Bitcoin Explained: How It Works and How It Trades

Bitcoin

Bitcoin is the first and largest cryptocurrency, with a fixed supply of 21 million coins. Learn how it works, halvings, what moves its price and how to trade it.

Beginner3 min readUpdated 3 Oct 2026

Lesson 1 of 24

Bitcoin is a digital currency that runs on a public, decentralised network without a central bank or company in charge. It was described in a 2008 white paper by the pseudonymous Satoshi Nakamoto and launched in January 2009. Bitcoin's supply is capped at 21 million coins, new coins are created on a fixed schedule, and transactions are recorded on a public ledger called a blockchain. It is the largest cryptocurrency by market value and the main reference asset for the whole crypto market. The overview of crypto trading is in Crypto Trading.

How Bitcoin works#

Concept	Meaning
Blockchain	A public ledger of all transactions, grouped into blocks. See Blockchain Basics
Proof of work	Miners compete to add blocks by solving computational puzzles, securing the network
Block time	A new block about every 10 minutes
Block reward	New bitcoins paid to the miner of each block, plus transaction fees
Halving	The block reward halves about every four years (every 210,000 blocks)
Wallets and keys	Ownership is controlled by private keys; whoever holds the key controls the coins
Satoshi	The smallest unit: 0.00000001 BTC

Supply and halvings#

Halving	Year	Block reward after
Launch	2009	50 BTC
First	2012	25 BTC
Second	2016	12.5 BTC
Third	2020	6.25 BTC
Fourth	April 2024	3.125 BTC

Each halving cuts the rate of new supply. By 2024, more than 19.5 million of the 21 million coins had been mined, and the last bitcoin is expected around 2140. Some investors point to past bull markets after halvings, but with only a few cycles, it is hard to separate the halving's effect from other factors such as interest rates and adoption.

What moves Bitcoin's price#

Driver	Example
Liquidity and interest rates	Bitcoin has often risen when global liquidity expanded and fallen when rates rose, as in 2022
Institutional flows	US spot Bitcoin ETFs, approved in January 2024, attracted tens of billions of dollars
Regulation	Approvals, bans and enforcement actions
Leverage and liquidations	Large leveraged positions in futures can amplify moves. See Liquidations in Crypto
Sentiment and narratives	Store of value, inflation hedge, adoption headlines
Exchange failures and hacks	FTX's collapse in November 2022 pushed Bitcoin below $16,000

Ways to trade Bitcoin#

Spot on exchanges: buy and hold actual BTC. See Crypto Spot Trading.
Spot ETFs: exposure through a regular brokerage account.
Futures: CME Bitcoin and Micro Bitcoin futures, regulated and cash settled; crypto exchange futures. See Crypto Futures and Basis.
Perpetual futures: the most traded crypto derivative, with funding payments. See Perpetual Futures.
Options on crypto exchanges and CME.
Prediction markets: short Bitcoin up or down rounds on Polymarket. See Up or Down Markets Explained.

The TradeLabs AI chart shows live Bitcoin candles with indicators and Polymarket's short rounds, which is useful for practising how intraday Bitcoin moves look.

Risks#

Extreme volatility and deep drawdowns.
Custody risk: lost keys or exchange failures can mean total loss.
Regulatory risk that varies by country.
Leverage risk in derivatives.
Scams and fraud targeting newcomers. See Identifying Trading Scams.

Frequently asked questions#

What is Bitcoin?#

A decentralised digital currency with a fixed supply of 21 million coins, recorded on a public blockchain and secured by proof of work mining.

What is the Bitcoin halving?#

An event about every four years when the reward for mining a block is cut in half, slowing the creation of new bitcoins.

How can I trade Bitcoin?#

By buying it on exchanges, through spot ETFs, or with futures, perpetual futures and options.

Next, learn about the second largest cryptocurrency in Ethereum.

Sources#

Nakamoto, S., Bitcoin: A Peer to Peer Electronic Cash System, 2008

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Next lessonEthereumEthereum is a programmable blockchain that runs smart contracts, with ether (ETH) as its native asset. Learn how it works, proof of stake, gas and price drivers.