What Is Bitcoin? How BTC Works, Supply and Halvings Explained

Bitcoin (BTC) is the first cryptocurrency: a decentralized digital currency with a fixed supply of 21 million coins, recorded on a public blockchain and secured by proof-of-work mining. It lets people send value directly to each other without a bank or payment company in the middle. Bitcoin is also the most widely traded crypto asset on spot and derivatives markets, so it serves as a reference point for the rest of the market.

Key takeaways

• Bitcoin was introduced in a 2008 white paper by the pseudonymous Satoshi Nakamoto, and the network launched in January 2009.
• Total supply is capped at 21 million BTC, and new issuance halves roughly every four years.
• The network is secured by proof of work: miners compete to add a new block about every 10 minutes.
• The smallest unit is a satoshi, equal to 0.00000001 BTC.
• BTC trades on spot markets and on perpetual futures, where funding rates and basis create trading opportunities.

How Bitcoin works

Bitcoin is a shared ledger that thousands of independent computers, called nodes, keep in sync. Each node stores a full copy of the transaction history and checks every new transaction against the same open-source rules. No single company can change balances or reverse payments.

To own bitcoin, you control a private key, a secret number that lets you sign transactions. Anyone can see the public address linked to that key, but only the key holder can spend from it. Software that manages these keys is called a crypto wallet.

When you send BTC, your wallet broadcasts a signed transaction to the network. It waits in a queue called the mempool until a miner includes it in a block. Each block links to the previous one by its cryptographic hash, forming the chain described in What Is Blockchain?

Mining and proof of work

Mining is the process of adding new blocks. Miners run specialized hardware that repeatedly hashes candidate blocks, searching for a result below a target number. The first miner to find a valid result publishes the block and earns the block reward: newly issued bitcoin (the subsidy) plus the fees from the transactions inside it.

This is called proof of work because the valid hash proves that real computing effort was spent. Rewriting old blocks would require redoing that work faster than the rest of the network, which becomes impractical as more blocks are added on top.

To keep blocks arriving about every 10 minutes, the network adjusts mining difficulty every 2,016 blocks, roughly every two weeks. If blocks come too fast, difficulty rises; if too slow, it falls.

Fixed supply and halvings

Bitcoin's issuance schedule is fixed in its code. The subsidy started at 50 BTC per block and halves every 210,000 blocks.

Halving era	Year it began	Subsidy per block
Launch	2009	50 BTC
1st halving	2012	25 BTC
2nd halving	2016	12.5 BTC
3rd halving	2020	6.25 BTC
4th halving	2024	3.125 BTC

Worked example: why 210,000 blocks is about four years, and where 21 million comes from.

• 210,000 blocks × 10 minutes = 2,100,000 minutes ≈ 1,458 days ≈ 4 years.
• At 3.125 BTC per block and about 144 blocks per day (1,440 minutes ÷ 10), new issuance is 3.125 × 144 = 450 BTC per day.
• Total supply is a halving series: 210,000 × (50 + 25 + 12.5 + ...) = 210,000 × 100 = 21,000,000 BTC, because 50 + 25 + 12.5 + ... adds up to 100.

As the subsidy shrinks, transaction fees are expected to make up a larger share of miner income over time.

Units and transaction fees

Most people hold fractions of a bitcoin. Prices are quoted per 1 BTC, but balances and fees are often shown in satoshis (sats).

Bitcoin fees depend on how much block space a transaction uses, measured in virtual bytes (vB), not on how much BTC you send. For example, assume a simple transaction of 140 vB and a fee rate of 10 sats per vB:

• Fee = 140 × 10 = 1,400 sats = 0.000014 BTC.
• If BTC were priced at $60,000, that fee would be 0.000014 × 60,000 = $0.84.

When the mempool is busy, fee rates rise and low-fee transactions can wait for hours. This matters for traders who move BTC between exchanges, because a delayed deposit can mean a missed opportunity.

How Bitcoin is traded

BTC trades in two main ways:

• Spot markets, where you buy or sell actual bitcoin, usually against a stablecoin or fiat currency.
• Derivatives, mainly perpetual futures. Exchanges such as Binance and Bybit list USDT-margined linear BTC perpetuals, and many venues also offer inverse contracts margined in BTC itself.

Perpetual futures use a funding rate to stay close to the spot price. Because BTC perps are listed on many exchanges with different traders on each, funding rates for the same coin often differ between venues. The gap between perp and spot prices, called basis, is the starting point for trades such as cash-and-carry.

Risks and common misunderstandings

• Volatility: BTC's price can move sharply in short periods. Leverage magnifies this.
• Irreversible transactions: sending to the wrong address or network cannot be undone.
• Key loss: if you self-custody and lose your keys or seed phrase, the coins are unrecoverable.
• Exchange risk: coins held on an exchange depend on that company's solvency and security.
• "Bitcoin is anonymous": it is pseudonymous. Every transaction is public, and addresses can often be linked to identities.

This article is education, not financial advice.

How ArbTide helps

ArbTide tracks live BTC perpetual funding rates across exchanges on the BTC funding rates page, with past rates on the BTC funding history page. To see spot price gaps net of fees, use the live arbitrage scanner.