How Does Bitcoin Work?


While once a niche subject, bitcoin, and cryptocurrency, in general, have exploded into the mainstream over the past few years. The current price of bitcoin has surpassed early expectations by a wide margin and large companies and brands are looking to get into the equation.

All of this attention might have you curious about learning about bitcoin for the first time. What is bitcoin, how does the digital record work, and should you consider investing some of your money into virtual currency yourself? 

There’s a lot of questions worth answering and luckily for you, we’re here to do just that. Read on and we’ll walk you through the bitcoin basics.

What is Bitcoin? 


Bitcoin was invented as a form of digital currency. In concept, it works similarly to other forms of currency we’ve had over the years of human existence. In the distant past, we’d use wheat as a form of currency, or rare metals. 

Today, we use bills that are produced by the respective governments of the countries that we reside in. While this system is efficient and works, it often means that the value of our money is tied to the government structure. 

When bitcoin was created in the late 2000s, it sought to create a form of currency that could exist outside of any particular government structure. It would not require a bank run by a large company or government in order to function. 

The value of the currency and power over it would exist completely between individuals who used it. This is how it exists today. 

Creating Bitcoin

Of course, in order for a currency to have value, it has to be difficult to obtain. In the case of bitcoin, it has to be created through a process known as mining. 

Mining bitcoin requires a large amount of computing power and a huge amount of hours. To simplify the process? It essentially requires a computer to do an incredibly complicated math problem that might take days of work to complete.

This work results in the creation of a coin, currently valued at $50,000 USD. This value fluctuates over time as the value itself is totally dependent on the popularity of the currency.

The initial inventor of bitcoin operated under the moniker of Satoshi Nakamoto. They have never stopped forward to take credit for the creation of bitcoin and no one has been able to determine who they are.

A Public Digital Record

What kind of regulation surrounds the transfer of bitcoin from person to person? When the system was created, a system known as the blockchain was put into place. 

The blockchain is a shared public ledger. It is the backbone of the bitcoin network and bitcoin could not operate as a currency without it. All confirmed transactions of bitcoin from one entity to another are recorded on the blockchain. 

The blockchain ledger is shared across several thousand computers spread across the world. Why so many computers? Having the ledger stored across so many sources prevents it from being hacked, changed, or under the influence of too few sources. 

The integrity of the blockchain must be maintained for the value of the currency to stay intact. 

Bitcoin As Currency

With all this talk, is bitcoin really being used as currency? Not exactly. Most countries do not allow bitcoin to be used in transactions, citing the lack of control and the highly unstable prices. 

This isn’t without reason; there is a chance that allowing such things could shake the economic foundation of major countries. However, these restrictions do pose an impact. 

As such, the digital phenomenon is really being utilized as less of a currency and more of a form of investment. You can think of it as investing in a stock. As the price of bitcoin rises, you make money on your investment into a coin. 

Of course, the cost of a coin is so high nowadays that it is more likely that you’ll be investing in a portion of a coin, as opposed to a whole coin. That’s common.

You can learn more about bitcoin fractions here. As most people end up trading in fractions, this can be important information to understand. 


As we spoke about above, bitcoin is created through a process called mining. When a miner creates a bitcoin, they are rewarded. 

In order to prevent inflation, a process called halving is implemented. Every 210,000 blocks of bitcoin mined, the reward for mining is cut in half. This happens about every four years are so. 

This system is in place to prevent the inflation of the value of bitcoin as more and more bitcoin is released into circulation. It’s intended that bitcoin mining could continue along this scale all the way into 2140 and perhaps beyond.

At or around this point, all the bitcoin that could be mined will have been mined.

The current rate of reward as of 2021 is 6.25 bitcoins per block mined. There will likely not be another halving for another three years or so.

How Does Bitcoin Work?

Bitcoin is changing the way many people think about money. If you’re new to the subject matter, it’s not unusual to be a bit confused. There’s a lot going on in the digital realm around bitcoin and it can be a lot to take in.

The above information can help you to understand the creation of bitcoin, the digital record, and the systems in place to prevent fraud or inflation.

Need more tech advice and information? Have more bitcoin questions? Keep scrolling our blog for more help.