Understanding Bitcoin and How It Works

5 min readJul 11, 2022


Cryptocurrency has gained massive popularity since it was first introduced as an alternative to fiat money, so much so that it has been deemed a viable investment option by many. And because consumers flock towards the world of decentralized finance with the help of crypto success stories through the years, it only makes sense for companies and service providers to take notice and adopt this new way to pay.

Companies are beginning to accept cryptocurrency as payment for their products and services. Most notably, the most popular and the one crypto that started it all: Bitcoin.

In this article, we’ll cover how the premier cryptocurrency came to be, how it works, where you can spend it, its place in the modern world, and finally, a few things to consider before dipping your toes in the unchartered waters of decentralized finance.

What is Bitcoin and how does it work?

Bitcoin is the premier cryptocurrency. Created by a person or a group of people under the pseudonym Satoshi Nakamoto, it is a decentralized digital currency that can be transferred peer-to-peer through the Bitcoin network and whose transactions are then recorded in a public ledger called a blockchain.

Perhaps due to its timing, having been first introduced in 2008, Bitcoin has often been regarded as a response to the 2007 financial crisis. This, however, is a common misconception. This isn’t to say that Bitcoin’s creation wasn’t inspired by the shortcomings of traditional finance, because as Satoshi Nakamoto stated in an essay that accompanied Bitcoin’s code, trust is integral in traditional currencies and this trust has been breached by central banks many times throughout history.

Hence, the premise of Bitcoin is to decentralize finance or to create a financial ecosystem that is trustless and isn’t dependent on or regulated by intermediaries like banks and governments, giving asset owners complete control over their finances by way of peer-to-peer and open-source transactions. But how does it work?

Imagine instead of a row in a ledger, a transaction is encoded in a block. In Bitcoin, a block is created in a process called mining, or the act of validating a transaction. Miners are tasked to solve mathematical problems, where every solution corresponds to a brand new hash (a unique code assigned to a transaction), awards the miner with Bitcoin, and opens a new block on the blockchain. Every block on the blockchain contains its unique hash and that of the transaction that came before it, making all Bitcoin transactions chained together. And because this ledger has copies in millions of computers, any malicious attempt at altering even a single block is rendered virtually impossible.

Making use of Bitcoin

While there are many mobile apps and services that allow users to convert their Bitcoin into cash and use them for real-world utilities and everyday needs, there have been a handful of companies that dared embrace the future Bitcoin is offering and began accepting it as payment.

Here are a few of them that stepped to the plate:

Cheap Air

Cheap Air is the first online travel agency to accept Bitcoin payments as early as in 2013. You may book flights and hotels using your crypto in their official website.


Microsoft has begun accepting Bitcoin as a payment option for various applications, XBox games, and other digital content.


A popular US-based online store, you may also purchase furniture, decor, home improvement products and the like, at Overstock using your Bitcoin.


Although it is most known as a landmark traditional digital payment service, PayPal users in the United States may now be able to hold, sell, and buy Bitcoin using their app.

Before making any purchase, please note that listed above are not the only companies that accept Bitcoin as payment, but just a handful of those that do as of this article’s writing. These companies may cease accepting Bitcoin payments for various reasons from hereon, as is the case with Tesla in 2021 and Wikipedia most recently. Practice due diligence and double-check with a company before trying to purchase from them with your Bitcoin. For good measure, you may always use different wallets and digital payment services that can convert your Bitcoin to fiat money.

What you need to consider before investing in Bitcoin

Bitcoin is volatile. In an article chronicling Bitcoin’s price history Time.com writes, “We saw Bitcoin skyrocket to an all-time high over $64,000 in the first half of 2021, then just as quickly fall back below $30,000 over the summer. Bitcoin hit another all-time high over $68,000 in November, but by January 2022 had dropped back below $35,000. Some experts still say the price of Bitcoin will surpass $100,000 — describing it as a matter of when it happens, rather than if. ”

In June 2022, Bitcoin’s value plummeted to less than $20,000.

Importance of Bitcoin in the modern world

Traditional or centralized finance may be what we’ve been used to as it’s been on for many generations, but lest we forget, the manner by which people trade have gone through several evolutions throughout history. From the days of barter and carrying actual silver and gold, humans found a more convenient mode of trading when our governments and banks stepped in with fiat money. Now that more and more of our transactions become digital — with the advent of credit cards first and then mobile digital payment services — the need to carry around cash lessens and the possibility of a completely digital financial system seems to become more visible.

While society may not always respond well to abrupt, enforced change, change is still something that we’ve shown we can be eased into. The introduction of Bitcoin back in 2008 was perhaps an invitation towards that change and future. And now, with its popularity birthing thousands of cryptocurrencies and the growing number of people participating in the DeFi ecosystem, Bitcoin’s impact in the way we pay and trade is now indelible: we have been presented with an alternative. Whether it successfully addresses its biggest pitfalls and becomes the eventual norm, we have yet to find out.

Disclaimer: The recommendations included in this article are for educational purposes only and do not constitute financial advice of any kind.

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