What is Bitcoin?

When asking this question, the typical answer is likely to be about Bitcoin's mysterious creator, Satoshi Nakamoto, how there are only 21 million bitcoins that will ever be created, and how to buy bitcoin before the price skyrockets.

But we're not here for the hype—let's keep it simple.

Yes, magic internet money can seem complex, but it doesn't need to be complicated.

Bitcoin is a network of computers (or nodes) that record the transfer of value over a shared public ledger.

Each computer in the Bitcoin network running the full Bitcoin software is called a full node and maintains a copy of the ledger. This ledger is called the blockchain, and the value transferred on it is denominated in bitcoin.

What is a Bitcoin?

"Bitcoin" with a capital B refers to the protocol, while "bitcoin" with a lowercase b refers to the digital unit, the medium of exchange on the blockchain.

Launched in 2009 by the pseudonymous creator Satoshi Nakamoto, Bitcoin is the first cryptocurrency and the first digital currency to implement public-key cryptography for sending and receiving (or locking and unlocking) transactions. Private keys stored in Bitcoin wallets authorize transactions on the blockchain.

To understand Bitcoin, we must ask a question that cypherpunks considered before its creation: how do we securely transfer value over the insecure internet?

At the time, this was a difficult problem because there was no known way to have computers distributed globally agree on a timestamp and the order in which transactions occurred. If you read the original Bitcoin whitepaper, you'll notice that Bitcoin was referred to as a decentralized timestamp server or timechain, not a blockchain. Bitcoin miners and full nodes together create a system capable of keeping time without needing a third party.

What is the Blockchain in Simple Terms?

The blockchain is a digital ledger that stores its transaction history in blocks linked (and hashed) together to form a provably secure chain.

Although this data is digital, the terms "block" and "chain" are used to describe how transactions are grouped together into "blocks" and then "chained" together by a hash function. This is why it's called the blockchain.

What is a Block (Bitcoin Block)?

A block is a group of transactions confirmed simultaneously.

Blocks are where Bitcoin stores data. A Bitcoin block contains a version, the previous block hash, a Merkle root, timestamp, difficulty, nonce, transaction count, and, most importantly, the transaction list.

Transactions need to be properly ordered, especially when paying for goods or services. We need to know when funds are no longer mine so that you can legally spend them.

Because this network consists of computers worldwide, solving this problem is complicated. Even if transactions happen simultaneously, computers in different parts of the world may disagree on their order due to differences in how fast transaction data travels and arrives.

The blockchain is composed of blocks that group transactions. Transactions within the same block are considered to have occurred at the same time, giving the blockchain a final order for confirmed transactions.

What is a Shared Public Ledger (Bitcoin Ledger)?

The peer-to-peer network of Bitcoin users:

The shared public ledger is the record of all Bitcoin transactions on the blockchain. Because the ledger is stored by each independent full node, we say that it is "shared" and synchronized across the network.

Every computer running the full Bitcoin software (a "full node") validates every transaction on the network, ensuring it adheres to Bitcoin’s rules—such as only spending funds for which the user holds the private keys. These rules are part of Bitcoin's decentralized, open-source code, which anyone can use.

Bitcoin isn't controlled by any company or organization, meaning payments on this ledger cannot be stopped or censored. Transactions are processed without middlemen, freeing users from reliance on banks.

The concept of a single shared ledger for global transactions is a major innovation in cryptography and accounting, allowing users to securely transfer value peer-to-peer without censorship or intermediaries.

Is Bitcoin Real Money?

Money is typically defined as a medium of exchange issued by a government or bank, but Bitcoin isn't issued by any government. It's better described as an asset, commodity, or currency, which is why it's called a cryptocurrency. Bitcoin serves as both a medium of exchange and a store of value, although some people also use it for speculation.

Government-issued currencies have one distinct advantage over Bitcoin: governments create demand for their currency. In contrast, Bitcoin's price fluctuates based on the market. Economic instability often causes Bitcoin’s price to spike as investors move in and out of the asset, looking for a store of value. Few people fully understand what Bitcoin is or the benefits of blockchain technology.