What is Bitcoin? All information about Bitcoin and how it works

What is Bitcoin? All information about Bitcoin and how it works

What is Bitcoin? First, let’s split the word into two parts. ‘Bit’ & ‘Coin’. Bit refers to the piece of information in your computer, also known as the values ​​1 and 0.


Digital currencies

You are probably familiar with the word ‘Coin’. Bitcoin and other cryptocurrencies are often referred to as digital currencies because the information is stored digitally. Moreover, Bitcoins are not physical coins and only exist in the digital world.

We are already familiar with digital currencies such as the € and $. Those currencies are also digitized in our bank account. So the logical question you might have is; what is the difference between euro and bitcoin?

Before we get to the differences, let’s take a step back and understand why the Bitcoin was created in the first place.

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The middleman

There are three kinds of people in the world: the consumer, the producer and the intermediary. For example, suppose you want to buy and sell a product on Bol. In this case, Bol, as an intermediary in this example, would charge a hefty fee for your sales if you want to sell your products on their platform. There are even online marketplaces where sellers have to give up to 40% to the intermediary.

As mentioned before, it is important to understand why the Bitcoin was created in the first place. Bitcoin was created to remove the middleman – the banks. If you want to transfer a certain amount from the Netherlands to your family in Morocco, this must be done through an intermediary.

These are intermediaries that collect part of the money you send as compensation. In addition, when the money arrives at your friend or family, your friend or family’s bank charges a fee as well. As a result, the final amount that arrives at your friend or family will be a lot less than what you initially sent.

Centralized Stored Data

In addition to the fees, there is another aspect: the data that these intermediaries store. Banks store a lot of private data of their customers. That is quite a risk if these parties are hacked, which has happened so often.

These reasons alone could give one a reason to develop an alternative system to the one we have now. That’s right, but there is another important reason why the Bitcoin was created. The banks have the power to block or freeze your account at any time.

In addition, banks played an important role in the 2008 financial crisis. Bitcoin started in 2009, just after the start of the crisis. Many people believe that the crisis was a major reason for the creation of Bitcoin.

The Bitcoin was created to try to solve these problems. The Bitcoin has no central authority, just like the internet. This means that no central party can freeze your account. How does that work? We’re going to explain that.

How does Bitcoin work?

The creator of the Bitcoin, Satoshi Nakamoto, created the Bitcoin with three concepts in mind. These are important to understand in order to grasp the bigger picture.

  • Decentralized network
  • Cryptography
  • Demand, supply and scarcity

Decentralized network

When you browse the Internet and type “www.Google.com,” your computer connects to Google’s servers. This allows you to see everything Google has to offer. However, if Google’s servers are down, you will no longer be able to view this content. This is because Google’s data is centrally stored in one place.

The Bitcoin uses a decentralized network. This means that the data is not stored in one place; no, it’s stored everywhere. All the computers that downloaded the Bitcoin software have the same data and are all part of the decentralized Bitcoin network. If one computer went down, it wouldn’t be a big deal since all the other computers have the same data on their computers and the network could continue.


Bitcoin uses cryptography, the “crypto” in “cryptocurrency”. Cryptocurrencies are cryptographically secured currencies. What does cryptography mean? Simply put, it’s a way of hiding information – it’s made of math, computer science, and electrical engineering. Bitcoin uses cryptography to secure transaction data.

Demand, supply and scarcity

An example of supply, demand and scarcity – Amir went to the bakery this morning to buy some bread; however, there was only one loaf of bread left. In addition to him, five other people wanted the same bread. Normally the bread would cost €1 each, but Amir paid €8 for the bread because five others wanted it.

This is the concept behind supply and demand. The more limited something is, the more you can ask for it. The more people want it, the higher the price can rise. You can also compare it with exclusive sneakers.

Bitcoin uses the same concept. The Bitcoin has a limited number – 21 million. These coins are created in steps, so not all of them are in circulation yet. In addition, the number of Bitcoins added to circulation halves every four years. So after 21 million Bitcoins are created, no additional Bitcoins are added to the circulating supply. That’s it.

At the time of writing, 18.7 million Bitcoins have been mined so far. So you’d think we’re almost there. Well, that’s not the case; we still have a long way to go. The last Bitcoin, number 21 million, will be created in the year 2140, so we still have a long way to go.


So, what is Bitcoin? Bitcoin is the first form of decentralized money. It cuts out the middleman and gives people a way to send money from person to person online (peer-to-peer). Because Bitcoin is also scarce with a maximum of 21 million coins, it makes it extra attractive for people to do something with it, such as buying it as an investment. Over the years, Bitcoin has shown us that it is here to stay.

Do you want to learn more about Bitcoin? Then take part in our masterclass ‘Crypto for beginners’.

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