HomeCrypto blogWhat is bitcoin how does it work: Bitcoin Explained

What is bitcoin how does it work: Bitcoin Explained

We’re going to cover the basics of bitcoin, What is bitcoin how does it work? What is the smallest fraction of bitcoin called and so on this article is not only for beginners but for everyone interested in learning some new things they didn’t know before about bitcoin.

What is bitcoin?

What is bitcoin how does it work, I know most of you might hear the word bitcoin. People keep talking about it around you on social media at your school but what is it and why does it matter? So bitcoin is the world’s first successful most widely recognized and adopted decentralized cryptocurrency. It is a payment system that was introduced in the year 2009 by an anonymous man known to be the father and founder of bitcoin. His name is satoshi Nakamoto and this is where the crypto word satoshi originated from.

Let’s quickly throw some light on the meaning of these terms cryptocurrency, satoshi, and decentralized for a minute. Decentralized simply put is something that is widely and vastly distributed with no single controlling body and no specific location. This means there are no official agencies watching over and dictating how things are going to be done. So the supply, creation, fees, security, and every other thing is determined by the adapters of the asset. No one person determines what is going to happen.

Bitcoin was built in such a way that enables users through a peer-to-peer system to share and transfer data to one another without having to involve a middleman. This system gives all users equal power, authority, and even transparency. Enabling the transfer, and storage verification of data which in turn equips bitcoin to be used as a mode of payment.


This refers to a cluster or group of virtual or digital assets that use cryptography to secure and verify their transactions and these transactions are often stored on computers found all over the world. These assets are not tangible which means they cannot be held like your normal dollar bill. They are not physical which also means they cannot be kept in your bank like regular dollar bills. 

So then how do we store these assets? How do you carry them around don’t worry I’ll get to that soon. 

Related: What is cryptocurrency?


What is bitcoin how does it work, So when you divide a bitcoin it is broken down into smaller bits known as a satoshi. This breakdown can be done up to eight decimal places which can as well be used to make payments. Look at it this way, the same way we have lots of sense amounting up to a dollar same way we have lots of satoshi’s summing up to a bitcoin. It’s like cents but for bitcoin. The value of bitcoin has grown significantly from a few dollars to thousands of dollars from its birth. Now that we are familiar with some of the terms associated with bitcoin. 

Why bitcoin was created and how we can use it?

It is a known fact that the internet is totally virtual, which means it cannot be touched and no one person owns or has control over it. It is not restricted to a particular region either. So if you have data electricity on any device that can connect to it then you probably would be able to it runs every second of the day, you’re in you’re out. Individuals who use it can share data easily with other individuals.

What is bitcoin how does it work, Now picture this in your mind? If this internet had a currency that it operates with such that people who use the internet can decide to pay other people directly per service rendered or just give it out without having to improve any bank at all, It would be awesome right well that is exactly what bitcoin is, that internet money. 

The mysterious Satoshi Nakamoto developed the bitcoin to be an alternative currency to the fiat currency. His intention was to create a currency that would be generally accepted in the whole world as a means of payment for goods and services without discrimination. His vision for bitcoin to be used as payment became kind of difficult due to the volatility in the price of bitcoin.

Volatility in crypto

This simply describes how quickly the price of a given asset changes over a specified period of time. On the side of bitcoin, its price can record a huge change within a very short time making it hard and less ideal for people to use it as a payment method. This is a general issue with cryptocurrency. 

For example, you might want to buy a bottle of water that costs two dollars and six minutes later it shoots up to four dollars. No one would like that because I know I wouldn’t and it is this constant inconsistency in the price that either makes you rich or less rich. 

Bitcoin and the local fiat currencies are like two sides of a coin. They do the same thing but are totally different in terms of features and characteristics. Unlike traditional money bitcoin has a fixed supply, meaning new loaves of bitcoin cannot be created whenever we choose. It’s not overseen issued or controlled by the central bank of any nation and most significantly its price cannot be determined or rather predicted. If you understand this then you are one step closer to understanding bitcoin. For bitcoin to be used as a decentralized payment system three separate components are combined together to make this possible and they are the bitcoin blockchain, the bitcoin network, and the bitcoin itself. The native token of the bitcoin network is also known as BTC. Now let’s talk a bit about these terms so you have a better understanding of them.

What is a bitcoin blockchain?

What is bitcoin how does it work, A blockchain is what enables cryptocurrency transactions to be organized, verified, and stored in a transparent and unchangeable way. In other words, the bitcoin blockchain is a huge public ledger that holds, verifies, and organizes every transaction performed by users, and the data stored cannot be changed or edited by anyone. This brings about transparency. Rigidity and transparency are vital features for a payment system that relies on zero trust. Whenever a transaction or data is added to this huge digital ledger everyone’s copy is automatically updated making it easy for everyone to keep tabs on everything. 

Okay, picture it this way see it like an online google spreadsheet that automatically saves up changes whenever someone with the login details accesses it and changes things up in there. So the document is the same no matter where you log in from.

Related: What Is Blockchain and Why blockchain was created?

Bitcoin Network 

What is bitcoin how does it work, Bitcoin network on the other hand runs on a peer-to-peer network where users do not need the help of a middleman to execute and authenticate their transactions. It is up to users to choose to connect their computers directly to this network and download its public ledger in which all the bitcoin historical transactions are stored and recorded. 

Related: Permissioned vs Permissionless Blockchain Networks

Bitcoin Wallet

What is bitcoin how does it work, Now that we know that bitcoin is digital money how then can we keep track of our assets and how can we save or know the number of bitcoins we have? Since we can’t go to the bank to request a balanced check as we would with traditional money this is where a bitcoin wallet comes in. A bitcoin wallet is a software program that runs on a computer device or a particular device that provides the functionality needed to protect and also receive and send bitcoin. You should note that the bitcoin itself is not directly stored in any wallet rather the wallet secures keys called cryptographic keys. This is simply a specific type of password that helps to authenticate the ownership of a specific quantity of bitcoin on the bitcoin network.

Whenever a bitcoin transaction has been performed the ownership of the bitcoin is moved from the sender to the receiver. What happens after that is the network entitles the recipient’s key as the new password for getting access to the bitcoin.

Related: How does a crypto wallet work? | Crypto Wallet Explained

The good thing is a bitcoin wallet can easily be created with as little as just a username and a password from anywhere in the world. So you don’t have to worry about what country you are from well there you have it I try to make it as simple as possible although some of these terms may sound complicated but are actually not. We have covered almost all crypto-related topics you can read these articles in our Crypto Blog section.



Please enter your comment!
Please enter your name here

Most Popular