What is Bitcoin and how does it work?

Bitcoin is digital cash or electronic money that you can store on your mobile phone. It was created in 2008, started operating in 2009, but who exactly developed it remains a secret for now. Bitcoin is fundamentally different from traditional banking systems: it is not controlled by governments, banks, or any central authority, but instead operates through millions of computers communicating directly with each other.

What is Bitcoin and How Does It Solve the Money Problem?

In traditional accounting systems, a bank tells you “you have $100,” and you need to trust that. With Bitcoin, all people can verify each other’s balances. Every Bitcoin transaction is recorded and stored across a network of computers worldwide, making it impossible to create or alter transactions after the fact.

The most intriguing problem Bitcoin solved was preventing double spending: the risk that someone could send the same digital money twice (for example, sending the same dollars to two different people). Bitcoin can prevent this, ensuring each unit of money is only spent once.

How Does Bitcoin Work: What Is Blockchain?

Bitcoin allows you to send and receive bitcoins or BTC (its abbreviation). It operates through a system called blockchain—a digital ledger where all transactions are recorded. If Alice sends Bob 1 Bitcoin, this transaction is stored across millions of computers.

A simple way to imagine blockchain: it’s like a chain of blocks—each block contains data about transactions that occurred within the past 10 minutes. When a block is filled, it links to the next block in the system. This process ensures every record is permanent and tamper-proof.

This network of computers has no central authority—this is called decentralization. They do not resemble a single main machine; instead, the system is distributed, making it resistant to corruption and external interference.

The Technical Mechanism Behind Bitcoin Mining

To keep Bitcoin secure, people called “miners” work to verify new transactions and add them to the blockchain. They do this by solving complex mathematical problems.

The first miner to solve the problem gets the right to add a new block to the network and receives a reward—in this case, newly created bitcoins. This process is called Proof of Work (PoW). If someone tries to insert invalid data into the network, the system rejects it outright.

Every four years, a “halving” event occurs—meaning the reward given to miners is cut in half. The last halving happened in April 2024, and the next is expected in 2028. This mechanism slows down the issuance of new bitcoins, helping to control inflation and maintain value.

How to Use Bitcoin: Where and Who Needs It?

Today, Bitcoin is used for purchasing goods—from online stores to physical shops. On May 22, 2010, programmer Laszlo Hanyecz bought two pizzas with 10,000 bitcoins—marking the first real-world transaction. Today, those bitcoins are worth millions of dollars, and this day is celebrated as “Bitcoin Pizza Day.”

Most people do not see Bitcoin as an investment but as a way to send money with lower fees compared to traditional banking, regardless of location.

Security Tips: What You Need to Know

While the Bitcoin system itself is secure, your wallet where you store bitcoins must also be protected. Hackers can steal your bitcoins through:

• Phishing scams, where social engineering tricks you into revealing login details or private keys
• Malware that infects your computer
• Ransomware that encrypts your files and demands Bitcoin for decryption

Bitcoin transactions are irreversible and not insured by anyone. To protect your assets:

• Use strong passwords
• Enable two-factor authentication
• Store bitcoins in secure wallets
• Download software only from trusted sources

Bitcoin’s price is highly volatile. Changes of 20% or more within a month are common, so approach investments carefully.

The Future of Bitcoin: Satoshi Nakamoto and Its History

In 2008, under the pseudonym Satoshi Nakamoto, an individual or group published a famous document titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” The true identity of Satoshi remains unknown—possibly a person or a team of engineers.

Bitcoin protocol started operating in January 2009. The first transaction was between Satoshi and programmer Hal Finney—Satoshi sent Finney 10 bitcoins.

How Many Bitcoins Are There and What Is Their Value?

The maximum supply of Bitcoin is capped at 21 million coins. By the end of 2025, about 94% of these will have been mined; the remaining will take nearly 100 years to be fully released. Mining is the only way new bitcoins are created, making it the sole source of new supply.

Summary

Bitcoin has evolved from a digital curiosity into a global energy-intensive cryptocurrency. Understanding it is crucial for payments, investments, or exploring its technology. It is now proven to be valuable, and all major companies are adopting it. The Bitcoin system offers a revolutionary way to understand and handle money.

Author’s note: This article is for educational and informational purposes only, not financial, legal, or professional advice. Investment decisions are solely your responsibility.