Bitcoin (BTC) Explained: Supply, Halvings, Fees and Mining

Bitcoin is a digital currency that runs on a public network of computers rather than through a bank or government. Anyone can send BTC to anyone else, transactions are recorded in a shared ledger called the blockchain, and the total supply is capped by the software at just under 21 million coins. New bitcoin is released to miners on a schedule that is cut in half about once every four years; the latest cut took place on 20 April 2024.

This guide covers how the network reaches agreement, how the supply schedule works, what decides the fee you pay, what mining looks like for an individual in 2026, how Bitcoin differs from its many forks, and how to buy and store coins without falling for the common traps. It does not show prices or predict them.

Bitcoin key facts

Where Bitcoin came from

The white paper, titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, appeared on a cryptography mailing list in October 2008, weeks after the collapse of Lehman Brothers. Its author used the name Satoshi Nakamoto and has never been publicly identified. Two months later the first block was mined, carrying a newspaper headline about a second bank bailout embedded in its data, a timestamp that also reads as a statement of intent.

For its first year Bitcoin was mostly a hobby of cryptographers. Hal Finney received the first transaction from Nakamoto in January 2009, and in May 2010 a programmer paid 10,000 BTC for two pizzas, which is often cited as the first purchase of physical goods. Nakamoto stepped away from public development around 2011 and handed control of the code repository to other volunteers.

The question of Nakamoto’s identity has produced several false claims. The most prominent ended in court: in 2024 the High Court of England and Wales ruled in a case brought by the Crypto Open Patent Alliance that Australian computer scientist Craig Wright is not Satoshi Nakamoto and did not write the white paper, finding that he had forged documents to support his claim.

Bitcoin compared with other forms of money

Bitcoin is often described as “digital gold” or “internet cash”. Neither label fits perfectly. The table sets out where it resembles familiar forms of money and where it does not.

The comparison explains both the appeal and the friction. Bitcoin moves across borders without anyone’s permission and cannot be printed at will. It also has no customer service, no reversal button and a public history that anyone can inspect.

How the network works

Bitcoin has no central server. Thousands of independent computers, called nodes, each keep a full copy of the ledger and check every transaction against the same rules. Any node that receives an invalid block simply rejects it, which is why no single company or miner can change the rules on its own.

Keys, addresses and coins

Ownership in Bitcoin is a matter of cryptography. Your wallet holds private keys; from each key it derives a public address that others can pay. Coins are not stored inside the wallet. What exists on the blockchain is a set of unspent transaction outputs, each locked to an address, and spending one means producing a valid signature with the matching private key. Lose the key and nobody can unlock those outputs again.

From transaction to block

When you send bitcoin, your wallet signs a transaction and broadcasts it to the network. Nodes check the signature and the amounts, then hold the transaction in a waiting area called the mempool. Miners pick transactions from the mempool, usually the ones paying the highest fee per unit of data, and bundle them into a candidate block.

To add that block to the chain, a miner must find a number that makes the block’s SHA-256 hash fall below a target. There is no shortcut; machines simply try trillions of guesses per second. The first miner to succeed broadcasts the block, other nodes verify it in milliseconds, and everyone starts work on the next one.

Difficulty and the 10-minute rhythm

Every 2,016 blocks, roughly two weeks, the protocol compares how long those blocks took with the intended two weeks and adjusts the target. More mining power makes blocks harder to find; less power makes them easier. This feedback loop keeps the average near 10 minutes whether one machine or millions are mining.

Confirmations and finality

A transaction included in a block has one confirmation. Each later block adds another. Reversing a transaction would require redoing the proof of work for its block and every block after it faster than the rest of the network, which becomes practically impossible after a few blocks. Exchanges choose their own confirmation requirements for deposits, and merchants accepting small payments sometimes accept zero confirmations at their own risk.

Supply and the halving schedule

The only way new bitcoin enters circulation is through the block subsidy paid to whoever mines a block. The subsidy started at 50 BTC and is cut in half every 210,000 blocks. Because blocks arrive about every 10 minutes, each halving falls roughly four years after the last.

Adding up every scheduled subsidy gives slightly less than 21 million BTC, because subsidies are rounded down to whole satoshis. The last fraction is expected to be mined around the year 2140. After that, miners will be paid by transaction fees alone.

The circulating supply is lower in practice than the mined supply. Coins sent to addresses whose keys were lost, early coins mined and never moved, and coins deliberately burned are all counted as issued but may never be spent again. Nobody knows the exact figure, so treat estimates of “lost bitcoin” as guesses.

Why the halving matters

Each halving cuts the flow of new coins to miners overnight. Miners with expensive electricity or older machines can become unprofitable and switch off, after which the next difficulty adjustment rebalances the network. Popular commentary often links halvings to price rallies; the sample is four events, and correlation over four data points proves little. What the halving reliably does is lower annual issuance: after April 2024 the network creates about 450 BTC a day (144 blocks multiplied by 3.125 BTC), down from about 900.

Transaction fees: how they are priced

Bitcoin fees do not depend on how much value you send. They depend on how much block space your transaction uses and how many other people are competing for that space at the same moment. Block space is measured in virtual bytes (vB), and fees are quoted in satoshis per virtual byte (sat/vB).

A worked fee example

A simple payment from a modern native SegWit wallet, with one input and two outputs (the payment and your change), takes about 141 vB. The table below shows what that same transaction costs at different fee rates.

Combining many small inputs costs more, because each input adds data. A wallet that has received dozens of tiny payments may need hundreds of virtual bytes to spend them all at once, so consolidating small outputs when fees are low saves money later.

Stuck transactions

If you pay too little, your transaction may sit in the mempool for hours or days. Two tools help. Replace-by-fee (RBF) lets you rebroadcast the same transaction with a higher fee, and child-pays-for-parent (CPFP) lets the recipient spend the unconfirmed output with a high fee so miners take both together. Most current wallets offer at least one of these.

The floor is low. Bitcoin Core 30.0, released in October 2025, lowered the default minimum relay fee to 0.1 sat/vB, so very patient senders can pay almost nothing when blocks are not full. Exchange withdrawals are a separate matter: the exchange sets its own withdrawal fee, which may be fixed and unrelated to current network rates.

Bitcoin units you will see

Exchanges, wallets and fee estimators use different units, which is a common source of confusion when amounts are small.

When a wallet asks for an amount, check which unit its input field uses before you type a number. Entering 0.5 in a field set to mBTC sends a thousand times less than 0.5 BTC, which is harmless; the reverse mistake is not.

Running your own node

A full node is software, usually Bitcoin Core, that downloads every block since 2009 and checks each one independently. Running one means your wallet no longer has to trust someone else’s server to tell it which payments are valid or what your balance is. It also adds one more independent rule-checker to the network.

The requirements are modest by modern standards: a computer that can stay on, a reliable internet connection and enough disk space for the full chain, which is several hundred gigabytes and growing. A pruned node keeps only recent blocks after verifying everything, cutting storage to a few gigabytes while keeping full validation. Several plug-and-play node boxes exist for people who prefer not to configure software themselves. Running a node earns nothing; its benefit is verification and privacy.

Upgrades: SegWit, Taproot and address types

Bitcoin changes slowly and mostly through soft forks, upgrades that tighten the rules so older nodes still accept new blocks. Segregated Witness (SegWit) activated in August 2017. It moved signature data into a separate structure, fixed a long-standing bug called transaction malleability and made layered systems such as the Lightning Network practical. Taproot followed in November 2021, adding Schnorr signatures and making complex spending conditions look like ordinary payments on the chain.

Each era left its own address format, and all of them still work. Fees differ, so it pays to know which one your wallet uses.

The Lightning Network

Lightning is a second layer built on top of Bitcoin for fast, small payments. Two parties lock bitcoin into a shared on-chain address and can then send payments back and forth instantly by updating a balance sheet they both sign. Payments can also hop across several channels, so you can pay someone you have no direct channel with.

Fees on Lightning are usually a few satoshis, and settlement takes seconds. The trade-offs are real, though. Opening and closing channels require on-chain transactions, receiving payments requires inbound liquidity, and self-run Lightning wallets need to stay online or rely on a watchtower service. Many users choose a custodial Lightning wallet for convenience, which means trusting the provider with the funds.

Bitcoin mining in 2026

Mining is the process described above: specialised machines hash block headers until one finds a valid block, earning the subsidy plus the fees inside it. Since about 2013, mining has been dominated by ASICs, chips designed for nothing except SHA-256. Graphics cards and home computers cannot compete on Bitcoin and have not been able to for over a decade.

Pools

Because the network is so large, a single machine might wait many years to find a block by itself. Most miners therefore join a pool, which combines hashing power and pays members in proportion to the work they contribute, minus a pool fee. Payout schemes such as FPPS and PPLNS differ in how they share fees and luck, and each pool publishes its own terms.

A worked mining example

The figures below are illustrative, not a forecast. Suppose you run one modern machine rated at 200 terahashes per second (TH/s) that draws 3,500 watts, and suppose the whole network is producing 1,000 exahashes per second (1,000,000,000 TH/s).

• Your share of the network: 200 divided by 1,000,000,000 is 0.0000002, or one five-millionth.
• Expected subsidy per day: 144 blocks times 3.125 BTC is 450 BTC; your share is 0.00009 BTC, which is 9,000 sats, before fees and pool charges.
• Electricity per day: 3.5 kW running 24 hours uses 84 kWh. At 0.15 per kWh in your currency, that costs 12.60 a day; at 0.05, it costs 4.20.
• Your break-even question: is 9,000 sats (plus your share of fees, minus the pool fee) worth more than your electricity cost on the day? Check the current price yourself, and remember that network hash rate tends to rise, shrinking your share over time.

The arithmetic shows why industrial miners cluster where electricity is cheapest and why most home miners lose money once hardware cost is included. A machine of this kind is also loud, often well above normal household noise levels, and produces as much heat as a large space heater. Some hobbyists mine with small, quiet devices purely to learn or to support decentralisation, accepting that the expected return is tiny.

Rules on mining

Mining is legal in most countries, but not everywhere. China ordered mining operations to shut down in 2021, which pushed a large share of global hash rate to North America and Central Asia. Several jurisdictions regulate mining through energy policy instead, for example with special grid tariffs or moratoriums on new connections. Check local electricity contracts too: some residential tariffs forbid commercial loads.

Bitcoin forks and look-alike coins

Because Bitcoin’s code is open source, anyone can copy it and start a new chain. A “hard fork” copies the existing ledger at a chosen block, so holders of BTC at that moment also receive the new coin. Our old directory listed many of these; all those pages now point here.

A ticker with “Bitcoin” in its name says nothing about its security or support. Before claiming coins from any old fork, use only the official wallet software linked from the project’s long-standing repository, and move your BTC to a fresh wallet first, because claiming requires exposing the old private keys.

Sending bitcoin without mistakes

Most losses that are not caused by scams come from simple sending errors. A short routine prevents nearly all of them.

1. Get the address from the recipient’s own interface. Copy it from their wallet or the exchange’s deposit page, not from an old email or a chat message that could have been altered.
2. Check the first and last characters after pasting. Clipboard-hijacking malware swaps a copied address for one controlled by an attacker, and the swap is easy to miss.
3. Confirm the network. Exchanges offer “BTC” on several networks, including the Bitcoin network itself, Lightning and wrapped versions on other chains. Sending on a network the recipient does not support can lose the funds or require a slow manual recovery.
4. Try a tiny amount first with any address you have never paid before, and send the balance only after it lands.
5. Choose the fee deliberately. If nothing is urgent, a lower fee rate saves money; if it is urgent, check a mempool explorer for the current rate.
6. Keep the transaction ID. It lets you or the recipient track the payment on a block explorer and is what support teams ask for first.

Wrapped bitcoin deserves a separate word. Tokens that represent BTC on other blockchains depend on a custodian or bridge holding the real coins. They are not the same asset as bitcoin on its own chain, and bridge failures have caused large losses on several networks.

Privacy on the Bitcoin blockchain

Every Bitcoin transaction is visible to anyone, forever. Addresses do not carry names, but once one address is linked to you, for example through an exchange withdrawal, analysts can often follow funds forward and backward through the ledger. Blockchain analysis companies sell exactly this service to exchanges and law enforcement.

Simple habits reduce exposure: use a new receiving address for each payment (modern wallets do this automatically), avoid posting addresses publicly alongside your identity, and run your own node if you want your wallet’s queries to stay private. Techniques that mix coins with other users exist, but several mixing services have faced criminal charges in the US and elsewhere, and exchanges may freeze deposits that come from them.

The energy debate

Proof of work consumes electricity by design: the cost of producing blocks is what makes rewriting history expensive. Critics point to the total power drawn by the network, which researchers at the University of Cambridge track in a public index, and argue that the security does not justify the energy. Supporters reply that miners seek the cheapest power available, which often means stranded or surplus energy, and that miners can switch off quickly when grids are under strain.

Both sides cite real examples, and the balance changes as the energy mix changes. For an individual user, the practical point is narrower. The energy cost is paid by miners, not by you per transaction, and moving more value in one payment does not use more electricity than moving less.

A short Bitcoin timeline

How to buy bitcoin

1. Pick a platform licensed where you live. In the EU look for a MiCA-authorised crypto-asset service provider; in Canada, a platform registered with your provincial regulator; in the US, a company registered with FinCEN and licensed by the states it serves. Our exchange directory lists the licences behind each major platform, including Kraken and Coinbase.
2. Verify your identity. Regulated exchanges must collect ID and proof of address under anti-money-laundering rules.
3. Fund the account. Bank transfers are usually the cheapest route; card purchases often carry higher fees.
4. Buy using a limit order where possible. “Instant buy” buttons often include a spread on top of the stated fee. Compare the amount of BTC you receive, not just the fee line.
5. Decide where the coins will live. Leave them on the exchange or withdraw to your own wallet, as discussed below.

You can buy a fraction of a coin; most platforms let you buy as little as a few dollars’ or euros’ worth. In some countries you can also get price exposure through regulated exchange-traded products. In the US, the SEC approved the first spot bitcoin exchange-traded products in January 2024. Those funds hold bitcoin for you, so you cannot withdraw coins from them.

A warning about bitcoin ATMs

Bitcoin ATMs are legal in many places but are heavily used by scammers. The US Federal Trade Commission reported that losses to fraud involving bitcoin ATMs topped $65 million in the first six months of 2024, mostly from government impersonation, business impersonation and tech support scams. No police force, bank, tax office or tech company will ever ask you to pay with bitcoin at a kiosk. If someone gives you a QR code and urges you to deposit cash, stop.

Storing bitcoin safely

Coins held at an exchange are an IOU from that company. Exchange failures, from Mt. Gox in 2014 to FTX in 2022, show that this can go badly. Withdrawing to your own wallet removes that risk but adds another: you alone are responsible for the keys.

• Hardware wallets keep keys on a dedicated device and are the usual choice for larger sums.
• Mobile and desktop wallets are convenient for everyday amounts, as long as the device is kept updated.
• Multisignature setups require two or more keys to spend, protecting against a single lost or stolen key.

Whatever you choose, the wallet will show a recovery phrase, typically 12 or 24 words. Record it on paper or a metal plate, store it away from any device, and never enter it on a web page or share it with anyone who claims to be support staff. Our wallet guide compares the main types in detail. If you are curious about earning small amounts instead of buying, the free Bitcoin page explains faucets, rewards and their limits.

Legal status and tax

Bitcoin is legal to own in most countries, though some restrict or ban trading. El Salvador made it legal tender in 2021, then amended the law in January 2025 as part of an agreement with the International Monetary Fund, so businesses there no longer have to accept it. In the United States, an executive order of March 2025 created a Strategic Bitcoin Reserve funded with coins already held by the federal government.

For tax purposes, most countries treat bitcoin as property or an asset rather than currency. The US IRS, for example, treats digital assets as property, so selling, swapping or spending bitcoin can produce a capital gain or loss. In the EU, the DAC8 directive makes crypto platforms record customer transactions from 1 January 2026 and report that year’s data to tax offices in 2027. Keep records of every purchase, sale and transfer, and check your own tax authority’s guidance.

Risks to weigh

• Volatility. Bitcoin has fallen by more than half from previous peaks several times.
• Irreversible payments. A payment sent to the wrong address or to a scammer cannot be cancelled.
• Key loss. Lost recovery phrases are a leading cause of permanently lost coins.
• Counterparty risk. Exchanges, lenders and custodians can fail or freeze withdrawals.
• Scams. Fake giveaways, romance scams and “recovery services” target bitcoin holders constantly.

Bitcoin’s role compared with other coins is covered on our coin directory, and our Ethereum and Litecoin pages explain how those networks differ in design.

Common misunderstandings

• “Bitcoin is stored in my wallet.” The wallet stores keys; the coins exist only as entries on the blockchain.
• “The 21 million cap can be raised by a vote.” Changing it would require nearly every node operator to run new software that breaks the current rules. In practice the cap is one of the most resistant parts of the protocol.
• “Larger payments pay larger fees.” Fees depend on transaction size in bytes, not on the amount sent.
• “Quantum computers can already break Bitcoin.” No publicly known quantum computer can do so today. Developers are discussing upgrade paths in advance, and coins in addresses whose public keys have never been revealed are less exposed.
• “Bitcoin is untraceable.” It is one of the most traceable payment systems ever built, because the full history is public.

Frequently asked questions

Who controls Bitcoin?

No single party. Miners produce blocks, but every full node independently checks those blocks against the rules, and software changes only take effect if users choose to run them. Developers propose changes; they cannot force them on the network.

When is the next Bitcoin halving?

The next halving is set to happen at block 1,050,000, expected around 2028. The exact date depends on how quickly blocks are found until then. The subsidy will drop from 3.125 BTC to 1.5625 BTC per block.

Can I buy less than one bitcoin?

Yes. One bitcoin divides into 100 million satoshis, and most exchanges let you buy small fractions. Check the platform’s minimum order and its withdrawal fee, which may be large relative to a very small purchase.

How long does a Bitcoin transaction take?

A block is found about every 10 minutes on average, but your transaction is only included once its fee rate is competitive. With a suitable fee it usually confirms within one or a few blocks; with a very low fee it can wait much longer.

Is Bitcoin mining profitable at home?

Rarely. Profit depends on the machine’s efficiency, your electricity price, the network hash rate and the bitcoin price on the day. Most household electricity tariffs make modern mining unprofitable once hardware costs are counted.

Is Bitcoin anonymous?

No. Every transaction is public and permanent, and addresses can often be linked to people through exchange records and blockchain analysis. It is better described as pseudonymous.

What happens if I lose my recovery phrase?

While the wallet still opens, transfer everything to a freshly created wallet with a new phrase at once. If you have lost both the device and the phrase, the coins cannot be recovered by anyone.