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Bitcoin (BTC) is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity, thus removing the need for third-party involvement in financial transactions. It is rewarded to blockchain miners for verifying transactions and can be purchased on several exchanges.

Bitcoin was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto.

It has since become the most well-known cryptocurrency in the world. Its popularity has inspired the development of many other cryptocurrencies.

Learn more about the cryptocurrency that started it all—the history behind it, how it works, how to get it, and what it can be used for.

KEY TAKEAWAYS

• Launched in 2009, bitcoin is the world’s largest cryptocurrency by market capitalization.
• Unlike fiat currency, bitcoin is created, distributed, traded, and stored using a decentralized ledger system known as a blockchain.
• Bitcoin and its ledger are secured by the number of participants in its network and in the way it confirms and verifies transactions.
• Bitcoin can be purchased via various cryptocurrency exchanges.
• Bitcoin’s history as a store of value has been turbulent; it has undergone several boom and bust cycles over its relatively short lifespan.

Understanding Bitcoin

In August 2008, the domain name Bitcoin.org was registered. It was created by Satoshi Nakamoto and Martti Malmi, who worked with the anonymous Nakamoto to develop Bitcoin.1

Announcement

In October 2008, a person or group using the false name Satoshi Nakamoto announced to the cryptography mailing list at metzdowd.com: “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” This now-famous white paper published on Bitcoin.org, entitled “Bitcoin: A Peer-to-Peer Electronic Cash System,” would become the Magna Carta for how Bitcoin operates today.23

Satoshi Nakamoto. “Bitcoin: A Peer-to-Peer Electronic Cash System.”

First Block

On Jan. 3, 2009, the first Bitcoin block was mined—Block 0. This is also known as the “genesis block” and contains the text: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” perhaps proof that the block was mined on or after that date.4

Rewards

Bitcoin rewards are halved every 210,000 blocks. For example, the block reward was 50 new bitcoins in 2009. On May 11, 2020, the third halving occurred, bringing the reward for each block discovery down to 6.25 bitcoins. The next halving is expected to occur sometime in 2024, bringing the reward down to 3.125 bitcoins.

Denominations

One bitcoin is divisible to eight decimal places (100 millionths of one bitcoin), and this smallest unit is referred to as a satoshi.

On Jan. 8, 2009, the first version of the Bitcoin software was announced to the Cryptography Mailing List, and on Jan. 9, 2009, Block 1 was mined, and bitcoin mining began.

Bitcoin’s Blockchain Technology

Bitcoin isn’t too complicated to understand as a form of digital currency. For example, if you own a bitcoin, you can use your cryptocurrency wallet to send smaller portions of that bitcoin as payment for goods or services. However, it becomes very complex when you try to understand how it works.

Blockchain

A blockchain is a distributed ledger, a shared database of information that is chained together via cryptographic techniques. “Distributed” means that it is stored on many computers rather than on a centralized server, as is typical of data storage. A network of automated programs installed on these computers maintains the blockchain and performs the functions necessary for it to operate.

A block on a blockchain can be compared to a cell in a spreadsheet that contains a block header, transaction counter, and the transactions recorded in the block. The transaction counter lists how many transactions are in the block, while the block header is made up of several elements:

• Software version: Which version the blockchain is running
• Previous block hash: The encrypted information from the previous block
• Merkle root: A single hash (encrypted information) that contains all the hashed information from previous transactions
• Timestamp: The time the block was opened
• Difficulty target: The current network difficulty problem miners are attempting to solve for
• Nonce: Short for “number used once,” which is used to solve the mining problem and open the block.

Each block contains the hashed information of the previous block. This creates a chain of encrypted blocks that contain information from blocks all the way back to the first block of the blockchain.

Data linked—or chained—between blocks led to the ledger being called a blockchain.

Encryption

Bitcoin uses the SHA-256 hashing algorithm to encrypt the data stored in the blocks on the blockchain. Simply put, transaction data stored in a block is encrypted into a 256-bit (78-digit) hexadecimal number. That number contains all the transaction data and information linked to the blocks before that block.

How to Mine Bitcoin

A variety of hardware and software can be used to mine bitcoin. When the Bitcoin blockchain was first released, it was possible to mine it competitively on a personal computer; however, as it became more popular, more miners joined the network, which lowered the chances of being the one to solve the hash. You can still use your personal computer as a miner if it has newer hardware, but the chances of solving a hash individually using a home computer are minuscule.

This is because you’re competing with a network of miners that generate around 560 quintillion hashes (on Feb. 24, 2024) per second. Machines—called Application Specific Integrated Circuits (ASICs), have been built specifically for mining—can generate more than 300 trillion hashes per second. In contrast, a computer with the latest hardware hashes around 100 megahashes per second (100 million).5

To successfully become a bitcoin miner, you have several options. You can use your existing computer to use mining software compatible with Bitcoin software and join a mining pool. Mining pools are groups of miners that combine their computational power to compete with large ASIC mining farms.

You can increase your chances of being rewarded by joining a pool, but rewards are significantly decreased because they are shared.

If you have the financial means, you could purchase an ASIC miner. You can generally find a new one for around $10,000, but used ones are also sold by miners as they upgrade their systems. There are some significant costs, such as electricity and cooling, to consider if you purchase one or more ASICs. Keep in mind using one or two ASICs is still no guarantee of rewards as you’re competing with large mining farms of hundreds, if not thousands, of ASICs.

There are several mining programs to choose from and many pools you can join. Two of the most well-known programs are CGMiner and BFGMiner. Some of the most popular pools are Foundry Digital, Antpool, F2Pool, ViaBTC, and Binance.com.

When choosing a pool, it’s important to make sure you find out how they pay out rewards, what any fees might be, and read some mining pool reviews