How Does Bitcoin Work? Keys, Transactions, Mining and Nodes
Bitcoin works as a shared public ledger, the blockchain, that thousands of independent computers keep in sync with no bank or company in charge. Owners sign payments with private keys, miners collect waiting payments into blocks by doing proof of work, and every full node checks each block against the same rules before accepting it. Satoshi Nakamoto described the design in the 2008 Bitcoin white paper, and the network has been running since January 2009.
Bitcoin at a Glance
| Part | What it does |
|---|---|
| Private keys and addresses | A private key signs payments; the address calculated from it receives them |
| Transactions | Spend earlier outputs and create new ones, leaving a fee for the miner |
| Mempool | Holds valid transactions that are not yet in a block |
| Mining | Miners compete to add the next block, about every ten minutes |
| Blocks | Each block includes the hash of the previous one, which links them into a chain |
| Nodes | Check every transaction and block and reject anything that breaks the rules |
What Is Bitcoin?
Bitcoin is the name of both a currency and the network that records who owns it. One bitcoin (BTC) divides into 100 million units called satoshis. There is no issuer: new coins enter circulation only as the block subsidy paid to miners, which started at 50 BTC per block and halves every 210,000 blocks, as the GetBlockSubsidy function in Bitcoin Core’s source code sets out. That schedule caps the supply just under 21 million coins, and it passed 20 million with block 940,000, mined in March 2026.
How Do Keys Prove Ownership?
The network has no accounts or names. Coins sit in transaction outputs, and each output is locked to a condition, usually a valid signature from the key behind a particular address. A private key is a secret 256-bit number; the public key and the address are calculated from it, never the other way round, so you can share an address freely while the key stays secret. Bitcoin address types explains the formats you will see. Whoever can produce the signature can spend the coins, which is why the white paper defines an electronic coin as a chain of digital signatures.
A wallet stores keys, not coins. Modern wallets derive all their keys from one seed phrase of 12 or 24 words, so the phrase is the backup that restores every address; seed phrase vs private key compares the two. Anyone who learns the phrase can take the funds, and no legitimate wallet, exchange or support agent will ever ask for it.
What Happens When You Send a Payment?
Bitcoin does not store balances. A transaction spends earlier outputs, called UTXOs (unspent transaction outputs), as its inputs and creates new outputs in their place, as the Bitcoin developer guide describes. Suppose your wallet holds a single 0.5 BTC output and you pay someone 0.2 BTC:
- Input: the 0.5 BTC output, unlocked with your signature
- Output 1: 0.2 BTC to the recipient’s address
- Output 2: 0.2999 BTC back to an address in your own wallet, called change
- Fee: the 0.0001 BTC that no output claims, which goes to the miner
The fee depends on the transaction’s size in virtual bytes, not on the amount, so sending 10 BTC can cost the same as sending 0.01 BTC. Your wallet passes the signed transaction to a few nodes, they check it and pass it on, and within seconds it is waiting in the mempool of nodes around the world until a miner picks it up.
How Does a Transaction Get Into a Block?
Miners build candidate blocks from their mempools, usually taking the transactions that pay the highest fee per virtual byte first, because a block can hold at most 4 million weight units of data (BIP 141). Each block header contains the hash of the previous block’s header, a fingerprint of the block’s transactions, a timestamp, the difficulty target and a number called the nonce.
Proof of work is a guessing game. A miner hashes the header twice with SHA-256, checks whether the result falls below the target, changes the nonce and tries again. The whole network made about 10²¹ such guesses per second in October 2026, a hash rate of around 1,000 EH/s by mempool.space’s estimate. Even so, it finds a block only every ten minutes on average, because every 2,016 blocks the target is recalculated to keep that pace (Bitcoin developer guide). The winning miner broadcasts the block and collects the subsidy, 3.125 BTC since the April 2024 halving, plus the fees of every transaction in it. How Bitcoin mining works covers the hardware and the economics.
What Do Nodes Do?
A full node downloads every block and checks every rule itself: valid signatures, no coin spent twice, blocks within the weight limit, no more new coins than the schedule allows and enough proof of work. A block that breaks a rule is rejected however much work went into it, so miners cannot change the rules on their own. Nodes also relay valid transactions and blocks to their peers.
When two miners find a block at almost the same moment, nodes briefly see two versions of the chain. They follow the valid chain with the most accumulated proof of work, and the tie breaks when the next block extends one of the branches. Lightweight wallets on phones do not check everything themselves: they rely on block headers plus servers or compact filters such as BIP 157 client-side block filtering.
When Is a Payment Final?
A transaction has one confirmation once it is in a block, and each block mined on top of that one adds another. Every extra block makes reversing the payment harder: by the white paper’s calculation, an attacker with 10% of the network’s hash rate has about a 0.024% chance of catching up from six blocks behind. The Bitcoin developer guide suggests waiting for six confirmations, about an hour, before treating a high-value payment as settled, while small payments are often accepted after one.
Who Controls Bitcoin’s Rules?
No single person or company. The rules live in the node software each operator chooses to run. Changes are proposed in public as Bitcoin Improvement Proposals and take effect only when enough of the network runs software that enforces them, the way SegWit was adopted in 2017 and Taproot in 2021. Bitcoin’s creator, Satoshi Nakamoto, stopped taking part in 2011, and the network has carried on without them.
Frequently Asked Questions
Is Bitcoin anonymous?
No, it is pseudonymous. Every transaction is public and permanent, but addresses carry no names. The white paper recommends a new key pair for each transaction so that payments are harder to link to one owner, which is why most wallets offer a fresh receiving address for every payment.
Can lost bitcoin be recovered?
Only with the private key or the seed phrase behind it. No help desk can reset access, so the backup is everything; how to restore a wallet from a seed phrase walks through the process.
How long does a Bitcoin transaction take?
A block is found every ten minutes on average, so a transaction that pays a competitive fee rate usually gets its first confirmation in the next block or two. When the mempool is busy, a low fee rate can keep it waiting for hours or longer.