What Is Bitcoin and How Does It Work?

Bitcoin is digital money kept on a public record that thousands of independent computers hold identical copies of and constantly check against each other. There is no bank in the middle and no head office. It started in 2009, invented by someone using the name Satoshi Nakamoto, and what Bitcoin really is comes down to one question: who keeps the list of who owns what.

Where is a bitcoin actually kept?

Nowhere you could point at. There is no file on your phone called "one bitcoin". What exists is a line on the shared record saying an address holds a balance, plus a secret key that proves you are allowed to spend from it. Think of the record as a scoreboard in a stadium that every spectator copies into their own notebook: your coins are a number on the board, and your key is the only hand allowed to change your row.

How does a payment actually happen?

You open a wallet - an app like Electrum, or a hardware device like a Ledger - paste the receiver's address and let the wallet sign the payment with your key. The signed message spreads across the network, waits in a queue called the mempool, and gets packed into a block roughly every ten minutes. Once that block is added, every copy of the record agrees the money moved. You cannot spend the same coin twice, because the second attempt contradicts a line already written.

Why is there a limit of 21 million?

New bitcoin is created as a reward for the computers that do the packing, and that reward halves roughly every four years. It began at 50 coins per block and is 3.125 today; around 20 million of the eventual 21 million already exist. The limit is written into the software every participant runs, so changing it would mean persuading the entire network at once - which is the point.

If you want to see it work, send a tiny amount first and watch it arrive: a test payment costs pennies and teaches more than any article. Next, read how cryptocurrency works in general and the seven biggest Bitcoin myths.