What Is Bitcoin?
Bitcoin is a peer-to-peer digital currency that runs on a decentralized network. Its core innovation is a public ledger—the Bitcoin blockchain—that records every transaction without relying on banks or central authorities.
Decentralized peer-to-peer network of miners & nodes
Miners & Mining Pools
Miners secure the network by collecting pending transactions into a block and solving a Proof-of-Work puzzle. The first to find a valid block hash earns the block reward plus fees.
- Specialized hardware (ASICs) runs hashing algorithms at trillions of guesses per second.
- Mining pools like Antpool, Foundry USA & F2Pool combine hashpower to reduce variance in rewards.
- The protocol adjusts difficulty every 2,016 blocks (~2 weeks) to target a 10-minute block time.
Nodes & Network Health
Nodes enforce protocol rules and propagate data. Types include:
- Full Nodes download and verify all transactions & blocks (e.g., Bitcoin Core).
- Light/SPV Nodes keep headers & query proof from full nodes—ideal for mobile wallets.
- Lightning Nodes manage off-chain payment channels for instant micro-payments.
- Archive Nodes store historical data for analytics and forensic research.
Peer-to-peer mesh of validating nodes
Wallets & Key Management
Wallets hold your private keys (authorize spending) and public keys (addresses). Main types:
- Hardware Wallets (Ledger, Trezor) keep keys in a secure chip.
- Software Wallets (Electrum, MetaMask) run on desktop/mobile at greater risk.
- Custodial Wallets (Coinbase, Binance) outsource key management to an exchange.
HD wallets derive a tree of addresses from one seed phrase, simplifying backups & privacy.
Exchanges & Liquidity
Exchanges connect buyers and sellers, providing fiat on/off ramps and market liquidity.
- Centralized Exchanges (Coinbase, Binance) use order books and custody user funds.
- Decentralized P2P (Bisq, LocalBitcoins) match peers directly, often non-custodial.
Mixers & Privacy Tools
Bitcoin’s ledger is transparent. Mixers obfuscate transaction links:
- Centralized Mixers (Blender.io) pool funds and return “clean” coins.
- CoinJoin Implementations (Wasabi Wallet, Samourai Whirlpool) coordinate multi-party transactions without trust.
Usage is legal in many regions but sometimes flagged under AML regulations.
Transaction Flow
- Wallet builds & signs a transaction.
- Node validates & propagates it into the mempool.
- Miners pick high-fee TXs, solve Proof-of-Work, publish a new block.
- Full nodes verify & append the block; confirmations begin.
Component Summary
| Component | Role | Examples |
|---|---|---|
| Miner | Secures network & creates blocks | Antpool, Foundry USA, F2Pool |
| Node | Validates data & enforces rules | Bitcoin Core full node, LND node |
| Wallet | Manages keys & signs transactions | Ledger, Electrum, Coinbase |
| Exchange | Provides liquidity & fiat rails | Binance, Coinbase, Bisq |
| Mixer | Obfuscates transaction trails | Blender.io, Wasabi, Samourai |