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What is Bitcoin? Its inner workings explained
Bitcoin, the world's first cryptocurrency, is much more than a digital currency: it is an innovation that redefines financial exchanges by eliminating intermediaries.
But what exactly is Bitcoin, why is it so revolutionary, and how does it work? Let's discover its essence and its internal mechanisms.
A currency without borders or intermediaries
Imagine handing a 10-euro note to a friend: no bank, no fees, just a direct exchange. Bitcoin reproduces this simplicity in the digital world. With an Internet connection, you can send Bitcoin to anyone, anywhere, at any time, without going through a bank or payment service.
Practical example: You want to send $50 to a loved one in Mexico. A bank transfer could take 3 days and cost $15 in fees. With Bitcoin, the transaction is finalized in 10 to 60 minutes for less than $1 in fees, even if your loved one doesn't have a bank account.
Bitcoin operates on decentralized networks, allowing direct transactions between users.
Bitcoin breaks financial barriers:
- Circumventing restrictions : In countries like Iran, where international transfers are limited, Bitcoin allows you to send funds freely (except in the few countries that completely ban cryptocurrencies).
- Financial inclusion : Around 1.4 billion unbanked people in 2025 can use Bitcoin with a simple smartphone, replacing cash for digital payments.
But how can a system without a central authority be secure and reliable? The answer lies in blockchain, the engine behind Bitcoin.
Blockchain: a decentralized and inviolable register
Blockchain is the core of Bitcoin. It is a public, decentralized, and secure digital ledger, maintained by thousands of computers (nodes) around the world. Each node has an identical copy of the blockchain, guaranteeing transparency and resilience.
Protecting information, including the private key, from intrusions is crucial because it is essential for interacting with the Bitcoin system and accessing funds stored in a wallet.
How does blockchain work?
- Transaction recording: Each transaction (for example, sending 0.2 BTC to a friend) is grouped into a block with other transactions.
- Link blocks: Each block contains:
- Transaction data.
- A hash (a unique digital fingerprint of the block).
- The hash of the previous block, forming a continuous chain.
- Validation by miners: The miners, powerful computers, solve complex mathematical puzzles to validate the block and add it to the blockchain. This process, called proof of work, takes about 10 minutes per block. Miners aggregate and verify transactions into new blocks, ensuring the blockchain's integrity and security.
- Network update: Once validated, the block is broadcast to all nodes, which update their copy of the blockchain.
Why is it secure?
- Immutability: Modifying a block would require recalculating the hashes of all subsequent blocks, a colossal task. As of May 2025, the Bitcoin blockchain represents over 600GB of data, stored on around 15,000 nodes.
- Decentralization: Hacking the blockchain would require controlling 51% of the nodes, or more than 7,500 computers distributed globally, an almost impossible feat.
- Timestamp: Each block is marked with a date and time, preventing any retroactive alteration of the data.
Example: If you send 1 BTC to an online store, the transaction is recorded in a block. Once validated, no one can claim that the payment did not take place, as all nodes have proof of it.
Cryptography: the Bitcoin shield
Blockchain is based on cryptography, a method of securing data through codes. Each transaction is protected by two types of keys:
- Public key : It is the recipient's Bitcoin address, like an account number visible to everyone. For example, scanning a QR code in a café gives the merchant the public key.
- Private key : This is your secret password, used to sign the transaction and prove that you are the owner of the funds. If you lose your private key, your Bitcoins are inaccessible; if it is stolen, your funds are at risk.
Encryption example : The encrypted “Buy a coffee” sentence could sound like “xy7kpQ9mw3rt2vl8nz+”. Only the person with the corresponding private key can decrypt and access the funds.
This combination of decentralization and cryptography makes Bitcoin transactions secure, transparent, and resistant to fraud.
Mining: the creation of Bitcoins
Mining is the process by which new Bitcoins are created and transactions validated. Miners use powerful computers to solve complex mathematical puzzles, thereby securing the network. Satoshi Nakamoto withdrew from the project in 2010, emphasizing the decentralized nature of development by a community of contributors.
How does it work?
- A miner solves a puzzle to validate a block of transactions.
- Once the block is added to the blockchain, the miner receives a Bitcoin reward. In May 2025, after the halving in April 2024, this reward is 3.125 BTC per block, plus transaction fees. Joining a mining pool can enhance a miner's chances of receiving rewards by pooling resources with others, although these rewards are shared among participants.
- The nodes check the work of the miner, ensuring the integrity of the process.
Evolution of rewards
- 2009 : 50 BTC per block.
- 2020 : 6.25 BTC per block.
- 2024 : 3.125 BTC per block, reflecting the gradual reduction every 210,000 blocks (approximately 4 years).
Challenge : Mining is energy-intensive (around 120 TWh per year in 2025) and expensive, because the difficulty of the puzzles increases over time. However, innovations such as the use of renewable energies mitigate this impact.
Risk : Cryptojacking, where hackers use hacked devices to mine, remains a growing threat.
Bitcoin wallets: your digital safe
A Bitcoin wallet is an application or device that allows you to manage your Bitcoins. It does not store the Bitcoins themselves (they reside in the blockchain), but keeps the keys needed to access them.
Bitcoins can be sent to multiple recipients within a single transaction, specifying each recipient's address and the amount associated with each output, which enhances efficiency and security against double-spending.
Some wallets are also used to reward content creators, underlining the importance of rewarding and engaging content in attracting users’ attention in the cryptocurrency space.
Wallet types
- Software wallets : Applications like Trust Wallet or Electrum, ideal for daily use.
- Hardware wallets : Physical devices like Ledger or Trezor, offering maximum security for long-term storage.
How do they work?
- Public key : The address you share to receive Bitcoins (for example, 1a1zp1ep5qgefi2dmptftl5slmv7divfna).
- Private key : Your secret code to spend your Bitcoins. It must be protected at all costs.
example : To buy a book online, you scan the bookstore's QR code (public key) and use your wallet to sign the transaction with your private key. Bitcoins change owners on the blockchain, without ever leaving the network.
Warning: Losing your private key is equivalent to losing your Bitcoins. Unlike a bank card, there is no customer service to recover your funds.
Limits and solutions
Bitcoin is not perfect:
- Slowness : A transaction takes about 10 minutes for confirmation. The Lightning Network solves this problem by allowing instant payments.
- Volatility : The price fluctuates ($65,000 in May 2025, after peaking at $73,000 in 2024).
- Complexity : Private keys and mining can intimidate newbies.
- Divisibility : One bitcoin can be divided into eight decimal places, allowing for precise transactions.
Bitcoin is a digital currency (Cryptocurrencies) decentralized that uses the blockchain for secure, transparent and non-intermediary transactions. Thanks to cryptography, mining, and wallets, it offers a powerful alternative to traditional financial systems. Despite its challenges, its growing adoption and continuous innovations make it a key player in the financial future.
To go further, let’s explore concepts like network scalability or technical improvements, like Schnorr signatures.
Investing in Bitcoin
Investing in Bitcoin can offer big upside—and big downside. Prices swing wildly based on sentiment and demand. Anyone jumping in should research thoroughly and know their risk tolerance.
Where to Trade
- Binance, Coinbase, KuCoin: Popular exchanges for spot, futures, margin
- Decentralized Exchanges: Peer-to-peer, no central custodian
Security Tips
- Hot Wallets: Online, handy for daily use but more exposed
- Cold Storage: Hardware or paper wallets; offline, safer for long-term holdings
Regulatory Landscape
- Varies by country: some embrace clear rules, others restrict or ban
- Always check local laws before investing
Growing merchant adoption can boost demand—and price—over time. But remember: Bitcoin remains a high-volatility asset. Solid research, tight security practices, and regulatory awareness are your best tools to navigate this market.
Let me know if you’d like more detail on any of these areas!
Bitcoin vs Ethereum comparison
Bitcoin and Ethereum are the two most influential cryptocurrencies, but they have distinct goals and functionalities.
Bitcoin aims to be a decentralized digital currency, while Ethereum is a platform for decentralized applications (DApps) and smart contracts. The chart below compares their main characteristics to help you understand their differences and strengths.
Key points
- Bitcoin excels as a store of value and a decentralized means of payment. Its simplicity and security make it a preferred choice for institutional investors and countries adopting cryptocurrencies.
- Ethereum shines with its flexibility, powering a rich ecosystem of dApps, decentralized finance (DeFi), and NFTs. Its transition to PoS in 2022 reinforced its ecological appeal and scalability.
- Complementarity: Bitcoin is often compared to gold (stable, rare), while Ethereum looks like a technological infrastructure, supporting blockchain innovation.
Example: If you want to store long-term value (your money), Bitcoin is ideal. If you want to create a decentralized lending app or buy an NFT, Ethereum is the platform of choice.
This comparison shows that Bitcoin and Ethereum meet different needs, but both play a central role in the cryptocurrency ecosystem.
Main characteristics of Bitcoin
Bitcoin is distinguished from fiat currencies by unique characteristics that make it a revolutionary alternative. Unlike traditional currencies, it is not issued by a central bank, but is based on a decentralized and transparent network. Here are its main strengths, explained in a clear and concise manner.
Decentralization: power to users
“Government of the people, by the people, for the people.” — Abraham Lincoln
Bitcoin isn’t run by any bank or government. It lives on thousands of computers around the world, each one keeping a full copy of every transaction ever made. When you send BTC, miners bundle it into a block and every computer in the network checks it. That makes it almost impossible for anyone to mess with your money.
- All nodes share the ledger. No single server can shut the network down.
- Instant trust. You don’t need to ask a middleman to confirm your payment.
This setup hands control back to users and keeps your funds safe from one point of failure.
Immutability: an unalterable history
Once a Bitcoin transaction lands on the blockchain, it’s there for good. Each block locks in the one before it using a special code called a hash. To rewrite history, you’d have to redo every single block that followed—a crazy big job at today’s scale of thousands of nodes.
- Chain reaction. Every block links to its parent, so changing one breaks them all.
- Massive security. You’d need to control over half the network at once.
- Fraud-proof. Nobody can erase or alter a past transaction.
- Rock-solid trust. Users can lean on the ledger without second-guessing.
That’s why Bitcoin’s record is rock solid and free from tampering once confirmed.
Limited offer: a scheduled rarity
Bitcoin stops at 21 million coins—no extra printing allowed. Every few years, the reward miners get for adding a block gets cut in half. After the April 2024 halving, each block now pays 3.125 BTC. By around 2140, the last coin will drop and that’s it.
- Scarce asset. 19.7 million BTC (94 percent) are already out there.
- Predictable release. Halvings slow new supply in clear steps.
- Long-term model. Miners shift to fees once block rewards end.
- Value driver. Limited numbers give Bitcoin its “digital gold” appeal.
- Big stash. Satoshi’s own ~1 million BTC would be worth ~$65 billion today.
That fixed cap keeps Bitcoin rare and helps it hold value over time.
Transaction security: a digital fortress
Bitcoin transactions are designed to be secure, transparent, and irreversible, thanks to several mechanisms:
- Irreversibility : Once confirmed by the network (generally after 6 confirmations, about 60 minutes), a transaction is final. No “cancel” button exists, which protects against fraud such as chargebacks.
- Strict validation : Invalid Bitcoin addresses are automatically rejected, eliminating sending errors.
- User control : You manage your funds without intermediaries, and no merchant can impose hidden fees.
- Relative anonymity : Transactions do not require personal information, reducing the risk of identity theft. However, the blockchain is public, so thorough tracking can sometimes link an address to an identity.
example : If you buy coffee with Bitcoin, the payment is direct, with no bank fees or the risk of the merchant taking an additional amount.
Bitcoin around the world: global adoption
Bitcoin is used in over 100 countries, with adoption growing rapidly. The United States, Japan, and South Korea dominate trade volumes, but nations like El Salvador (which adopted Bitcoin as legal tender in 2021) and Nigeria are showing growing popularity.
Examples of adoption:
- Businesses : PayPal, Visa, and Tesla accept or facilitate Bitcoin payments.
- Commerce : As of May 2025, more than 300,000 retailers around the world are accepting Bitcoin, from coffee shops to travel agencies.
- Regulation : Frameworks vary. Japan has a favorable framework for cryptocurrencies, while China maintains strict restrictions.
Trend : The integration of Bitcoin into payment systems (such as the Lightning network for fast transactions) accelerates its daily use.
Disadvantages and challenges for adoption
Despite its strengths, Bitcoin faces obstacles that hinder its mass adoption.
Slow transactions
The Bitcoin blockchain deals around 7 transactions per second, compared to 24,000 for Visa. A transaction requires at least one confirmation (10 minutes), but large amounts require up to 6 confirmations (1 hour) or more. Data encryption within a block is integral to its use in the next block, ensuring that while blocks are interconnected through their hashes, they remain readable and accessible.
example : Sending $1 million may require 60 confirmations, or 10 hours, making Bitcoin impractical for instant payments.
Emerging solution : The Lightning network, an overlay to Bitcoin, allows almost instant transactions for small amounts, while maintaining security.
Energy consumption
Bitcoin mining is energy-intensive, consuming around 120 TWh per year in 2025, which is equivalent to the consumption of a country like Norway. This raises environmental concerns.
Cost for minors : For every $6 in revenue, a miner spends about $3.5 on electricity, a ratio compounded by the increasing difficulty of mining and the reduction in rewards (halving).
Progress : Miners are adopting renewable energies (solar, hydroelectric), and innovations like Schnorr signatures are reducing the energy footprint of transactions.
The irony of centralization
Although Bitcoin is decentralized, many users store their BTC on centralized exchange platforms like Binance or Coinbase, creating points of vulnerability.
Outstanding cases:
- Mt. Gox (2014): Loss of 850,000 BTC in a hack.
- QuadrigaCX (2019): 190 million dollars in cryptocurrencies blocked after the death of the CEO.
Solution: Hardware wallets (like Ledger or Trezor) allow users to control their funds, reducing dependence on platforms.
Conclusion
Bitcoin is redefining our relationship with money thanks to its decentralization, immutability, and scarcity. Despite challenges like slow transactions and energy consumption, technological improvements and global adoption position it as a pillar of future finance. Whether you are an investor or simply curious, Bitcoin offers unique opportunities, provided you understand its risks and promises.
The use of Bitcoin as a form of payment is growing, with many businesses and individuals adopting it as a convenient and secure way to transfer value. Bitcoin can be bought, sold, and traded on cryptocurrency exchanges, and its price can fluctuate rapidly due to market volatility. The current price of Bitcoin can be found on financial websites such as Yahoo Finance, where it is often quoted in terms of its value in fiat currencies like the US dollar.
In summary, Bitcoin is a groundbreaking digital currency that offers a decentralized, secure, and efficient way to conduct transactions. Its growing adoption and presence on cryptocurrency exchanges highlight its potential to reshape the financial landscape.
Suggested reading: The best cryptocurrency exchanges
FAQ.
What is bitcoin and how does it work?
Bitcoin is a cryptocurrency, also described as a virtual or digital currency.
It's a form of cash online, and you can use it to buy services and products or exchange it for other types of currency.
In essence, a bitcoin is a file that can be accessed using a private key. The change in ownership of this file is essentially the transaction. Each transaction is recorded in a public ledger, also known as a “blockchain.”
Is Bitcoin mining profitable?
In general, yes. Although the situation is unstable, Bitcoin is expected to reach new heights. The potential for new bitcoin to reach a new all-time high is supported by various market indicators and forecasts, suggesting a bullish market trend.
