Bitcoin explained

Bitcoin is digital money with a fixed supply that no company or government runs. It moves between people over a public network, and the record of who owns what is kept by thousands of computers that all check each other’s work.

It was the first cryptocurrency, and it is still the simplest one to understand. If you get Bitcoin, the rest of crypto makes a lot more sense.

Where Bitcoin came from

The idea arrived as a short paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” signed by Satoshi Nakamoto. bitcoin.org says the first specification was “published in 2009 in a cryptography mailing list.” Nobody has proven who Satoshi is, and the network does not need to know. That is part of the point.

The paper names the problem it wanted to fix. Online payments rely on financial institutions as trusted middlemen, and that trust costs money, allows reversals and invites fraud. Bitcoin swaps the trust in a bank for “cryptographic proof,” in the paper’s words, so two people can pay each other directly.

How the ledger stays honest

Every Bitcoin transaction is recorded on the BlockchainA shared record of transactions that nobody can quietly edit. , which bitcoin.org describes as “a shared public ledger that the entire Bitcoin network relies on.” Your wallet uses it to work out your balance, and the network uses it to check that you are allowed to spend what you are trying to spend.

The tricky part is agreement. If thousands of strangers each keep a copy, whose copy wins? Bitcoin’s answer is that the longest valid chain of blocks wins, because building it took the most computing work. The whitepaper explains that the record “cannot be changed without redoing the proof-of-work.” Rewriting history means outworking everyone else combined.

What mining does

MiningComputers competing to add the next block, paid in new coins. is the process that adds new blocks. bitcoin.org calls it “a distributed consensus system” used to confirm waiting transactions, keep them in order, and make it hard for any single player to take over the blockchain.

Miners bundle transactions into a block and compete to solve a computing puzzle. The winner adds the block and is paid in newly created bitcoin plus transaction fees. bitcoin.org says transactions usually get their first confirmation “within about 10 to 60 minutes.”

You do not need to mine to use Bitcoin. For most people, mining is something that happens in the background, like the servers that run your email.

The fixed supply, and why people care

This is the feature Bitcoin fans talk about most. bitcoin.org states that “only 21 million bitcoins will ever be created.” The number of new coins created each year “is automatically halved over time,” and issuance stops once the cap is reached. Those scheduled cuts are called the HalvingBitcoin cutting the reward for miners in half, every four years. .

Compare that with dollars, where a central bank decides how many exist. Some people see a hard cap as protection against inflation. Others point out that a fixed supply does not make the price stable, and bitcoin.org agrees: the price “is still very volatile,” and small trades can move it because the market is still small.

You also do not have to buy a whole coin. A bitcoin splits into tiny fractions, so the price of one full coin is not the price of getting started.

Sending, receiving and keeping bitcoin

To use Bitcoin you need a wallet: an app or device holding the Private keyThe secret that proves the coins are yours. that signs your transactions. bitcoin.org explains that the signature proves you own the coins and stops anyone from changing the transaction afterwards.

A few facts change how you should behave:

• Payments are final. The FTC notes crypto payments “typically are not reversible.” Check the address every time.
• Lost keys mean lost coins. bitcoin.org says “lost bitcoins remain dormant forever.” Back up your wallet; a stored backup “can protect you against computer failures and many human mistakes.”
• Someone else holding your keys is a trade-off. bitcoin.org warns that “when a third party controls your keys, you rely entirely on their security and honesty.”
• It is public. “Bitcoin is not anonymous,” per bitcoin.org. Every transaction stays visible on the ledger.

What Bitcoin is not

Bitcoin is not a company, so there is no CEO, no customer support line and no earnings report. It is not a stock, and owning it does not give you a share of anything except the coins themselves.

It is also not a guaranteed store of value. The FTC reminds people that crypto is not backed by a government and is not insured like money in an FDIC-insured bank account. If someone promises you guaranteed Bitcoin returns, the FTC’s line applies: “Only scammers will guarantee profits or big returns.”

Is it legal to own?

In most places, yes. bitcoin.org notes that Bitcoin “has not been made illegal by legislation in most jurisdictions,” while “some jurisdictions restrict or ban its use.” Tax rules also vary, so check how your country treats selling or spending it before you do either.

What to do next

Bitcoin is the simplest version of the idea: money only. The next network on the list takes the same shared ledger and lets it run programs.

• Continue to Ethereum explained to see what changes when a blockchain can run code.
• Read Crypto wallets explained before you hold any bitcoin yourself.
• See the long-term holding strategy if you are curious how people approach Bitcoin over years rather than days.