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Bitcoin

In simple terms

Bitcoin is the original cryptocurrency — digital money that runs on a network of computers rather than through a bank. It was released in 2009 by someone using the name Satoshi Nakamoto, and only 21 million will ever exist.

Definition

The first cryptocurrency, launched in 2009, and the largest by market capitalization.

In depth

Bitcoin is a peer-to-peer electronic cash system secured by proof-of-work. Transactions spend unspent outputs (the UTXO model) rather than debiting account balances, and are grouped into blocks that miners compete to produce by finding an input whose SHA-256 hash falls below a difficulty target. The network retargets that difficulty roughly every 2,016 blocks to hold the average block interval near ten minutes. Issuance is fixed in the protocol: the block subsidy halves every 210,000 blocks, which converges on a maximum supply of 21 million BTC, each divisible to eight decimal places.

How does Bitcoin work?

Roughly every ten minutes, miners race to find a number that makes the hash of the next block fall below a target. The winner broadcasts that block, every other node independently checks it, and the transactions inside become part of the shared ledger. The winner is paid a block subsidy plus the fees of the transactions they included. That subsidy halves about every four years, which is what caps total issuance. The network adjusts the difficulty of the puzzle roughly every two weeks, so blocks keep arriving at the same pace however much mining power joins or leaves.

An example

Suppose you send 0.05 BTC to a friend and attach a 0.0001 BTC fee. Your wallet broadcasts the transaction and it waits in the mempool. A miner includes it in the block they are working on, and when they win that block it has one confirmation. Many exchanges wait for three to six confirmations — roughly thirty minutes to an hour — before treating the funds as settled. The fee goes to the miner, not to Bitcoin itself.

Figures are illustrative only.

What beginners get wrong

  • A confirmed transaction cannot be reversed or cancelled. An address pasted wrong sends the funds to whoever controls it, and no support desk can recover them.
  • Buying a whole bitcoin is not required. It divides to eight decimal places, and the smallest unit is called a satoshi.
  • Bitcoin's history includes repeated drawdowns of more than 70%. Past behaviour is not a forecast, and anything committed to it should be money that can be lost.

Related terms

Educational only — not financial advice.