Got questions about bitcoin? Looking for simple answers that don’t confuse you with technical jargon?
If so, you’ve come to the right place. This guide will help you to understand what bitcoin is, how it works, and how people like you are using it to spend, save, and send.
Sometimes, a simple question like “What is bitcoin?” can have many answers. Let’s start with how, when, and why bitcoin was conceived and created.
Bitcoin was invented by a person (or a group of people) using the pseudonym Satoshi Nakamoto. Even today, nobody knows the real identity of SatoshiLink to: https://en.wikipedia.org/wiki/Satoshi_Nakamoto or what happened to them.
In 2008, Satoshi published a white paperLink to: https://github.com/bitsblocks/bitcoin-whitepaper outlining the idea and design for a “peer-to-peer electronic cash system”. This system would allow people to send payments directly to each other without the need to go through a financial institution (like a bank).
Bitcoin allows people to send payments directly to another person without the need to use a bank account or other financial institution.
In 2009, Satoshi released the first software that allowed people to send and receive bitcoin, privately and safely.
Bitcoin was designed for “small casual transactions”. However, in recent years, many people have come to see bitcoin as a store of wealth rather than a payment method. Some of these people see bitcoin as a short-term, speculative asset (like a foreign currency), while others see it as a long-term, financial investment (like stocks or bonds).
Many people measure the success of bitcoin by its price. However, the real measure of success for bitcoin should be its widespread adoption for “small casual transactions”. This means that people around the world are using bitcoin for their everyday spending, saving, and sendingGo to /stories page.
Bitcoin was designed as “an electronic payment system based on cryptographic proof of work instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Satoshi noted that existing payment systems worked well for most transactions but financial institutions still had to be trusted with your payments.
Bitcoin isn't controlled by governments or banks. It's controlled by a set of rules and a decentralized network of computers that process bitcoin payments.
By contrast, bitcoin isn’t controlled by any governments, banks, or organizations. It’s controlled by a set of rules and a decentralized network of computers.
Bitcoin payments are secure because they’re processed by a network of “miners” distributed around the world. They use the same set of pre-agreed rules for validating and confirming bitcoin payments.
Bitcoin payments are private because they don’t use personal information such as your name, home address, or bank account. Instead, bitcoin payments use unique codes which change every time you send or receive bitcoin.
There’s no right or wrong way to use bitcoin.
Some people use bitcoin to spend a little bit on everyday things.
Some people use bitcoin to save a little bit for their future.
Some people use bitcoin to send a little bit to family and friends.
Some people also use bitcoin as an investment, hoping that its value will increase over time like a rare Pokemon card.
Bitcoin is ideal for people who don’t have (or don’t want) a bank account. They can get paid in bitcoin from anywhere in the world and then use it to buy groceries, clothing, gift cards, and more.
For example, people like Kgathosto in South AfricaGo to /learn/articles/how-kgothatso-uses-bitcoin-in-south-africa-instead-of-a-bank-account page and Tristan in MexicoGo to /learn/articles/how-tristan-in-mexico-uses-bitcoin-for-his-daily-expenses page use bitcoin instead of a bank account for their daily expenses.
It’s estimated that there are over 1 billion adults in the world who have a smartphone but don’t have a bank account. These people are globally connected through the internet but they’re financially isolated. With bitcoin, they can send electronic payments as easily as sending a text message.
Bitcoin is ideal for international payments because transactions are instant and processing fees are typically just a few dollars. You also don’t need a bank account, a passport, or a local Western Union office to send or receive bitcoin.
For example, people like Giovanni in BrazilGo to /learn/articles/how-giovanni-gets-paid-in-bitcoin-in-brazil page get paid from overseas while people like Misha in DubaiGo to /learn/articles/how-misha-uses-bitcoin-to-pay-freelancers-around-the-world page use bitcoin to pay freelancers around the world.
Global remittances in 2023 were worth $815 billion, more than the GDP of most rich countries. Bitcoin is a faster, cheaper, and more accessible solution for millions of people than wire payments or bank transfers.
Bitcoin is ideal for personal savings, especially in countries where people don’t trust the local currency. You don’t need a bank account or passport to buy small amounts of bitcoin and save it in your smartphone walletGo to /wallets page.
For example, people like Tania in Costa RicaGo to /learn/articles/how-tania-uses-bitcoin-for-her-everyday-purchases-in-costa-rica page and Sarah in South AfricaGo to /learn/articles/how-sarah-used-bitcoin-to-save-for-her-move-to-europe page use bitcoin to save a little bit every month for their futures.
There are numerous security and inflation risks when someone keeps all their personal savings in cash. Bitcoin allows them to save more securely with a secure wallet app on their smartphone.
The easiest way to understand how bitcoin “works” is to look at what happens when you send or receive a bitcoin payment.
There are actually two different ways you can send bitcoin to another person.
On-chain bitcoin payments use the “Main Network” to send bitcoin.
Lightning bitcoin payments use the “Lightning Network” to send bitcoin.
In both cases, you’re sending the same type of bitcoin. The only difference is how the bitcoin is sent, how much it costs to send, and how long it takes to process.
On-chain bitcoin transactions are the original way of sending or receiving bitcoin. Here’s a simplified, step-by-step guide on what happens when you make an on-chain payment.
Step 1: You use your bitcoin wallet appGo to /wallets page to initiate the payment. It will ask for the amount of bitcoin you want to send and the bitcoin wallet addressGo to /help-en page of the person that you’re sending it to.
Step 2: Your bitcoin wallet creates a new payment transaction. This includes the recipient’s wallet address and the amount of the payment. It also includes a digital signature that proves you control the bitcoin you’re sending.
Step 3: Your wallet broadcasts your payment transaction to the Main Bitcoin Network. This transaction is then picked up for processing by a network of computers called “bitcoin mining nodes”.
Bitcoin wallet apps don’t actually store your bitcoin on your smartphone. They store the secret keys which are needed when you want to transfer your bitcoin to another person.
Step 4: Your transaction is verified to ensure that it’s correctly formatted, that you have enough bitcoin in your wallet, and that your digital signature is valid.
Step 5: Once your transaction has been verified, it’s sent to a queue called the “mempool” for further processing. This is where verified transactions wait to be confirmed.
Step 6: Computers (or “miners”) in the network select new transactions for processing. They then compete to solve a complex mathematical problem called “proof of work”. Solving this challenge is extremely complicated but also extremely important as it prevents payment fraud and hacking.
On-chain bitcoin payments are processed by a global network of powerful computers. These “miners” validate the bitcoin transaction and record it on the blockchain.
Step 7: The first computer (or “miner”) to solve the challenge gets to add a new block of information to the “blockchain” database. The blockchain is a public ledger for all bitcoin transactions. Everyone can see transactions in the block chain but no one can change them or delete them.
Step 8: Other computers (or “miners”) verify the information added to the block chain. If most of them confirm the transaction, it’s added permanently.
Step 9: After several confirmations, the transaction is considered secure. At this point, the person you’ve sent the bitcoin to will see the payment confirmed in their wallet.
The blockchain is a public record of all bitcoin payments. Everyone can see transactions on the blockchain but no one can change or delete them.
Meanwhile, the computer (or “miner”) that added the transaction to the blockchain will receive two types of reward for their work:
A “block reward” paid by the bitcoin network. The value of the block reward is designed to decrease automatically over many years in a process known as “the halving”.
A “network processing fee” paid by the person making the bitcoin payment. If the network is busy, people can pay a higher price to have their transaction processed first.
The process for an on-chain payment can take anywhere from several minutes to several hours. The amount of time taken depends on two factors:
The volume of transactions being processed through the bitcoin network; and
The network processing fees that people are willing to pay for having their transactions confirmed first on the blockchain.
Lightning bitcoin transactions are a newer way of sending or receiving bitcoin. Here’s a simplified, step-by-step guide on what happens when you make a lightning payment.
Step 1: You use your bitcoin wallet appGo to /wallets page to initiate the payment. It will ask for the amount of bitcoin you want to send and the lightning wallet addressGo to /help-en page of the person that you’re sending it to.
Step 2: Your bitcoin wallet creates a new payment transaction. This includes the recipient’s lightning address and the amount of the payment. It also includes a digital signature that proves you control the bitcoin you’re sending.
Step 3: Your wallet broadcasts your payment transaction to the Lightning Network. This transaction is then routed through a network of “payment channels” until it finds its way to the recipient’s bitcoin wallet.
Lightning bitcoin payments are processed by a global network of “payment channels”. These work in a way that’s similar to how data travels across the internet.
The Lightning Network’s payment channels work in a way that's similar to how data travels across the internet. They both use a decentralized network to route transactions to their destination.
The process for a lightning payment usually takes just a few seconds and processing fees are typically less than a few cents.
It’s important to remember that on-chain payments and lightning payments are both sending the same type of bitcoin. The only difference is how the bitcoin is sent, how much it costs to send, and how long it takes to process.
Many people use both on-chain and lightning payments in the same way that they use both a checking account and a savings account. For example:
They use on-chain payments for larger transactions that need recording on the public blockchain (for example, buying a house); and
They use lightning payments for smaller transactions that need faster processing times and lower fees (for example, buying food).
There are several ways that you can buy bitcoin today: you can use a bitcoin gift card or voucherGo to /learn/articles/what-is-bitcoin-how-does-it-work-and-how-do-i-use-it#buy-bitcoin-with-a-voucher-or-gift-card page, you can use a crypto exchangeGo to /learn/articles/what-is-bitcoin-how-does-it-work-and-how-do-i-use-it#buy-bitcoin-from-a-crypto-exchange page, or you can use a crypto ATMGo to /learn/articles/what-is-bitcoin-how-does-it-work-and-how-do-i-use-it#buy-bitcoin-from-a-crypto-atm page.
Bitcoin gift cards and vouchers are prepaid vouchers that you redeem for bitcoinGo to /help-en page. They work just like digital gift cards or mobile phone top-up vouchers. They’re sometimes called BTC vouchers, crypto vouchers, or cryptocurrency gift cards.
Bitcoin vouchers and gift cards are available from a wide range of online and physical retail storesGo to /buy page. They contain a unique 16-digit code or QR code that you use to redeem your voucher for bitcoin.
The best bitcoin gift cards let you use any wallet to receive your bitcoin. For example, Azteco bitcoin vouchersGo to /learn/articles/what-are-azteco-bitcoin-vouchers page can be redeemed to any bitcoin wallet and you don’t need to create an Azteco account.
Some cryptocurrency gift cards force you to use their own proprietary crypto wallet or platform. Some of them also force you to create an account on their exchange and verify your identity before you can receive your bitcoin.
Bitcoin vouchers and gift cards are the newest and easiest way to buy bitcoin. However, it’s important to choose a brand that respects your privacy and that allows you to use any bitcoin wallet.
Crypto exchanges are online platforms or offline networks that allow people to buy bitcoin. Some crypto exchanges will also insist on controlling the bitcoin that you buy from them.
Many cryptocurrency exchanges are centralized, which means that they set the price and control the transfer of bitcoin between people. They usually charge a significant fee for using their platform and will often insist on transferring the bitcoin to a wallet which they control. BinanceLink to: https://www.reuters.com/legal/binances-ceo-zhao-faces-sentencing-over-money-laundering-violations-2024-04-30/ and CoinbaseLink to: https://www.reuters.com/business/finance/coinbase-says-hackers-stole-cryptocurrency-least-6000-customers-2021-10-01/ are examples of centralized exchanges that control your bitcoin.
Other crypto exchanges are decentralized or peer-to-peer (P2P), which means that they don’t set the price or control the transfer of bitcoin between people. Instead, they connect customers who make their own arrangements for buying and transferring bitcoin. IdexLink to: https://idex.io/ and PaxfulLink to: https://paxful.com/ are examples of decentralized or peer-to-peer exchanges.
Meanwhile, some crypto exchanges look more like mobile apps than exchanges. For example, if you buy bitcoin from Cash AppLink to: https://cash.app/bitcoin or PayPalLink to: https://www.paypal.com you’re effectively buying from a centralized exchange.
Crypto ATMs are physical machines that allow people to buy or sell crypto using local fiat currency.
If you want to buy bitcoin from a crypto ATM, you’ll need to pay with cash or a bank card. Once your payment has been processed, you’ll need to enter your 24-digit wallet address into the ATM or scan a QR code to receive your bitcoin. It may take several minutes for the transfer to be confirmed.
If you want to convert bitcoin to cash using a crypto ATM, you might need to start by verifying your identity with a government-issued ID. You’ll then be given a 24-digit wallet address or QR code to use when transferring bitcoin from your wallet. It may take several minutes for the transfer to be confirmed before the ATM issues your cash.
Crypto and bitcoin ATMs are often promoted as a convenient way for people to buy or sell bitcoin. However, the reality is that they can be expensive to use and difficult to find.Link to: https://coinhubatm.com/
You can earn bitcoin rewards by completing market research surveys. Survey platforms like Prize RebelGo to /bitcoin-vouchers/prize-rebel page and MadaiGo to /bitcoin-vouchers/madai page will match you with relevant surveys and then reward you with bitcoin. The more surveys you complete, the more bitcoin you can earn.
You can also earn bitcoin rewards by completing tasks for brands or other people. For example, some companies use bitcoin to pay content creators that work in different countries. You can even earn bitcoin as a cashback reward.
The next best way to earn bitcoin rewards is from your employer. Many companies offer incentives or seasonal gifts to their staff, and you can now choose to receive a bitcoin gift card as your reward.
Finally, you might be able to earn much smaller amounts of bitcoin rewards by playing online games. However, many of these games offer worthless “alt-coins” as rewards, so always check to make sure that you’re going to receive real bitcoin.
“Bitcoin mining” is the informal term used to describe the processing of bitcoin payments from one person to another. All electronic payments require some kind of processing and bitcoin is no exception.
Bitcoin payments are processed by a network of “miners” who use powerful computers (“mining nodes”) to validate and record transactions on the public blockchain. In return for processing these payments, “miners” earn a share of bitcoin as a reward.
When bitcoin was first launched in 2009, “mining” was a popular and profitable way for people to earn bitcoin. In 2024, however, it’s much more difficult and expensive to run a “mining” operation.
For example, if you use a low-cost computer to run a “mining node”, you’ll probably only receive a small amount of bitcoin. To receive larger rewards, you’ll need to use an expensive computer specifically designed for blockchain processing.
Bitcoin “mining” at home can be very challenging. It requires a significant investment in specialized equipment and a high level of technical expertise.
The blockchainLink to: https://en.wikipedia.org/wiki/Blockchain is a public ledger for all bitcoin transactions. Everyone can see transactions in the blockchain but no one can change them or delete them.
On-chain transactions are always recorded on the blockchain. Lightning transactions use peer-to-peer payment channels (which can be closed to record transactions on the blockchain).
Yes, bitcoin is safe if you take care.
First, you should always use a reputable wallet appGo to /wallets page to manage your bitcoin. You should also keep your passwords and recovery keys private at all times.
Second, you should avoid using bitcoin as a speculative, short-term investment. Remember that the price of shares, currencies, and bitcoin all go up and down over time.
Crypto exchanges have complete control over your bitcoin. If the crypto exchange gets hackedLink to: https://www.nytimes.com/2022/10/07/business/binance-hack.html or makes a mistake, other people can access your account and steal your crypto.
More and more people now prefer to manage their bitcoin using a secure wallet appGo to /wallets page on their smartphone. Many people also now use a BitkeyGo to /bitkey page device for additional security and peace of mind.
Bitcoin is generally considered to be a reliable long-term investment. It’s over 15-years old, it’s never had any security issues, and its usage continues to grow.
However, the price of bitcoin (like the price of stocks and shares) can fluctuate in the short term, so it’s not recommended to use bitcoin for day trading or speculation.
New bitcoins are issued as a reward to “miners” who process bitcoin payments through their network of computers.
There will never be more than 21 million bitcoins issued to “miners”. At the time of writing this article in May 2024, there are approximately 1.36 million bitcoins left to be issued (“mined”).
The last bitcoin is not expected to be issued (“mined”) until around 2140.
Go to page“Satoshis” are the smallest units of bitcoin and are named after its creator, Satoshi Nakamoto.
1 bitcoin is equal to 100 million satoshis.
This means that the price of 1 bitcoin is $60,000 USD, then 1 satoshi is worth $0.0006 USD and 10,000 satoshis are worth $6 USD.
“Bitcoin” (with a capital B) describes the technology that makes bitcoin payments possible. For example, the Blockchain is part of the Bitcoin Network technology.
On the other hand, “bitcoin” (with a lowercase b) describes a unit of value. So, for example, you might say to someone that “Hey, you can buy this camera from me for 100 dollars or 0.000015 bitcoins.”
Here’s a quick, low-risk, low-cost way to try using bitcoin:
Step 1 - Download a free bitcoin wallet appGo to /wallets page to your smartphone.
Step 2 - Buy an Azteco bitcoin voucherGo to /buy page for $10.
Step 3 - Redeem your voucher to receive the bitcoin in your wallet.
You can then send small amounts of bitcoin to family and friends, or buy something online.
Satoshi Nakamoto. "Bitcoin: A Peer-to-Peer Electronic Cash System", https://github.com/bitsblocks/bitcoin-whitepaperLink to: https://github.com/bitsblocks/bitcoin-whitepaper
Wikipedia. “Bitcoin”, https://en.wikipedia.org/wiki/BitcoinLink to: https://en.wikipedia.org/wiki/Bitcoin
Wikipedia. “Blockchain”, https://en.wikipedia.org/wiki/BlockchainLink to: https://en.wikipedia.org/wiki/Blockchain
Wikipedia. “Lightning Network”, https://en.wikipedia.org/wiki/Lightning_NetworkLink to: https://en.wikipedia.org/wiki/Lightning_Network
Lightning Network. “Scalable, Instant Bitcoin/Blockchain Transactions”, https://lightning.networkLink to: https://lightning.network