Bitcoin Explained: How the Original Cryptocurrency Works

Bitcoin changed finance by creating digital money that works without banks or governments. This guide explains how Bitcoin functions, why it matters, and how you can trade it on LeveX with our community of traders sharing strategies and insights.

What is Bitcoin?

Bitcoin is digital money that exists only on computers connected through the internet. Unlike traditional currencies controlled by governments and banks, Bitcoin operates through a network of computers around the world. No single person, company, or government controls it.

Created in 2009 by someone using the pseudonym Satoshi Nakamoto, Bitcoin introduced blockchain technology - a system that records all transactions on thousands of computers simultaneously, making them nearly impossible to alter.

The key features that make Bitcoin unique:

• Limited supply: Only 21 million bitcoins will ever exist, creating built-in scarcity similar to precious metals
• Decentralized control: No government or bank can manipulate its value or freeze your assets
• Global access: Anyone with internet access can use Bitcoin regardless of location
• Direct transactions: Send money to anyone without needing permission from banks
• Transparency: All transactions are publicly recorded on the blockchain

How Bitcoin Works

Bitcoin operates through three core components: the blockchain, transactions, and mining.

The Blockchain: A Public Record

The blockchain is a digital ledger that records every Bitcoin transaction ever made. This ledger is:

• Distributed across thousands of computers worldwide
• Updated with new transactions approximately every 10 minutes
• Publicly viewable by anyone
• Nearly impossible to alter once transactions are confirmed

When you send Bitcoin, the transaction is broadcast to this network of computers. Miners verify the transaction, add it to a "block" of other verified transactions, and add that block to the chain of previous blocks - hence the name "blockchain."

Bitcoin Transactions

Sending Bitcoin works differently than traditional banking:

1. You initiate a transaction using your Bitcoin wallet
2. Your wallet creates a digital signature using your private key
3. The transaction is broadcast to the Bitcoin network
4. Miners verify the transaction is valid
5. The transaction is included in a block and added to the blockchain
6. The recipient sees the Bitcoin in their wallet

This process typically takes 10-60 minutes depending on network congestion and the fee you pay.

Mining: How New Bitcoins Are Created

Mining serves two purposes in the Bitcoin ecosystem:

1. Verifying transactions and adding them to the blockchain
2. Creating new bitcoins according to a predetermined schedule

Miners use powerful computers to solve complex mathematical problems. The first miner to solve the problem gets to add the next block to the blockchain and receives newly created bitcoins as a reward. This process:

• Requires significant computing power and electricity
• Currently rewards miners with 6.25 bitcoins per block (approximately every 10 minutes)
• Halves the reward approximately every four years (next halving expected in 2024)
• Will eventually stop producing new bitcoins when the 21 million limit is reached

Bitcoin Wallets: Storing Your Digital Assets

Bitcoin wallets don't actually store your bitcoins - they store the cryptographic keys that prove your ownership. These keys allow you to access and manage your bitcoin on the blockchain.

Types of Bitcoin Wallets

Hardware Wallets: Physical devices that keep your private keys offline and secure. Best for storing larger amounts or long-term holdings.

Software Wallets: Applications installed on your computer or smartphone. More convenient for regular use but slightly less secure than hardware options.

Mobile Wallets: Apps on your smartphone that let you use Bitcoin on the go, often with QR code scanning for easy payments.

Web Wallets: Online services that manage your keys for you. The most convenient but require trusting the service provider with your keys.

Paper Wallets: Physical documents containing your keys, usually as QR codes. Completely offline but require careful handling and storage.

When choosing a wallet, consider the balance between security and convenience that works best for your needs.

Understanding Bitcoin's Value

Bitcoin's price has seen dramatic ups and downs since its creation. Several factors influence its value:

Supply and Demand: With a fixed maximum supply of 21 million coins and growing interest, basic economics suggests upward pressure on price over time.

Adoption Rate: As more people and businesses accept and use Bitcoin, its utility and potentially its value increase.

Market Sentiment: News, social media, and public perception can cause rapid price swings.

Regulatory Developments: Government policies and regulations regarding cryptocurrencies can significantly impact price.

Technological Advancements: Improvements to Bitcoin's technology or competing cryptocurrencies can affect investor confidence.

Bitcoin's historical price movements show significant volatility:

• In 2010, bitcoins sold for less than $0.10
• By late 2017, the price approached $20,000
• In 2018, it fell to around $3,000
• In November 2021, it reached an all-time high near $69,000
• Since then, it has experienced multiple large swings in both directions

This volatility presents both opportunities for traders and challenges for those seeking stability.

Real-World Uses of Bitcoin

Beyond speculation, Bitcoin has found practical applications in various areas:

Store of Value: Many people hold Bitcoin as a long-term investment, similar to gold, especially in countries with unstable currencies.

International Transfers: Bitcoin enables fast cross-border payments without high fees or lengthy delays, particularly valuable for remittances to countries with limited banking infrastructure.

Online Purchases: A growing number of businesses accept Bitcoin for goods and services, from small online shops to major companies.

Financial Freedom: In regions with strict capital controls or unstable banking systems, Bitcoin offers an alternative way to store and transfer value.

Smart Contracts and Applications: Bitcoin's underlying technology enables programmable money and automated financial agreements.

Trading Bitcoin on LeveX

LeveX offers multiple ways to trade Bitcoin with a community-focused approach:

Spot Trading: Buy and hold actual Bitcoin with our intuitive platform. Ideal for those who want to own the asset itself.

Perpetual Contracts: Trade Bitcoin price movements with leverage without owning the underlying asset. This allows for potential profits in both rising and falling markets.

Community Insights: Connect with other traders in our community feed to share strategies and market analysis. Trading together helps everyone make more informed decisions.

Advantages and Challenges

Bitcoin's Advantages

• Financial Control: Own and transfer your money without third-party permission
• Inflation Protection: Fixed supply creates resistance to the devaluation that affects government currencies
• Global Access: Available to anyone with internet access, regardless of banking status
• Transaction Transparency: Public ledger ensures verifiable transactions
• Potential Growth: Historical trend shows significant long-term appreciation despite volatility

Challenges to Consider

• Price Volatility: Significant price swings can occur in short periods
• Technical Learning Curve: Requires understanding new concepts for secure usage
• Evolving Regulations: Regulatory landscape continues to develop worldwide
• Network Scaling: As usage grows, transaction fees and confirmation times can increase
• Security Responsibility: Users must take appropriate measures to protect their keys

Start Your Bitcoin Journey

Bitcoin represents a fundamental shift in how money can work in the digital age. Whether you're interested in trading opportunities, technological innovation, or financial sovereignty, understanding Bitcoin provides valuable insight into the future of finance.

Ready to trade Bitcoin? Create your LeveX account and join our community of traders. Have questions about getting started? Visit our Help Center or ask fellow traders in our community feed.

For more straightforward explanations of popular cryptocurrencies, check out our other guides in the Crypto in a Minute section.