What is bitcoin, and how does it work?

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Pros and cons of Bitcoin

Pros

As a currency and investment, bitcoin has many benefits, including:

• Faster transactions. You can usually send bitcoin to someone else within 10 to 60 minutes.

• Cheaper transactions. The cost of transferring bitcoin to another wallet is, on average, $0.50 to $2.50, but it can be more depending on how busy the network is and how much data is included in your transaction. By comparison, wire transfer fees can run as high as $60.

• Decentralization. Decentralization puts people in charge of their own finances. With traditional currency, banks and brokers are the gatekeepers of cash and financial assets. If the financial institution fails, it can limit asset access. Bitcoin’s decentralization makes it possible to store access keys directly on an offline hardware device.

• Secure. Each bitcoin transaction is subject to multiple verifications. It’s very difficult to fake, hack, or hijack the network.

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Cons

However, there are also some disadvantages to Bitcoin to consider:

• Volatility. Bitcoin’s value changes rapidly. This affects its utility as a medium of exchange. You could complete a transaction, and then realize you paid more than you expected because Bitcoin’s price suddenly changed.

• High energy consumption. The Bitcoin network uses a lot of electricity to verify transactions and add to the blockchain. A single transaction can use more electricity than the average U.S. household consumes in about 38 days.

• Lack of history. Bitcoin is a young currency — it only became available in 2009. The lack of history makes it difficult to predict how bitcoin will behave under extreme economic conditions.

• Competition. While bitcoin is the most popular cryptocurrency, it faces competition from other cryptocurrencies that have faster, more efficient technology.

• No risk-free income opportunities. Bitcoin does not pay an interest yield the way cash does. There are ways to earn income on bitcoin, such as lending, but they aren’t without risk.

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How to buy bitcoin

Joining an exchange is the simplest way to buy bitcoin. An exchange, like Coinbase, operates much like a stock trading app. Once you verify your identity, open an account, and add funds, you can begin trading. The exchange converts your dollars to bitcoin and vice versa. You can also exchange dollars or bitcoin for other cryptocurrencies or stablecoins.

Crypto exchanges are user-friendly, but they are also centralized — which may be a drawback for some investors. But there are some ways to procure bitcoin without an exchange:

• Bitcoin ATMs. To buy bitcoin at an ATM, users provide a Bitcoin address and pay with cash or by swiping a debit card.

• Peer-to-peer exchanges. P2P exchanges (ex., Binance) are platforms that allow bitcoin traders to transact directly with one another.

• Exchange integrations with wallets. There are various hardware and software wallets available for bitcoin owners. Some have integrations that support payments and transfers.

• Play-to-earn games. There are apps and games that pay users in bitcoin for playing. Examples include Axie Infinity, The Sandbox, and Bitcoin Miner.

• Bitcoin futures exchange-traded fund (ETF). Those interested in bitcoin as a long-term investment can also opt for indirect ownership through a Bitcoin ETF like the iShares fund (IBIT). These funds track the bitcoin price, but they’re centralized and charge an expense ratio.

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Ways to use bitcoin

Once you have bitcoin on hand, you can use it to:

• Send money to any Bitcoin address globally

• Buy goods and services from merchants that accept it

• Store currency without using a bank

• Diversify your investment portfolio

• Trade on volatility for short-term gains

• Gamble in a cryptocurrency casino

Keep in mind: Bitcoin’s effectiveness as a diversification asset is somewhat unproven. Though some data suggest that bitcoin’s behavior aligns with the stock market, particularly when stock prices are falling.

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Origin and history of bitcoin

Bitcoin materialized from a 2008 whitepaper written under the pen name Satoshi Nakamoto. In the paper, Nakamoto outlined a system for a transparent, independent, digital, and P2P currency system. Bitcoin mining began in the next year.

Bitcoin exchanges, like Coinbase, began to launch in the early 2010s, which made the cryptocurrency more accessible and interesting to a wider audience. Bitcoin has since grown in value and popularity.

The bitcoin supply is capped at 21 million coins. Over 19 million have already been mined. This scarcity contributes to its value.

Bitcoin FAQs

Where did bitcoin come from?

Bitcoin is a technology-based currency that was first introduced in 2009, after an anonymous author — under the pen name Satoshi Nakamoto — conceptualized it in 2008.

Why does bitcoin have value?

People value Bitcoin primarily because it is a decentralized, borderless currency. It supports efficient worldwide payments and has a limited supply of 21 million coins. Additionally, bitcoin is volatile enough to attract the attention of day traders and swing traders who seek to earn profits on quick price changes.

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How has the bitcoin price changed between 2015 and 2025?

In January 2015, one bitcoin was worth about $320. By January 2025, one bitcoin was worth more than $90,000; as of October 2025, one Bitcoin was worth $120,000.

Is bitcoin legal?

Bitcoin is legal in the U.S., but restricted or banned in other countries. You cannot use bitcoin in China, Afghanistan, Egypt, Kuwait, or other countries.

Is bitcoin safe?

Bitcoin’s backbone is blockchain technology, which is difficult, if not impossible, to hack. However, there are other risks associated with cryptocurrency. Bitcoin’s volatility creates a high risk of financial loss. There are also bitcoin-based scams that attempt to dupe users into providing their personal information or sharing access to their Bitcoin keys.

Jamie Young and Tim Manni edited this article.