What is Bitcoin?

A complete beginner's guide to Bitcoin, how it works and why it's so expensive.

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Close up of bitcoin

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Bitcoin is a digital asset that only exists online. It’s often described as being like an electronic combination of cash and gold. Bitcoin is meant to be spendable like cash, but also able to hold a lot of value similar to gold. However, unlike cash or gold, Bitcoin is entirely digital.

In this guide:

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

Bitcoin logo

Live Bitcoin (BTC) price

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Bitcoin at a glance

Ticker symbolBTC
UseDigital Asset
Year released2009
OriginUnknown
Maximum supply21,000,000
Consensus algorithmProof of Work
Notable team membersSatoshi Nakamoto
Notable partnerships-
Mineable?Yes

What is Bitcoin?

Bitcoin refers to two things at the same time.

  • The Bitcoin digital asset (BTC). These are the actual digital coins. There will only ever be a total of 21 million Bitcoin in existence.
  • The Bitcoin network.This is the blockchain that powers Bitcoin and is what gives the digital asset its value and practical applications.

The Bitcoin digital asset

Bitcoin vector icon blue

The Bitcoin digital asset is very simple. Bitcoin is just a digital coin, often abbreviated to BTC. It’s like any other coin except it’s purely digital. These coins are gradually created over time, up to a maximum of 21 million.

Each of these coins can be collected, traded and spent like money. The amount of new coins created will slow down over time and it will eventually take decades to produce just a few coins at the end.

When someone talks about buying, selling or trading Bitcoin, they’re talking about these coins.

Everything else that makes Bitcoin special is down to the Bitcoin network.

The Bitcoin network

Bitcoin blockchain network vector icon blue

The Bitcoin network has two main jobs:

  1. It carries Bitcoin transactions. When you spend Bitcoin, it’s being carried to the recipient through the Bitcoin network.
  2. It keeps a record of all Bitcoin transactions ever made and records them in a digital ledger.

What makes the Bitcoin network special is that no one’s in charge of it and no one can control it.

No one can stop it from carrying transactions or creating more Bitcoin and no one can stop it from meticulously recording all Bitcoin transactions in its digital ledger.

Who invented Bitcoin and where did the Bitcoin network come from?

Picture not describedQuestions you might haveBitcoin was invented by someone, or a group of people, called Satoshi Nakamoto.

No one knows who Satoshi Nakamoto really is.

Why do people buy Bitcoin?

Bitcoin prices are influenced by supply and demand. A Bitcoin is only worth as much as someone is willing to pay for it.

There are three main reasons why people buy Bitcoin.

Where can I buy Bitcoin in the US?

As the Bitcoin blockchain grew, an entire industry grew alongside it, including plenty of Bitcoin brokers and marketplaces.

You can find and compare some of them here.

Name Product Deposit methods Fiat Currencies Supported Cryptocurrencies
Cash
Credit card
Debit card
Bank transfer (SEPA)
USD, EUR
BTC, ETH, ETC, BCH, LTC, ADA, QTUM, XRP
Buy coins like Bitcoin, Ethereum, Ripple, Litecoin and Bitcoin Cash with credit card.
Credit card
Debit card
PayPal
Wire transfer
Local Online Banking
EUR, GBP, NZD, USD, AUD, CAD, CHF, NOK, ZAR, JPY, SEK, TRY, HUF, PLN
BTC, ETH, BCH, XRP, DASH, LTC, ETC, ADA, MIOTA, XLM, EOS, NEO, TRX, ZEC, XTZ
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Copy the trades of leading cryptocurrency investors on this unique social investment platform. Non-US residents can read our review of eToro's global site here.
Bank transfer (ACH)
Bank transfer
Cryptocurrency
Debit card
Wire transfer
USD
BTC, ETH, XRP, BCH, LTC, USDT, BNB, ADA, ZRX, LINK & 10+ more
Get a US$15 bonus when you trade US$100 or more of any supported crypto. T&Cs apply.
Trade with USD on Binance.US, the American dollar onramp of the world’s largest cryptocurrency exchange. Non-US residents can read our review of Binance's main exchange here.
Electronic Funds Transfer
Bank transfer (SEPA)
Wire transfer
USD, EUR, GBP, JPY, CAD
BTC, ETH, XRP, BCH, EOS, LTC, ADA, XLM, DASH, XMR & 15+ more
Buy, sell and trade a range of digital currencies on this high-liquidity exchange – suitable for beginners right through to advanced traders.

UK residents: In addition to normal crypto trading, Kraken offers margin lending. As this is a regulated activity which they are not authorised to offer in the UK, we advise you not to use this service. If you're interested in margin trading, see authorised providers.
Bank transfer (ACH)
Credit card
Bank transfer (SEPA)
Faster Payments Service
USD, EUR, RUB, GBP & 125+ more
BTC, BTG, BCH, LTC, DASH, ETH, XRP, ZEC & 3+ more
Disclaimer: Highly volatile investment product. Your capital is at risk.
Use your USD, EUR or RUB to buy and sell cryptocurrency at competitive exchange rates and with high maximums for verified accounts.
Cryptocurrency
-
BTC, ETH, XRP, BCH, EOS, XVG, LTC, ADA, MIOTA, TRX, NEO, DASH, XMR, XEM, VET, ETC, ICX, QTUM, OMG, & 70+ more
Buy and trade 100+ cryptocurrencies on this global cryptocurrency exchange.
Credit card
Debit card
PayPal
USD, EUR, GBP
BTC, ETH, XRP, BCH, EOS, LTC, XLM, ETC, ZEC, ZRX & 5+ more
Get US$10 in free bitcoin when you buy US$100 or more of any crypto. T&Cs apply.
Buy and sell major cryptocurrencies on one of the world's most renowned cryptocurrency exchanges.
Bank transfer
Credit card
Cryptocurrency
Wire transfer
USD, EUR, JPY
BTC, ETH, BCH
With options to buy bitcoin and popular altcoins through credit card, wire transfer and more, BitfFyer offers users the choice of paying with cryptocurrency or USD, EUR and JPY.
SatoshiTango Cryptocurrency Exchange
Bank transfer
Cash
Cryptocurrency
Bank transfer (SEPA)
ARS, USD, EUR
BTC, LTC, XRP, ETH, BCH
SatoshiTango is an Argentina-based marketplace that allows you to easily buy, sell or trade Bitcoins.
Credit card
Cryptocurrency
USD
BTC, BCH, MIOTA, XVG, NEO, ADA, XRP, TRX, ONT, ZIL, GAS, LTC, ZRX, QTUM, ETH, ETC, VET, ICX & 300+ more
CoinSwitch allows you to compare and convert over 250 cryptocurrencies across all exchanges.

Compare up to 4 providers

What else can I do with Bitcoin?

How does Bitcoin work?

The Bitcoin network was the first ever example of a blockchain as we know it today. It’s called blockchain because it can be pictured exactly like a series of blocks that have been chained together.

The Bitcoin transactions are contained in the blocks themselves and because they’re chained together the blocks can be easily processed in an organized fashion. This makes it easier for the Bitcoin network to keep a complete record of all the transactions.

In the case of the Bitcoin blockchain, a new block is created every 10 minutes on average. Whenever one arrives, the Bitcoin network automatically looks at all the transactions it contains, sends those payments to the correct recipients and records all the details of those transactions in its ledger.

The most up-to-date version of the ledger itself is transmitted on the blockchain along with the transactions.

In the end, you can think of the Bitcoin network as a kind of payments robot. If you want to send money to someone anywhere in the world, you can use the Bitcoin network to send them Bitcoin instead of going to the bank.

Because the Bitcoin network is a robot:

  • There’s no chance of it stealing your money
  • It doesn’t have to make a profit and won’t charge you higher fees than necessary
  • It won’t fudge the numbers or make mistakes
  • It will never lie

This system is what gives Bitcoin its value. Because it’s fully automated and keeps impeccable records it’s also impossible to counterfeit Bitcoin and you can be 100% sure there will only ever be 21 million.

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What does the Bitcoin blockchain look like?

You can explore the Bitcoin blockchain and go through its records from your computer, using programs called block explorers.

This is what blocks look like when you use this block explorer. You can follow along with it to see how easy it is to go through the Bitcoin network’s ledger.

Image description
A look at recent blocks on a blockchain explorer BlockCypher

You can click on the block number to see the transactions on it. Here’s one of the transactions on one of those blocks:

Picture not described
Seeing the number of transactions on a block in a blockchain explorer BlockCypher

These are the kinds of details the Bitcoin network automatically records in its ledger. In this way you can find every Bitcoin transaction that’s ever happened.

A more detailed guide to blockchain

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How does Bitcoin mining work?

Wikimedia Commons Image: Supplied

There are many different makes and models of Bitcoin mining machines,
but this is what most of them look like. Wikimedia Commons

Everything up to this point is purely digital. It’s all just lines of code and anyone who wants to see exactly how Bitcoin is programmed can do so easily.

But of course, the Bitcoin network still needs to come back to the real world at some point. It needs electricity to keep going and it needs to be tough enough to resist hackers.

This is where Bitcoin mining comes in.

Bitcoin mining is the act of searching for new blocks on the blockchain. This is done by solving a complex math problem. Whoever finds the answer first gets to add the next block to the blockchain and is awarded some newly created Bitcoin at the same time. This is where new Bitcoin comes from.

Ingeniously, the Bitcoin network will automatically adapt to the amount of energy that goes into solving those maths problems to make sure it always takes an average of 10 minutes to find each new block, no matter how much energy is put into it.

When there’s more energy committed to solving those problems, it makes them more difficult. When there’s less, it makes them easier.

Theoretically, any kind of computer can solve these math problems and you could even do it with a pen and paper if you really wanted. But it’s a race to win the new Bitcoin, so miners try to be as fast as possible. To this end they now use specialized Bitcoin mining machines designed to solve the problems as quickly as possible.

There are now entire mining farms filled with these kinds of machines, solving math problems for the Bitcoin network. All together, the Bitcoin network is now consuming more energy than some countries.

A tiny portion of this energy is used to actually pack blocks and send transactions around the Bitcoin network, while the vast majority of it is simply there to make sure the math problems behind each new block are extremely difficult.

This is important, because the more difficult those maths problems are, the tougher it is to interfere with the Bitcoin network.

Learn more about mining:

Learn about and compare mining options

More on mining: What if the maths problems are too easy?

Vector of math symbols in a profile head

If the math problems are too easy, it would be possible for someone to find blocks too quickly. This is dangerous because if the same person manages to consecutively find enough blocks, they can trick the Bitcoin network.

But because the math problems are so tough, on account of so many people competing to find the next block, it’s very difficult for one person to find too many blocks for themselves.

The reason this protects the network is that someone who wants to attack Bitcoin can only modify the block they’ve discovered. They can’t tamper with other miners’ blocks.

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How do I store my Bitcoin safely?

Vector of cryptocurrency wallet

Bitcoin itself will always be on the blockchain and nowhere else.

So when you own Bitcoin, you’re actually taking possession of what’s called a private key. These keys are used to unlock the section of the Bitcoin ledger where your coins are held, letting you move them around.

By itself, the private key looks like a complicated password, made up of a long string of numbers and letters.

These keys are stored in specially-designed digital wallets.

Learn about wallets and keeping your Bitcoin secure

Best ways to store your Bitcoin

Best Bitcoin wallets Best hardware wallets

What’s the live price of Bitcoin?

Frequently asked questions

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Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.
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