Bitcoin Technical Terms: Ordinals, Taproot, and SegWit Explained

Plain-language definitions of Bitcoin's advanced protocol terms: Ordinals, Taproot, native SegWit, running a node, Bitcoin Core vs Knots, and what a BIP is.

Updated August 2026 · Reviewed by the PipeFlare team

Ordinals, Taproot, and SegWit are three separate Bitcoin protocol upgrades and tools: SegWit and Taproot changed how transactions are built, and Ordinals is a way of numbering and inscribing data onto individual satoshis

These terms show up constantly in wallet address formats and node software choices, and mixing them up leads to picking the wrong address type or client for what you actually want to do

About bitcoin technical terms: ordinals, taproot, segwit explained

Ordinals, Taproot, and native SegWit are three separate things that often get mentioned in the same breath. SegWit and Taproot are protocol upgrades that changed how Bitcoin transactions are built, and Ordinals is a way of numbering and inscribing data onto individual satoshis, built on top of those upgrades rather than an upgrade itself. SegWit activated in August 2017, Taproot activated in November 2021, and the Ordinals protocol launched in January 2023. Bitcoin Core and Bitcoin Knots are separate pieces of node software that both enforce the same consensus rules but differ in what they relay and store by default. Mixing these terms up leads to real practical mistakes, like sending funds to the wrong address format or picking a node client that does not do what a user expects.

How it actually works

SegWit, short for Segregated Witness, is a 2017 upgrade defined in BIP141 that moved a transaction's signature data outside the part of the transaction used to calculate its ID. That single change fixed a long-standing bug called transaction malleability, where a third party could alter a transaction's ID before confirmation without invalidating it, and it effectively increased how many transactions fit in a block by discounting witness data's weight. A wallet address can be P2SH-wrapped SegWit, starting with the digit 3, which looks like an older-style address for compatibility with wallets that had not yet added SegWit support, or native SegWit, starting with bc1q, the more efficient, purpose-built format. Native SegWit addresses cost less in fees to spend from than either legacy or wrapped addresses, because of how the discount on witness data is calculated.

Taproot is a 2021 upgrade, defined across BIP340 through BIP342, that added Schnorr signatures and a scripting improvement called MAST (Merkelized Alternative Script Trees) to Bitcoin. Schnorr signatures let a multi-signature transaction look identical on-chain to a simple single-signature one, improving both privacy and the fee cost of complex spending conditions. A Taproot address starts with bc1p and is often called a P2TR address. Bitcoin's block 709,632, mined in November 2021, was the first to include a Taproot-spending transaction under the new rules.

Ordinals is a protocol rather than a network upgrade. It was created by developer Casey Rodarmor and launched in January 2023. It assigns a permanent, ordered number to every individual satoshi ever mined, based on the order it was created in, and lets data such as an image or text be inscribed directly into a satoshi's spot inside a transaction's witness data, the same space SegWit and Taproot freed up. An inscribed satoshi functions like a Bitcoin-native collectible, comparable to an NFT on other chains, except the inscription data lives directly on Bitcoin's own blockchain rather than being referenced from an external file. Ordinals' own documentation describes the numbering scheme, called ordinal theory, in full.

A Bitcoin node is any computer running software that independently downloads, checks, and stores Bitcoin's full transaction history against every consensus rule, rather than trusting someone else's summary of it. Bitcoin Core is the original and most widely run node software, maintained by a large group of open-source contributors. Bitcoin Knots, maintained separately by developer Luke Dashjr, is a fork of Core that adds extra relay and mining-policy options Core does not include by default, most notably stricter filtering of non-financial data like Ordinals inscriptions from the node's own relay and mempool-acceptance policy. Running Knots changes what a node chooses to relay and accept into its own mempool. It does not remove inscription data from the blockchain itself or stop other nodes from accepting it, since consensus rules alone decide what counts as a valid block, independent of any single node's relay policy. A BIP, or Bitcoin Improvement Proposal, is simply the numbered format Bitcoin's developer community uses to document and discuss a specific proposed change. SegWit and Taproot are both BIPs, and hundreds of others exist in the official BIP repository, covering everything from adopted standards to proposals that were never implemented.

Start here

1Check an address's prefix before assuming its type: bc1q is native SegWit, bc1p is Taproot, and 3 is P2SH-wrapped SegWit.
2Use a native SegWit or Taproot address for a new wallet when a service supports both, since both cost less in fees than older formats.
3Confirm which node software a service or guide is describing before comparing its behavior to Bitcoin Core's defaults, since Knots' relay policy differs from Core's.
4Look up a specific BIP number directly in the official repository rather than guessing at its content from the number alone.
5Treat an Ordinals inscription as a Bitcoin-native asset with its own market and tools. SegWit and Taproot were not designed to create it.

Strengths

Taproot's Schnorr signatures make complex multi-signature spending look identical to a simple transaction on-chain, improving privacy for anyone using shared-custody or smart-contract-style wallets.
Native SegWit and Taproot addresses both cost less in transaction fees than older address formats, a real, ongoing savings for anyone sending Bitcoin regularly.
The BIP process keeps every proposed Bitcoin change public and numbered, so any claim about how a specific upgrade works can be checked against its actual specification.

Common misunderstandings

Ordinals inscriptions compete for the same block space as ordinary payments, and heavy inscription activity has repeatedly pushed transaction fees up for everyone during busy periods.
Bitcoin Knots' default filtering of inscription-style data is a relay-policy choice rather than a network rule, so it does not remove that data from the blockchain or stop other nodes from accepting it.
A 3-prefixed, P2SH-wrapped SegWit address looks similar to a legacy address at a glance, and sending funds to the wrong format by mistake can mean higher fees or, on very old software, a failed transaction.

Common questions

What is the difference between Taproot and native SegWit?

SegWit, activated in 2017, moved signature data outside a transaction's ID calculation and introduced the bc1q address format. Taproot, activated in 2021, built on top of SegWit by adding Schnorr signatures and the bc1p address format, which make complex spending conditions look identical to a simple transaction on-chain. Taproot is a newer, additional upgrade. It does not replace SegWit.

What does a Bitcoin address starting with bc1 mean?

A bc1 prefix means the address uses SegWit's native format, called bech32. A bc1q address is native SegWit, and a bc1p address is Taproot, a newer bech32m variant. Both cost less in fees to spend from than a legacy address starting with 1 or a P2SH-wrapped address starting with 3.

What are Bitcoin Ordinals?

Ordinals is a protocol launched in January 2023 that numbers every satoshi in the order it was mined and lets data be inscribed directly onto a specific satoshi's spot inside a transaction. An inscribed satoshi works like a Bitcoin-native collectible, similar in concept to an NFT on other chains, but the data lives on Bitcoin's own blockchain instead of an external file.

What is a Bitcoin node?

A node is a computer running software that independently downloads and checks Bitcoin's entire transaction history against every consensus rule, rather than trusting a third party's summary of the blockchain. Anyone can run one, and doing so is the only way to independently verify the rules Bitcoin actually follows.

What is the difference between Bitcoin Core and Bitcoin Knots?

Both enforce the same Bitcoin consensus rules and reject the same invalid blocks. Bitcoin Core is the original, most widely run client. Bitcoin Knots is a separate fork maintained by developer Luke Dashjr that adds extra relay and mining-policy options Core omits by default, most notably stricter filtering of non-financial inscription data from what the node relays and accepts into its own mempool.

Does running Bitcoin Knots remove Ordinals from the blockchain?

No. Knots changes what one node chooses to relay and accept into its own mempool. It does not change what counts as a valid block under Bitcoin's consensus rules. Inscription data that other nodes accept stays on the blockchain regardless of which node software any single user runs.

What is a Bitcoin key?

A Bitcoin key usually refers to a private key, a secret number that lets its holder spend the bitcoin controlled by the matching address. A wallet derives a public key from the private key, and a Bitcoin address is a shortened, checksummed version of that public key. Anyone holding the private key controls the funds, which is why a private key or the seed phrase that generates it should never be shared.

What is a BIP, and where can one be looked up?

BIP stands for Bitcoin Improvement Proposal, the numbered format the Bitcoin developer community uses to document and discuss a specific proposed change. SegWit (BIP141) and Taproot (BIP340 through 342) are both BIPs that were adopted. Hundreds of other numbered BIPs exist, covering everything from adopted standards to proposals that were discussed and never implemented, and the full list is searchable in the official BIP repository on GitHub.

Sources

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