What Is Bitcoin and How Does It Work? An Explainer Updated November 8, 2026

Last verified: November 8, 2026, at 21:09 UTC (UTC+00:00).

Bitcoin is a digital currency and payment network that lets people transfer value without relying on a central bank to maintain its transaction ledger. Instead, computers on the network check transactions against shared rules, while a process called mining helps them agree on their order.

For users, the benefit is the ability to send bitcoin directly to a compatible address. The trade-offs include a volatile price, transaction fees, and responsibility for protecting access to funds. In Australia, crypto-assets are not legal tender, according to ASIC's Moneysmart service.

Destaques

• Bitcoin is both a decentralized network and the name commonly used for its digital currency, BTC.
• Transactions are signed with private keys and recorded on a public ledger called the blockchain.
• Miners compete to add blocks, while independent nodes check that those blocks follow the network's rules.
• Bitcoin's supply is designed to approach 21 million coins, but its price and transaction fees can change substantially.

What is Bitcoin?

Bitcoin was introduced in a 2008 paper published under the name Satoshi Nakamoto, and the network launched in 2009. Its goal was to enable electronic payments between participants without requiring a trusted intermediary to process every transfer. The original Bitcoin paper describes the design.

Bitcoin with a capital B often refers to the network or protocol; bitcoin in lowercase refers to the currency. One bitcoin can be divided into 100 million smaller units called satoshis, or sats, so a user does not need to transfer a whole coin.

Bitcoin has no physical form and is not a claim on a company or a government-issued currency. Its market price reflects what buyers and sellers are willing to exchange for it, so scarcity alone does not guarantee a particular value.

How does a Bitcoin transaction work?

Imagine Alice wants to send bitcoin to Bob. Bob provides a Bitcoin receiving address, and Alice enters it and the amount into her wallet. Her wallet creates a transaction and uses a private key to produce a digital signature authorizing the spend. The signed transaction is then broadcast to the peer-to-peer network.

Network participants check whether the transaction follows the rules, including whether the relevant funds are available to spend and the signature is valid. A valid transaction may wait until a miner includes it in a block. Once that block is accepted into the chain, the transaction has one confirmation; each subsequent block adds another.

Confirmations make a transaction harder to reverse, although they do not create an absolute guarantee. The time to the first confirmation varies with network activity, the fee offered, and when a block is found. Bitcoin targets an average of roughly 10 minutes between blocks, not a fixed 10-minute processing time for every payment. See the Bitcoin network overview for the basic process.

What is the Bitcoin blockchain?

The blockchain is a public record of confirmed transactions grouped into blocks. Each block refers to the one before it, creating a linked history. Wallet software uses that history to determine which bitcoin can be spent.

Independent computers known as full nodes verify transactions and blocks against the rules they run. If a miner proposes a block that breaks those rules, validating nodes reject it. When competing valid versions of the chain appear briefly, nodes follow the valid chain with the most accumulated proof of work. The Bitcoin developer documentation explains how this makes past records increasingly costly to alter.

The ledger is public, but addresses do not automatically display a person's legal name. That does not make Bitcoin completely anonymous: transaction histories can be analyzed, and an address may be linked to someone through information held by a service or disclosed elsewhere.

What is Bitcoin mining, and why does it matter?

Mining is the competition to propose the next block using proof of work. Miners use specialized computers to repeatedly calculate hashes until one finds a result meeting the network's difficulty target. The successful miner broadcasts its candidate block, which other nodes independently verify.

The miner of an accepted block can claim a block subsidy of newly issued bitcoin plus transaction fees. The subsidy is reduced by half approximately every four years, after each 210,000 blocks. Under the existing rules, issuance approaches a maximum of 21 million bitcoin. Changes to Bitcoin's rules require adoption by participants; the supply limit is a feature of the current protocol, not a promise about its price.

Proof of work makes rewriting confirmed history costly because an attacker would need to redo substantial computing work and catch up with the valid chain. It also uses electricity, making energy consumption a significant consideration when assessing the network.

What is a Bitcoin wallet?

A Bitcoin wallet is software or a device that manages the keys used to authorize transactions. The coins themselves are represented by entries in the blockchain rather than stored as physical objects inside the wallet. A receiving address can be shared to receive funds; a private key or recovery phrase must be kept secret.

With a self-custody wallet, the user is responsible for protecting and backing up access. A custodial service holds keys on the user's behalf, so access also depends on that provider. In either arrangement, theft, a lost recovery phrase, a failed provider, or a payment to the wrong address can result in losses that are difficult or impossible to reverse. Moneysmart explains these and other crypto-asset risks.

What affects Bitcoin fees and future use?

Users generally pay a network fee to have a transaction included in a block. Fees vary with demand for limited block space and the transaction's data size; a higher fee can improve the chance of faster inclusion, but it does not guarantee a particular confirmation time. Some services also charge their own fees.

Bitcoin's future use will depend on factors including demand, technical development, regulation, and whether services make payments easier. Faster payment systems such as the Lightning Network build on Bitcoin, but they involve their own setup and trade-offs. None of these developments guarantees wider adoption or a higher price.

FAQ

Is Bitcoin the same as blockchain?

No. Bitcoin is a currency and network; its blockchain is the ledger used to record confirmed transactions. Other systems can use different blockchains.

Can a Bitcoin payment be reversed?

There is generally no central operator who can undo a confirmed payment on request. The recipient can choose to send funds back, while confirmations make changes to transaction history increasingly difficult.

Is Bitcoin legal tender in Australia?

No. Moneysmart says crypto-assets are not legal tender in Australia, although people and businesses may agree to use them for payments.