Bitcoin is digital money.

It's a new invention and it's complex. It's unlike any other money or asset. This can make it hard to understand.

We have created a simple explanation, without technical jargon.

And it's concise, only 1,000 words.

How does Bitcoin work?

At its core, Bitcoin is a big list.

The list contains Bitcoin's entire history of transactions. For every transaction, three items are recorded to the list:

Sender

Amount

Recipient

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Think of Bitcoin’s list as a stack of receipts.

Every time Bitcoin is sent a receipt is added to the stack.

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To send Bitcoin, a post must be made to the list.

Let's take a closer look at the list...

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Within the Bitcoin industry, an account number is known as a "Public Address." Herein lies an important point, the list is viewable to the public.

Using websites, called Bitcoin explorers, the public can see the list. You won’t know who anyone is, but you will be able to see Bitcoin’s entire history of transactions.

Why Use a Public List?

The list eliminates disputes.
If a transaction occurred, it will be on the list.

The list provides a receipt for every transaction.
Both parties can easily find their receipt. They can check the list at any time.

The list verifies the balance of every account.
A search of the list for transactions involving a particular account number will provide the instances Bitcoin was sent and received by the account. The difference between the two is the current balance.

Altogether, the list provides an irrefutable history of Bitcoin, as well as proof of all current ownership.

The list is only the first half of Bitcoin

To best understand the other half, let’s take a step back in time, and imagine Bitcoin in a pre-computer world.

Imagine every community has a message board in the center of their town with a list. To send money, a person must go to the board and add a post.

Then imagine towns having runners, going from community to community, sharing all their towns’ posts with each other.

Imagine having so many runners, to the point where every single board, in every single community, was up to date, and looked the exact same.

Now imagine the same system, but with computers...

Instead of posting on physical message boards, a person can post on the list using the internet.

Instead of runners working to share lists, it’s computers. These computers are "running" the Bitcoin list.

Within the Bitcoin industry, the work of computers running the list is referred to as mining.

What is Mining?

Mining is…

the most misleading term in the Bitcoin industry.

Don’t imagine pickaxes and dirt…

Mining is the term for the work done by computers to “run” the list.

Why is it called mining?

There is an aspect of mining in which new Bitcoin are issued. The industry thought the term mining would help people see Bitcoin as digital gold.

We will explain exactly how new Bitcoin are “mined", but first we have to get back to the computers, and their work running the list.

It takes a lot of computing work to run Bitcoin.

Typically this big of a network is built into one supercomputer. The type of computer big enough to fill an entire building.

Bitcoin does it differently

Instead of one central computer, Bitcoin is “running” on numerous small computers.

These computers pool their resources and power to build a globally connected supercomputer.

What does this supercomputer look like?

When Bitcoin first launched, the network was small and the work needed was little. During this time, typical home computers were used to operate the Bitcoin supercomputer.

As the list grew, so did the work required. Custom computers were built, called mining rigs. These rigs were built using lots of hardware to create a more powerful version of a home computer.

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Next came specialized computer hardware designed specifically for mining Bitcoin. These machines far outpace the home computer equipment. However, they do not offer any of the basic functions of a home computer. They solely function to “run" the Bitcoin list.

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Most of Bitcoin’s mining, or “running” is now done by these specialized computers.

Mining is Expensive

The hardware required for these computers costs thousands of dollars.

Operating the equipment also requires significant power usage. This incurs electrical costs for the miner.

Miner - An individual who owns and operates a mining computer.

Why do miners pay money to run Bitcoin?

Bitcoin offers a financial incentive.

Every ten minutes, one random miner is issued 6.25 Bitcoin. This lottery-type system is how new Bitcoin enter the network.

This is the source of the term mining.

"Mining" New Bitcoin

New Bitcoin are released to one random miner every 10 minutes.

This is a fixed and predetermined schedule. It has been this way since day one.

This will continue until the year 2040, at which point 21 million Bitcoin will have been awarded to miners. Bitcoin will then switch to a fee-based system to reward miners.

There will never be more than 21 million Bitcoin. This rule is built into Bitcoin.

Now to recap and bring it all together...

What is Mining?

Mining is a creative solution to the problem of how do you build a big enough computer to operate a global, digital money.

By offering a reward, Bitcoin has a built an incentive for people to connect their computers to the network. Collectively, these computers form a supercomputer.

What is Bitcoin?

Bitcoin is digital money, built around owning and sending 21 million digital coins. Each coin is divisible to 8 decimals.
You can own and send a partial Bitcoin.

In order to transact on the network, a post must be made to the list. To eliminate any dispute, the list is viewable by the public. The list contains Bitcoin's entire history of receipts, as well as irrefutable proof of all current balances.

The list requires substantial computing power to stay updated and “running”. Rather than operating on one central computer, Bitcoin has established a global computer. The work done by computers to “run” the Bitcoin list is called mining. The owners and operators of these computers are called miners.

As a reward for the computing work, one miner is issued 6.25 new Bitcoin. This reward occurs every ten minutes. This reward system will continue until all 21 million Bitcoin have been issued.

That is how Bitcoin works.