What is Bitcoin (BTC)? A Beginner's Guide

From being an idea on an email mailing list, to having a market cap of hundreds of billions of dollars, Bitcoin (BTC) has experienced unprecedented growth and adoption in just over 16 years. A revolutionary idea when introduced in 2008 by pseudonymous creator Satoshi Nakomoto, Bitcoin has reshaped the concept of money and digital value, paving the way for thousands of other cryptocurrencies in the process. But what actually is this “magic internet money”? Follow this guide as we cover everything you need to know about Bitcoin.

What is Bitcoin?

Bitcoin is the world’s first and most widely recognised cryptocurrency. 

Launched in 2009, it introduced a revolutionary idea: digital money that can be sent securely between individuals anywhere in the world, without relying on banks or governments. Unlike traditional fiat currencies like the U.S. Dollar or Australian Dollar, Bitcoin is decentralised, so no central authority controls its issuance or operation.

Instead, Bitcoin runs on a peer-to-peer network powered by users around the globe. Transactions are verified and recorded on a transparent public ledger called the blockchain. This blockchain keeps track of who owns what, similar to how a bank tracks balances - except it's open to everyone and nearly impossible to alter.

The term “Bitcoin” refers to both the underlying software protocol and the network’s native digital currency, which trades under the ticker symbol BTC.

How to Use Bitcoin?

Bitcoin has evolved from a simple peer-to-peer payment system into a versatile digital asset with multiple roles - including as a medium of exchange, a store of value, and a tool for cross-border transfers.

International Money Transfers: Many people use Bitcoin for cross-border remittances. It allows for faster, more secure, and often cheaper transactions compared to traditional financial systems like SWIFT, which can charge fees as high as 15–20%.

Money Transfer: Bitcoin is commonly used to send money internationally. Many people use it for remittances because it can settle transactions faster, more securely, and often at lower fees compared to traditional financial systems like SWIFT. In some countries, conventional transfer services can charge fees as high as 15–20%, making Bitcoin a cost-effective option.

Store of Value: Often referred to as "Digital Gold," Bitcoin is valued for its long-term investment potential. It shares key features with traditional stores of value:

• Scarcity: Capped supply of 21 million coins
• Durability: Exists purely in digital form, immune to physical decay
• Portability: Can be transferred globally via the internet

Recommended Reading: How to Buy Bitcoin (BTC) Easily in Australia

How Does Bitcoin Work?

From the user’s perspective, Bitcoin is relatively simple to use. All you need is a mobile app or computer program with a Bitcoin wallet, which gives you a unique address to send and receive Bitcoin.

Behind the scenes, however, a powerful system is at work.

Blockchain

All Bitcoin transactions are recorded on a public ledger called the blockchain. When you send Bitcoin, the transaction is broadcast to the network. Special computers called miners verify these transactions and group them into blocks. Once verified, the block is added to the chain, creating a transparent and permanent transaction history.

Security

Bitcoin uses cryptography to ensure the security of transactions. Each wallet has:

• A public key, which acts like your account number for receiving Bitcoin.
• A private key, which is like your unique password and must be kept secure, as it gives access to your funds, similar to a bank PIN.

Only the owner of the private key can authorise transactions from the wallet, making Bitcoin inherently secure - provided the key is not lost or compromised.

Mining

Mining is how new Bitcoins are created and how the network stays secure. Miners use specialised computers to solve complex mathematical puzzles. The first to solve the puzzle validates the transactions in the next block and earns a reward in newly issued Bitcoin, plus transaction fees.

Proof of Work (PoW)

Bitcoin uses a consensus mechanism called Proof of Work (PoW). This means miners must expend real-world computational energy to validate blocks and secure the Bitcoin network. The more computing power that is directed to mining Bitcoin, the more secure the network becomes and harder it is to attack. 

Mining difficulty adjusts roughly every 10 minutes to match the number of miners on the network, helping maintain a consistent block production rate.

Is Bitcoin a Currency?

Yes, Bitcoin is a type of currency, but it's not legal tender in most countries.

Some nations, such as El Salvador and the Central African Republic, have officially recognised Bitcoin as legal tender - requiring businesses to accept it for payments.

However, in most parts of the world, Bitcoin is primarily used as a medium of exchange, investment asset, and store of value. It operates outside of traditional financial systems and isn’t issued or backed by any government - meaning it does not yet carry the same legal status as fiat currencies like the AUD or USD.

Still, its adoption continues to grow, and for many, Bitcoin already functions as a usable, global alternative to traditional money.

Bitcoin’s Key Network Features 

Decentralised: No single authority or central bank controls Bitcoin. Instead, a global network of users (called nodes) collaborates to maintain and validate the system.

Distributed: The blockchain is stored across thousands of nodes worldwide. Even if most nodes went offline, the network would continue to operate.

Permissionless: Anyone, anywhere can participate in the Bitcoin network without needing permission from a central authority. There are no gatekeepers.

Immutable: Once recorded, transactions on the Bitcoin blockchain cannot be changed. This ensures security and resistance to censorship.

Transparent: Bitcoin’s code and transaction history are public, making it one of the most open financial systems in the world.

Bitcoin’s Key Economic Features

Fixed Supply: Bitcoin’s total supply is capped at 21 million coins, making it a scarce digital asset. Of this total supply, just over 19 million bitcoin are currently in circulation, with the last Bitcoin expected to enter the supply in the year 2140. 

Deflationary Design: The rate at which new Bitcoins are created and added to the circulating supply decreases along a defined schedule that is built into the code. The issuance rate is cut in half approximately every four years, in an event known as ‘the halving’. 

Durability: As a purely digital asset, Bitcoin isn’t subject to physical wear or degradation, making it resilient over time.

Portability: Bitcoin can be sent anywhere in the world instantly over the internet - bypassing traditional banking systems and allowing for low-cost, borderless transactions.

Divisibility: One Bitcoin is divisible into 100 million units, called satoshis, enabling microtransactions and everyday use.

Fungibility: Each unit of Bitcoin is interchangeable with any other, meaning all BTC holds equal value regardless of where or how it was acquired.

Acceptability: Bitcoin is increasingly accepted by individuals, merchants, and institutions globally - as a medium of exchange, investment asset, and store of value.

After starting with 50 bitcoins per block in 2009, the current block reward is now 6.25 bitcoin per block. The fourth halving, in 2024, will reduce the issuance to 3.125 BTC, and so on until approximately the year 2136, when the final halving will decrease the block reward to just 0.00000168 BTC.

What Determines the Price of Bitcoin?

Bitcoin’s price is driven by supply and demand in the open market. Many supporters value Bitcoin for its similarities to traditional money and commodities, as well as the advantages it offers as a purely digital form of value. These characteristics contribute to demand and influence the Bitcoin price, which fluctuates based on market activity and sentiment.

Scarcity: With a total fixed supply capped at 21 million Bitcoins, BTC’s supply is more limited than both gold and silver. Its built-in deflationary supply schedule also ensures Bitcoin’s supply cannot be inflated or manipulated in any way making it a ‘hard asset’. 

Demand: Adoption by individuals, businesses, and institutions increases demand. As more people view Bitcoin as a store of value, investment asset, or medium of exchange, price tends to rise.

Macroeconomic Factors: Economic instability, inflation, interest rates, and weakening fiat currencies can boost Bitcoin’s appeal as an alternative store of value.

Market Sentiment: News events, regulatory developments, and public perception often impact short-term price volatility and investor confidence.

Utility: Bitcoin’s role as a decentralised payment system, remittance tool, and financial network adds intrinsic value, beyond speculation.

Institutional Investment: Increased participation by major companies and investment firms adds legitimacy and long-term capital inflows to the market.

Who Created Bitcoin? 

The question of who created Bitcoin is a fascinating one and has been the source of much speculation and investigation for over a decade. However, their real identity has never been uncovered.

What we do know is that the idea for Bitcoin first appeared in a 2008 White Paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. The listed author of the paper is Satoshi Nakamoto, a presumed pseudonym for a person or group whose true identity remains a mystery.

Nakamoto released the first open-source Bitcoin software client on January 9th, 2009. The Bitcoin genesis block was famously tagged with the headline “Chancellor on brink of second bailout for banks”, in reference to the 2008 Great Financial Crisis.

Nakamoto authored a trove of emails and forum posts offering their thoughts about the future of Bitcoin prior to leaving the project completely in late 2010. Today, hundreds of developers contribute to Bitcoin’s code, where they make everything from routine bug fixes to efficiency improvements. 

What is Bitcoin Mining?

Bitcoin mining is the process by which new bitcoins are created and transactions are verified on the blockchain.

Miners use powerful computers to solve complex mathematical problems. The first miner to solve the puzzle gets to add a new block of transactions to the blockchain and receives newly minted Bitcoin plus transaction fees as a reward.

To improve their chances of earning rewards, many miners join mining pools - groups that combine computational resources and share the earnings based on each member’s contribution.

Mining plays two essential roles in the Bitcoin ecosystem:

• Issuing New BTC: New bitcoins enter circulation following a fixed, predictable schedule.
• Securing the Network: Mining keeps the blockchain accurate and tamper-proof by validating transactions without central oversight.

How to Buy Bitcoin?

The easiest way to buy Bitcoin in Australia is through a trusted cryptocurrency exchange like Coinstash.

With Coinstash, you can:

• Buy and sell Bitcoin in minutes
• Access Bitcoin and other cryptocurrencies easily
• Store your Bitcoin securely in our easy-to-use app
• Tap into powerful trading tools, features, and local Australian support

Whether you're just getting started or looking to build your portfolio, Coinstash makes the process simple and secure.

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