What is Bitcoin? How it works and where it came from

Bitcoin is really two things. Bitcoin with a capital B is the network: the software, the rules and the computers running them. bitcoin with a small b is the coin that moves across that network, BTC for short.

So what's different from the money in your bank account? It's all about who keeps the books. With a bank, the bank does: it decides whether your transfer goes through and can freeze your account. With Bitcoin, thousands of computers around the world, called nodes, all keep the same books and check each other. There's no office, no boss and no off switch.

Its creator called it, in the title of the white paper, a peer-to-peer electronic cash system. In plain English: money you send straight to someone else, without a middleman who has to say yes.

The blockchain: one public ledger

Every transaction goes into a block. About every ten minutes a new block is added, and each block points to the one before it. That makes a chain that goes all the way back to the very first block, from 3 January 2009. Anyone wanting to fake an old block would have to rebuild every block after it, and do it faster than the rest of the network. That's why a transaction with a few blocks on top counts as final.

Mining: who gets to make the next block?

New blocks are made by miners. Their computers try trillions of times a second to find a number that meets a tricky condition. That's called proof of work. Whoever gets there first adds the block and collects the reward: since April 2024 that's 3.125 new bitcoin, plus the transaction fees in that block. That's how new bitcoin come into the world. It also means attacking the network costs just as much electricity and hardware as protecting it. How this works in practice, including at home, is in mining explained.

Keys and addresses

Your bitcoin aren't in an app or on a card. They sit on the blockchain, at an address. Whoever has the private key for that address can spend them. A wallet keeps that key for you, usually as a list of 12 or 24 words: the seed phrase. Lost it and no backup? Then nobody can help you. Shown it to someone? Then they can take the lot. The difference between keeping coins on an exchange and in your own wallet is in our beginner's guide.

Nodes: who keeps an eye on the rules?

A node is a computer holding the whole blockchain that checks every transaction and every block for itself. If a miner tries to add a block with too big a reward, or with coins that were already spent, the nodes refuse it. Anyone can run a node, on an ordinary computer or a little box at home. That's why even a big miner can't change the rules on its own.

Satoshis: bitcoin in tiny pieces

You can split a bitcoin down to eight decimal places. The smallest piece is called a satoshi: 1 bitcoin is 100,000,000 satoshis. So you don't have to buy a whole bitcoin. To see what an amount is worth in euros, use our converter.

On 31 October 2008, someone calling themselves Satoshi Nakamoto posted a message to a cryptography mailing list: Bitcoin P2P e-cash paper. With it came a nine-page document, the white paper, setting out a plan for electronic cash that doesn't need you to trust anyone.

The idea didn't come out of nowhere. Cryptographers had been trying to build digital money for years, and the white paper itself mentions b-money by Wei Dai and Hashcash by Adam Back, a system that fought spam with computing work. Hashcash is where the idea of proof of work comes from. What was always missing: a way to make sure nobody spends the same digital coin twice, without a central party keeping the books. Bitcoin cracked that by combining the blockchain with mining.

And the timing stood out. The first block, the genesis block from 3 January 2009, contains a headline from that day's Times: ‘Chancellor on brink of second bailout for banks’. It was about a second rescue for British banks, right in the middle of the financial crisis. A timestamp or a statement? Satoshi never said. The headline is still there for anyone to read.

On 8 January 2009 the first version of the software came out, Bitcoin v0.1. Four days later, in block 170, Satoshi sent 10 bitcoin to programmer Hal Finney: the first transaction between two people. Finney wrote about it later.

Nobody knows for sure. Satoshi Nakamoto is a pseudonym; it could be one person or a group. Satoshi worked on the software and the forum until the end of 2010, posted the final forum message in December 2010 and then handed the project over to other developers.

What we do know is in the blockchain. In the first months, a single miner mined a lot of the blocks, most likely Satoshi. Researcher Sergio Lerner estimated in 2013 that this comes to about a million bitcoin. As far as anyone knows, those coins have never been touched.

Plenty of people have been named as Satoshi, and a few have claimed it themselves. The best known, Australian Craig Wright, lost a court case over it in London. The High Court ruled that he didn't write the white paper and didn't create Bitcoin (judgment of 20 May 2024).

That the creator is unknown and leaves the coins alone actually fits the idea: Bitcoin doesn't depend on any one person.

How many bitcoin there will ever be is fixed in the software. Every 210,000 blocks, roughly every four years, the reward for a new block is cut in half: the halving. In 2009 it was 50 bitcoin; now it's 3.125. Add up all the rewards and you land just under 21 million: 20,999,999.9769 bitcoin.

Because the reward keeps halving, most of it has already been mined: half after the first four years, over 95% today. The rest trickles in more and more slowly, until around 2140. After that, miners only earn transaction fees.

In practice, fewer bitcoin are actually usable. Coins at addresses whose key has been lost are stuck there for good; nobody knows exactly how many. And could the 21 million go up? Only if almost every node ran software that allowed it. There's little appetite for that, because for many people that fixed supply is exactly why they hold bitcoin.

Bitcoin has no fixed value. The price is set on exchanges, where buyers and sellers meet. There's no central bank steering it, and supply doesn't go up or down when demand changes: 3.125 bitcoin every ten minutes, whatever the price does.

That's why the price reacts so strongly to news, rules, interest rates and mood. Big rises and drops in a short time are part of the bitcoin story. If you get in, make sure you can sit out a big drop without needing the money. You can see where the trend stands on our market regime gauge. That's not a forecast, and this isn't investment advice.

Bitcoin itself has no issuer, so there's nobody who could apply for an authorisation for the coin. Europe's rules are about the companies around it. Since 30 December 2024, Europe's crypto law MiCA (Regulation (EU) 2023/1114) has fully applied. A company offering crypto services now needs an authorisation from a regulator in an EU country, and can then work across the whole EU. Firms that were already active have until 1 July 2026 at the latest.

You can look up which platforms have an authorisation in our authorisation register; there's more on the rules themselves in the MiCA dossier. Tax depends on the country: in one you pay on your gains when you sell, in another on what your holdings are worth. Our overview of crypto tax in Europe goes country by country.

• Price risk. The value can drop a lot in a short time. Only put in money you can afford to lose.
• No chargebacks. Once it's sent, it's sent. A typo in an address or a payment to a scammer won't come back.
• Lost keys. No backup of your seed phrase? Then your bitcoin is gone, and nobody can get it back.
• Scams. Promises of fixed returns, so-called doublers and fake apps are everywhere. A genuine company will never ask for your seed phrase.
• Platform risk. Leave your bitcoin on an exchange and you're trusting that company. Pick a platform with a MiCA authorisation and think about your own wallet for bigger amounts.