What Is Bitcoin?

What is Bitcoin? It is two things with one name. Bitcoin, the network, is open-source software run by computers around the world that keep a shared record of who owns what. bitcoin, the unit, is what that record tracks. The system was described in a paper published in 2008 under the name Satoshi Nakamoto, and the network started in January 2009. It has no company behind it, no chief executive and no central server.

How a payment gets confirmed

When you send bitcoin, your wallet signs a transaction with your private key and broadcasts it to the network. Nodes check that the signature is valid and that the coins have not already been spent. Valid transactions wait in a queue until a miner includes them in a block.

Miners compete to add the next block by repeatedly running a hash function until they find a result below a target. This is proof of work: expensive to produce, trivial for anyone to verify. Blocks arrive roughly every 10 minutes on average. Every 2,016 blocks, about two weeks, the network adjusts the difficulty of the puzzle so that the 10-minute rhythm holds however much computing power joins or leaves.

Each new block makes earlier ones harder to rewrite. That is why platforms wait for several confirmations before treating a large deposit as final.

Fixed supply and the halving

New bitcoin enters circulation only as the reward paid to the miner of each block. That reward is cut in half every 210,000 blocks, roughly every four years, in an event called the halving. Because the reward keeps shrinking, total supply approaches but never exceeds 21 million coins.

As the subsidy falls, miners depend more on transaction fees. Whether fees will be enough to keep the network secure decades from now is an open debate, not a settled fact.

Energy and security

Proof of work is designed to be costly: the electricity miners spend is what makes rewriting the ledger expensive. That has made Bitcoin's energy use one of the most debated aspects of the system. Supporters point to mining that uses surplus or stranded power; critics point to the scale of consumption for the number of transactions processed. Both sides agree on the underlying point: the network's security is paid for in energy, and that cost is funded by the block subsidy and fees.

Units: bitcoin and satoshis

One bitcoin divides into 100,000,000 satoshis, often shortened to "sats". That means you never need to buy a whole coin. Illustrative example: 0.005 BTC is 500,000 satoshis. Wallets and platforms may show balances in either unit, so check which one before sending.

Ways people hold bitcoin

• Self-custody. Keys in your own software or hardware wallet. Full control, full responsibility.
• On a platform. The platform holds the keys; you hold a claim on it. Convenient, but you rely on the firm.
• Through a fund. In some countries, exchange-traded products hold bitcoin on investors' behalf. US regulators approved spot bitcoin ETFs in January 2024. Rules on offering these products to retail investors differ between countries.

Each route carries different costs and different risks, and none of them protects against a fall in the price.

Forks and copies

Because the code is open source, anyone can copy it and start a new network, or split from Bitcoin's history with changed rules. Such a split is called a fork. Several forks and copies exist; each is a separate asset with its own price and its own risks, and none shares Bitcoin's supply cap. A token called "something-Bitcoin" is not bitcoin, and a platform or seller that blurs the difference deserves suspicion.

The risks of holding bitcoin

• Price swings. Bitcoin has fallen by well over half from previous highs more than once. There is no earnings stream to anchor its value; its price rests on what others will pay.
• Key loss and theft. Lost keys mean lost coins, and stolen coins are rarely recovered.
• Platform risk. Coins held with a failed platform may be partly or wholly lost.
• Regulation and tax. Governments treat bitcoin differently, and rules can change. Disposals are often taxable events.
• Scams. Fake mining schemes, "doubling" offers and impersonated platforms target new holders. See how to spot trading scams.

What the supply cap does and does not mean

A fixed maximum supply is often presented as a reason the price must rise. It is not a guarantee of anything. Scarcity only supports a price if demand holds up, and demand for bitcoin has swung widely. The supply schedule also tells you nothing about how many coins will be offered for sale by existing holders on a given day, which is what moves prices in the short run. What the cap does provide is predictability of issuance: anyone can calculate how many new coins will exist in a given year, which is not true of most currencies.

A long-term view

Bitcoin's supervisors are its users, and its rules change only with wide agreement, which makes its supply schedule unusually predictable. Its value is not. For a long-term investor, the questions are practical ones: how much could you lose entirely without harm, who holds the keys, what does each purchase and sale cost, and how is it taxed where you live? The crypto profit calculator shows how fees on both sides affect a result, and our crypto guide places Bitcoin among other digital assets.