What Is Bitcoin and How Does It Work?

If you noticed the most prominent cryptocurrency has been hitting the news lately, have no doubts this happens with a good reason. With the Bitcoin halving approaching, the market has experienced massive fluctuations, mostly upward, as investors anticipate a decrease in supply and a potential price increase.

Observing the Bitcoin live price chart on reputable exchanges, you can notice the price of the largest cryptocurrency by market cap steadily increasing, surpassing the initial expert predictions.

Even the biggest Bitcoin skeptics and critics couldn’t stay immune to the latest market developments. They started looking into ways to obtain Bitcoin and possibly grab the most favorable investment opportunities. Considering that fact, it’s no wonder so many newcomers are flocking to the cryptocurrency market. 

If you’re one of those investors, this is the right article for you. Read on as we discover what Bitcoin is and how it works. 

The Origins of Bitcoin

Ever since its first appearance, Bitcoin has been attracting attention from both tech-savvy and traditional investors. We could go as far as saying there’s been a lot of stigma surrounding today’s largest cryptocurrency. And, in all fairness, the investors’ skepticism was justified by Bitcoin’s mysterious origins. 

In 2008, Satoshi Nakamoto, an individual or a group of individuals hiding behind this pseudonym, released a white paper mapping the concept of Bitcoin – a digital currency free from central control. At the same time, the domain name bitcoin.org was registered and made public. 

A year later, the Bitcoin network went live after mining the first block, known as a genesis block, by Nakamoto. Simultaneously, the first open-source Bitcoin client was released, allowing anyone to participate in the network. 

At first, Bitcoin gained only a small, but dedicated amount of followers, mostly tech enthusiasts and libertarians. The value of the cryptocurrency was embodied in one of the most controversial transactions in history when Laszlo Hanyecz, now a legendary BTC enthusiast, bought two pizzas for 10,000 BTC (worth millions today!).Β 

Bitcoin started to enjoy better days in 2010, with some businesses beginning to accept this digital asset, although mainstream adoption remains limited. Soon, various governments and financial institutions started debating about Bitcoin regulations, and this crypto soon experienced its first implementation. 

Bitcoin Price History

We could say the price of Bitcoin is a wild ride, marked by periods of explosive growth and some dramatic crashes. 

In the early days, it had no value. In fact, the first significant milestone was in 2010, after breaking the $0.10 mark. The first significant swings occurred between 2011 and 2014, when Bitcoin hit nearly $30, just to crash at the end of the year, dropping around $4.70. 

Despite minor bumps in the road, the value of BTC steadily increased. By the end of 2016, Bitcoin price reached $900. It surged to almost $20,000 the year after, but the price plummeted due to “crypto winter” in 2018. 

In November 2021, Bitcoin reached a staggering high of over $64,000. The price has fluctuated since then, impacted by various factors like the Bitcoin halving and overall market conditions. Still, the value of the first cryptocurrency continued surpassing all predictions, reaching a new ATH of a staggering $73,473,60 just a few months before the next halving event. 

Its upper limit can only be speculated, as the crypto market has no certainties or absolutes. Some predictions say it could go over $100k or even $200k by the end of 2025. But no one really knows for sure. 

Because of that, it is vital for all investors, especially newcomers, to conduct their own research, find reputable sources and make strategic decisions when investing in such unpredictable and volatile assets as Bitcoin truly is. 

How Bitcoin Works?

Sometimes, hearing conversations of Bitcoin enthusiasts might seem like they’re speaking an alien language. Admittedly, crypto lovers tend to use phrases and concepts few people understand. However, once you break down these concepts in simple language, the whole buzz and optimism around Bitcoin starts to make sense.Β 

Bitcoin operates as a decentralized digital currency, meaning it functions without a central bank or authority controlling it.Β 

Bitcoin transactions are securely recorded on a public ledger called a blockchain. This distributed ledger system ensures transparency and security. Each block in the blockchain holds transaction data, including:

  • Timestamps
  • Sender and receiver addresses 
  • A unique code

Every computer on the network (called a node) has a copy of the blockchain, making it tamper-proof. Any modification attempt would be easily detectable across all copies.

You make transactions by sending Bitcoin from one digital wallet to another. Wallets hold private keys, which are like digital signatures used to authorize BTC transactions. When a user initiates a transaction, it broadcasts to the entire network. 

What is Mining?

We get new bitcoin by mining them. Miners are special computers that compete to solve complex mathematical puzzles. The first miner to solve this math puzzle gets to validate the block of transactions and add it to the blockchain.

Finally, as a reward for their work, miners receive a set amount of Bitcoins. This process also helps secure the network by making it computationally expensive to tamper with transactions.

Bitcoin Cap

One of the reasons for Bitocin’s popularity and immensely high value lies in its scarcity. Only 21 million Bitcoins will ever be created, as programmed into the Bitcoin protocol.

Bitcoin Definition

Overall, Bitcoin functions as a peer-to-peer payment system, relying on cryptography, blockchain technology, and a network of miners to facilitate secure and transparent transactions.