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What is Bitcoin and How Does it Work


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The concept what is Bitcoin and How Does it Work is a very compelling argument.

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Bitcoin is a digital form of cash.

But unlike the traditional fiat currency, there is no central bank to control it.

Each Bitcoin unit is unparalleled and cannot be copied or destroyed. It runs over a distributed network that is maintained by thousands of computers around the world.

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Read Also: How to Buy Bitcoin Cryptocurrency

It was only a matter of time before computer scientists and developers began thinking What if data could not be copied?

What if there was something like a unique data element and what if it could be transferred from user to user?

Eventually, these questions and their practical outcomes have made it equitably clear that unique data that cannot be copied can be used as digital cash.

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Though there were other models of digital currencies, Bitcoin cryptocurrency was the first to execute cryptographic techniques, marking the beginning of cryptocurrencies.

Largest people have little or no experience with this type of digital currency. So you might be asking yourself what is Bitcoin and How Does it Work.

The underlying technology that makes cryptocurrencies so different is fascinating, but for the majority of us, it’s probably one of the most complex issues for most of us

What is a Bitcoin

What is a bitcoin that can be clarified most simply as Bitcoin is a digital currency? No printing bills or minting coins.

It is decentralized – there is no government, institution like banks or any other authority that controls it.

The owners are anonymous. Rather than using names, tax numbers or social security numbers, Bitcoin connects buyers and sellers via encryption keys.

And it is not originated from top to bottom like traditional currencies. Rather, Bitcoin is mined by powerful computers

Bitcoin cryptocurrency is a digital currency that was founded in January 2009.

It follows the concepts of a white paper by the strange developer Satoshi Nakamoto, whose true status has yet to be verified.

Bitcoin crypto promises lower transaction fees than traditional online payment tools and unlike government-issued currencies, BTC is administered by a decentralized means.

There are no physical bitcoins, only credits that are kept in a public directory in the cloud and that – together with all bitcoin transactions – are marked by an immense amount of computing power.

Bitcoins are neither issued nor supported by banks or governments

Although Bitcoin is not a legal tender, it is very popular and has triggered the launch of hundreds of other virtual currencies, collectively known as altcoins.

what is a bitcoin, Video source Youtube: Austin Evans

Bitcoin Crypto as Money

When it comes to Bitcoin as money, it can be represented as a digital currency that runs on a distributed peer to peer economic system.

Bitcoin crypto or bitcoin cryptocurrency can also be referred to as BTC

Bitcoin is managed as digital cash from thousands of lines of code.

bitcoin cryptocurrency as digital money

It is based on open-source software that is frequently updated by a large community of developers.

Initially, this software was also known as Bitcoin. To avoid misinterpretations, Bitcoin’s main client software was officially renamed Bitcoin Core in 2014.

Bitcoin cryptocurrency and Blockchain

Bitcoin is not issued or regulated by a single authority or agency but backed by many computers (nodes) around the world.

The Bitcoin network has its foundations on a distributed ledger known as the blockchain

Blockchain is accountable for maintaining an organized list of all transactions through which bitcoins are sent or received

These transactions are consolidated into linked blocks and form a chain of blocks known as the blockchain

Read Also: Binance Exchange Review

Due to their several qualities and functions, it is quite frequent for people to be confused about the differences between Bitcoin and blockchain, as they are closely linked, although the concepts are different.

What exactly is a blockchain

In reality, a blockchain is a set of records, much like a general ledger or flat database.

However, its uniqueness rests on the mechanism by which it validates and protects these records.

The problem of clear and changeless data has been fussing programmers since the earliest days of digital storage.

cryptocurrency blockchain

If data on a hard drive can be altered so easily, what is the legal and true version?

It is a difficult question, to which there were few answers until the early 1990s when Stuart Haber and W. Scott Stornetta founded the first archetype of a blockchain.

They were the first to use cryptographic proof to secure a chain of blocks to prevent data tampering.

The work of Haber and Stornetta certainly encouraged the work of Hal Finney and many other computer scientists and finally led to the creation of Bitcoin.

The Bitcoin white paper was published by Satoshi Nakamoto in 2008, and the first block was dismantled on January 3, 2009.


Bitcoin was launched in 2009 and is the world’s largest cryptocurrency by market cap.

Unlike the fiat currency, Bitcoin is created, distributed, traded and stored using a decentralized general ledger system known as blockchain.

The history of bitcoin as a store of value was turbulent. The cryptocurrency rose to around $ 20,000 per single bitcoin in 2017

How does Bitcoin Work

How does bitcoin’s work is defined easily? Bitcoin cryptocurrency is one of the first digital currencies to use peer-to-peer technology that enables instant payments.

The independent companies and persons, who have enough computing power can engage in the Bitcoin crypto network, are known as miners, and are prompted to join the mining network by rewards in the shape of transaction fees paid in Bitcoin.

These miners can be seen as a decentralized authority that strengthens the credibility of the Bitcoin network.

New Bitcoin coins when delivered after mining are issued to miners at a fixed but periodically decreasing rate as the total supply of Bitcoins is approaching 21 million.

After the total supply of 21 million is reached no new bitcoin will be mined

There are currently around 3 million bitcoins that still need to be mined. This is how Bitcoin differs from the Fiat currency.

In centralized banking systems, the currency is released at a rate commensurate with commodity growth to ensure price stability

while a decentralized system like Bitcoin sets the release rate in advance and using an algorithm.

how does bitcoin work, Video source Youtube: Techquickie

What is Bitcoin Mining

Bitcoin mining is the process by which bitcoins are placed on the market.

In general, mining demands to solve computationally complex puzzles to find a new block to add to the blockchain.

By contributing to the blockchain, transaction records are added and checked throughout the network during mining.

Miners receive a reward in the form of some bitcoins for adding blocks to the blockchain.

The reward is halved every 210,000 blocks. The block reward in 2009 was 50 new bitcoins and is currently 12.5 and will become 6.25 after bitcoin halving 2020

As more and more bitcoins are produced, the difficulty of the mining process that is the amount of computing power increases

The mining difficulty started at 1.0 when Bitcoin debuted in 2009.

Read also: What is Bitcoin Halving

At the end of the year it was only 1.18. As of October 2019, the mining difficulty will be over 12 trillion.

Once an ordinary desktop computer was enough for the mining process.

But now miners must use expensive, complex hardware such as Application-Specific Integrated Circuits (ASIC) and more advanced processing units such as Graphics Processing Units (GPUs).

These complex mining processors are known as “mining plants”.

A bitcoin is divisible into eight decimal places (100 millionths of a bitcoin), and this smallest unit is called a satoshi.

If significant and if the participating miners accept the development, Bitcoin could eventually be made divisible into even more decimal places.

How is bitcoin different from fiat currencies?

Several judgments make bitcoin cryptocurrency is different from fiat currencies

  • Decentralization

The main characteristic of Bitcoin is that it is decentralized. No single institution controls the Bitcoin network.

It is sustained by a group of volunteer programmers and operated by an open network of dedicated computers around the world.

This attracts individuals and groups who are not pleased with the banks or government controlling their money.

  • Limited offer

Fiat currencies supply is not limited – central banks can issue as many currencies as they want and try to manipulate the value of one currency concerning other currencies.

Holders of the currency and in particular citizens with little alternative bear the costs

At Bitcoin, however the supply is strictly constrained by the underlying algorithm.

A small number of new bitcoins are flowing out every hour and will continue to do so at a decreasing rate until a maximum of 21 million has been reached.

This makes Bitcoin more charming as an asset theoretically the value increases when demand increases and supply remains the same or the supply decrease.

  • Distributed and secure

The technology underlying Bitcoin is designed to guarantee the integrity of data and transactions.

First, each transaction is digitally signed and checked using cryptographic techniques that ensure that funds can only be spent once.

When it is affirmed that the transaction is valid, it is permanently recorded on the blockchain through a process called mining which involves more cryptography.

This looks to be a considerable additional effort but has a very strong influence on the security of the system.

To change the Bitcoin blockchain, the entire form must be decrypted record by record, which is practically impossible even for the most powerful computers.

  • The power of unique data

Most of the value of digital technology has been obtained from easy-to-replicate data, and much of the future performance of the technology will result from using unique information and examining its possible interaction.

For example, complex financial transactions will be much more accurate and far less prone to errors due to innovative advances like Bitcoin.

Frequently Asked Questions

Who invented Bitcoin?

Nobody knows who designed Bitcoin or at least not now even after bitcoin was invented in 2009.

Satoshi Nakamoto is the name of the person or group of people who published the original Bitcoin white paper in 2008 and worked on the original Bitcoin software that was released in 2009.

The Bitcoin protocol dictates that users register a birthday when registering; the person named Satoshi Nakamoto registers and records April 5 as the date of birth.

In the years since that time, many people have claimed to be or have been suggested as the real people behind the pseudonym, but the true identity behind Satoshi has remained in the dark till today.

  • August 18, 2008: The domain name bitcoin.org is registered. This domain is “WhoisGuard Protected”, which means that the identity of the person who registered it is not public information.
  • October 31, 2008: Someone using the Satoshi Nakamoto name stated on the cryptography mailing list at metzdowd.com: I am working on a new electronic checkout system that is completely peer-to-peer and has no third party

The paper is available at http://www.bitcoin.org/bitcoin.pdf this link leads to the well-known white paper of “Bitcoin: An Electronic Peer-to-Peer POS System “, which was published on bitcoin.org

  • January 3, 2009: The first Bitcoin block is Block 0 also known as the “Genesis Block” was provided
  • January 8, 2009: On the Cryptography Mailing List, The first version of Bitcoin software was announced
  • January 9, 2009: Block 1 will be dismantled and Bitcoin mining began seriously.

What is Bitcoin used for? Or what is the purpose of Bitcoin?

Bitcoin cryptocurrency is a network that allows a new payment system and is digital money. It is the first decentralized peer-to-peer payment network without central authority or intermediaries.

From a user point of view Bitcoin is only cash for the internet.

Bitcoin can be used to buy things or make payments on the internet on thousands of places that accept bitcoin

What is a Bitcoin worth?

Bitcoin crypto worth keep on changing, the price keeps on swinging daily you can view the daily basis rates of bitcoin on Binance exchange bitcoin USD

In other words, bitcoin is of great worth, a very valuable asset, it’s worth was  only some dollars in 2009, 2010 and it rose to almost 20,000 Usd in Dec 2017 becoming the most profitable asset of the decade

Can Bitcoin be converted to cash?

Bitcoin can be converted into cash in several easy steps

  • Sell Bitcoin through a cryptocurrency exchange like Binance, Coinbase or Kucoin. This is the easiest method if you are selling Bitcoin and want to transfer the resulting cash directly to a bank account.
  • Sell bitcoin to friends. If you have friends who want to buy Bitcoin, you can sell your BTC for fiat currency. Of course, this method assumes that you have friends who are looking for Bitcoin and that you trust they will pay you for your Bitcoin
  • Get a Bitcoin debit card. You can sell Bitcoin on several websites
  • Use a Bitcoin ATM. There are currently just over 2,200 Bitcoin ATMs worldwide. If its nearby you can exchange Bitcoin for cash

How to get a Bitcoin address?

There are many ways to get a BTC address. The 3 most popular methods are:

  • Set up an account on crypto exchanges
  • Use an online wallet
  • Use an offline wallet

Cryptocurrency Exchanges

Most crypto exchanges like Binance exchange will provide you a BTC address when you create an account.

Although this is beneficial, it is not recommended to use this address for anything other than brief storage.

The crypto exchanges are online and put your money at risk for hackers or malicious software.

Online wallets

There are many reputable online wallets that you can use to get a BTC address. Exodus and Jaxx are two solid options that support not only Bitcoin but other cryptocurrencies as well.

Offline wallets

Offline wallets are the recommended way to get an address to store your Bitcoin.

You can either use a hardware portfolio like Trezor and Ledger or create a paper portfolio for your money. Since these wallets are offline, you reduce the risk of getting hacked by using them.

Is Bitcoin Mining profitable?

In Bitcoin mining, Bitcoin crypto is earned in exchange for performing the verification process to validate Bitcoin transactions.

Several constituents determine whether mining Bitcoin is profitable. These cover

  • The cost of electricity to power the computer and mining system
  • The availability and price of the computer and mining system
  • The difficulty level of mining

Consider the cost of equipment, electricity, mining difficulties, and the impact of Bitcoin price on potential rewards of mining to determine if Bitcoin mining is profitable for you or not

When did Bitcoin Start?

On January 3, 2009, the Bitcoin network was started with Satoshi Nakamoto, who mined the Genesis Bitcoin block also known as block number 0, which had a reward of 50 bitcoin cryptocurrency at that time

What is my Bitcoin Address?

Your BTC address consists of 26 to 35 letters and numbers that recognize your Bitcoin wallet. BTC addresses start with either a 1 or a 3 and distinguish between upper and lower case.

What is my Bitcoin Address

If you would like to receive BTC, share your BTC address with the person who is going to pay you BTC.

Your BTC address is often introduced as your wallet address or your public address.

Tips to Remember

  • The most important thing to remember is only sending or receive Bitcoin to your Bitcoin address

 if you send or want to receive Ethereum or any other cryptocurrency to your BTC address

you will never get it and your funds of that particular crypto that you are trying to send or receive on you BTC address will be lost forever

So only send or receive BTC on BTC address

  • Every cryptocurrency like Bitcoin, Ethereum, Litecoin, etc have their unique addresses and cannot be sent or received to any other cryptocurrency addresses

This address is considered public because, unlike the private key that manages your wallet, it can be released to the public.

Most wallets make your Bitcoin cryptocurrency address easily accessible.

You can easily find your address in the Receive BTC tab in your wallet or crypto exchange.

Should I buy Bitcoin?

Should I buy bitcoin or should I not is the very controversial question

There are two main reasons to buy bitcoin

  • Bitcoin has a fixed supply of 21 million coins, once all the coins are mined the price will skyrocket just like gold that has also limited supply
  • Bitcoin transactions are securable and not censorable making it a transparent network

The reasons not to buy bitcoin is that it is not yet properly regulated and it is not known what the international countries will conclude about BTC, will they regulate it or will they forbid it

How much is 1 Bitcoin?

Bitcoin price keeps on fluctuating just like traditional stocks, you can see below how much worth is 1 Bitcoin

Binance bitcoin USD

Coinbase bitcoin USD

Bitfinex bitcoin USD

Is Bitcoin Legal?

Is bitcoin legal or not vary from country to country, However bitcoin is yet not endured as legal tender in any country

Legal tender is defined as a currency like dollars, euro, etc which are widely accepted and properly regulated by the world banks and governments around the world

Bitcoin cryptocurrency is not admitted as a legal tender anywhere in the world yet in many countries bitcoin is legal to be used as a payment option if both parties accept to make their transaction in Bitcoin

Countries, where Bitcoin is legal, are

  • The United States
  • Canada
  • Australia
  • The European Union
  • Japan
  • South Korea

Countries that say no to bitcoin are

  • China
  • India
  • Russia
  • Vietnam
  • Columbia


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Disclaimer: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions and do not reflect The Crypto Basic’s opinion. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Basic is not responsible for any financial losses.



Owner of TheCryptoBasic. Involved in cryptocurrencies for more than five years, Love to trade and write on cryptocurrencies. My primary aim is to provide genuine information to cryptocurrency readers because crypto is filled with frauds and scams. Accurate information is scarce to get. So We at TheCryptoBasic will be providing accurate information about cryptocurrencies topics that users can trust.

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