Understanding Blockchain and Bitcoin

The story of blockchain and bitcoin is nothing short of a modern-day fairytale.

The year was 2008, and the world was gripped by the worst recession since the Great Depression. But why did it happen?

Houses were being sold to people who couldn’t afford them, often through loans with low introductory EMIs that later spiked dramatically. As payments became unmanageable, borrowers began defaulting. Meanwhile, there weren’t enough new buyers to absorb the growing supply, and housing prices plummeted. In short, demand collapsed, and the value of homes no longer reflected their inflated prices.

At the heart of this crisis was a broken financial system—a system that sold a $100,000 home to someone with only $1000 in their pocket, without adequately evaluating the risk. Banks had extended loans using money they didn’t physically have, assuming they could recover it from future deposits or investments. When too many people defaulted at once, the entire system crumbled.

In October 2008, amid this chaos, a whitepaper emerged from a person using the pseudonym Satoshi Nakamoto. The document proposed a revolutionary idea: eliminating the need for third-party intermediaries like banks to verify transactions. Instead, it introduced the concept of direct, peer-to-peer value exchange.

The idea was radical yet simple: If I promise to send you $1, the system must first verify whether I actually have that dollar before approving the transaction. Unlike a bank—which might lend out money it doesn’t physically hold while investing the same funds elsewhere—this new model would only allow verified, transparent transfers.

To illustrate the flaw in traditional banking: If every customer were to demand their deposits back at the same time, the bank wouldn’t be able to pay them all. That’s because banks operate on fractional reserves and rely on continual deposits to manage outgoing loans and investments. The 2008 financial crisis exposed how risky and fragile this system really was, especially when regulatory oversight failed.

Enter Blockchain

Satoshi Nakamoto’s proposed network would function through a series of “blocks,” each representing a set of transactions. Every block would be verified by individuals known as miners, who would confirm the legitimacy and value of each transaction. Once validated, a new block is created and linked to the one before it, forming a chain—hence the name blockchain.

Each verified transaction would reward the miner with a unit of digital value, called bitcoin.

Here’s how it works:

• Every new block contains a record of transactions.

• Before adding a block to the chain, the network verifies that the sender has the necessary funds and that the transaction is valid.

• Miners compete to validate the block using computational power.

• Once verified, the block is added to the blockchain, and the miner is rewarded with bitcoins.

How the Blockchain Grew from the First Block

Satoshi Nakamoto built the very first block on the bitcoin blockchain—commonly referred to as the Genesis Block or Block 0—on January 3, 2009. This foundational block was mined using what was likely Nakamoto’s home CPU, much like cranking an engine to start a car. It marked the beginning of a decentralized monetary system designed to operate without the need for traditional banks or intermediaries.

What made the Genesis Block especially symbolic was the embedded message Nakamoto included in its coinbase transaction:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

This message served not only as a timestamp but also as a direct critique of the conventional financial system—one that had just failed millions of people around the world.

The Genesis Block included a reward of 50 bitcoins, as specified in the original bitcoin protocol. This reward system was designed to incentivize miners to support and secure the network by solving complex cryptographic puzzles. However, due to the way the Genesis Block was coded, those initial 50 bitcoins are unspendable—they’re permanently locked and can never be moved or used. They now serve as a symbolic monument to the birth of bitcoin.

In a Nutshell: Blockchain and Bitcoin

At its core, a blockchain is a computer file used to store data. More technically, it’s an open, distributed ledger—meaning the information is duplicated across many computers around the world, making it decentralized.

This decentralization is what makes blockchain technology so transformative. In a traditional, centralized database—like one maintained by a bank or government—records are stored and verified by a single authority. In contrast, blockchain uses consensus mechanisms where users collectively verify and agree on each new piece of data. The entire network sees and confirms transactions, ensuring both transparency and integrity.

Despite being transparent, blockchains are incredibly secure, precisely because there's no single point of failure. With no central server to hack, the network becomes much harder to compromise.

Blockchain is the foundational technology that powers bitcoin. It was developed specifically to enable bitcoin's peer-to-peer, trustless transactions. In fact, bitcoin was the first real-world use case of blockchain, and without blockchain, bitcoin wouldn’t exist. That’s why the two terms are often used interchangeably—though they’re not the same thing, they are inseparable in origin.

Current Bitcoin Stats

Bitcoin’s blockchain operates through a series of sequentially numbered blocks, each with a unique height—that is, its numerical distance from the very first block (the Genesis Block). As of now, the bitcoin blockchain has reached a block height of approximately 840,000. New blocks are added roughly every 10 minutes, so this number continues to grow.

Out of bitcoin’s capped supply of 21 million coins, approximately 19.9 million had already been mined as of December 22, 2024. That leaves about 1.1 million bitcoins still to be mined—a shrinking pool that increases scarcity over time.

Unlike Nakamoto’s early days—when the first block could be mined using a basic home CPU—mining today is a significantly more complex and resource-intensive process. To add a new block now, miners rely on high-performance data centers packed with powerful GPUs. These facilities must process and verify the entire history of recent blocks—each containing a huge amount of transactional data—to securely execute every new transaction on the bitcoin blockchain.

This activity comes at an environmental cost. The global bitcoin mining network is estimated to consume between 120 and 160 terawatt-hours (TWh) of electricity annually—comparable to the total yearly energy usage of countries like Argentina or Norway.

On December 5, 2024, bitcoin reached a historic milestone, surpassing $100,000 for the first time. The breakthrough prompted renewed discussions about the future of the digital asset—whether it continues to rise, faces corrections, or reshapes how the world perceives decentralized finance.

Other Networks Like Bitcoin and Blockchain

Bitcoin operates on its own blockchain infrastructure, known simply as the bitcoin blockchain. But it's not the only network using this revolutionary technology:

Ethereum powers the cryptocurrency Ether (ETH) and supports smart contracts and decentralized applications on its own blockchain known as the Ethereum network.

Litecoin, often referred to as the silver to bitcoin’s gold, runs on a blockchain that was originally derived from bitcoin’s open-source code, but modified for faster transaction speeds and lower costs.

These blockchain networks, while distinct in their functionalities and use cases, all follow the same fundamental principle: a decentralized, transparent, and tamper-resistant ledger maintained by consensus across distributed nodes.