How it works
What Bitcoin actually is.
A network, a shared record and a set of keys. Here's each piece, with where the facts come from.
The basics
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How it works
There will never be more than 21 million bitcoin
21,000,000
Bitcoin has a fixed supply. The number of new bitcoins created is cut in half over time until issuance stops completely at 21 million bitcoins, which is expected around the year 2140.
Source: Bitcoin.org, Frequently Asked Questions and Bitcoin Halving Countdown
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How it works
What the halving is
Every 210,000 blocks
New bitcoins are paid to the miner of each block. Every 210,000 blocks, roughly every four years, that reward is cut in half. This is called the halving, and it's written into Bitcoin's software.
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How it works
The most recent halving
Block 840,000 April 2024
The fourth and most recent halving happened on April 20, 2024, at block 840,000, when the block reward dropped from 6.25 to 3.125 bitcoin. The next one is expected at block 1,050,000 in 2028, but the exact date can only be estimated.
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How it works
About one new block every 10 minutes
About 10 minutes
New blocks are added to the Bitcoin blockchain about every 10 minutes on average, but the timing of any single block is a matter of chance.
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How it works
What a private key is
A private key is a secret piece of data that proves you have the right to spend bitcoin from a wallet. Private keys must never be revealed, because they're what allow the bitcoin to be spent.
Source: Bitcoin.org, Vocabulary
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How it works
What a seed phrase is, and why you guard it
A recovery phrase, also called a seed phrase, is a list of words that can fully restore a wallet. Anyone who gets it can access the bitcoin in that wallet, so it has to be kept secure and private.
Source: Bitcoin.org, Vocabulary
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How it works
There's no undo button
Bitcoin has no central authority that can reverse a mistake. A confirmed payment can only be refunded by the person who received it, and if you lose access to a self-custody wallet, for example by losing the recovery phrase, no one can recover those funds.
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How it works
Custodial vs self-custody wallets
With a custodial service like an exchange, a company holds the keys, so you rely on its security, finances, and rules to keep your coins safe and let you withdraw. With self-custody you hold your own private keys, which removes that reliance but makes you fully responsible for securing your wallet and backups.
Source: Bitcoin.org, Some things you need to know; and Secure your wallet
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How it works
Exchanges and online wallets can fail
When a third party controls your keys, you depend entirely on its security and honesty. Bitcoin.org notes that exchanges and online wallets have been hacked, have failed, and have frozen access to funds.
Source: Bitcoin.org, Secure your wallet
Who holds it
Custodial
A company holds the keys
- Easier to start, and there's usually a way to reset a password.
- If the company fails, freezes withdrawals or gets hacked, your access depends on it.
- Crypto held at a company isn't bank money, so bank deposit insurance doesn't cover it.
Self-custody
You hold the keys
- No company can freeze it or lose it for you.
- Lose the seed phrase and it's gone for good. There's no reset.
- Share the seed phrase and anyone can take it.
The words
- Bitcoin
- A digital currency that runs on a network of computers instead of through a bank.
- Blockchain
- The shared record of every Bitcoin transaction, added in batches called blocks.
- Wallet
- An app or a small device that holds the keys you need to move your bitcoin.
- Private key
- The secret code that proves bitcoin is yours and lets you send it.
- Seed phrase
- A list of words, usually 12 or 24, that can rebuild your wallet and its keys. Anyone who has it can take what's in the wallet.
- Exchange
- A company where people buy and sell crypto. It usually holds the crypto for its customers.
- Custodial
- A company holds the keys for you, the way a bank holds money.
- Self-custody
- You hold your own keys. Nobody can reset them for you if they're lost.
- Satoshi
- The smallest unit of bitcoin: one hundred-millionth of a bitcoin.
- Mining
- Computers competing to add the next block, paid in new bitcoin and fees.
- Network fee
- What a transfer costs to process. It rises and falls with how busy the network is.
- Halving
- The scheduled cut in the new bitcoin paid to miners, which happens about every four years.