How Bitcoin Works

People using bitcoin

How is it created?

Instead of being made on a printing press or by a central authority, Bitcoins are created through software available to anyone. Individuals and groups willing to dedicate computer processing power to support the Bitcoin network are rewarded with Bitcoins for their work. This process is known as mining. Most Bitcoin users do not mine, but purchase or trade for their Bitcoins. Mining doesn't affect the average Bitcoin user much, but is still a very important part of the Bitcoin ecosystem.

How is it secured?

All newly mined Bitcoins, along with every transaction, are publicly recorded. This record is known as the blockchain. While the blockchain records transaction details, it does not record any personal identifying information about the senders or recipients.

The blockchain is a critical feature to maintain the transparency of the Bitcoin system, and make counterfeiting or double spending impossible.

What Happens When a Bitcoin is Sent?

Let's say you want to give 1.35 Bitcoins to a friend to pay for gas on a roadtrip:

Find out your friend's wallet address by typing, pasting, or simply scanning it. You can save the address for easy payment in the future.

Convert your desired currency amount into Bitcoin (Calculator/device changing dollars into bitcoins).

Verify the payment amount and send!

The amount in Bitcoin is now deducted from your balance, and entered into the blockchain as a transaction so they cannot be spent twice.

Your friend immediately sees the unverified transaction.

The transaction is verified on the network, and then deposited into your friend's wallet.

Bitcoin Mining


Bitcoins in circulation

(which is $1,358,315,775 in USD)

While Bitcoins are created through mining, there's a limit to the number of Bitcoins that can be mined. This is to prevent inflation. After the year 2140, no more Bitcoins will be created, and the total amount ever available is fixed at 21 million.

Bitcoin Usage Tips

  • While Bitcoin is growing every day, it’s still an experiment in the future of currency and trade.
  • The price of bitcoin can be volatile as the economy is still in its infancy.
  • Much like cash, Bitcoin payments are irreversible.
  • Security is very important with Bitcoin, so it's critical to use all methods available to protect your wallets and accounts.
  • Bitcoin is not “anonymous” as all transactions are stored publicly and permanently, but your identity remains private until you chose to reveal it during an exchange (pseudoanonymity).
  • Bitcoins are taxable since most governments consider anything with value to be subject to taxes, though this is typically only after you sell your Bitcoins (capital gains). They may also be subject to sales taxes in certain jurisdictions. Please check your local regulations to better understand these rules.