What You Need To Know About Bitcoin: Definition and Guide

Bitcoin is a type of digital money called a cryptocurrency. It was the first cryptocurrency ever made and is still the biggest one today.

Launched in 2009, Bitcoin was designed to operate without a central controlling authority, enabling peer-to-peer transactions to occur without intermediaries such as banks.

Over the years, Bitcoin has gained mainstream acceptance, and corporate investments and government interests have led to an increase in regulations. Although its decentralized nature may evolve as it becomes integrated into mainstream financial institutions and processes, it remains uncontrolled by any single entity, meaning that no individual, company, or government has the authority to manage the Bitcoin network, approve transactions, or alter the rules.

While this structure allows for freedom driven by market forces, it also raises concerns about the potential for bad actors to operate without facing consequences, as there is no governing body to address transgressions.

Here, learn how Bitcoin works, the advantages and disadvantages of using Bitcoin, and what the future holds for this revolutionary digital asset.

Bitcoin basics

Bitcoin (abbreviation: BTC; sign: ₿) is the first decentralized cryptocurrency based on blockchain technology. It was invented in 2008 by an anonymous developer or group using the pseudonym Satoshi Nakamoto, and began circulating in 2009. Unlike traditional currencies issued by governments, Bitcoin operates independently of any central authority.

At its core, Bitcoin is a peer-to-peer electronic cash system that enables direct transactions between users without the need for trusted third parties. These transactions are verified by network nodes through cryptography and recorded on a public distributed ledger called a blockchain. 

As part of the peer-to-peer system, each bitcoin owner has a private key, a 256-bit-long number, that serves as the cryptographic foundation of Bitcoin ownership and security. This key is a secret code that gives you complete control over your Bitcoin funds.

The total supply of Bitcoin is capped at 21 million coins, with nearly 20 million already in circulation as of early 2025. This limited supply is a fundamental aspect of Bitcoin’s design, creating scarcity akin to that of precious metals like gold.

How Bitcoin works

Bitcoin functions through a combination of technologies, including blockchain, mining, and peer-to-peer networking. Here’s how a typical Bitcoin transaction works:

1. Transaction creation. A sender initiates a transaction by specifying the recipient’s wallet address and the amount to send.
2. Transaction signing. The sender uses their private key to digitally sign the transaction, proving ownership.
3. Broadcasting. The signed transaction is broadcast to the Bitcoin network.
4. Verification. Servers called nodes verify the transaction’s validity.
5. Mining. Verified transactions are included in a block and added to the blockchain.
6. Confirmation. Once included in the blockchain, the transaction is confirmed.

The Bitcoin network maintains its integrity through a consensus mechanism called proof of work (PoW). Miners compete to solve complex mathematical puzzles, and the first to succeed gets to add a new block to the blockchain and receives a reward in newly created bitcoins.

Bitcoin mining explained

Bitcoin mining is how new bitcoins are created and how the network stays secure. Miners use powerful computers to solve puzzles. When they solve one, they add a group of transactions (a block) to the blockchain and get rewarded with new bitcoins.

Mining does two main things:

1. It confirms and records transactions on the blockchain.
2. It creates new bitcoins.

As of 2024, miners earn 3.125 bitcoins for each block they add. This reward is halved approximately every four years in an event known as a halving. The last halving was in April 2024, and the next one is expected in 2028. Halving slows down the rate at which new bitcoins are created, helping to maintain Bitcoin’s scarcity.

To keep blocks coming every 10 minutes, the network automatically makes mining harder or easier every 2,016 blocks (about two weeks). This maintains a steady flow of new bitcoins, regardless of the number of miners at work.

What you need to use Bitcoin

To start using Bitcoin, you need a few essential tools:

• Bitcoin wallet. A software that stores your private keys and enables you to send and receive bitcoins. Wallets can be mobile apps, desktop programs, hardware devices, or web services. They often have built-in security features to keep your bitcoins safe.
• Public key. Your Bitcoin wallet provides you with a public key, a cryptographic code derived from a private key that allows you to receive cryptocurrency. 
• Private key. A private key is a 256-bit number that is used to sign transactions, granting access to and control over Bitcoin funds associated with a specific address. Keeping your private key secure is crucial, as it provides complete control over your bitcoins.
• Internet access. Bitcoin operates entirely online through its decentralized network.
• Bitcoin exchange. To acquire Bitcoin using traditional currency or other cryptocurrencies, you can use an exchange, a mobile payment app, a Bitcoin ATM, a peer-to-peer platform, an alternative platform, or even a traditional broker.

Advantages of using Bitcoin

Bitcoin offers several advantages over traditional payment systems:

• Global accessibility. Bitcoin can be used worldwide without requiring currency conversion, making it a choice for international transactions.
• Lower transaction costs. Sending money using Bitcoin typically incurs lower costs per transaction compared to traditional banking or payment processors.
• Irreversible transactions. Once confirmed, Bitcoin transactions cannot be reversed without the recipient’s consent, protecting against chargebacks.
• Portability. Bitcoins can be stored in a digital wallet accessible from various devices.
• Transparency. All transactions are recorded on a public ledger, ensuring transparency while maintaining user privacy.

Bitcoin risks and considerations

Despite its advantages, Bitcoin comes with several risks:

• Price volatility. Bitcoin’s value can fluctuate dramatically, making it a potentially risky investment.
• Security concerns. If private keys are lost or stolen, the associated bitcoins may be permanently lost.
• Regulatory uncertainty. Government regulations regarding cryptocurrencies continue to evolve, potentially affecting Bitcoin’s use and value.
• Environmental impact. Bitcoin mining’s energy use is significant and comparable to the annual electricity consumption of a country like Poland, with estimates putting it around 0.4% of global demand.
• Limited consumer protection. Bitcoin lacks the formal consumer protections that are typically found in traditional currencies.
• Adoption challenges. Bitcoin acceptance is by no means universal among merchants and service providers.

How to get Bitcoin

There are several ways to obtain Bitcoin:

1. Purchase from exchanges. Buy Bitcoin through cryptocurrency exchanges using traditional currency.
2. Peer-to-peer trading. Acquire Bitcoin directly from other individuals.
3. Accept as payment. Receive Bitcoin as payment for goods or services.
4. Mining. Earn Bitcoin by verifying transactions and adding them to the blockchain, though this requires specialized equipment and significant electricity.

For most people, purchasing through established cryptocurrency exchanges is the simplest method. These platforms allow you to buy Bitcoin using bank transfers, credit cards, or other payment methods.

Bitcoin market and adoption

About 28% of American adults—roughly 65 million people—now own cryptocurrencies.

Although Bitcoin prices fluctuate daily, its value has increased, trading around $95,000 to the low $100,000s in Q2 2025, compared to the same period in 2023, when it traded around $30,000. 

This dramatic rise is driven by increasing demand, institutional adoption, and Bitcoin’s reputation as a scarce digital asset. Bitcoin’s supply cap helps protect it against inflation and currency devaluation. Bitcoin continues to gain mainstream acceptance, with El Salvador adopting it as legal tender in 2021.