How Bitcoin Works

Why It Can't Be Printed

There will only ever be 21 million bitcoin. New coins enter circulation as a reward to miners, and that reward is cut in half every 210,000 blocks, roughly every four years. The April 2024 halving took it to 3.125 bitcoin per block. The schedule is written into the software that every participant runs, so nobody can change it alone.

Nodes: The Rule-Checkers

A node is a computer running the Bitcoin software. Anyone can run one. Nodes check every transaction and every block against the rules, and they simply reject anything that breaks them, including a block that tries to create extra coins. Thousands of independent nodes doing this is what enforces the rules, not any company or government.

Mining and Proof of Work

Miners bundle waiting transactions into a candidate block, then hash it billions of times a second, changing a number each time, until they find a hash below a target. There is no shortcut: it is guessing, at enormous scale. The difficulty adjusts every 2,016 blocks so a block is found about every ten minutes. The electricity spent is what makes rewriting history impractical.

Blocks and the Chain

A block is a header plus a list of transactions. The header holds:

• The hash of the previous block
• A fingerprint of this block's transactions (the merkle root)
• A timestamp
• The current target
• The number the miner changed to find a valid hash (the nonce)

Because each header contains the hash of the one before it, altering an old block changes its hash and invalidates every block after it.

Keys and Ownership

Owning bitcoin means holding a private key: a large random number. From it your wallet derives a public key and an address. You share the address to receive; you use the private key to sign a transaction that spends. Anyone can check a signature, but nobody can forge one without the key. That is why "not your keys, not your coins" matters.

Transactions

Bitcoin has no account balances. Each transaction spends whole outputs from earlier transactions and creates new ones, like handing over a note and getting change back. The unspent outputs sitting at your addresses are your balance. Every node can trace each coin all the way back to the block where it was mined.

The Network

There is no central server. Nodes connect directly to each other and pass transactions and blocks along peer to peer, so a new block reaches the whole network in seconds. Take any node offline and the rest carry on. To stop Bitcoin you would have to stop all of them.