Technology

How does Bitcoin work? #

Thousands of computers that don’t know or trust each other maintain a shared ledger, without chaos, without fraud. How?

Through cryptography, game theory, and physics.

1. Peer-to-peer: no boss, no server #

No central server. Bitcoin is a peer-to-peer network. Every participant is equal.

Nodes are computers running the Bitcoin software and storing a complete copy of the blockchain. Tens of thousands of nodes run worldwide, over 15,000 of them publicly reachable.

A new transaction spreads via “gossip”: one node tells eight others, they tell eight more. Within seconds, the whole network knows about the transaction. Every node validates every piece of information on its own. Invalid transactions get rejected, no matter who sent them.

2. Transactions & the UTXO model #

Bitcoin doesn’t work like a bank account. It only knows “coins” — UTXOs (Unspent Transaction Outputs).

Think of it like digital cash: you buy a bread roll for 1 euro, but you only have a 10-euro note. You hand over the note, get the roll and 9 euros in change.

Bitcoin works the same way: you have a “coin” worth 0.5 BTC. You want to send 0.1 BTC. The old coin is “melted down” and recast into two new ones: 0.1 BTC for the recipient, 0.4 BTC back to you.

Every coin has an unbroken history. You can trace where it came from. The owner’s identity is not visible on-chain. Bitcoin is pseudonymous, not anonymous.

3. Proof-of-Work #

Miners compete to find the next block. To do so, they must solve a cryptographic puzzle that can only be cracked through massive computational effort.

The difficulty adjusts on its own: more miners, harder puzzle. The target stays constant: one new block every 10 minutes. The energy cost makes fraud unprofitable. Reversing a transaction would require more energy than all honest miners combined, sustained without end.

4. Security through decentralization #

Manipulating the blockchain requires controlling more computing power than all other miners combined, recalculating every block since the targeted transaction, and outpacing the rest of the network. This is the 51% attack: possible in theory, absurd in practice.

The older a transaction, the more secure it becomes. After 6 confirmations (~60 minutes), a payment is treated as immutable.

5. Lightning Network: Bitcoin in seconds #

The blockchain is slow on purpose. Security takes time. Too slow for a coffee at the corner shop.

Lightning is a “second layer,” a network built on top of Bitcoin. Two parties open a payment channel on the blockchain. Inside that channel, they can transact back and forth as often as they want without touching the blockchain. When the channel closes, the final balance settles on the blockchain.

Confirmation is instant. Throughput goes far beyond what the base layer can handle alone.

How the Lightning Network works

FAQ #

What are Bitcoin nodes? #

Computers that store the blockchain and enforce the network’s rules. You can run your own full node — and you should.

What is Bitcoin Core? #

The reference software that most nodes run. Open-source, maintained by hundreds of developers worldwide, and open to audit.

What happens when two blocks are found simultaneously? #

The network waits for the next block. The longer chain wins. This is the Nakamoto consensus.

What is an HD wallet? #

All modern wallets are HD wallets (hierarchical deterministic). From your seed phrase, a full tree of keys is derived, with no limit. Your wallet can generate a new address for every payment without changing your backup.

What are subaccounts? #

Branches in your wallet’s key tree. You can use them to separate funds within a single seed phrase, for example savings and everyday spending. All subaccounts restore from the same backup. Whoever has your seed has access to all of them.