What Is Bitcoin (BTC)? How It Operates, How to Purchase and Mine It

Key Takeaways

• Bitcoin is the culmination of the efforts of many individuals, but it is widely recognized that Satoshi Nakamoto created and introduced it in 2008.

• Bitcoin is the public blockchain protocol used to create and manage the cryptocurrency bearing the same name.

• Bitcoin mining is the competitive process among miners to hash block data, solve a cryptographic puzzle, and append a new block to the blockchain. The miner who successfully solves the puzzle receives a bitcoin reward.

• Bitcoin serves speculators, investors, and consumers as a medium for purchases or value transfer.

• Investing in and using bitcoins involves various risks, including high volatility, fraud, and theft.

What Is Bitcoin (BTC) and How Does It Work?

Figure 1: Bitcoin mining and the decentralized architecture of the Bitcoin network

What Is a Bitcoin (BTC)?

The domain Bitcoin.org was registered in August 2008 by Satoshi Nakamoto and Martti Malmi, who collaborated anonymously to develop Bitcoin.

How and When Did Bitcoin (BTC) Start?

In October 2008, Nakamoto announced on the cryptography mailing list at metzdowd.com: "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party." The seminal white paper published on Bitcoin.org, titled "Bitcoin: A Peer-to-Peer Electronic Cash System," laid the foundational protocol for Bitcoin’s operation today.

Bitcoin Genesis Block

The first Bitcoin  block was mined on January 3, 2009. Block 0, known as the genesis block, contains the embedded text "The Times 03/Jan/2009 Chancellor on the brink of second bailout for banks," serving as a timestamp indicating the block’s creation date.

Bitcoin Mining Rewards Over Time

Bitcoin block rewards halve every 210,000 blocks. Initially, the reward was 50 bitcoins in 2009. The third halving occurred on May 11, 2020, reducing the reward to 6.25 bitcoins per block. The fourth halving took place in April 2024, lowering the reward to 3.125 bitcoins. The next halving is expected around mid-2028, decreasing the reward to 1.5625 BTC.

Bitcoin Units and Denominations

One Bitcoin (BTC) is divisible to eight decimal places (one hundred millionth of a bitcoin), with the smallest unit called a satoshi.

The Cryptography Mailing List announced the first Bitcoin software release on January 8, 2009. On January 9, 2009, Block 1 was mined, marking the start of Bitcoin mining.

Bitcoin (BTC) and Blockchain Technology Explained

Figure 2: Blockchain technology overview

Bitcoin as a digital currency is straightforward: owning Bitcoin allows you to use a cryptocurrency wallet to send fractions of a bitcoin as payment for goods or services. However, the underlying Bitcoin protocol is highly complex.

Bitcoin (BTC) Blockchain Explained

A blockchain is a distributed ledger—a shared database secured by cryptographic methods. "Distributed" means the ledger is stored across multiple computers rather than centralized on a single server, as is typical in conventional data storage.

A network of automated nodes running on these computers maintains the blockchain and executes its operational protocols.

A blockchain block is a data file containing a block header, a transaction counter, and the transactions included in that block. The transaction counter enumerates the transactions, while the block header includes:

• Software version: The blockchain protocol version in use (sometimes called the magic number)

• Previous block hash: The cryptographic hash of the preceding block

• Merkle root: A single hash summarizing all transaction hashes within the block

• Timestamp: The date and time the block was created

• Difficulty target: The current mining difficulty level miners must solve

• Nonce: Short for "number used once," a value miners adjust to find a valid hash and successfully mine the block.

Each block references the hash of the previous block, forming a chain of cryptographically linked blocks containing the entire transaction history back to the genesis block.

Bitcoin (BTC) Encryption and Security

Bitcoin employs the SHA-256 hashing algorithm to encrypt transaction data within blocks. This process converts transaction data into a 256-bit (64-character) hexadecimal hash that includes information from preceding blocks.

Although the data is encrypted and linked across blocks, each block remains accessible and readable. This chaining mechanism ensures immutability, as altering one block would require changing all subsequent blocks, enabling transparent auditing of the blockchain.

How To Buy Bitcoin (BTC)

If you prefer not to mine Bitcoin, you can acquire it through cryptocurrency exchanges. Due to Bitcoin’s high price, most buyers purchase fractional amounts using fiat currencies like USD.

For instance, you can buy Bitcoin on platforms such as Coinbase or Binance by creating and funding an account via bank transfer, credit card, or debit card.

Once funded, you can access your spot crypto wallet to purchase and hold Bitcoin securely on the exchange. Reputable exchanges offer liquidity and safety, allowing quick sales when needed.

Step-by-Step Guide to Bitcoin (BTC) Mining

Figure 3: Bitcoin mining process

Various hardware and software solutions exist for Bitcoin mining. Initially, mining could be done competitively on personal computers, but as the network expanded, mining difficulty increased, reducing individual miners’ chances.

Modern personal computers with advanced hardware can still mine, but the probability of successfully mining a block solo is extremely low.

This is because miners compete against a network generating approximately 745 quintillion hashes per second (as of December 5, 2024). Specialized machines called Application Specific Integrated Circuits (ASICs) designed for mining can produce over 400 trillion hashes per second, whereas high-end personal computers achieve around 100 megahashes per second (100 million).

Bitcoin Mining Methods and Strategies

Two main hardware options exist for Bitcoin mining, alongside multiple compatible software solutions.

1. You can use your existing computer with Bitcoin-compatible mining software and join a mining pool. Mining pools aggregate computational power to compete with large ASIC mining operations. Popular mining software includes CGMiner and BFGMiner, while leading pools are Foundry Digital, Antpool, F2Pool, ViaBTC, and Binance.com.

2. If financially viable, you may invest in an ASIC miner, typically priced around $10,000 new, with used units available as miners upgrade. Consider significant operational costs such as electricity and cooling. Note that owning one or two ASICs does not guarantee mining rewards due to competition from large-scale mining farms, some deploying hundreds of thousands of ASICs—for example, CleanSpark claims to operate 195,059 miners.

Joining a mining pool can increase your likelihood of earning bitcoin rewards, though payouts are proportionally reduced and shared. When selecting a pool, evaluate its reward distribution, fees, and user reviews.

How to Use Bitcoin for Payments

Figure 4: Using Bitcoin for payments

Bitcoin was originally designed as a peer-to-peer payment system. Its use cases are expanding due to rising value, competition from other blockchains and cryptocurrencies, and developments in blockchain interoperability.

How to Pay With Bitcoin

Bitcoin is accepted by numerous merchants, retailers, and service providers as a payment method.

Physical stores accepting cryptocurrencies typically display signs stating "Bitcoin Accepted Here." Transactions are processed via compatible point-of-sale terminals or wallet addresses using QR codes and touchscreen apps. Online merchants can integrate Bitcoin payments alongside other options like credit cards and PayPal.

To transact with Bitcoin, you need a cryptocurrency wallet, which serves as your blockchain interface and stores your private keys. These keys are required to authorize transactions.

How to Invest in Bitcoin or Trade Bitcoin

Bitcoin investment can be undertaken by purchasing the asset directly or trading it via Contracts for Difference (CFDs). Direct purchase involves acquiring Bitcoin through exchanges and storing it in digital wallets, typically for long-term holding. This exposes investors to full market volatility, wallet security risks, and custodial fees.

Alternatively, trading Bitcoin CFDs or Crypto CFDs enables speculation on Bitcoin price movements without owning the underlying asset. Crypto CFD trading is well-suited for short-term traders aiming to profit from both upward and downward price fluctuations. TMGM’’s trading platform offers access to Bitcoin CFDs with competitive spreads, rapid execution, and customizable leverage aligned with your risk tolerance.

Moreover, Crypto CFD trading eliminates the need for crypto wallets and provides advanced charting tools and real-time price feeds. Whether responding to macroeconomic developments, central bank policies, or crypto market news, Crypto CFD trading offers enhanced control and strategic flexibility compared to traditional investing.

Summary: Should I Invest in Bitcoin?

Bitcoin was priced at $7,167.52 on December 31, 2019, and rose over 300% to $28,984.98 one year later. It reached an all-time high near $69,000 in November 2021, then declined to around $40,000 before surging past $100,000 in 2024.

Given such volatility, many acquire Bitcoin primarily for investment rather than as a transactional currency. However, its lack of guaranteed intrinsic value and digital nature entail significant risks.

Regulatory bodies such as the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and Consumer Financial Protection Bureau (CFPB) have issued numerous investor warnings regarding Bitcoin. Beyond reviewing the Bitcoin Outlook for 2025, investors should be aware of several risks.

Key risks associated with trading or investing in Bitcoin include:

• Regulatory risk: Ongoing regulatory scrutiny and evolving policies create uncertainty regarding Bitcoin’s long-term viability and liquidity. As of December 2024, Bitcoin is not classified as a security, but this status may change.

• Security risk: Most Bitcoin holders acquire tokens via exchanges rather than mining. These digital platforms are vulnerable to cyberattacks, malware, and operational failures.

• Insurance risk: Bitcoin and other cryptocurrencies lack coverage by the Securities Investor Protection Corporation (SIPC) or Federal Deposit Insurance Corporation (FDIC). Some exchanges, such as Gemini and Coinbase, offer third-party insurance against system failures or cybersecurity breaches. Cash deposits on these platforms may qualify for FDIC pass-through coverage.

• Fraud risk: Despite blockchain security features, fraudulent schemes and scams remain prevalent in the crypto ecosystem.

• Market risk: Bitcoin’s price is highly volatile, subject to rapid fluctuations driven by market sentiment and news events.

Bitcoin Regulation and Legal Considerations

Figure 5: Global Bitcoin regulatory landscape

Regulating Bitcoin has posed challenges worldwide. The U.S. government aims to regulate cryptocurrencies while balancing the need to foster innovation and economic growth.

U.S. enforcement agencies currently apply existing securities, commodities, and tax laws, but as of December 2024, no comprehensive legislation has been enacted.

The European Commission’s Markets in Crypto Assets (MiCA) regulation came into effect in 2023, establishing a regulatory framework for cryptocurrencies within the European Union.

India banned several cryptocurrency exchanges in December 2023 and continues to postpone legislative review of Bitcoin and other cryptocurrencies.

Summary: Should I Invest in Bitcoin?

Bitcoin was the first cryptocurrency introduced for public use as a payment alternative to fiat currency. Since its 2009 launch, Bitcoin’s popularity and blockchain applications have grown substantially.

While Bitcoin mining is technically complex, investing is more accessible. Investors and traders can buy and sell Bitcoin on crypto exchanges. As with any investment—especially one as novel and volatile as Bitcoin—careful consideration is essential before committing capital.

Start Your Bitcoin Journey Today

Bitcoin’’s price volatility offers compelling trading opportunities, and TMGM provides a secure, professional platform to help you leverage market movements. 

TMGM delivers low spreads, flexible leverage, and institutional-grade liquidity for fast execution and competitive trading conditions. Our advanced risk management tools, including stop-loss and take-profit orders, empower traders to manage positions effectively within a secure environment.

Begin trading Crypto CFDs with TMGM today and benefit from a regulated, professional environment designed to support your success in the dynamic cryptocurrency market.