When people are asked, "What is Bitcoin?", the most common answers sound familiar:
"Bitcoin is a cryptocurrency". "Bitcoin is digital gold". "Bitcoin is electronic money".
These answers aren’t wrong, but they are incomplete. Bitcoin is a complex creation that combines technology, economics, and human behavior in a way the world has never seen before. To understand it properly, it helps to break it down into the different roles it plays.
At its core, Bitcoin is many things at once (and a combination of all of them):
- Money
- Free and Open-Source Software (FOSS)
- Public-Key Cryptography
- a Transaction Ledger (Blockchain)
- a Computer Network (Nodes)
- Energy as Proof-of-Work (Mining)
- Incentives
- Decentralized Consensus
- Freedom
- Hope
Let's look at each of these in turn.
Bitcoin as Money
Bitcoin fulfills the three classical functions of money:
- Store of value: it preserves purchasing power over time.
- Medium of exchange: it can be transferred globally, without intermediaries.
- Unit of account: prices can be denominated in bitcoin.
Today, we find ourselves in the monetization phase, where it is primarily used as a store of value; however, payment adoption continues to grow.
Bitcoin also exhibits the six key properties of money:
- Durable: digital records don’t degrade.
- Divisible: down to one satoshi (1/100,000,000 of a bitcoin).
- Fungible: interchangeable in practice.
- Portable: transferable across the globe in minutes.
- Verifiable: anyone can validate a transaction’s authenticity with the Bitcoin software.
- Scarce: capped at 21 million bitcoins, with a predictable issuance schedule.
Bitcoin is the best money humanity has ever witnessed.
Bitcoin as Free and Open-Source Software (FOSS)
Bitcoin is an open-source software system first released in January 2009. Open-source means that anyone can review, copy, or contribute to its codebase. You can access Bitcoin’s codebase here. Tens of thousands of computers globally run the Bitcoin software, but more on that later.
Bitcoin as Public-Key Cryptography
Bitcoin relies on public-key cryptography, also called asymmetric cryptography. A private key (a random secret) generates a public key, which in turn generates a Bitcoin address.
- The private key allows spending. (by providing a signature to prove ownership)
- The Bitcoin address allows receiving.
Importantly, the process is one-way, or asymmetric. No one can derive a private key from a public key, but anyone can derive the public key from the private key that matches it.
Whoever has exclusive access to a private key owns the bitcoin found on the corresponding bitcoin address. That last rule alone makes Bitcoin possible.
Bitcoin as a Transaction Ledger
All bitcoin transactions are public. When you receive bitcoin, anyone can trace the previous owner’s address that sent Bitcoin to your address. This makes bitcoin a pseudonymous system, not an anonymous one. That public transaction ledger is called Bitcoin’s blockchain; you can view it here.
A blockchain is a ledger structured as blocks (transaction history updates), each referencing the one before it cryptographically. This design ensures that transaction history is both ordered and tamper-resistant (immutable).
Many people confuse bitcoin’s innovation with its blockchain, but it’s simply one of the key pieces of its puzzle.
Bitcoin as a Network of Computers
Tens of thousands of computers, called nodes, run the Bitcoin software worldwide. These nodes:
- Verify every cryptographic signature, transaction, and block. (ensuring no one cheats)
- Enforce the rules of the system. (e.g., there can’t be more than 21 million bitcoin)
- Keep the network decentralized and resilient.
- Optional: Store the blockchain
Anyone can run a Bitcoin node and become part of the network.
Bitcoin as Energy as Proof-of-Work (Mining)
The most important question is who decides what the next block is. How does a network of tens of thousands of computers agree on what is the next update to the blockchain?
Bitcoin is an open system, so there can be no imposed authority to decide. At the same time, we can’t have everyone proposing different versions of the next block. There must be a way to arrive at a consensus in a decentralized manner.
That’s where Proof-of-Work fits in.
At any given moment, thousands of computers (miners) globally are making quintillions of computations per second in search of a cryptographic answer (hash). Miners invest enormous energy resources in this.
Through this process, one miner arrives at the answer before the other miners. With that, he can propose the next block to the network, and nodes will listen to him because he found the cryptographic hash. Finding a valid block hash is hard, but verifying the result is fast. This asymmetry enables nodes to validate a miner’s work.
Bitcoin as Incentives
Mining is expensive, so why would miners spend this much energy? Why do miners play fair? Because Bitcoin rewards honesty:
- Valid blocks earn a block reward (newly issued bitcoin).
- Miners also collect transaction fees, which are the fees paid by all transactions of that block.
If a miner attempts to cheat by proposing fraudulent transactions, the network rejects their block, and all the energy they spent is lost. This makes dishonesty economically irrational, and Bitcoin a perfect demonstration of real-world incentives.
Bitcoin as Decentralized Consensus
Bitcoin has no rulers, no voting system, and no central authority. Nodes do not “vote” on blocks. Rather, they verify for themselves whether each block follows the rules.
Running more nodes doesn’t give you more power. Instead, Bitcoin’s direction is shaped by users and markets:
- Nodes enforce rules.
- Wallets and exchange platforms decide which rules they support.
- Miners are incentivized to follow what the economic majority accepts.
This creates a form of leaderless decentralized consensus, sometimes known as anarchy, not in the sense of chaos, but in the sense of a system of rules without rulers.
Bitcoin as Freedom
With Bitcoin, anyone can:
- Send money to anyone, anywhere around the world.
- Protect savings in a wallet that only they control.
- Carry their wealth across borders using nothing more than a recovery phrase (which can even be memorized if one wishes).
Censorship-resistant and borderless, Bitcoin empowers individuals to reclaim their financial independence.
Individuals across the globe can now be free from unfair controls for the first time, recover their individualism and their sovereignty.
Bitcoin as Hope
Finally, Bitcoin is more than code and incentives: it is an idea. It represents:
- A money system beyond the control of central banks, where state and money are separate.
- An end to unlimited money printing, the inflation it causes, and the endless violence it finances.
- A return to long-term thinking, where saving makes sense again.
Bitcoin is hope against a potential dystopian surveillance state. Bitcoin is hope against corruption. Hope for a future where you don’t need to spend everything in the present because your money is unfairly devalued by those close to the money printing machine (also known as the Cantillon effect).
Bitcoin is hope for fairness, transparency, and a better economic future.
Conclusion
Bitcoin is money defined through free and open-source software that runs on a network of computers (nodes) to achieve decentralized consensus on what the transaction ledger (blockchain) represents. Bitcoin leverages asymmetric cryptography to enable self-custody and easy verification, and miners spend energy to prove that work has been done. Bitcoin is an incentive system with no leader that allows participants to be free and gives humanity hope for the future.
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