What is Bitcoin and How does it Work?

In this world, there are many countries, and there are many currencies that are used in these different countries. You might be familiar with different currencies like the pound, euro, dollar, Indian rupee, and many others. But in this article, we are going to understand the new kind of money, which is Bitcoin. So, we will try to understand what is bitcoin, in a simple way.

We would try to understand and solve many of the general questions, like what is bitcoin and How does it Work, what is the need for bitcoin, how many bitcoins are there, and some other questions.

What is Bitcoin and How does it Work?

What is Bitcoin?

This can be the first straightforward question that might come to your mind now, what is bitcoin? Well, a simple answer to this can be – bitcoin is a cryptocurrency! But now, there can be another question, what is a cryptocurrency then?

So, to understand the term cryptocurrency let’s just break it into “crypto” and “currency”. So, we can understand the word “crypto” as secret, and “currency” means currency(or some type of money).

we can say that cryptocurrency means it is a digital currency, which is secured by cryptography. So, bitcoin is a cryptocurrency, which allows secured peer-to-peer transactions over the internet.

What is the need for bitcoin?

To understand the need for bitcoin or cryptocurrency in general, we would have to dive into understanding what is money, and also we would need to concentrate on how the exchanges used to take place in the earlier times when there was no money.

So, the question is that all of us (at least most of us) use money for different things in our daily life. But what is money? Well, money can be understood as something that is given in exchange for something, like some goods or services. So, in exchange for some goods or services, we pay money, so we can say that the money is given in exchange for something valuable.

But many years ago, when there were no banknotes or no coins, how did the exchanges take place? Well, let’s explore that now.

You might have heard about the term bartering or barter system. Many years ago, when there were no banknotes or no coins, the concept of a barter system was followed. Here, the goods and services were directly traded between two or more parties, without the use of money. For example, let’s say that I grow apples, and some other person grows wheat. Now, if I want some wheat, I would go to the person who grows wheat and I will just say to him – “I want 30 Kg of wheat, and in exchange, I would give you 10 Kgs Apples”.

Now, if the other person also wants some apples, then the deal would happen. But there is one issue. What if the other person doesn’t want apples in exchange for wheat, but needs something else? In this case, the deal won’t happen, and I won’t get wheat. Also, there was a potential possibility that the apples that I have given in exchange, might not be usable, for further trades.

So, for this, gold began to be used as a medium. So, if I want some wheat, I would give some gold to the person who grows wheat, in exchange for wheat. The good thing was that the person who grows wheat could use the gold to buy other things. But the bad thing was that the gold in large amounts was hard to carry, and also to buy some small stuff, we needed to break gold into pieces, which was again not so convenient.

To overcome this another thing came into the picture. There were some governments, or authorities, to whom we gave our gold, and in exchange, they gave us some notes, which would be used for exchange. This was very convenient because now it was very easy to carry the notes.

Nowadays, the banknotes that we use have a specified value, because the authority says that it has that value. So, this is also quite based on trust. Even beyond that, we also do some online transactions, through net banking, and other applications.

The thing is that when we are doing traditional transactions, there are some trusted parties involved. So, when the transaction is happening between person A and person B, there are some trusted parties involved.

So, imagine if there was something, which was based on some proof, rather than on trust, and between person A and person B, the transaction would have happened without any involvement of trusted parties, or any third parties.

This is where the concept of Bitcoin comes into the picture. So, bitcoin is a 100% digital(virtual) currency, which is designed to act as money, and a form of payment, which is outside of the control of any individual, group, or organization, removing the need for the involvement of any third party in the transactions.

Who created Bitcoin?

Well, this is a super interesting question with a super interesting answer. Bitcoin was created by Satoshi Nakamoto. This is a pseudonym used by the creator or the creators of Bitcoin. So, it is not really known who Satoshi Nakamoto is!

Bitcoin was introduced to the public in the year 2009, and the interesting thing is that bitcoin was the first cryptocurrency. Inspired by its popularity, many other cryptocurrencies have been developed.

What is blockchain technology?

Since we are now familiar with the fact that bitcoin is based on blockchain technology, let’s try to briefly understand this blockchain technology.

We can understand the blockchain as a digital ledger of transactions, distributed in a network of over thousands of computers. It contains the history of every bitcoin transaction.

The information here is stored in such a way, that it becomes very difficult to play with the data. The blockchain is distributed in the entire network. No individual, company, or third party can have control over it, and anyone can become a part of the network.

How many bitcoins can be issued?

The thing is that our bank notes can be unlimited. They can be printed more and more, so, what is in the case of bitcoin? Are bitcoins unlimited too? Or is there a fixed number of bitcoins that can be issued? So, the thing is that there are only going to be 21 million bitcoins issued(mined).

New bitcoins are created using the process of mining. It is the process in which the bitcoin transactions are confirmed and secured by the blockchain. The miners get a certain amount of bitcoins as a reward.

Disadvantages of Bitcoin

Bitcoin is an amazing thing, but there are some disadvantages that need to be taken into account. So, understanding this, here are some of the disadvantages of bitcoin, which we need to be aware of.

  • Volatility

You might have seen the bitcoin prices, rising and falling at times. So, we can say that bitcoin is volatile(fluctuation). So, if you are buying some bitcoin, then the thing is that we do not know whether your money is going to grow, or we are going to face a loss. So, there is quite an uncertainty about the future price or predictions. Also, the thing is that the amount of bitcoins that can be mined is capped at 21 million.

  • Bitcoin transactions are irreversible

Bitcoin transactions are irreversible. So, let’s say that you are sending bitcoins to someone, and you send the wrong amount or let’s say you send a huge amount of bitcoins to the wrong address, the transaction would be irreversible.

  • Bitcoin mining consumes a lot of electricity

Bitcoin mining takes up a lot of electricity. This is not good for the environment unless the electricity is being created from some renewable source.

  • Limited usage

As of now, bitcoin is not widely accepted. This puts a limit on where we are going to spend the bitcoins, just like we spend cash.


As can be seen, bitcoin has come up as a solution to some problems and can be a game changer, but there are some disadvantages as well, which we cannot ignore. Many people say that bitcoin, or cryptocurrency in general, can be the future. We tried to understand bitcoin in a simple language. We hope that we could give you information about bitcoin in simple words.

FAQ About What is Bitcoin

Q: What is cryptocurrency?

Ans: Cryptocurrency, often referred to as crypto, is a digital or virtual currency, which is secured using cryptography.

Q: How to get Bitcoins?

Ans: Well, there are many ways to own some bitcoins. We can buy bitcoins from different available crypto exchanges, or we can also mine. We do not recommend anything related to this, but there are some options available if you want to get into the crypto market. You can explore those options.

Q: How does bitcoin work?

Ans: There are several things behind bitcoin, like cryptography, and blockchain technology, which make bitcoin so powerful, and secure. All the transactions are recorded in a network of thousands of computers, and all check for the authentication of the transaction.

Q: How can I mine bitcoin?

Ans: Mining bitcoins does require special hardware equipment as well, and it takes a lot of electricity as of now. But with all the well-equipped software and hardware, you can also mine bitcoin.

Q: How many cryptocurrencies are there in the world?

Ans: There are more than 10,000 cryptocurrencies in the world.

Q: Which was the world’s first cryptocurrency?

Ans: The world’s first decentralized cryptocurrency is bitcoin.

Q: What is BTC?

Ans: BTC is used as an abbreviation for bitcoin.

Q: What is bitcoin?

Ans: Bitcoin is a digital currency,


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