What is Bitcoin?

What You'll Learn

By the end of this lesson, you'll understand:

  • What Bitcoin is and how it's different from regular money
  • Why Bitcoin was created and what problem it solves
  • How Bitcoin works at a basic level
  • Common misconceptions beginners have about Bitcoin

Introduction

Bitcoin is the first and most well-known cryptocurrency. Think of it as digital money that isn't controlled by any government or bank—you can send it directly to anyone, anywhere, without a middleman.

Created in 2009 by an anonymous person (or group) using the name Satoshi Nakamoto, Bitcoin was designed to be:

  • Decentralized – No single authority controls it
  • Transparent – All transactions are public on the blockchain
  • Scarce – Only 21 million Bitcoin will ever exist
  • Borderless – Send to anyone globally in minutes

Why Bitcoin Matters

Imagine sending money to a friend in another country. Normally you'd use:

  • Western Union (takes days, charges high fees, requires physical locations)
  • Bank wire (takes 3-5 days, charges $25-50 in fees, requires bank accounts)
  • PayPal (freezes accounts, takes 2-3%, not available everywhere)

With Bitcoin, you can send $100 to someone in Japan, Nigeria, or Argentina in about 10 minutes—and they control it immediately, with no bank required.

How Bitcoin Works (Simple Explanation)

1. Digital Only

Bitcoin exists only as computer code. There are no physical coins (those gold “Bitcoin” coins you see are just souvenirs). Your Bitcoin lives in a digital wallet.

2. The Blockchain

Every Bitcoin transaction is recorded on a public ledger called the blockchain. Think of it like a giant shared spreadsheet that everyone can see but no one can cheat:

  • “Alice sent 0.5 BTC to Bob on Jan 15, 2025”
  • “Bob sent 0.2 BTC to Carol on Jan 16, 2025”

This transparency prevents fraud—everyone can verify transactions.

3. You Need a Wallet

To use Bitcoin, you need a wallet (software or hardware) that gives you:

  • Public address – Like your email address (safe to share, so people can send you Bitcoin)
  • Private key – Like your password (never share this—it controls your Bitcoin)

4. Limited Supply

Unlike dollars (which governments can print infinitely), only 21 million Bitcoin will ever exist. As of 2025, about 19.5 million have been mined. This scarcity is part of Bitcoin's value proposition.

Common Misconceptions

❌ “I can't afford a whole Bitcoin”

✅ You can buy fractions! Bitcoin is divisible into 100 million units called “satoshis.” You can buy $10, $50, $100 worth—whatever you want.

❌ “Bitcoin is anonymous”

✅ It's pseudonymous. Transactions are public, but they're linked to wallet addresses (not your real name). However, if someone connects your wallet to your identity, all your transactions are visible.

❌ “Bitcoin is only for criminals”

✅ Bitcoin is used by millions of regular people worldwide for legitimate purposes: remittances, savings, investment, international payments. Criminals prefer cash (which is truly untraceable).

❌ “If I lose my password, I can call customer support”

✅ There's no customer service in Bitcoin. If you lose your private key or recovery phrase, your Bitcoin is gone forever. This is why security is critical.

Real-World Example

Scenario: Maria works in the US and sends money to her family in Venezuela every month.

Traditional way:

  • Western Union charges 8% fee ($8 on $100)
  • Takes 2-3 days to arrive
  • Family must physically pick up cash
  • Venezuelan currency is hyperinflated (loses value daily)

With Bitcoin:

  • Maria buys $100 of Bitcoin on Coinbase
  • Sends it to her family's Bitcoin wallet
  • Transaction fee: $1-3 (depends on network congestion)
  • Arrives in 10-30 minutes
  • Family can hold in Bitcoin (stable) or convert to local currency

Bitcoin solves real problems for people in countries with unstable currencies or restrictive banking systems.

Key Takeaways

  • Bitcoin is digital money not controlled by banks or governments
  • All transactions are recorded on a public blockchain (transparent but pseudonymous)
  • Only 21 million Bitcoin will ever exist (scarce like gold)
  • You can buy fractions of Bitcoin—you don't need to buy a whole coin
  • If you lose your private key, your Bitcoin is gone forever—security is your responsibility

What's Next?

Now that you understand what Bitcoin is, you're ready to learn how to actually buy it. In the next lesson, we'll walk through choosing an exchange, creating an account, and making your first purchase.

Continue to: How to Buy Your First Crypto

Additional Resources