What is Bitcoin? How Does it Work? Let's Find Out

Bitcoin is a cryptocurrency, or virtual currency, that can be traded, exchanged, and used as a form of payment independent of central banks and governments. Simply put, Bitcoin functions as money that does not require the involvement of a third party to facilitate transactions. Instead, Bitcoin uses a peer-to-peer model supported by blockchain technology. Peer-to-Peer (P2P) technology enables participants to conduct transactions without the use of a middleman.

What is Bitcoin?

Bitcoin (BTC) is a digital currency (also called a virtual currency) that was created in 2009, and it was the first-ever cryptocurrency. Bitcoin can be traded, exchanged, and used as a form of payment, completely independent of central banks and governments. This is why it is called a peer-to-peer currency. It doesn’t need a central authority to operate.

Instead, Bitcoin’s peer-to-peer (P2P) model works using a blockchain.

What is Bitcoin?

Bitcoin was created by an anonymous developer (or perhaps a group of developers) using the fake name Satoshi Nakamoto. Satoshi Nakamoto's original concept for Bitcoin was an electronic payment system based on cryptographic proof.

Bitcoin was the world’s first cryptocurrency. Even all these years later, and with thousands of other cryptocurrencies on the market, it still holds the position of being the most valuable cryptocurrency, with the highest market capitalisation. This means that more people have invested in Bitcoin than in any other cryptocurrency.

Bitcoin has also grown in popularity as a type of payment. Bitcoin owners can use the crypto to buy items and services from merchants and retailers who accept BTC. Even merchants on Shopify can accept Bitcoin, among other big names.

How does Bitcoin work?

Bitcoin operates on a distributed ledger (think of it like a shared database) called a blockchain.

A blockchain is made up of blocks that are arranged by date, and contain data about each transaction on the Bitcoin network. This information can include the date and time, the parties involved, the total value of the transaction, and a unique identification code.

The blockchain is a public ledger. This means that once a transaction (in the form of a block) is added, it is publicly accessible to anyone. While anyone can see the transactions, it can be hard to determine who made the transactions, unless the wallets involved are named. You can have a nosey at the richest Bitcoin wallets here.

What is Bitcoin mining? How does it work?

Bitcoin mining is when “miners” use powerful computers to add new records of Bitcoin transactions to the Bitcoin blockchain. The job of Bitcoin miners is to put transactions into sequence, in order onto the Bitcoin blockchain.

Miners have to solve hard maths problems to check that each new transaction is real. The first miner who solves the problem and adds a new group of transactions, called a block, to the Bitcoin blockchain gets new Bitcoin as a reward.

If two or even three miners publish a block at the same time, the winning block will be the one that has the most work.

History of Bitcoin price

Since the cryptocurrency's inception in 2009, the price of Bitcoin has fluctuated dramatically. Bitcoin surpassed US$0.10 for the first time in October 2010. By February 2011, it was worth US$1. On November 10, 2021, Bitcoin reached an all-time high of US$68,770. After that, the Bitcoin price fell, but in recent weeks, the price is slowly rising again.

You can follow the Bitcoin price here.

How many Bitcoin are there?

At the time of writing, there are around 19 million Bitcoin in circulation.

However, there will only ever be 21 million, but this number is not expected to be reached until the year 2140.

One Bitcoin can be divided into a smaller unit known as a Satoshi. There are 100 million Satoshis (Sats) in a Bitcoin. You can think of Sats as the “cents” of Bitcoin. For example, if one Bitcoin is worth US$65,187.68, then one Satoshi is worth US$0.0006518768.

How is Bitcoin different from traditional money?

Traditional currencies are usually issued by governments. Bitcoin is a peer-to-peer monetary system that is not controlled by a central authority.

Traditional currencies have a physical version, such as coins or notes (although this is fast disappearing). Bitcoin, on the other hand, is a digital currency, with no physical version.

Traditional currencies are a legal medium of exchange because they are backed by their respective governments. But Bitcoin isn’t welcome everywhere. It is illegal in several countries, however this may change as governments change.

Traditional currencies are printed by the government, and these governments can print more money whenever they feel like it. It is hard to know, therefore, how much money is actually in circulation. Bitcoin, on the other hand, has a fixed limited supply of 21 million Bitcoin. So the amount in circulation can’t be manipulated to get a desired outcome by anyone.

Is Bitcoin a good investment?

Cryptocurrencies are highly speculative, and investors should only invest what they can afford to lose. However, Bitcoin is one of the most stable and least volatile cryptocurrencies. Bitcoin's value is expected to rise further as it becomes more widely used as a medium of exchange.

How to buy Bitcoin?

You can buy BTC by signing up to CoinJar. The services available to you depend on the crypto regulatory policies in the state or country you live in. A step-by-step guide on how to do this is on the CoinJar website.

How to store Bitcoin?

You will need a place to keep your Bitcoin safe and secure after you buy it. This place is called a wallet. There are different kinds of wallets, such as online or offline wallets.

Online wallets (also called hot wallets) are connected to the internet and let you do things like pay for things or use apps. Offline wallets (also called cold wallets) are not connected to the internet and are good for keeping your Bitcoin for a long time.

CoinJar also gives you an online wallet to store your Bitcoin. You can use CoinJar to send and receive Bitcoin from other people or places. You can also use CoinJar to change your Bitcoin into other currencies or cryptocurrencies.

How to store your Bitcoin in a wallet

To store your Bitcoin after you buy it from CoinJar, you have two options:

-You can keep it in your CoinJar online wallet. This is easy and convenient especially if you want to use Bitcoin to pay for things and to trade for other cryptos. However, if an exchange gets hacked or goes bankrupt, then you could be at risk of losing your crypto.

-You can move your Bitcoin to your own offline wallet. This is more secure for the long-term. But it also means that you have to take care of your offline wallet and not lose it or forget your password. If you lose your offline wallet or your password, you will lose your Bitcoin forever.

What happens if you invest $100 in Bitcoin today?

It is important to say that before you start reading this section, no one can know what will happen in the future to any cryptocurrency price for certain. We can take educated guesses, but that’s all it is: A guess.

With that said, the price of Bitcoin is expected to rise in the next few years. But this depends on a whole ball of factors such as adoption by mainstream institutions and regulation.

Therefore, investing $100 in Bitcoin today could result in different outcomes, depending on when you sell your Bitcoin and how the market performs.

One possible positive outcome is that Bitcoin continues to grow in value and reaches new highs, as some experts predict.

For example, if Bitcoin reaches US$1.48 million by 2030, as Cathie Wood, CEO of Ark Invest suggests, then your US$100 investment today (with BTC worth US$42,830.60 at the time of writing) would be worth about US$3452.

While this is possible, it is a really, REALLY optimistic outcome.

Don’t forget there’s another scenario. If Bitcoin crashes and loses most of its value, then your $100 investment today would be worth absolutely nothing.

Of course, these are just hypothetical scenarios. Bitcoin is an unpredictable asset, however, it is fun to think about!

Can you convert Bitcoin to cash?

Yes, you can convert Bitcoin to cash using CoinJar. There are two main ways to do this.

The first way is to use the buy/sell tab in CoinJar, where you can sell your Bitcoin for local currency and deposit it into your CoinJar’s cash account. From there, you can withdraw your cash to your linked bank account or use it to buy other cryptocurrencies.

The second way is to use the CoinJar Card, which is a crypto debit card that allows you to spend your Bitcoin directly at any place that accepts Mastercard.

CoinJar Card will automatically convert your Bitcoin to cash using CoinJar’s best rates whenever you make a purchase.

Why is Bitcoin real money?

Bitcoin is real money because it meets the criteria of money, such as being a store of value, a unit of account, and a medium of exchange. This is despite not being used by traditional financial institutions.

However, Bitcoin is not the same as fiat currency, which is issued and backed by governments. Bitcoin prices can be subject to market fluctuations, which can affect its purchasing power.

However, Bitcoin is real money: A new and innovative form of money that challenges the traditional notions of what money is.

While Bitcoin is not accepted everywhere, it has the potential to offer more benefits as more people adopt it.

What are Bitcoin hard forks?

A Bitcoin hard fork is a change to the way Bitcoin works, which can create a new cryptocurrency.

Imagine Bitcoin is like a train track that keeps growing as more people join the ride. Sometimes, some people want to change the direction or the speed of the train, but not everyone agrees. So they decide to split the track into two different paths, each with their own rules.

This is called a hard fork, and it makes two separate versions of Bitcoin that can’t work together. Bitcoin has done this many times before, and some of the new tracks have become their own coins with different names.

Bitcoin Cash and Bitcoin Gold are two of the most successful Bitcoin hard forks.

However, Bitcoin XT was the first notable Bitcoin hard fork. Bitcoin XT was a brief success but ultimately lost momentum as users lost interest and abandoned the project.

Some other Bitcoin forks are Bitcoin Classic, Bitcoin Unlimited, and Bitcoin Satoshi Vision.

Frequently Asked Questions

Is Bitcoin a good investment?

Cryptocurrencies are highly speculative, and investors should only invest what they can afford to lose. However, Bitcoin is one of the most stable and least volatile cryptocurrencies. Furthermore, Bitcoin's value is expected to rise further as it becomes more widely used as a medium of exchange, and finds new use cases.

How to buy Bitcoin?

You can buy BTC by signing up to CoinJar. The services available to you depend on the crypto regulatory policies in the state or country you live in.

How to store Bitcoin?

After buying Bitcoin, you can store it on an exchange or in a non-custodial wallet that you maintain control over. If your BTC is held in an exchange, the exchange also maintains control over it.

What is Bitcoin?

Bitcoin is a cryptocurrency, a completely digital form of money that operates on a decentralised peer-to-peer network. Unlike traditional currencies, it is not controlled by any central authority or middlemen. Think of it as cash for the internet.

Who created Bitcoin?

Bitcoin emerged in 2009, thanks to an anonymous developer (or a group of people) using the name Satoshi Nakamoto. The true identity of Nakamoto remains a mystery, adding to the intrigue around Bitcoin’s origins.

How does Bitcoin work?

Bitcoin is digital money. Behind the scenes, the Bitcoin network shares a public ledger called the blockchain, which contains every transaction ever processed. Digital signatures protect the authenticity of each transaction, allowing users full control over their Bitcoin addresses.

Is Bitcoin worth anything?

Yes, Bitcoin has value. Its price can be volatile, but it has gained recognition as a store of value and a hedge against inflation. Its scarcity and decentralised nature contribute to its perceived worth.

How can I get Bitcoin?

You can acquire Bitcoin through various cryptocurrency exchanges. Simply create a wallet, purchase Bitcoin, and securely store it.

What’s the history behind Bitcoin?

Bitcoin’s journey began with the publication of a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto. The first Bitcoin block was mined in 2009, marking its official launch.

Why is Bitcoin so popular?

Bitcoin’s popularity stems from being the world’s largest cryptocurrency by market capitalisation. Its decentralised nature, secured by proof-of-work consensus, appeals to those seeking financial independence.

What is the price of Bitcoin?

The price of Bitcoin is highly dynamic and can fluctuate significantly within short time frames. It is influenced by market demand, investor sentiment, macroeconomic factors, and regulatory developments. To find the current price, simply check this page on CoinJar, which will give you the price 24/7.

How do I buy Bitcoin on CoinJar?

To buy Bitcoin on CoinJar, follow these steps. Create an account on the CoinJar platform. Complete the necessary identity verification process. Deposit funds in the form of your local currency. Navigate to the trading section, select Bitcoin, and place a buy order. Once purchased, transfer your Bitcoin to a secure wallet.

How do I store Bitcoin once I buy it on CoinJar?

After buying Bitcoin on CoinJar, consider these storage options.

CoinJar Wallet - CoinJar provides its own wallet service. It is very convenient, however it is an online wallet, so rarely these can be subject to hacks. These online wallets are also known as hot wallets.

External Wallets - If you want to hold on to your Bitcoin for a while, you can transfer your Bitcoin to an external wallet. Hardware wallets (also known as cold wallets) are best for long-term storage.

Why is buying Bitcoin a good idea?

Buying Bitcoin can be advantageous for several reasons.

Bitcoin adds diversity to your investment portfolio beyond traditional assets like stocks and bonds.

Some view Bitcoin as a hedge against fiat currency devaluation due to its limited supply (only 21 million will ever exist).

Historically, Bitcoin has delivered substantial returns, although it comes with higher volatility.

However prices of all cryptocurrencies are volatile. It’s within the realm of imagination that Bitcoin could fall to zero. No one has a crystal ball to see the future! So only invest what you can afford to lose.

Is Bitcoin a good investment?

The suitability of Bitcoin as an investment depends on your risk tolerance, financial goals, and understanding of the crypto market. While it has the potential for significant gains, it also carries risks. Research thoroughly and consider professional advice before investing.

Can I use my Bitcoin to pay for things?

Yes, you can use Bitcoin for transactions. Some online retailers, travel agencies, and even local businesses accept Bitcoin as payment. However, widespread adoption is still evolving, and transaction fees can be high. So be sure to work out what fee you need to pay before buying. Ensure the recipient accepts Bitcoin before attempting to use it for purchases.

What is the correct way to write Bitcoin?

While asking What is a Bitcoin you might find some unusual spellings of the cryptocurrency! There are some wild interpretations out there including bit coin, Butcoin, Bitcoin cryptocurrency, and Bitcoin crypto, and Bitcoins. However the correct spelling is Bitcoin, and the plural is generally agreed to be Bitcoin. Bitcoin is also written as BTC, which is also correct.

What is Bitcoin Mining?

Bitcoin mining is like a digital treasure hunt where miners use powerful computers to compete against other miners to solve tricky math puzzles. These puzzles verify Bitcoin transactions and add them to a shared record called the blockchain. When a miner adds a block to the blockchain, and everyone agrees it’s legit, this keeps the Bitcoin network working properly.

When the miners succeed, they earn new Bitcoin as a reward.

How much is $1 Bitcoin in US dollars?

At the time of writing, one US dollar is 0.000023BTC. In Australian dollars, $1 is 0.000015BTC.

Dollars can be broken down into cents, and a Bitcoin can be broken down into Satoshis.

How many Satoshis are in a Bitcoin?

There are 100 million Satoshis in a Bitcoin. You can think of a Satoshi as a tiny fraction of a whole Bitcoin — like a single drop in an ocean of digital currency.

Sometimes, expressing prices of goods and services in Satoshis instead of BTC is more convenient. For example, imagine you’re buying a coffee that costs $4. At current exchange rates, this translates to 0.0001410 BTC, which is an awkward number for everyday use. If we express the price in Satoshis, it becomes 14,100 Satoshis, which is definitely more human-friendly. Satoshis are also commonly used by Bitcoin wallets to calculate transaction fees.

Other Bitcoin Denominations

Besides Satoshis, there are other denominations of Bitcoin.

MilliBitcoin (mBTC): 1 mBTC equals one thousandth of a Bitcoin. It’s a nice middle ground between the Satoshi and Bitcoin.

CentiBitcoin (cBTC): 0.01 BTC

MicroBitcoin (uBTC): 0.000001 BTC

Satoshi: 0.00000001 BTC

Is Bitcoin actual money? Is Bitcoin just money?

The debate over whether Bitcoin is “real” money continues. But it actually fits the definition of money really well. Like traditional money, Bitcoin can be used to buy goods and services. Some businesses accept it as payment. Many people view Bitcoin as a store of value, similar to gold. Its scarcity (limited supply) contributes to this perception.

Unlike government-issued fiat currencies (such as the Australian dollar), Bitcoin is not legal tender everywhere. And, of course, Bitcoin’s price can swing wildly, making it riskier than stable fiat currencies.

Summary

Bitcoin is a digital currency that can be traded, exchanged, and used as payment without the intervention of central banks or governments. To conduct transactions without the use of a middleman, Bitcoin employs a peer-to-peer model supported by blockchain technology.

Bitcoin’s blockchain is a publicly accessible ledger. It's also a decentralised technology, which means it's not governed by a single entity or government.

To validate transactions and maintain network security, Bitcoin relies on a network of computers and participants known as miners.

Miners use computers with high processing speeds and computing power to solve complex mathematical problems, keeping the network healthy.

While both are used as a medium of exchange, Bitcoin is very different from traditional money systems.

Bitcoin has grown in value and popularity over the years. Its growth is expected to continue in the future. And this means that the Bitcoin price may go up. Fingers crossed!

Definitions

Bitcoin (BTC): A cryptocurrency that can be traded, exchanged, and used as a form of payment independent of central entities and governments.

Peer-to-Peer (P2P) monetary system: A model that allows participants to conduct transactions without the intervention of a third party.

Blockchain: A publicly distributed ledger made up of blocks that are arranged chronologically and contain data about each transaction on the Bitcoin network, including the date and time, the parties involved, the total value transacted, and a unique identification code for each transaction.

Decentralised: Free from control by a central entity.

Bitcoin mining: Procedure for validating new transactions on the Bitcoin blockchain and creating new bitcoins. Miners can keep the Bitcoin to fund more mining or sell the new Bitcoin to make a profit.

Proof-of-Work (PoW): An energy-intensive consensus mechanism in which participants solve complex mathematical problems to validate the legitimacy of a blockchain transaction.

Bitcoin hard fork: A significant modification to a blockchain protocol that results in two separate branches of the network with different potential futures.

Satoshi: the smallest unit of Bitcoin.

Private key: A private key is a secret code that allows you to access and manage your cryptocurrency funds.

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