Bitcoin: what is it for and how does it work?
Learn how Bitcoin works, its supply cap, its fees and its real risks.
The essentials
Where does Bitcoin come from?
Bitcoin was described at the end of 2008 in a short document, the "white paper", signed with the pseudonym Satoshi Nakamoto. It proposes a "peer-to-peer electronic cash system": two people can exchange value online without going through a bank or any other trusted intermediary. The network launched in January 2009.
Nobody owns Bitcoin. Its software is open source, and anyone can read it, run it or propose improvements. A rule change only takes effect if the users running nodes adopt it. That's what makes the rules of the game, like the supply cap, so hard to change.
How a BTC payment works
Your wallet builds a transaction to a Bitcoin address. It signs it with your keys, then broadcasts it to the network. Nodes verify it; miners can include it in a block. The recipient may wait for a number of confirmations depending on the amount and how cautious they are. When the network is busy, the fee you offer often affects how fast the transaction gets included.
A Bitcoin address is used to receive. A private key is used to authorize spending. Sharing a receiving address is normal; sharing the key or the recovery phrase hands over control of the funds. A receiving QR code is convenient, but always check the address shown on screen before sending.
Mining: who keeps the ledger?
Every ten minutes on average, a new block of transactions is added to the blockchain. To earn the right to propose it, miners run specialized machines that search for a result that is very hard to find but easy to verify: this is proof of work. The first to find it earns a reward in newly created BTC, plus the fees of the transactions in the block.
Every 2,016 blocks, roughly every two weeks, the network automatically adjusts the difficulty so the pace stays close to ten minutes, however many machines are running. Miners don't set the rules: a block that creates too many bitcoins or contains an invalid transaction is rejected by the nodes. To go further: Blockchain explained and Proof of Work vs Proof of Stake.
Why 21 million?
Bitcoin's rules set a maximum supply of close to 21 million BTC. New BTC enter circulation gradually through block rewards, which decrease according to the protocol's rules. This programmed scarcity doesn't force anyone to buy BTC and doesn't stop its price from falling: demand and liquidity matter too.
In practice, the reward is cut in half every 210,000 blocks, roughly every four years: this is the halving. It went from 50 BTC per block in 2009 to 25, 12.5, 6.25, and then 3.125 BTC since April 2024. More than 95% of the 21 million have already been issued; the last ones will be around 2140. The guide Market cycles and the Bitcoin halving gives the exact dates and what you can, or can't, conclude from them.
What is bitcoin actually used for?
- Long-term savings: many holders see it as a scarce store of value, sometimes compared to "digital gold". This thesis is still debated, and the price is very volatile.
- Transferring value without an intermediary: a BTC transfer works 24/7, to any country, without asking a bank for permission.
- Payments: the Lightning Network, a layer built on top of Bitcoin, enables near-instant, low-cost payments. See Lightning Network: paying in bitcoin instantly.
- Financial products: in the United States, listed funds backed by bitcoin have existed since January 2024. In Europe, you mostly find listed ETP-type products. In these cases, you hold exposure to the price, not bitcoins you can send.
Bitcoin is not anonymous
Transactions and the balances associated with addresses can be observed on the public ledger. An address is pseudonymous, but links can be inferred from your activity, your exchanges with platforms and the data you publish. So avoid publishing an address linked to all your savings on the assumption that it reveals nothing.
Fees, waiting time and custody
Bitcoin fees change with demand for block space. A reliable wallet shows an estimate before you confirm. A platform may add its own withdrawal fee, which is separate from network fees. To hold BTC for the long term, think about custody: platform, mobile wallet, computer or dedicated device. The right choice depends on the amount, your ability to back up your keys and your risk tolerance.
One bitcoin divides into 100 million satoshis (sats), so you never need to buy a whole one. Addresses can start with bc1, 1 or 3 depending on their format; recent wallets handle all of them, but some older services don't accept the newest formats.
Example of a first transfer
You want to withdraw a small amount of BTC to your wallet. Copy a new receiving address from the wallet, paste it into the platform, check several characters at the start and end and compare the full address on both screens if possible. Check that the withdrawal network is Bitcoin and that the amount received after fees suits you. Make a small test transfer before a large one. Wait for it to arrive and for the required confirmations before continuing.
The risks to know
- Volatility: bitcoin has lost more than 70% of its value several times, for example between late 2021 and late 2022. A drop of that size can happen again.
- Loss of access: without a backup of your keys, self-custodied bitcoins are lost for good.
- Irreversibility: a confirmed transfer to a wrong address or a scammer can't be undone.
- Intermediaries: a platform can freeze withdrawals, get hacked or go bankrupt.
- Scams: fake sites, fake support agents and promises of returns often use the Bitcoin name. See Securing your accounts and avoiding scams.
Frequently asked questions
Who created Bitcoin?
Bitcoin was described in 2008 in a document signed with the pseudonym Satoshi Nakamoto, and the network launched in January 2009. Satoshi Nakamoto's real identity has never been established. No company runs Bitcoin: the software is open source and its rules are enforced by the network's nodes.
Can you buy a fraction of a bitcoin?
Yes. A bitcoin divides into 100 million satoshis (sats), its smallest unit. You can therefore buy a few euros' worth of BTC without buying a whole bitcoin; the minimum depends on the platform.
Is Bitcoin anonymous?
No, it's pseudonymous. All transactions are visible on a public ledger. Addresses don't carry names, but they can be linked to an identity, especially through platforms that verify who you are. See On-chain traceability.
What happens when the 21 million cap is reached?
Issuance decreases in steps, the "halvings", roughly every four years, and should approach its maximum around 2140. Miners will then be paid mainly through transaction fees. The guide Market cycles and the Bitcoin halving explains this mechanism.