Bitcoin

Bitcoin (BTC) is a decentralised digital currency that operates without a central bank or single administrator. It was introduced in a 2008 whitepaper by an individual or group using the pseudonym Satoshi Nakamoto and launched in 2009. Bitcoin uses a public ledger called the blockchain to record transactions and relies on a network of computers (nodes) and miners to secure and validate the system.

Bitcoin is often described as “digital gold” because of its limited supply (capped at 21 million coins) and its role as a store of value and speculative asset. It can be used for payments, remittances, and as an investment, though its price is highly volatile compared to traditional currencies and assets.

How Bitcoin works

Bitcoin combines cryptography, economics, and distributed computing.

Blockchain and transactions

• The Bitcoin blockchain is a public, append-only ledger that records all transactions.
• Transactions are grouped into blocks, which are added to the chain approximately every 10 minutes.
• Each block references the previous block, creating a chain that is extremely difficult to alter retroactively.
• Anyone can run a node to verify transactions and blocks independently.

Mining and proof-of-work

• Bitcoin uses a proof-of-work (PoW) consensus mechanism.
• Miners compete to solve a computational puzzle; the winner proposes the next block and receives:
  • The block subsidy (newly minted BTC).
  • Transaction fees from the transactions included in the block.
• Mining secures the network by making it costly to attack or rewrite history.
• The mining difficulty adjusts roughly every two weeks to keep block times around 10 minutes.

Supply and issuance

• Total supply is capped at 21 million BTC.
• New BTC is issued via the block subsidy, which started at 50 BTC per block and halves approximately every four years (every 210,000 blocks) in an event called the “halving”.
• As of 2026, the block subsidy is lower than the initial 50 BTC and will continue to decrease until the cap is reached around the year 2140.
• After that, miners will be incentivised primarily by transaction fees.

Keys, addresses, and wallets

• Users control BTC via cryptographic keys:
  • A private key proves ownership and authorises spending.
  • A public key and derived address are used to receive funds.
• Wallets manage keys and create transactions; they can be:
  • Software wallets (mobile, desktop, web).
  • Hardware wallets (physical devices storing keys offline).
  • Custodial wallets (keys held by an exchange or service).
• “Not your keys, not your coins” is a common saying emphasising that custodial holders rely on third parties.

What makes Bitcoin different

Bitcoin differs from traditional money and many other crypto assets in several ways.

Decentralisation

• No central issuer, bank, or government controls Bitcoin.
• Rules are enforced by the network and open-source software.
• Changes to the protocol require broad consensus among users, miners, and developers.

Fixed supply and predictable issuance

• Supply is algorithmically limited to 21 million BTC.
• Issuance schedule is known in advance and not subject to discretionary changes.
• This contrasts with fiat currencies, where central banks can expand supply.

Censorship resistance and permissionless access

• Anyone with internet access can send or receive BTC without needing approval from a bank or government.
• Transactions cannot easily be blocked or reversed once confirmed.
• This enables financial inclusion but also raises regulatory and compliance challenges.

Pseudonymity, not anonymity

• Bitcoin addresses are not directly tied to real-world identities.
• However, all transactions are public and can be analysed on the blockchain.
• With enough external data, addresses can sometimes be linked to individuals or entities.

Common uses of Bitcoin

Bitcoin is used in several ways, often overlapping.

Store of value and investment

• Many users hold BTC as a long-term investment, expecting its value to appreciate over time.
• Institutional investors, funds, and publicly listed companies have allocated to BTC as a treasury or portfolio asset.
• Price volatility is high compared to traditional assets, leading to both large gains and drawdowns.

Payments and remittances

• BTC can be used to send value across borders without intermediaries.
• Useful in environments with:
  • High inflation or unstable local currencies.
  • Limited banking infrastructure.
  • Expensive or slow remittance corridors.
• Transaction speed and fees vary with network congestion; layer-2 solutions (such as the Lightning Network) aim to improve scalability for small, frequent payments.

Collateral and financial primitives

• BTC is used as collateral in:
  • Crypto lending platforms.
  • Derivatives and futures markets.
  • Structured products and funds.
• This creates additional use cases but also introduces leverage and liquidation risks.

Lightning Network and layer-2

• The Lightning Network is a layer-2 protocol built on top of Bitcoin.
• It enables:
  • Faster, cheaper micropayments.
  • High transaction throughput compared to the base layer.
• Users open payment channels and transact off-chain, settling net results on the main chain.

Fees and transaction times

Bitcoin transactions involve fees and confirmation times that users should understand.

Transaction fees

• Fees are paid to miners and depend on:
  • Network congestion (demand for block space).
  • Transaction size in bytes (not the BTC amount).
  • User-selected fee rate (satoshis per byte or similar).
• During busy periods, fees can rise significantly; during quiet periods, they can be very low.
• Wallets often suggest fee levels based on desired confirmation speed.

Confirmation times

• Blocks are added roughly every 10 minutes on average.
• A transaction is often considered “secure” after multiple confirmations (for example, 1–6 blocks, depending on the use case and amount).
• For small payments, one confirmation or even zero-confirmations (with some risk) may be acceptable; for large transfers, more confirmations are common.

Risks and considerations

Bitcoin carries several important risks.

Price volatility

• BTC price can swing dramatically over short periods.
• Historical drawdowns of 50% or more have occurred multiple times.
• Users should only invest amounts they are prepared to see fluctuate significantly or potentially lose.

Security and custody risk

• If you hold your own keys:
  • Losing your private key or seed phrase can mean permanent loss of funds.
  • Poor security (malware, phishing, insecure backups) can lead to theft.
• If you use custodial services:
  • You rely on the platform’s security and solvency.
  • Hacks, mismanagement, or regulatory actions can affect access to funds.

Regulatory and legal risk

• Regulations around Bitcoin vary by jurisdiction and are evolving.
• Possible issues include:
  • Licensing requirements for businesses.
  • Restrictions on use, trading, or self-custody in some regions.
• Users should understand local rules and reporting obligations.

Operational and technical risk

• Software bugs, protocol changes, or network splits (forks) can create uncertainty.
• User error (sending to wrong addresses, using wrong networks) can lead to irreversible losses.
• Layer-2 solutions introduce additional complexity and smart-contract or channel risks.

Bitcoin vs other crypto assets

Bitcoin is often compared to other cryptocurrencies.

Bitcoin vs Ethereum and smart-contract platforms

• Bitcoin:
  • Primarily designed as digital money and a store of value.
  • Scripting is limited; focus is on security and simplicity.
• Ethereum and similar chains:
  • Designed for programmable smart contracts and decentralised applications (DeFi, NFTs, etc.).
  • More complex, with different security and economic trade-offs.

Bitcoin vs stablecoins

• Bitcoin:
  • Volatile price in fiat terms.
  • Supply is fixed and not pegged to any asset.
• Stablecoins:
  • Pegged to fiat currencies or other assets (for example, USDC, USDT).
  • Aim for price stability but introduce issuer and reserve risks.

Good practices for users

If you are considering using or investing in Bitcoin:

• Educate yourself on how Bitcoin, keys, and transactions work before committing significant funds.
• Use reputable wallets and exchanges; for larger amounts, consider hardware wallets or other self-custody solutions.
• Back up seed phrases securely and never share them with anyone.
• Be cautious of scams, phishing, and “too good to be true” offers involving BTC.
• Understand the tax and regulatory treatment of Bitcoin in your jurisdiction.
• Treat Bitcoin as a high-risk, volatile asset and size your exposure accordingly.

Current market context

Bitcoin is the largest cryptocurrency by market capitalisation and the most widely recognised crypto asset. Its price is influenced by factors such as:

• Macro conditions (interest rates, inflation, risk sentiment).
• Institutional adoption (funds, ETFs, corporate treasuries).
• Regulatory developments in major markets.
• Network metrics (hash rate, adoption, on-chain activity).
• Broader crypto market cycles and sentiment.

Real-time price and market data are widely available on exchanges, data sites, and financial platforms.