How does Bitcoin work?

You don’t need to code for this. Afterwards you’ll know why payments can’t be reversed, why fees fluctuate and why nobody can simply create new bitcoin.

The basic problem: who may spend what?

Your bank keeps your account, and you trust it to book things correctly. Bitcoin works without such a party. So every participant has to be able to tell for themselves whether an amount has already been spent – the whitepaper calls this the double-spending problem. The solution: all transactions are announced publicly, and all participants agree on a common order.^[1]

The blockchain: a ledger of linked blocks

The blockchain is a ledger in which nothing is ever rubbed out; new pages are only added at the back. A page is called a blockGlossaryBlockA bundle of transactions added to the blockchain roughly every ten minutes on average. Each block refers to its predecessor by its hash and contains the reward for the miner.In the glossary →× and bundles transactions.

Every block contains the fingerprint (hash) of its predecessor, which links all blocks together. Change a single detail in an old block and its fingerprint changes, so none of the following blocks fit any more. With every new block, changing an older one after the fact therefore becomes more expensive.^[2]

On average, a block is added every ten minutes; this target is set in the code.^[3] The first block is number 0 and is called the genesis blockGlossaryGenesis blockThe very first block of the Bitcoin blockchain, created on 3 January 2009. It contains a newspaper headline about bank bailouts – and its reward of 50 BTC can never be spent, for technical reasons.In the glossary →×.^[2] The chain currently stands at block 970,043.^[4]

Transactions: money with a signature

Bitcoin has no account balances, only individual amounts – like banknotes in a wallet. Each is tied to a condition, usually: ‘Whoever signs with the matching key may spend this.’

A transactionGlossaryTransactionA signed message that transfers bitcoin from existing outputs (UTXOs) to new outputs. It only counts as confirmed once it is in a block – and after that it can practically no longer be reversed.On the learning path: Stage 5 · Step 4 – First withdrawal →In the glossary →× uses up one or more of these amounts as inputs and creates new outputs from them.^[5] Each output can be spent only once; a second attempt is an invalid double spend.^[2]

Example: Anna has an amount of 0.05 BTC and sends Ben 0.01 BTC. Her transaction uses up the whole 0.05 BTC: 0.01 BTC goes to Ben and 0.039997 BTC goes back to one of Anna’s addresses as change. The remaining 300 satsGlossarySatoshi (sats)The smallest unit of Bitcoin: 1 satoshi (‘sat’ for short) equals 0.00000001 BTC, so one bitcoin consists of 100 million sats. The unit is named after Bitcoin’s creator, Satoshi Nakamoto.On the learning path: Stage 1 · Step 4 – Sats & units →In the glossary →× (0.000003 BTC) appear in no output – they are the miner’s fee.^[5] How to choose the fee is explained in Transactions & fees.

Your wallet signs every transaction with your private keyGlossaryPrivate keyA secret, randomly generated number that you use to sign transactions and so control your bitcoin. Anyone who knows the private key can spend the bitcoin that belongs to it – it must never fall into anyone else’s hands.On the learning path: Stage 5 · Step 3 – Backing up your seed phrase →In the glossary →×. Everyone else checks the signature with the matching public key, without ever seeing the secret key.^[5] How these keys are created is covered in Keys, addresses & seed phrases.

A payment’s journey

1. Your wallet builds and signs the transaction

   You enter the recipient’s address, the amount and the fee. The wallet selects suitable earlier amounts and signs on your device.

2. Nodes check and spread it

   Every full node checks the transaction before passing it on; one with a wrong signature, for example, goes no further.^[6]

3. It waits in the mempool

   Nodes hold unconfirmed transactions in a temporary store, the mempoolGlossaryMempoolThe buffer in which a node collects valid but still unconfirmed transactions until a miner includes them in a block. There is no central mempool – every node keeps its own.On the learning path: Stage 5 · Step 4 – First withdrawal →In the glossary →×.^[6] Miners prefer transactions with a higher fee per amount of data, measured in sat/vB; when many transactions are waiting, the fee you need rises.^[7],[5] The recommended fee for the next block is currently 2 sat/vB.^[8]

4. A miner includes it in a block

   Miners assemble a candidate block from the mempool and search for the solution to the computing puzzle. Whoever finds it first spreads the block.

5. All nodes check the new block

   Are all the signatures correct? Is nothing spent twice? Is the reward correct? Only then does each node add the block to its copy of the chain.^[6],[9]

6. Confirmations build up

   Once your transaction is in a block, it has one confirmationGlossaryConfirmationA transaction has one confirmation as soon as it is in a block; each further block adds one. With every confirmation, it becomes harder to displace the payment after the fact.On the learning path: Stage 5 · Step 4 – First withdrawal →In the glossary →×; every further block adds another. With each confirmation, the probability that an attacker could still reverse the payment falls sharply.^[1]

Nodes: the network’s checkers

A full nodeGlossaryFull nodeA node that checks every block and every transaction itself against all the consensus rules. If you run a full node, you don’t have to trust anyone to know whether a payment is valid.In the glossary →× is a computer running Bitcoin software that checks every block and every transaction itself before passing them on.^[6] It doesn’t have to trust anyone for this, not even a miner. More than 25,000 nodes were publicly reachable in September 2026; nodes that don’t accept incoming connections are missing from this count.^[10] How to run one yourself is explained in Nodes & decentralisation.

Miners: the block builders

Miners create new blocks. To do so, they have to solve a computing puzzle that takes specialised hardware and a lot of energy: proof of workGlossaryProof of workThe method by which miners prove that they have done real computing work for a new block. It lets the network agree on the valid chain without a central authority, and makes rewriting old blocks extremely expensive.In the glossary →×. Anyone wanting to rewrite the chain would have to redo this work – that is how it secures the order of transactions.^[1]

Try it yourself: the four blocks below are linked with real SHA-256; only the puzzle is heavily simplified. Change an entry and see how many blocks you then have to re-mine.

In return, the miner receives the fees of all the transactions in the block plus newly created bitcoin. The newly created amount is currently 3.125 BTC per block and halves every 210,000 blocks.^[3],[9] If a miner pays itself more, the nodes reject the block – no matter how much computing work went into it.^[9]

So miners decide the order, not the rules. Details are in Mining & proof of work and The halving & the 21 million.

Consensus: how everyone agrees on one version

For thousands of independent nodes to arrive at the same state, one rule applies: what counts is the valid chain with the most computing work behind it.^[1]

Dive deeperAnd what if two miners find a block at the same time?

Then there are briefly two versions of the chain. Nodes initially keep building on the block they saw first. As soon as another block follows on one side, everyone switches to that chain; the other block is dropped.^[2] Transactions from the discarded block usually end up in a later block. That is why recipients of larger amounts often wait for a few confirmations.

This interplay is called consensusGlossaryConsensus (consensus rules)The agreement of all nodes on which blocks and transactions are valid and which chain counts. It rests on fixed consensus rules that every node checks for itself – no vote, no boardroom.In the glossary →× and has two levels:

• Which rules apply is decided by each node through the software it runs. As long as almost everyone enforces the same rules, there is one shared Bitcoin.
• Which order applies is decided by the miners’ computing work – within those rules.

If some nodes permanently enforce different rules, a separate chain can emerge. Examples are in Forks & controversies.