What Is Bitcoin?

Bitcoin is an electronic payment system, but at its core, it’s just a computer program.

When you run the program, it connects to other computers running the same software worldwide. This creates a massive decentralized network that communicates and shares information. And all of this happens for one reason—to share a single file. This file is called the blockchain.

The Blockchain: A Shared Transaction Record

The blockchain is a file that records all Bitcoin transactions. Anyone can create a transaction and insert it into a computer on the network. From there, the transaction is relayed from computer to computer until everyone has a copy. Eventually, this transaction is added to the blockchain, making it a permanent part of Bitcoin’s ledger.

However, this system presents a challenge.

The Double-Spend Problem

A flaw in digital money is the possibility of spending the same unit twice. In Bitcoin, a user could submit two conflicting transactions at the same time—like buying a pizza in one transaction and using the same bitcoin to buy beer in another. If these transactions enter the network from different locations, some computers may see the pizza purchase first, while others see the beer purchase first.

So, who should receive the bitcoin?

Both transactions cannot be written to the blockchain, or it would result in a “double-spend.” But with no central authority to decide which transaction is valid, how does Bitcoin resolve this issue?

The Role of Mining

Bitcoin solves the double-spend problem through a process called mining. Instead of immediately writing new transactions to the blockchain, all pending transactions are temporarily placed in a waiting area called the memory pool. From there, each computer (or “miner”) can select transactions from the memory pool and compile them into a “block.” The competition then begins—miners race to add their block to the blockchain first.

The Mining Competition: Proof of Work

To add a block to the blockchain, miners must process it through a hash function. A hash function scrambles the block’s data and produces a unique random number, called a block hash. The catch? No one knows in advance what number a hash function will generate—it’s entirely unpredictable.

The goal of mining is to generate a block hash that is below a certain threshold. If a miner succeeds, their block is added to the blockchain, and the transactions inside it are confirmed.

Let’s illustrate this with an example:

Suppose I have the beer transaction in my memory pool. I construct a block, include the beer transaction, and put it through the hash function. If the resulting number isn’t below the threshold, my attempt has failed. However, I can slightly modify the data inside the block (e.g., adding a small piece of extra information) and try again.

Mining essentially involves continuously adjusting the block and rehashing it as fast as possible, racing against other miners to be the first to get a valid hash. If I succeed, I broadcast my winning block to the entire network, and all computers add it to their blockchain. Since my block contains the beer transaction, the conflicting pizza transaction is rejected.

Randomness and Fairness in Mining

Interestingly, the beer transaction may have entered the network slightly later than the pizza transaction, but that doesn’t matter. What matters is that a miner working on a block containing the beer transaction got lucky and found a valid hash first. Once that happens, all nodes accept the new block, update their ledgers, and discard any conflicting transactions.

After a new block is added, all miners abandon their current work and start building a new block from the remaining transactions in the memory pool. This cycle repeats roughly every 10 minutes, continuously extending the blockchain.

A Decentralized Payment System Without a Central Authority

Bitcoin’s mining process ensures that no single party controls the ledger, making it an electronic payment system that operates on a decentralized network. It allows anyone to submit transactions, and the network works tirelessly to validate and include them in a shared, tamper-proof ledger.

By solving the double-spend problem through mining, Bitcoin enables a truly peer-to-peer financial system—one that operates without banks, governments, or intermediaries.

That’s Bitcoin.