PSBT stands for Partially Signed Bitcoin Transaction. It is a standard format for passing Bitcoin transaction data between software and offline signers, such as hardware wallets, without exposing private keys to the internet-connected computer. A PSBT can carry the inputs, outputs, fee details, and any partial signatures needed to complete a transaction.
PSBT matters because it supports safer Bitcoin custody workflows. A wallet can construct a transaction on an online machine, then send it to an offline device for verification and signing. This lets the signer check the destination address, amount, and fee before approval. In defense, PSBT helps power air-gapped signing, multisig, and watch-only setups. In attacks, malware may try to alter a transaction before it reaches the signer, so users must verify every field on the hardware wallet instead of trusting the host computer.