What Is Bitcoin
A plain-language guide to Bitcoin: where it came from, how the network works, and what satoshis, mining and the 21 million cap mean.
Bitcoin is a form of digital money that works without a bank, a government or any other central authority. Payments are checked and recorded by a network of independent computers around the world, and the rules of that network are written into open-source software that anyone can read. Bitcoin was the first cryptocurrency, and many ideas used by later projects first appeared here.
Where Bitcoin came from
On 31 October 2008, a person or group using the name Satoshi Nakamoto published a short paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System". This document, usually called the Bitcoin whitepaper, described a way to send electronic money directly from one person to another without a middleman.
On 3 January 2009, the first block of the network was created. It is known as the genesis block, and the network has been running ever since. The real identity of Satoshi Nakamoto has never been confirmed.
The problem Bitcoin solves
Digital files are easy to copy. That creates a basic problem for digital money: what stops someone from spending the same coin twice? This is called the double-spending problem. In the traditional system, a bank solves it by keeping the ledger and making sure nobody spends more than they have.
Bitcoin takes a different approach. Instead of one company keeping the records, the whole network does. Any participant can keep a full copy of the transaction history and check for themselves that the rules are being followed. This shared ledger is called the blockchain.
How the network works
In simplified form, a payment goes through these steps:
- The sender creates a transaction and signs it with a private key, a secret number that proves the right to spend the coins.
- The transaction is broadcast to the network and waits with other unconfirmed transactions.
- Miners group transactions into a block and compete to add it to the chain by doing a large amount of computational work. This system is called Proof of Work.
- Other participants verify the new block and accept it if everything checks out.
The network aims to produce a new block roughly every 10 minutes on average. If more or fewer miners join, the difficulty of the work adjusts automatically to keep that pace.
The 21 million cap
One of Bitcoin's best-known features is its fixed supply. No more than 21 million BTC can ever be created. New coins enter circulation only as a reward to miners for producing blocks.
That reward is cut in half every 210,000 blocks, which works out to roughly every four years. This event is called the halving. Because of halvings, new supply slows down over time, and in the long run miners are expected to rely mainly on transaction fees.
What is a satoshi
Bitcoin is highly divisible. Its smallest unit is called a satoshi, named after the creator:
- 1 BTC = 100,000,000 satoshis
- 1 satoshi = 0.00000001 BTC
This means you never need to deal in whole coins. Very small amounts can be sent on the network.
How Bitcoin differs from traditional money
- No central issuer. Nobody can create extra coins beyond what the protocol rules allow.
- Transparency. Every transaction is public and can be viewed by anyone. However, the blockchain shows addresses, not names, so Bitcoin is described as pseudonymous rather than fully anonymous.
- Irreversibility. Once a transaction is confirmed, it cannot be reversed. There is no customer support line that can pull back a payment sent to the wrong address.
- Self-custody. Owners can hold their own keys without relying on a bank. The flip side is that keeping those keys safe is entirely their responsibility.
Risks and limitations
Bitcoin is a complex and still relatively young technology. Its price can move sharply in a short time. Rules for using cryptocurrency differ from country to country and continue to evolve. Losing a private key or seed phrase means losing access to the coins, and scammers often target newcomers who are not yet familiar with how wallets work.
Before using Bitcoin, it helps to understand how wallets work, what a seed phrase is, and how to recognize common scams.
Key takeaways
- Bitcoin is the first cryptocurrency, created by Satoshi Nakamoto. The whitepaper came out on 31 October 2008, and the network launched on 3 January 2009.
- Transactions are recorded on a shared public ledger called the blockchain.
- Miners add new blocks roughly every 10 minutes.
- The total supply is capped at 21 million coins, and the block reward halves every 210,000 blocks.
- The smallest unit is the satoshi, one hundred-millionth of a bitcoin.