, as the largest debtor, benefits directly. Savers who cannot access higher yields are effectively subsidising government borrowing costs through reduced returns on their own savings.
Z
ZIRP (Zero Interest Rate Policy)
A monetary policy where a central bank holds its benchmark interest rate at or near zero. Used to stimulate borrowing and economic activity by making debt extremely cheap. When rates are near zero, saving in cash generates almost no return while asset prices tend to rise because cheap debt flows into property and shares. ZIRP produces negative real interest rates whenever inflation exceeds zero, meaning savers lose purchasing power in real terms for the entire duration of the policy. The RBA held its cash rate at a historic low of 0.1% through 2021 and into 2022. The period of near-zero rates in Australia coincided with a sharp rise in property prices. It is a specific implementation of the broader financial repression framework.
WHY IT MATTERS
Near-zero rates reward borrowing and punish saving simultaneously. When the cash rate is at or near zero, savings accounts offer negligible returns while asset prices rise as cheap debt flows into property and shares. A person who saved rather than borrowed during the ZIRP period watched their savings lose real value while asset owners accumulated gains. The policy is a structural transfer from savers to borrowers.
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Social Engineering
Manipulation that exploits human psychology rather than technical vulnerabilities. In Bitcoin, social engineering attacks typically involve impersonating a trusted entity, such as exchange support, a wallet provider, or even a friend, to convince someone to reveal a seed phrase, send bitcoin, or click a malicious link. Technical security can be undermined by social engineering if the human holding the keys is deceived.
WHY IT MATTERS
Technical security can be bypassed by deceiving the person holding the keys. A hardware wallet storing private keys offline is secure against remote attack. It provides no protection if the person using it is manipulated into revealing the seed phrase or sending bitcoin to an attacker’s address. Bitcoin scams targeting Australians are predominantly social engineering attacks rather than technical exploits.
Learn more: Holding Bitcoin Safely →