Bitcoin in simple terms
Money that runs on an open network
Bitcoin is both a digital asset and a network. The asset is called bitcoin, while the network is the system that records, verifies and transfers it.
Unlike traditional money, Bitcoin does not depend on a single organisation to maintain the ledger. Instead, many independent computers run Bitcoin software and verify the same rules.
This means you can independently check whether a transaction is valid, whether new bitcoin was created correctly and whether the network is following its agreed rules.
Simple definition
Bitcoin is digital money with rules enforced by a decentralised network of independent participants.
Core ideas
The four foundations of Bitcoin
Digital money
Bitcoin can be sent directly between people over the internet without relying on a bank to process the payment.
Fixed supply
Bitcoin has a maximum supply of 21 million coins. New bitcoin is issued according to rules enforced by the network.
Open network
Anyone can use Bitcoin, inspect its rules, run the software or participate in the network.
Decentralised verification
Thousands of independent nodes verify transactions and blocks instead of relying on one central authority.
How Bitcoin moves
What happens when you send bitcoin?
A Bitcoin payment is not a physical coin moving between two people. It is a digitally signed update to the shared Bitcoin ledger.
A transaction is created
A Bitcoin wallet creates a transaction that says which bitcoin is being spent and where it should be sent.
The transaction is signed
The owner proves they are authorised to spend the bitcoin by signing the transaction with a private key.
The network receives it
The transaction is broadcast to Bitcoin nodes across the peer-to-peer network.
Nodes verify it
Nodes check that the transaction follows Bitcoin's rules and that the same bitcoin has not already been spent.
A miner includes it
A miner may include the transaction in a block and compete to add that block to the blockchain.
The block is verified
Nodes independently verify the completed block before accepting it as part of Bitcoin's valid history.
The blockchain
A shared history of valid transactions
The blockchain is Bitcoin’s ordered history of valid transactions. Transactions are grouped into blocks, and each valid block connects to the one before it.
This structure makes it difficult to alter older records. Changing a past block would require rebuilding the work attached to that block and every block that followed.
Every fully validating node can download and independently check this history.
Mining
How new blocks are proposed
Miners gather transactions into candidate blocks and compete to find a valid proof of work. This process requires specialised computing equipment and electricity.
The winning miner broadcasts the block to the network. Bitcoin nodes then check the block independently. A miner cannot force nodes to accept an invalid block.
Miners propose
Nodes verify
Network accepts
Bitcoin nodes
Nodes enforce the rules
A Bitcoin node checks transactions and blocks against the network’s rules. It rejects invalid information and shares valid information with other peers.
Running your own node means you do not have to trust another company’s server to tell you what happened on Bitcoin.
Key properties
What makes Bitcoin different?
Scarce
The supply schedule is predictable and the maximum supply is capped at 21 million bitcoin.
Permissionless
A person does not need approval from a bank, company or government to use the network.
Borderless
Bitcoin transactions can be broadcast across the internet regardless of national borders.
Verifiable
Anyone can run a node and independently verify the blockchain and Bitcoin's monetary rules.
Divisible
One bitcoin can be divided into 100 million smaller units called satoshis.
Self-custodial
Users can control bitcoin directly by holding the private keys to their wallets.
Common misconceptions
What Bitcoin is not
“Bitcoin is controlled by one company.”
Bitcoin is an open network made up of users, developers, miners, businesses and independent nodes.
“A Bitcoin node mines bitcoin.”
A node verifies Bitcoin's rules. Mining and node operation are related but separate activities.
“Bitcoin transactions are completely anonymous.”
Bitcoin is pseudonymous. Transactions are public, but addresses do not automatically reveal a person's identity.
“You need to buy one whole bitcoin.”
Bitcoin is divisible. You can own or send a small fraction measured in satoshis.
Lesson summary
The important points
Bitcoin is both a digital asset and a decentralised network.
Transactions are signed, broadcast and independently verified.
The blockchain is the ordered history of accepted Bitcoin transactions.
Miners propose blocks, but nodes decide whether those blocks follow the rules.
Running a node allows you to verify Bitcoin independently.
Next lesson
What is a Bitcoin node?
Learn how nodes verify transactions, blocks and Bitcoin’s consensus rules.
Open participation
Direct ownership
Independent verification