What Is Bitcoin? How It Works, Mining, Wallets and Supply

Bitcoin is a digital currency that runs on a public network instead of a bank. Anyone can join the network, check its records and send coins to anyone else, and no government or company can print more than the 21 million coins written into its rules. It was launched in January 2009 by a person or group using the name Satoshi Nakamoto, and it remains the largest and best-known cryptocurrency.

This guide explains how Bitcoin works from the ground up: where it came from, how transactions are confirmed, why the supply is limited, what mining and wallets really do, and the mistakes and myths that cost newcomers money. It gives no price forecasts or investment advice.

Bitcoin at a glance

Where Bitcoin came from

Digital cash was an old dream long before 2009. In the 1990s, cryptographers proposed pieces of the puzzle. Adam Back’s Hashcash (1997) showed how computing work could be used as a cost to deter spam. Wei Dai’s b-money proposal (1998) sketched a currency kept by a network rather than a central party. Nick Szabo’s bit gold idea and Hal Finney’s reusable proofs of work explored similar ground. None of them solved one stubborn problem: how to stop someone spending the same digital coin twice without trusting a central clerk to keep the books.

On 31 October 2008, in the middle of the global financial crisis, a nine-page paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list. Its author, Satoshi Nakamoto, cited both Back’s and Dai’s work and combined their ideas with a public, time-stamped chain of blocks. The answer to double spending was to let everyone see every transaction and to make rewriting history so expensive that honest participants would always win.

The network started on 3 January 2009, when Nakamoto mined the first block. Embedded in it was a newspaper headline from that day’s edition of The Times about a second bank bailout, widely read as a comment on the banking system. Days later, cryptographer Hal Finney received the first bitcoin transaction, 10 BTC sent by Nakamoto. On 22 May 2010, programmer Laszlo Hanyecz paid 10,000 BTC for two pizzas, often cited as the first purchase of physical goods with bitcoin; enthusiasts still mark the date as Bitcoin Pizza Day.

Nakamoto handed over development to other volunteers and stopped posting publicly in late 2010; private emails to developers ended in 2011. The creator’s identity has never been proven. Since then Bitcoin has been maintained by an open community of developers, with the reference software now known as Bitcoin Core.

Bitcoin timeline

How Bitcoin works

Think of Bitcoin as a shared accounting book that thousands of independent computers keep identical copies of. Nobody can write in it alone, and anyone can check every page. Four pieces make this work.

1. Keys and signatures

Ownership in Bitcoin comes down to a secret number called a private key. From it, your wallet derives a public key and, from that, addresses you can share. To spend coins, your wallet signs the transaction with the private key. Every node on the network can check the signature using public information, but nobody can work backwards from it to the private key. That is why losing or leaking the key is final: the network only recognises the signature, not the person.

2. Transactions and the UTXO model

Bitcoin does not keep account balances the way a bank does. Instead, it tracks unspent transaction outputs (UTXOs): individual chunks of bitcoin, each locked to an address. When you pay someone, your wallet gathers enough of your chunks, sends the amount due to the recipient, sends any remainder back to you as change, and leaves a little unclaimed as the fee for miners. Your balance is simply the total of the chunks your keys can unlock.

3. The mempool and blocks

A signed transaction is broadcast to nodes, which check it against the rules and hold it in a waiting area called the mempool. Miners pick transactions from the mempool, usually those paying the highest fee for their size, and bundle them into a candidate block. A block can hold up to 4 million weight units of data, a limit introduced with the SegWit upgrade in 2017.

4. Proof of work and the longest chain

To add a block, a miner must find a value (the nonce) that makes the block header’s SHA-256 hash fall below a target set by the network. There is no shortcut; machines simply try trillions of guesses per second. The first miner to succeed broadcasts the block, other nodes verify it in a fraction of a second, and the race starts again on top of it.

Nodes always follow the valid chain with the most accumulated work. To reverse a payment, an attacker would need to redo the work of that block and every block after it, faster than the rest of the network combined. That is why each additional block, or confirmation, makes a transaction harder to undo. Merchants commonly treat one confirmation as enough for small sums, and six (roughly an hour) as the long-standing rule of thumb for large ones.

Difficulty adjustment

If more miners join, blocks would come faster. To prevent that, every 2,016 blocks (about two weeks) each node recalculates the difficulty so that blocks keep arriving about ten minutes apart on average. The adjustment is automatic and needs no central decision.

One payment, followed from start to finish

Abstract descriptions only go so far, so here is a single payment traced through the system. The numbers are illustrative.

1. The starting point. Alice’s wallet controls one unspent output worth 0.025 BTC, left over from an earlier purchase.
2. The request. Bob, who sells second-hand camera lenses, sends Alice an invoice for 0.01 BTC with a fresh bc1q address from his wallet.
3. Building the transaction. Alice’s wallet spends the whole 0.025 BTC output, because outputs cannot be split without spending them. It creates two new outputs: 0.01 BTC locked to Bob’s address and 0.0149 BTC locked to a new change address that Alice controls. The missing 0.0001 BTC (10,000 sats) is the fee.
4. Signing. The wallet signs with Alice’s private key. The key itself never leaves her device; only the signature is broadcast.
5. Broadcast and checks. Nodes verify that the output exists, has not been spent, that the signature is valid and that outputs plus fee do not exceed inputs. Valid transactions enter their mempools.
6. Inclusion in a block. A miner includes the payment because the fee rate is competitive. Once that block is found and accepted, Bob’s wallet shows one confirmation.
7. Settlement. Each further block buries the payment deeper. Bob ships the lens after the number of confirmations he is comfortable with.

Notice what is missing: no bank approved the payment, no card network took a percentage, and nothing in the transaction names Alice or Bob. Equally, nobody can help if Alice sends to the wrong address.

Supply, issuance and the halving

New bitcoins are created only as block rewards. The reward started at 50 BTC and is cut in half every 210,000 blocks, about every four years. Because the reward keeps halving, issuance converges on a total just under 21 million coins, with the final fractions expected around the year 2140.

The 20 millionth bitcoin was issued with block 940,000 on 9 March 2026. By early October 2026, at block 970,357, the total stood at about 20.09 million: 19,687,500 coins up to the 2024 halving plus roughly 407,000 since. At the current pace, about 450 new bitcoins are created per day (144 blocks of 3.125 BTC).

Not every issued coin can actually be spent. The reward in the genesis block cannot be moved because of a quirk in the code, and an unknown number of coins sit at addresses whose keys were lost years ago. Estimates of lost coins vary widely, which is one more reason to protect your own keys carefully.

Once the block subsidy shrinks towards zero, miners will be paid mainly through transaction fees. Whether fees alone will fund enough security is one of the open long-term debates in Bitcoin.

Bitcoin mining

Mining is the work of producing blocks. It does two jobs at once: it orders transactions into an agreed history, and it issues new coins on the published schedule. The reward is the incentive for spending real money on hardware and electricity to secure the network.

In 2009 a laptop could mine bitcoin. Graphics cards took over around 2010, and since 2013 the work has been done by ASICs, machines built only to compute SHA-256 hashes. Total network hashpower is now measured in exahashes (billions of billions of hashes) per second, so a single home device has only a tiny chance of finding a block on its own. That is why most miners join a mining pool, which combines everyone’s hashpower and splits rewards in proportion to the work each member contributes.

Whether mining pays depends on four things: the price of the machine, the cost of electricity, the network difficulty and the bitcoin price. Large operations seek out cheap or surplus power, often in remote places. Energy use is the most criticised side of Bitcoin; supporters argue it buys security that cannot be faked, while critics point to the carbon cost where fossil fuels supply the power.

Electricity is also why mining migrates. When China banned mining in 2021, a large share of global hashpower moved within months to other countries, and miners continue to relocate towards wherever power is cheapest, including stranded gas and surplus hydro or wind.

A few people still mine at home for learning or to heat a room, accepting little or no profit. Selling mining as a remote service is a different matter: many cloud mining offers have been outright frauds. Read our cloud mining guide before paying for hashpower.

Running your own node

A full node is a computer running software, such as Bitcoin Core, that downloads every block since 2009 and checks every rule for itself. Running one is free apart from the hardware and bandwidth, and it brings three benefits: you do not have to trust anyone else’s view of your balance, your wallet’s queries do not leak your addresses to outside servers, and you add one more independent voice to the network’s rule enforcement.

The full blockchain takes several hundred gigabytes of disk space and grows every day, and the first synchronisation can take from hours to days depending on the machine. A pruned node keeps only recent blocks after verifying everything, which cuts storage sharply. Small single-board computers sold as “node in a box” kits are a popular way to start. Running a node does not mine bitcoin and earns no rewards; it is about verification, not income.

Units and quick conversions

Prices and balances are often quoted in fractions of a coin. The table shows the common units. There is no need for a separate calculator for these: every step is a power of ten.

Two worked examples. A balance of 0.0025 BTC is 2.5 mBTC, 2,500 bits or 250,000 sats. A Lightning payment of 21,000 sats is 0.00021 BTC. To convert into money, multiply the BTC amount by the current market price from a source you trust; prices move constantly, so Coins-Info does not print them.

Bitcoin wallets and keys

A wallet does not hold coins. The coins exist only as entries on the blockchain; the wallet holds the keys that can move them, keeps track of your addresses and builds transactions for you.

Types of wallet

The phrase “not your keys, not your coins” sums up the last row. Coins on an exchange are a promise from that company; coins in your own wallet are yours, along with full responsibility for them.

Seed phrases

Most modern wallets create a recovery phrase of 12 or 24 words when you set them up. From those words the wallet can regenerate every key it will ever use, so the phrase is the real backup. Write it on paper or stamp it into metal, store it somewhere safe and private, and never photograph it, email it or type it into a website. Anyone asking for it, whether a support agent, a giveaway or a recovery service, is trying to steal from you.

Address formats

• Starts with 1: the original legacy format.
• Starts with 3: script addresses, often used for multisig or wrapped SegWit.
• Starts with bc1q: native SegWit, cheaper to spend from.
• Starts with bc1p: Taproot addresses, introduced in 2021.

All four can send to each other. Addresses on other networks look different, and coins sent to the wrong network are often lost, so check what an exchange supports before withdrawing.

Planning for the unexpected

Because there is no password reset, think about what happens if you lose a device, forget a PIN or pass away. Options include a second copy of the seed phrase in another secure place, a multisig arrangement with trusted parties, or written instructions stored with a will. More vocabulary, from cold storage to multisig, is in the Blocktionary.

Sending bitcoin and paying fees

Fees depend on the size of your transaction in data, measured in virtual bytes (vB), and on demand for block space, not on the amount of bitcoin you send. Wallets show a rate in satoshis per virtual byte (sat/vB).

A worked example: a simple payment from a native SegWit wallet takes roughly 140 vB. At a rate of 5 sat/vB the fee is about 700 sats; at 50 sat/vB during a busy period, about 7,000 sats. Sending 0.001 BTC or 1 BTC costs the same if the transaction size is the same. Consolidating many small UTXOs into one when fees are low can save money later.

If a payment gets stuck because the fee was too low, many wallets support Replace-by-Fee (RBF), which rebroadcasts the transaction with a higher fee. Always paste addresses rather than typing them, then compare the first and last characters against the original: clipboard malware can quietly swap in an attacker’s address.

The Lightning Network

For small, frequent payments, the Lightning Network offers a faster route. Two parties lock bitcoin into a payment channel on the main chain, then exchange signed updates off chain as often as they like, with payments able to hop across a network of channels. Only opening and closing a channel touch the blockchain. Lightning implementations went live on the main Bitcoin network in 2018, and many wallets and exchanges now support it.

Upgrades and forks

Bitcoin’s rules can change, but only when the people running nodes adopt new software. Most upgrades are soft forks, which tighten the rules in a way older software still accepts.

• Segregated Witness (SegWit), 24 August 2017: moved signature data into a separate structure, fixing transaction malleability and raising effective capacity. It paved the way for Lightning.
• Bitcoin Cash, 1 August 2017: a group that favoured bigger blocks instead of SegWit split off with a hard fork, creating a separate coin, BCH. Holders of bitcoin at the time received an equal amount of BCH.
• Taproot, 14 November 2021: introduced Schnorr signatures and made complex spending conditions cheaper and more private.

Proposals are written up as Bitcoin Improvement Proposals (BIPs) and debated in public, often for years. The slow pace frustrates some, but it is a deliberate choice for a system that holds so much value.

Bitcoin compared with bank money

Neither column is better across the board. Bitcoin removes dependence on intermediaries and puts the full burden of security and verification on the holder.

Who maintains the software?

Bitcoin Core, the most widely used node software, is developed in the open on GitHub by contributors around the world, funded by a mix of companies, grants and non-profits. A handful of maintainers merge changes after public review, but they cannot force anyone to run the result. Other compatible implementations also exist. Anyone can audit the code, report a bug or propose an improvement through the BIP process.

What gives bitcoin its value?

Bitcoin has no issuer, no earnings and no backing asset. Its price is whatever buyers and sellers agree on in markets around the world, at any moment. Supporters point to its fixed supply, its resistance to censorship and the cost of the security behind it; sceptics argue that its value rests only on what the next buyer will pay.

What is not in dispute is volatility. Bitcoin has repeatedly fallen by more than half from a peak, and recoveries have taken months or years. Charts of its price history are best read on a logarithmic scale, which shows percentage moves rather than absolute ones. If you look at prices, use an established data source and remember that a historic chart says nothing reliable about the future.

How to get bitcoin

• Buy it on a registered platform in your country, then move it to your own wallet. Our step-by-step guide on how and where to buy bitcoin covers registration checks, fees and safety.
• Earn it by accepting it for goods, services or salary. The amount received is usually taxable income.
• Mine it, realistically only with ASIC hardware and cheap electricity, normally through a pool.
• Receive it as a gift or payment from someone else, which only needs an address.

About “free bitcoin”

Faucet sites that hand out tiny amounts of bitcoin for watching ads or solving puzzles still exist, but the sums are small, and many such sites are low quality or harvest data. Anything offering larger amounts of free bitcoin, such as a celebrity giveaway that promises to double what you send, is a scam: the coins you send are simply taken.

Beginner mistakes that cost real money

1. Sending on the wrong network. Exchanges list several networks for some assets. Bitcoin sent to an address on another chain, or a wrapped token sent to a Bitcoin address, may be unrecoverable.
2. Storing the seed phrase digitally. Photos sync to cloud accounts, and notes apps get hacked. Paper or metal, kept offline, is safer.
3. Trusting a screenshot of a balance. Fake trading platforms show impressive gains that cannot be withdrawn. Real coins can be moved to your own wallet at any time.
4. Paying a fee to unlock a withdrawal. Legitimate platforms deduct fees from the amount withdrawn; demands for an upfront tax or release fee are a hallmark of fraud.
5. Buying through an unregistered platform. If it fails or disappears, there is usually nobody to claim from.
6. Leaving everything on one exchange. Platforms freeze accounts, get hacked and occasionally collapse.
7. Forgetting about tax. Records reconstructed years later are painful and often incomplete.

Bitcoin and the law

Bitcoin’s legal status differs from country to country and keeps changing. A few markers:

• El Salvador made bitcoin legal tender from 7 September 2021, the first country to do so. In January 2025, as part of a loan agreement with the IMF, its parliament amended the law so that businesses are no longer obliged to accept it and taxes can no longer be paid in it.
• China‘s central bank declared all crypto-related transactions illegal in September 2021.
• United States: the SEC approved spot bitcoin exchange-traded products in January 2024, allowing price exposure through ordinary brokerage accounts.
• European Union: the Markets in Crypto-Assets Regulation (MiCA) has been fully applicable since 30 December 2024, requiring crypto service providers to be authorised, with transitional periods ending by 1 July 2026.
• Taxes: in many countries, selling, swapping or spending bitcoin is a taxable event. Check your own tax authority’s guidance and keep records.

Common myths

Bitcoin is anonymous

It is pseudonymous. Every transaction is public forever, and analysis firms and law enforcement regularly link addresses to people, especially through exchanges that verify identity. The US Federal Trade Commission notes that transactions are recorded on a public ledger and can sometimes be traced to the people involved.

Bitcoin has no fees

Every on-chain transaction pays a fee to miners, which rises when the network is busy. Exchanges and ATMs add their own charges on top.

Bitcoin can’t be hacked

The protocol has proved very robust, but people and companies are not. Exchanges have been hacked, wallets have shipped with bugs, and phishing steals seed phrases every day. Most losses come from these weak points, not from breaking Bitcoin’s cryptography.

Bitcoin is controlled by miners or developers

Miners order transactions and developers write code, but users who run nodes decide which rules they accept. Changes that lack broad support either fail or, as with Bitcoin Cash, end up as a separate coin.

A security checklist for new holders

• Write down your seed phrase by hand, check it twice and store it offline in a place only you (or a trusted person) can reach.
• Use a hardware wallet once your holdings would hurt to lose, and buy it directly from the manufacturer.
• Turn on app-based or hardware-key two-factor authentication for every exchange account; avoid SMS codes where possible.
• Use a unique password for each crypto service, kept in a password manager.
• Bookmark the real websites of your exchange and wallet. Search adverts are a common route to phishing copies.
• Send a small test transaction before any large one.
• Ignore unsolicited messages about your account, “recovery” offers and investment tips from strangers, including on dating apps.
• Keep your device’s operating system and wallet software updated, and install wallets only from official sources.
• Keep records of purchases and transfers for tax purposes.

Risks to understand

History offers sharp lessons. Mt. Gox, the largest Bitcoin exchange in its day, halted withdrawals and filed for bankruptcy protection in February 2014 after losing hundreds of thousands of bitcoins. FTX collapsed in November 2022. Scams using fake investment platforms, romance contacts and impersonated officials take large sums every year. The protections that come with bank cards, such as chargebacks, generally do not apply to bitcoin payments.

Bitcoin is also only one coin among thousands. If you are curious about the others, the altcoins guide explains the main categories and what became of earlier projects, and our page on Litecoin covers one of the oldest alternatives. The Coins-Info home page lists every guide.

Bitcoin FAQ

Who created Bitcoin?

Someone using the name Satoshi Nakamoto, who published the white paper in October 2008 and launched the network in January 2009. Nakamoto stopped posting publicly in late 2010, and their real identity has never been proven.

How many bitcoins are there?

About 20.09 million had been issued by early October 2026, out of a fixed maximum of 21 million. The 20 millionth coin was issued on 9 March 2026, and the last fractions are expected around 2140.

What is the Bitcoin halving?

Every 210,000 blocks, roughly four years, the reward for mining a block is cut in half. The latest halving, on 20 April 2024, reduced it from 6.25 to 3.125 BTC; the next is expected around 2028.

Do I need to buy a whole bitcoin?

No. Each bitcoin divides into 100 million satoshis, and you can buy or send small fractions.

How long does a Bitcoin transaction take?

Blocks arrive about every ten minutes on average, so a transaction with a competitive fee usually gets its first confirmation within that time. When the network is busy, low-fee transactions can wait much longer. Lightning payments settle in seconds.

Can a Bitcoin transaction be reversed?

No. Once confirmed, a payment cannot be cancelled by anyone, which is why scams often demand bitcoin. Check the address and amount before you send.

Is Bitcoin legal?

It is legal to own in most countries, but rules differ: some restrict or ban it, and many regulate the platforms that sell it. Check your local regulator and tax authority.

Is Bitcoin the same thing as blockchain?

No. A blockchain is the data structure Bitcoin uses to record transactions in linked blocks. Bitcoin is one specific network and currency built on a blockchain; many other projects use their own blockchains with different rules.

What happens to mining when all bitcoins have been issued?

Miners will rely on transaction fees instead of new coins. Issuance shrinks gradually with each halving, so the shift is happening slowly already, and fee income becomes a larger share of the reward over time.