Bitcoin (₿) is a decentralized digital currency, without acentral bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.

Bitcoin is known as a type of cryptocurrency because it uses cryptography to keep it secure. There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to (although each record is encrypted). 

KEY TAKEAWAYS

• Launched in 2009, Bitcoin is the world's largest cryptocurrency by market capitalization.

• Unlike fiat currency, Bitcoin is created, distributed, traded, and stored with the use of a decentralized ledger system, known as a blockchain.

• Bitcoin's history as a store of value has been turbulent; it has gone through several cycles of boom and bust over its relatively short lifespan.

 

What Is Bitcoin

Understanding Bitcoin

The Bitcoin system is a collection of computers (also referred to as "nodes" or "miners") that all run Bitcoin's code and store its blockchain. Figuratively speaking, a blockchain can be thought of as a collection of blocks. In each block is a collection of transactions. Because all of the computers running the blockchain have the same list of blocks and transactions and can transparently see these new blocks as they're filled with new Bitcoin transactions, no one can cheat the system.

 Peer-to-Peer Technology

Bitcoin is one of the first digital currencies to use peer-to-peer (P2P) technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network—Bitcoin "miners"—are in charge of processing the transactions on the blockchain and are motivated by rewards (the release of new Bitcoin) and transaction fees paid in Bitcoin.

These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. New bitcoins are released to miners at a fixed but periodically declining rate. There are only 21 million bitcoins that can be mined in total. As of November 2021, there are over 18.875 million Bitcoin in existence and less than 2.125 million Bitcoin left to mine.

Bitcoin Mining

Bitcoin mining is the process by which Bitcoin is released into circulation. Generally, mining requires solving computationally difficult puzzles to discover a new block, which is added to the blockchain.

Bitcoin mining adds and verifies transaction records across the network. Miners are rewarded with some Bitcoin; the reward is halved every 210,000 blocks. The block reward was 50 new bitcoins in 2009. On May 11, 2020, the third halving occurred, bringing the reward for each block discovery down to 6.25 bitcoins.