What is Bitcoin and how it works?

What is Bitcoin and how it works?

What is trending is (What is bitcoin) and the magnificent increase in its users over the past few years. People are wanting to know what is Bitcoin and how it works because it is referred to as the future of e-commerce. It is a decentralized digital currency with no administrator. It requires no intermediaries and can be transferred from one user to another.

What is Bitcoin?

What is bitcoin is one of the trending topics and is a type of digital currency which is now accepted as a mode of payment worldwide? It is built and held electronically unlike the traditional currencies of different countries which use minted coins, printed notes, or bills.

These traditional currencies are regulated by the central bank of the respective nation but for bitcoin no single entity controls it. There does not exist any centralized authority which manipulates the worth of a bitcoin.

Since Bitcoin is stored and exchanged electronically. This is facilitated by cryptographic addresses. These addresses are strong transcription which is impossible to break down by hackers. Such a system ensures security and pro-protection of the transactions made by users. There exist different third-party sites also called exchanges which help to facilitate these transactions.

What is Bitcoin Mining?

In simple terms, the process of generating a bitcoin is called bitcoin mining | Crypto mining. If explained in detail, a complex mathematical problem is solved by individual miners or a group of miners along with powerful computer processors. This builds new bitcoin and, in the process, maintains the security and righteousness of all transactions that take place on the network.

A block is an essential component of the bitcoin system as it collects and lists all transaction details resulting from the transfer of bitcoin around the world. Here, the miners also play a pivotal role as they confirm those transactions and enlist them into a general ledger. This is called a blockchain as it is essentially a long list of blocks.

Miners put blocks of transaction through a complicated process that involves a hash algorithm and a nonce. For maintaining blockchain the miners earn bitcoins after successful completion of each complex cryptographic hash.

Interesting Facts

  1. The mining process eventually increases in difficulty over time this is because of limiting the number of bitcoins found each day.
  2. The supply of Bitcoin is finite. Currently, there are 16.3 million bitcoins that have been mined and are being traded. Only a 21million bitcoins will ever be there.
  3. It is expected that in 2140 the last bitcoin will be mined and after that, no new bitcoins can be mined.
  4. If the private key is lost then the funds attached are lost forever and would not be recovered. As per current data, it is estimated that out of all bitcoins approximately 25% of them have been lost forever.
  5. People can buy a lot of stuff using a bitcoin such as:
  6. Starbucks Coffee
  7. Travel to Space with Virgin Galatic
  8. Order food
  9. E-commerce
  10. Book a flight
  11. Buy a Tesla Car

Features of Bitcoin

1. Decentralized: The individual users have full control over their bitcoin. There does not exist any sort of central authority that is empowered enough to manipulate or seize control.

2. Untraceable information: This feature comes with both a good and a bad outcome. Good because it protects identity theft of the users, and bad because it may lead to becoming a payment method for forbidden black markets such as illegal weapons and drugs.

3. Reasonable transaction fees: The Bitcoin exchanges offer a variety of services and hence charge accordingly depending on the type of transaction. But on a general note, the bitcoin transaction fees tend to be lower as compared to credit cards or PayPal.

4. Risk reduction for merchants: Bitcoin transactions are irreversible. They do not carry any personal information and hence are proved to be secure sources for merchants. It protects them from any fraudulent losses.

5. Global currency: The value of Bitcoin is unique throughout the world. No country can generate more or less of these bitcoins to overinflate or devalue the same.

How Bitcoin works?

  • The Blockchain: To understand how bitcoin works | What is bitcoin it is important to have a proper understanding of blockchain. The blockchain consists of a single chronological chain of discrete blocks of information. This information can be any string that includes 1s and 0s which would symbolize emails, contracts, land titles, or bond trades. Therefore, an acknowledged contract between two parties will be established which will take away any need for a third party.

A blockchain is also referred to as a “distributed ledger” because Bitcoin’s blockchain is distributed publicly and downloadable. Updating a blockchain ledger involves complicated measures. The participants themselves create and verify blocks of the transaction as there is no central authority.

  • Mining: It involves maintaining public ledgers. The miners record the transactions of cryptocurrency on the blockchain. On one hand recording, a series of transactions is easier for computers, but on the other hand, mining is difficult because the software of Bitcoin makes the process time-consuming.

This comes with a reason. Without this difficulty, hackers could spoof transactions and indulge in bankruptcy. They can build many fraudulent transactions which would make it impossible to identify the source of error.

  • Halving: As the miners are rewarded with Bitcoin upon successful verification of transactions the reward is reduced in half every 210,000 blocks mined, or, about every four years. This event allows driving up Bitcoin’s stock-to-flow ratio and decreasing its inflation until it reaches zero.
  • Keys and Wallets: Bitcoin ownership considers a public key and a private key. Here, a public key is a username while a private key is a password. An address displayed on the blockchain is a hash of a public key which supplies extra security.

The sender only needs to know one’s address to receive a bitcoin. The system requires verification of identity to send money while the process is easy to receive it.


What is bitcoin and how it works is one of the trending searches as it is one of the important and profitable sources of investment for traders. Almost all countries and businesses are accepting this beast in the market with open hands.

From filthy rich to normal class, this digital currency can be owned by all at the most affordable rates. With the existence of exchanges, the transaction is now easy and user-friendly. The ups and downs of this volatile cryptocurrency have a lot to achieve.


  1. What is bitcoin?

What is bitcoin is a decentralized digital currency. It allows the users to buy, sell or exchange directly with another user without any 3rd party intermediary.

  • What are examples of Bitcoin?

The hard fork includes bitcoin cash, bitcoin gold, and Bitcoin SV.

  • How to make money from bitcoin?

The Bitcoin miners earn cryptocurrency as a reward for completing blocks of verified transactions.

  • How Bitcoin works?

Bitcoin is a computer file that is stored in a ‘digital wallet’ app on a smartphone or computer. People can send and receive Bitcoins through this wallet.

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