Brief History
How It Works


Everyone, from five-year-olds to grandmothers, wants a simple, one sentence explanation of what Bitcoin is. There’s good news and bad news.

The bad news is, a truly accurate, simple, one sentence explanation can’t possibly cover everything you need to know. The good news is, understanding Bitcoin isn’t so difficult if you break things down into bite sized pieces.

Bitcoin can be hard to explain for two reasons:

  1. There are many complex mathematical and computational concepts at work.
  2. These concepts are typically described using words that sound so alien, you could make a whole new dictionary out of them (and we did!).

So to start, let’s break Bitcoin down into just a few words:

Digital money.

By comparison, our current monetary system exists both digitally and physically. For example, credit cards are a form of digital payment because funds are deducted from electronic bank accounts. On the other hand, cash is a form of physical payment because when you hand someone cash value has literally changed hands.

Bitcoin logo.

Bitcoin is a payment system that exists only digitally and works differently than the systems we are used to. It turns out using Bitcoin has some substantial benefits. Let's take a look:

  • Bitcoin is a global payment system. Are you trying to send money to Aunt Jane in Russia? To an astronaut on the ISS? Don't sweat it, you can still use Bitcoin. Sending money to your next door neighbor is the same as sending it halfway around the world.
  • Bitcoin removes third parties (like banks and credit card companies) from transactions. No one but you can control your funds.
  • Bitcoin was designed to have low transaction fees and quick transaction times.
  • The Bitcoin network is pseudonymous. It does not use names to identify accounts–instead, they are identified by random strings of numbers and letters.

At this point you might be thinking, "that's great, but how does it work?"

Bitcoin can provide so many benefits because it created a new technology in order to work, called blockchain, which is explained in the next guide. 

There are other digital currencies besides Bitcoin, collectively called cryptocurrencies. Many rely on blockchain technology to function as well. Some other cryptocurrencies (or "cryptos") you may’ve heard of are Ethereum, Litecoin, or Ripple. 

If you want to understand the importance of cryptocurrency, its place in our society, and why its value has exploded, understanding Bitcoin is the natural starting point, because it was the first crypto.

So let’s dive in! First, we’ll go through the creation story of Bitcoin, and then explain how its underlying technology, blockchain, works.