What is Bitcoin? – Understand its use cases, the technology behind it, and its importance

According to Satoshi Nakamoto, Bitcoin is a peer-to-peer electronic cash system that lets online payments be sent directly from one party to another without involving any financial institution.

What is Bitcoin?

Bitcoin (BTC) is the first cryptocurrency or virtual currency used as a form of payment outside the control of any government, financial institution, or individual. Bitcoin is the first decentralized digital currency that is built entirely through cryptography and based on blockchain technology. Therefore, it is a peer-to-peer electronic cash system that eliminates the need for trusted third-party involvement (e.g., central bank or government) in financial transactions.

It operates on blockchain technology, which is like a digital, transparent ledger that records all Bitcoin transactions worldwide. The ledger is public; anyone can view the transactions that occur on the Bitcoin network.

Bitcoin was introduced to the public in 2009 by a mysterious developer and a group of developers named Satoshi Nakamoto. In 2025, Bitcoin reached its highest value of ₹1,08,00,000 per Bitcoin with a market capitalization of $2.5 trillion. It is the most renowned and largest cryptocurrency in the world. Its popularity has inspired the development of many other cryptocurrencies.

The Birth Of Bitcoin

Why was Bitcoin Created?

To understand the reason for this, we need to go back to 2008, the year of the global financial crisis, when the largest US banks were collapsing due to mortgage loan defaults. Investors lost billions of dollars, and people were losing faith in the traditional financial system. People’s trust in centralized financial systems was declining because of the arbitrariness of banks and financial institutions, which increased the demand for decentralized economic systems.

How Bitcoin Started?

Following the global financial crisis in 2008, an anonymous developer or  group of developers named as Satoshi Nakamoto announced on a cryptography mailing list website that, “I am working on a new electronic cash system that is completely peer-to-peer and has no trusted third parties.” Then, on October 31, 2008, Satoshi released a white paper on Bitcoin via the bitcoin.org website. It was titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.”

This document laid the foundation for a decentralized digital currency that wouldn’t require banks, governments, or any third party to function.

First Block (Genesis Block)

On 3 January 2009, the Bitcoin network was created when the first block was mined by Satoshi Nakamoto. This is known as the genesis block and contains the text: The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” which is the date and headline of an issue of The Times newspaper. This is evidence that the block was mined on or after that date.

Nine days later, Hal Finney received the first bitcoin transaction: ten bitcoins from Nakamoto.

How Does Bitcoin Work?

Bitcoin is the world’s first cryptocurrency that offers a completely decentralised open payment network system without the need for any third party, where anyone can participate with the help of an internet connection. Bitcoin is based on blockchain technology. A long chain of blocks collects batches of transaction data.

Whenever someone sends or receives a bitcoin, that transaction is recorded in a block. Once verified, the block is added to the chain. Every transaction that is completed is recorded in a public ledger, which is distributed across thousands of computers (called nodes) around the world, making it nearly impossible to manipulate or forge transactions.

Only Bitcoin miners can verify Bitcoin transactions. Bitcoin miners are people who mine Bitcoins through computers and high-powered machines. Mining is the process of solving complex mathematical puzzles that validate transactions and add new blocks to the blockchain. In exchange for their services, miners receive some Bitcoins as a reward. This process is called Proof of Work (PoW).

The Bitcoin network motivates miners to participate continuously in the work of maintaining the blockchain. Every 10 minutes, there is a winner, and the winner updates the Bitcoin ledger with new valid transactions.

Bitcoin Value :

Satoshi Nakamoto set up the network in such a way that the number of bitcoins will never exceed 21 million. This means that no one can create more than 21 million bitcoins. Due to the high demand and limited supply of bitcoins, the value of bitcoin ($118000) has increased a lot and is going to increase even more in the future. But its easy divisibility (the ability to buy a small fraction of one bitcoin) has become a key to buying bitcoin.

One bitcoin is divisible to eight decimal places (100 millionths of one bitcoin), and this smallest unit is referred to as a Satoshi.

Blockchain Technology in Bitcoin:

Cryptocurrencies are secured with cryptography and run on blockchain technology, which is the backbone of Bitcoin. The blockchain is a decentralized distributed ledger, meaning it is a shared ledger across the network on many computers. Whenever a transaction happens, it is combined with other recent transactions to form a block. This block is then added to the previous block, creating a continuous, time-ordered chain called the ‘blockchain.’ This entire blockchain is securely maintained and updated by a decentralized network of computers (called a peer-to-peer network).”

A network of automated programs installed on these computers maintains the blockchain and performs the tasks necessary for its operation.

Every participant in the network has a copy of the blockchain; it is almost impossible to manipulate or change it. If someone tries to change any part of the blockchain, they would have to change the entire chain on every node, which is practically impossible due to the massive computing power required.

Blocks: Each block of the blockchain consists of three main parts: the block header, the transaction counter, and the list of transactions. The transaction counter keeps track of how many transactions are in that block. The block header includes important information, such as the version of the software, the hash (digital fingerprint) of the previous block, and a special code called the Merkle root that summarizes all the transactions in that block.

Each block contains the hashed information of the last block. This creates a chain of encrypted blocks (files) that contain information about all previous blocks, going back to the first block of the blockchain.

Bitcoin Mining: Understand how Bitcoins are created

Bitcoin mining is the method of confirming new Bitcoin transactions, and it is the process of introducing new Bitcoins and putting them into circulation. Bitcoin mining involves maintaining the blockchain technology behind Bitcoin through the hardware(machines) and software(computers) that are used to mine Bitcoins.

The computers and machines used for Bitcoin mining require high processing power and consume huge amounts of electricity. Sometimes, large bitcoin mining organizations consume more electricity than the country needs in a year. Therefore, bitcoin mining is very harmful to our environment.

Whenever a transaction is initiated, the transaction ID goes into the mempool as a block, from where Bitcoin miners extract those blocks from the mempool and add them to their blockchain, but to extract those blocks they have to solve a mathematical puzzle which is solved by their computers and machines, then those blocks are added to the blockchain and only then the transaction is completed. This whole process is done in a few seconds. For their services, miners get some incentive in the form of new bitcoins, which is 3.125 bitcoins in 2025.

Bitcoin mining maintains an average time of 10 minutes between new blocks.

In the early days, bitcoin mining was very easy because there was very little competition in mining at that time; people could mine bitcoins even from their personal computers. But in today’s time, big companies and even countries have come for mining, due to which the competition has increased a lot, so in today’s time, it has become almost impossible to mine Bitcoins from your personal computer.

Options Of Bitcoin Mining:

1. You can join a Bitcoin mining pool using your existing computer and mining software. These mining pools are made up of groups of miners who combine their computational power to compete against large ASIC mining farms. There are many mining programs and pools to choose from that you can join.

2. If you have the financial means, you can buy an ASIC miner, machine, or computer. Then you can start your Bitcoin mining.

Uses of Bitcoin:

Bitcoin is a peer-to-peer electronic cash system. Its purpose is to provide a decentralized payment system. But people also use Bitcoin as an investment because they believe in blockchain technology and the use case of this technology. Bitcoin serves many purposes in many parts of the world.

1. Store of Value (Digital Gold):  In many countries where hyperinflation has crushed the value of their local currencies, Bitcoin serves as a hedge – a modern digital gold. People use it to secure their wealth outside of collapsing economies.

2. Payments across the world (border): Bitcoin is not regulated by any type of regulators, such as governments or banks. Banks and financial institutions charge high fees and take several days to process international payments. But Bitcoin allows people to send money across borders in minutes and often at a fraction of the cost.

3. Censorship resistance: Unlike traditional bank accounts, no central authority can freeze your Bitcoin wallet like your bank account. In politically unstable regions or authoritarian regimes, people use Bitcoin to protect their financial freedom.

4. Investing: Nowadays, big institutions (like BlackRock, Meta) and big countries like the US, UAE, and individuals have started believing in Bitcoin. So they started investing in Bitcoin with the aim of getting a return on their capital. In 2025, Bitcoin touched its lifetime highest level ($1,23,091 per Bitcoin).

Bitcoin runs on blockchain technology, so because of blockchain technology, you cannot trace the person behind a Bitcoin transaction (wallet). Criminals use this advantage as a loophole to use Bitcoin for illegal activities.

Advantages and disadvantages:

Cryptocurrency is a very speculative new asset class. Bitcoin is also a cryptocurrency that provides a payment system without any central regulation. Although Bitcoin has been created to cover some of the shortcomings of our banking system, it also comes with some advantages and disadvantages. Let’s discuss them all.

Advantages:

Decentralisation: Bitcoin has emerged as a revolutionary financial system across the world today, due to its deep, cryptographic system that brings decentralization, which means no single authority, government, or company controls the network. This system is maintained by thousands of computers connected to the network across the world. This makes Bitcoin different from our traditional financial system. Bitcoin gives people full control over their money.

Bitcoin is global: You can send your bitcoins to any corner of the world without any central control. The bitcoin market is open 24*7, you can send or receive payments within a minute across the globe. Bitcoin doesn’t charge you a fee to access your money, and doesn’t impose any arbitrary limits.

Don’t have a single point of failure:  There is no single point of failure in any transaction made using Bitcoin. You must have bitcoins available at the time of the transaction, and the receiver’s wallet address must be correct.

Transparency: Due to blockchain technology, every transaction that takes place on the Bitcoin network is permanently recorded in a public ledger, which is spread across all computers connected to the Bitcoin network around the world. Everyone can see these transactions. The data cannot be changed or deleted once it has been confirmed by the network. This means that blockchain provides a highly secure and tamper-proof environment.

Privacy:  When a Bitcoin transaction is completed, it is recorded in the public ledger. This means that no one can know who made the transaction. Your personal information is not recorded in the ledger; only your wallet address is recorded. This means that no one can know who is behind the transaction. The risk of your financial information being compromised or your identity being stolen is very low.

Disadvantages:

Irreversibility of transactions: Once a Bitcoin transaction is completed, it cannot be reversed because no one knows to whom and where the transaction has gone. You can only find out the wallet address, nothing else. But if we make any wrong transaction in our traditional banking system, we can reverse it with the help of the banks.

Limited regulation:  Bitcoin is still a relatively new technology; its legal status varies widely. In some countries, it is completely legal, in some it is banned, and in many places it operates in a grey area. This makes it risky for both investors and businesses that want to build on the Bitcoin ecosystem.

Regulation:  There is no regulator for cryptocurrency all over the world that can make any useful rules for it. But it is very difficult to regulate cryptocurrency because it works on blockchain technology. Due to blockchain, many people use it for illegal purposes as it is non-traceable, and there is no information about the people behind the transactions.

Energy consumption and pollution: The mining process of securing the blockchain, verifying payments, and creating new bitcoins requires massive amounts of electricity. Producing so much electricity directly harms our environment. As of 2025, A non-peer-reviewed study conducted by the Cambridge Centre for Alternative Finance (CCAF) estimated that bitcoin mining represents 0.5% of global electricity consumption and 0.08% of world greenhouse gas emissions.

Is Bitcoin Legal in India?

The correct answer to this question is – Bitcoin is not fully legal or regulated in India yet, but it is not illegal in India either.  

The Reserve Bank of India (RBI) banned banks from transacting with crypto companies in 2018. But the Supreme Court lifted this ban in 2020. Since then, Indian users are free to buy, sell, and trade cryptocurrencies, including Bitcoin.

Moreover, in 2022, the government imposed 1% TDS on every trade in crypto and a 30% capital gains tax on cryptocurrency, which proves that cryptocurrency is not illegal in India.

That means you can buy/sell and trade cryptocurrency in India.

The Conclusion:

Bitcoin is the first cryptocurrency introduced to the public in the world that aims to provide a digital payment system. Since its launch in 2009, Bitcoin has grown in popularity, and its use in blockchain has increased. Bitcoin is a decentralized, peer-to-peer currency that operates without the control of any central authority.

The process of creating Bitcoin is very difficult, so investors and traders can invest in crypto directly with the help of brokers. Investing in crypto is very risky as it has high volatility. Investors should carefully consider whether Bitcoin is the right investment for them. They should invest only a part of their portfolio in crypto according to their risk appetite.