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What is Bitcoin?

Every introductory guide about Bitcoin typically begins with the question: "What is Bitcoin?" and often defines it as a "virtual currency" – a rather vague concept that doesn't provide much clarity.

However, let's move beyond this terminology. Bitcoin is not just a currency; it's a protocol.

You might wonder why some people call it a currency. Well, that's because they like to classify anything easily divisible, transferable, and with identical units as a currency. In this sense, Bitcoin qualifies as a currency, but we'll focus on the deeper aspects.

The Bitcoin protocol is based on the idea of "credits" (or "points" or "units") that can be transferred among participants. Many independent computers, all running the same program or compatible ones, ensure agreement on who spent each credit and how it was spent. Notably, there's no central authority or "owner of Bitcoin" controlling these transactions.

How It Works

Imagine multiple computers running the same or compatible programs, communicating with one another over the internet. They exchange messages, occasionally encountering communication issues due to network problems or incompatible software. Despite these hiccups, the computers usually succeed in transmitting messages and maintaining consistency.

Now, visualize these computers keeping a record of all Bitcoins in existence and their ownership. They exchange this list with others and update it as new transactions occur. When someone wishes to make a Bitcoin transaction, they approach one of these computers and say, "I am X, I possess Y Bitcoins, and I want to send them here." The computer then sends this message to the network, updating everyone's list of transactions. It's as simple as that.

However, this simplified version of the protocol assumes that all participants are honest and never attempt to spend Bitcoins they don't possess. To address this, Bitcoin introduced the brilliant concept of the "blockchain."

Who Creates the Blocks

In theory, any computer on the network could create the next block. The key is to find a "magic number" such that the hash of the block data, when combined with this magic number, results in a hash smaller than a predetermined difficulty value. This means many different magic numbers must be tried before finding the right one.

A hash, in this context, is a mathematical function that's easy to compute one way but hard to reverse. Bitcoin miners aim to find a magic number that, when combined with the block data, meets the specified criteria.

The system adjusts the difficulty to ensure, on average, a new block is produced every 10 minutes. Therefore, if more computers are mining, the difficulty increases to maintain this time frame.

Mining and Miners

Bitcoin miners are specialized computers that aim to find the correct magic number. They do this by trying different combinations until they succeed. The mining process has evolved to the point where dedicated hardware is necessary, making it unfeasible for non-specialists to mine Bitcoins.

Competing Blocks

Occasionally, two computers create blocks simultaneously, leading to competing versions. The network determines the valid chain based on the most accumulated work. Until a consensus is reached, some computers might follow one chain, while others follow a different one.

For this reason, it's unwise to consider a transaction fully confirmed just because it's included in a block. You should wait for additional blocks to be added to ensure the transaction's security.


In contrast to the belief that Bitcoin addresses have owners, transactions on the blockchain exist in a vast pool and can be redeemed by anyone who satisfies the conditions set by the transaction creator. Bitcoin wallets provide a balance based on the private keys you control and transactions you can spend.

Payment Channels

Payment channels allow for instant and fee-free transactions between two Bitcoin users. These transactions don't need to be recorded on the blockchain immediately, providing flexibility. However, if a user tries to steal, the other party must respond within a specified timeframe.

Are There Other Cryptocurrencies?

Yes, there are alternative cryptocurrencies, often referred to as "altcoins." However, it's important to note that Bitcoin remains unique, as it is the original and operates without centralized control. Altcoins typically stem from Bitcoin's code with modifications or additional features.