What Is Bitcoin?

What is Bitcoin? It is two things at once: a network that lets people send value to each other without a bank in the middle, and the unit of that network, the bitcoin (BTC). It was described in a 2008 paper published under the name Satoshi Nakamoto, and the network started running in January 2009. No company owns it; it is maintained by the people who run its software.

How a Bitcoin payment works

1. The sender's wallet creates a transaction saying "move this amount from my address to that address" and signs it with the sender's private key.
2. The transaction is broadcast to the network, where nodes check that the signature is valid and the coins have not already been spent.
3. Miners collect waiting transactions into a candidate block, generally favouring those that pay higher fees.
4. Once a miner adds a block containing the transaction, it has one confirmation. Each later block adds another, making the payment harder to undo.

A new block is added about every ten minutes on average. For large amounts, platforms often wait for several confirmations before crediting a deposit.

Mining and the fixed supply

Miners use specialised computers to repeat a calculation billions of times per second, looking for a result below a target. The first to find one adds the next block and is paid a block reward of new bitcoins, plus the fees from the transactions inside. Every 2,016 blocks, roughly every two weeks, the network adjusts how hard the puzzle is so that blocks keep arriving about ten minutes apart, however much computing power joins or leaves.

Halvings

The block reward halves every 210,000 blocks. At about ten minutes a block, 210,000 blocks take around 1,458 days, or roughly four years.

At about 144 blocks a day, the current reward releases roughly 3.125 × 144 = 450 new bitcoins daily. The next halving is expected around 2028. Because the reward keeps halving, total supply approaches but never exceeds 21 million coins, with the last fractions expected to be mined over the next century or so.

Halvings are sometimes described as automatic price catalysts. They are not. The date is known years in advance, and what the price does before or after is unpredictable.

Units, addresses and wallets

A bitcoin can be split into 100 million smaller units called satoshis (sats). You do not need to buy a whole coin; a purchase of 0.0005 BTC is 50,000 sats.

Transaction fees on Bitcoin are not fixed. Each block has limited space, and wallets bid for it by attaching a fee. When the network is quiet, a small fee confirms quickly; when many people are sending at once, fees rise and low-fee transactions can wait for hours. Most wallets suggest a fee based on current demand. Exchanges usually charge their own flat withdrawal fee instead, which may be higher or lower than the network cost at that moment.

Bitcoin addresses come in several formats; many modern ones begin with bc1. As with any crypto, whoever controls the private key controls the coins. You can hold bitcoin through an exchange account (the exchange holds the keys), in a software wallet on your phone or computer, or in a hardware wallet that keeps keys offline. Our crypto lesson explains the trade-off between convenience and control.

What is Bitcoin's price based on?

Bitcoin pays no interest or dividends, so its price is set purely by supply and demand on exchanges around the world. New supply is predictable, released through mining on the schedule above. Demand is not: it shifts with news about regulation, the entry or exit of large investors, the mood in wider markets and simple enthusiasm or fear. Because the same coin trades on many venues at once, prices can differ slightly between exchanges, with traders buying on one and selling on another pulling them back together.

Three myths worth dropping

• "Bitcoin is anonymous." Every transaction is public. Addresses are not labelled with names, but exchanges collect identity details and analysis firms can often link addresses together.
• "You need to buy a whole one." Fractions are normal; see the units below.
• "The fixed supply guarantees the price will rise." Scarcity only matters if demand holds up, and demand can fall sharply.

Why people hold it, and the arguments against

Arguments supporters make

• A supply rule that no government or company can change on its own.
• Payments that can cross borders without permission from an intermediary.
• A long operating history for a network of its kind.

Arguments critics make

• It produces no income, so its price depends entirely on what the next buyer will pay.
• Price swings are far larger than for most currencies or shares, which limits its use as everyday money.
• Proof-of-work mining consumes large amounts of electricity.
• Its use in scams and ransomware keeps it under regulatory pressure.

LyvexTrade takes no side on these arguments and makes no predictions. Both lists matter if you are thinking about owning any.

Buying, costs and risk in practice

Bitcoin is traded against dollars, euros and stablecoins such as USDT. Costs include trading fees, spreads, network fees for withdrawals and sometimes a card or payment charge. The crypto profit calculator shows how a fee on both the buy and the sell changes the result. Trading fees explained adds up the full set.

Some platforms offer Bitcoin futures and CFDs with leverage. Retail clients in the EU are limited to 2:1 on crypto CFDs, and in the UK such derivatives cannot be sold to retail consumers at all.

Where to go next

• How crypto works: ledgers, keys and exchanges
• How to spot trading scams, many of which involve Bitcoin payments
• Glossary for terms such as hash rate, node and cold wallet

Sources

• Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008)
• Bitcoin Core developer documentation