The Bitcoin machine

We now know that Bitcoin is scarce, durable, and digital. But how does it actually function?
How can computers, without a boss or a central bank, all agree on who owns what?
The answer lies in a combination of clever rules, math, and incentives.

At the heart of Bitcoin is the blockchain. Think of it as a global, shared notebook that records every transaction ever made: I have a copy of it, your uncle has a copy on it, some guy in India has a copy of it, everyone running Bitcoin software store a copy of it.
Every entry in this notebook is public and can be checked by anyone, anywhere.
Once something is written down, it cannot be erased or changed. This is why Bitcoin is verifiable and trustworthy without relying on any single institution.

New transactions are grouped together into blocks. Each block contains a list of transfers and a special code that links it to the previous block, forming a chain. This is why it is called a blockchain. Because each block depends on the one before, it becomes nearly impossible to change history without redoing all the work that came after it.

But who decides what gets written into the blockchain? That job is done by miners.
Miners are participants who compete to solve extremely difficult math problems.
These problems are not puzzles for fun: they require real-world energy and computing power, which makes cheating expensive. The first miner to solve the problem gets to add the next block to the chain and is rewarded with newly created Bitcoin. This is called mining, and it is how new Bitcoin enters the system.

Mining serves two critical purposes at once. It creates scarcity because new Bitcoin is produced slowly and predictably, and it secures the network because any attempt to alter history would require redoing all the math (using energy) faster than the entire network combined, which is practically impossible.

You have probably heard people say that mining is terrible for the environment.
As we have seen before, nothing is worse for the environment than a monetary system that is centrally controlled and disconnected from the underlying thermodynamic reality.

Bitcoin mining uses energy to secure the network and to prevent arbitrary creation of money.
At the same time, mining has always encouraged the use of more efficient and cleaner energy sources, while reducing energy waste because surplus energy can be captured and put to productive use.
Saying that mining is a waste of energy is like saying that a heating system in a place where people live and where it is minus thirty degrees Celsius is a waste of energy.

The process of agreeing on the next block is called consensus. Bitcoin uses a method called proof of work. Everyone in the network can see which block is valid because the rules are clear: the first block to meet the mathematical requirements wins, and everyone else automatically accepts it. There is no vote, no committee, and no human discretion. This makes Bitcoin extremely resistant to corruption and manipulation.

Security in Bitcoin comes from two things: math and incentives. Cryptography ensures that only the rightful owner of Bitcoin can spend it, and the network design makes it unprofitable for anyone to cheat. Breaking the system would cost more in resources than anyone could ever gain, which is why people trust it.

Another important concept is finality. Once a transaction is included in a block and several blocks are built on top of it, it becomes effectively permanent. You can think of it as ink that hardens with every new layer added. This is different from the banking system, where transactions can be reversed or frozen. Bitcoin gives you ownership that is final and independent of any authority.

Finally, Bitcoin is borderless and permissionless. Anyone can join, anyone can verify, anyone can send or receive money without asking for approval. There is no gatekeeper and no central control. This makes it the first form of money in history that is truly open and global, yet still secure and scarce.

At a high level, Bitcoin works because it combines three elements:

• Scarcity enforced by code and mining effort.

• Security ensured by cryptography and economic incentives.

• Decentralized consensus that allows thousands of independent participants to agree on a single history without trusting anyone.

Put together, these create a new form of money that is digital, global, verifiable, and hard to corrupt. It is a system designed to function reliably for decades or even centuries, without relying on any single government, company, or individual to uphold it.

Understanding this gives you a glimpse of why Bitcoin is so revolutionary. It is not just money but a completely new way of coordinating human value across space and time.

The next chapter will explore why this changes everything about wealth, savings, and power, and why Bitcoin can be called a monetary reset for the modern world.