How Does Bitcoin Work?

How Bitcoin Works

Bitcoin is the world’s oldest cryptocurrency and many investors are wondering how Bitcoin exactly works.

How Bitcoin Works

  • There is a total max supply of 21 million Bitcoin.
  • Bitcoin uses a decentralized public ledger to verify transactions on the blockchain.
  • A new block is created every 10 minutes and new coins are issued into circulation when miners solve complex mathematical equations.
  • Each transaction is verified by a network of miners to make sure that there are no errors or mistakes on the public ledger.
  • The current block reward is 6.25 BTC and this reward gets cut in half every 4 years aka the Bitcoin Halving.
  • Bitcoin can be bought on cryptocurrency exchanges, crypto ATMS, or 3rd party reseller sites.
  • Bitcoin can be stored on any crtyptocurrency exchanges, online digital wallet, or offline hardware wallet.

Bitcoin Has a Total Max Supply of 21 Million Coins

When Satoshi Nakamoto created Bitcoin in 2009, the world was experiencing a central banking collapse that caused millions of investors to lose their life savings.

Satoshi built Bitcoin with a fixed supply of 21 million coins to make BTC scarce and hard to inflate their quantitive easing or government handouts.

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Bitcoin Uses a Public Peer to Peer Ledger to Verify Transactions

Bitcoin is a revolutionary 21st technology that provides 100% transparency for all of its digital transactions. You can track all Bitcoin transactions on the blockchain via sites such as BTC or Blockchain to see how much Bitcoin is being sent or bought at any time.

This is vastly different from the legacy banking system that controls access to key transactional information from the rest of the world.

Bitcoin is Made Up of New Blocks Created Every 10 Minutes

Bitcoin creates a new block every 10 minutes that rounds up all the current transactions for the specific 10-minute block. Think of this as a line of buses waiting at a bus station to depart. Once 10 minutes pass, Bitcoin groups all of the transactions and publishes them on the public blockchain for everyone to view.

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Bitcoin Miners Verify All Transactions on the Blockchain

So how exactly does the Bitcoin network know if a transaction is valid or not? Bitcoin miners solve complex mathematical equations that verify every new block added to Bitcoin’s blockchain. This is how the Bitcoin network prevents double spending or invalid transactions. If a transaction isn’t verified by the entire BTC network then it sits as “pending” and will be eventually deleted.

Miners Receive a Block Reward of 6.25 Coins for Every Block Mined

Miners compete to solve each block and receive a block reward if they successfully compute the mathematical equations. The Bitcoin block reward is an incentive for miners to solve these equations.

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Every 4 years, the original Bitcoin source code cuts the amount of mineable BTC in half to create a supply shock.

Bitcoin Can Be Bought on Cryptocurrency Exchanges, Crypto ATMs, or 3rd party reseller sites

Bitcoin is traded 24/7 365 and can be purchased in several different ways depending on your preference. Most crypto investors use safe and secure cryptocurrency exchanges to buy and sell Bitcoin. I recommend Coinbase because the company is publicly traded on the NASDAQ and operates as the largest crypto exchange in America. Read my Coinbase review to learn more about my favorite crypto exchange.

You can also purchase Bitcoin via crypto ATMs such as Bitcoin Depot which let you exchange your US dollars for Bitcoin. If you want to buy or sell Bitcoin outside of crypto exchanges then LocalBitcoins is a popular choice.

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Bitcoin Can Be Stored on Crypto Exchanges, Digital Online Wallets, and Offline Hardware Wallets

If you purchase Bitcoin through a crypto exchange then you can store it directly on the exchange for ease of use. Some Bitcoiners prefer to move their coins off the exchange into an online digital wallet or offline hardware wallet.

You must store your private keys safely if you choose a digital or hardware wallet. Keep your private keys in a safe place or you could lose access to your Bitcoin.

Conclusion

These are the basics of Bitcoin and how the world’s oldest cryptocurrency works. Read my article on how to invest in Bitcoin for beginners if you want to buy BTC for the first time.

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