What Is Bitcoin?

What is Bitcoin? It is the first cryptocurrency, launched in 2009 by a person or group using the name Satoshi Nakamoto. Bitcoin is a way to hold and send value over the internet without a bank or company in the middle. Ownership is recorded on a public blockchain kept in sync by thousands of computers, and the rules, including the total supply, are written into the software that all of them run.

A very short history

The design was set out in a nine-page paper in 2008, and the network began running in January 2009 with its first block, often called the genesis block. For its first years bitcoin was a curiosity among programmers; one of the first known purchases with it was a pair of pizzas in 2010, bought for 10,000 BTC. Since then it has moved from hobby to a widely traded asset, with regulated investment products in several countries, while still going through repeated booms and crashes.

The 21 million limit

No more than 21 million bitcoin can ever exist. Coins are released gradually as a reward to miners, and the pace slows over time, so the final fractions will not be issued until well into the next century. This fixed, predictable supply is the feature supporters point to most often; it contrasts with national currencies, whose supply central banks can expand.

A bitcoin divides into 100 million units called satoshis (or "sats"). In an illustrative example, spending $50 when one bitcoin costs $62,500 buys 0.0008 BTC, which is 80,000 satoshis.

How new bitcoin is created: mining

Transfers are grouped into blocks. Miners race to find a number that makes the block's cryptographic fingerprint meet a target, which takes enormous amounts of trial and error, and electricity. The winner adds the block and collects the block reward plus the fees attached to the transfers inside it. The network adjusts the difficulty so that a block is found roughly every ten minutes, however many machines join. The businesses that do this at scale are covered in our guide to crypto mining companies.

What happens when you send bitcoin

1. Your wallet creates a transfer from your address to the recipient's and signs it with your private key.
2. The signed transfer is broadcast to the network and waits, with others, to be picked up by a miner. A higher fee usually means it is picked up sooner.
3. A miner includes it in a block. That is the first confirmation.
4. Each later block adds another confirmation. Exchanges typically wait for a few before crediting a deposit.

Once confirmed, the transfer cannot be reversed by anyone. There is no customer service desk for the Bitcoin network itself, which is why checking the address before sending matters so much.

Halvings: the four-year rhythm

Every 210,000 blocks, roughly every four years, the block reward is cut in half. This has happened in 2012, 2016, 2020 and April 2024.

The next halving is expected around 2028. Halvings cut the flow of new coins, but they are known years in advance, so what they mean for price is debated. Past patterns are no guide to the future.

Holding bitcoin: keys and custody

You do not hold a bitcoin file. You hold a private key that lets you move the coins recorded at an address. On an exchange, the platform holds that key for you, and you trust it to let you withdraw. In a self-custody wallet, you hold the key, usually as a 12- or 24-word seed phrase. Lose the phrase and the coins are gone; share it and they can be taken. Our crypto guide explains the trade-off in detail.

What is Bitcoin's price based on?

Bitcoin produces no profits and pays no interest, so there is no earnings figure to value. Its price comes purely from what buyers will pay and sellers will accept on exchanges around the world. Factors that have moved it include:

• Changes in interest rates and the general appetite for risk.
• New ways for large investors to gain exposure, such as regulated funds.
• Rules and enforcement in major countries.
• Exchange failures, hacks and forced selling by lenders.

Because bitcoin trades around the clock on many platforms, big moves can happen overnight or at weekends, when many investors are not watching. Bitcoin has fallen by more than 50% from a peak several times and taken years to recover. Nobody can reliably predict its next move, and we never publish forecasts.

What bitcoin can and cannot do

• Can: move value worldwide at any hour, be held without a bank, and be verified by anyone running the software.
• Cannot: reverse a mistaken payment, offer deposit insurance, or guarantee any value.
• Privacy: transfers are pseudonymous, not anonymous. Every movement is visible on the public ledger, and exchanges link accounts to identities.

Mistakes beginners make with bitcoin

• Leaving everything on one platform without knowing how it stores coins or what happens if it fails.
• Storing the seed phrase digitally, as a photo, note or cloud file, where malware or a hacked account can find it.
• Buying because the price is rising fast. Sharp rises attract attention, and sharp falls often follow.
• Sending to an address copied from a message rather than from the recipient's own wallet or verified source.
• Forgetting tax. In many countries, selling or swapping bitcoin can create a taxable gain that must be reported.

A worked profit-and-loss example

With illustrative numbers: you put $1,000 into bitcoin at $60,000 and pay a 0.1% fee, so $999 buys 0.01665 BTC. If you sell at $66,000 with another 0.1% fee, you receive about $1,097.80, a profit of about $97.80 after both fees. If you sell at $54,000 instead, you receive about $898.20, a loss of about $101.80. Try your own numbers in the profit and loss calculator.

Sources

• Bitcoin whitepaper (Satoshi Nakamoto, 2008)
• Bitcoin Core software documentation: supply schedule and difficulty adjustment