Network, protocol and unit
Bitcoin with a capital B often means the network and protocol; bitcoin or BTC means the accounting unit. There is no central database containing accounts with one operator. Many independent computers store and validate history under compatible rules.
The protocol specifies valid transactions, signature checks, block creation and issuance. Source code can be changed, but a change cannot force others to use the new rules. Its practical effect depends on adoption by network participants.
What happens in a payment
A wallet creates a transaction referencing earlier unspent outputs and defining new spending conditions. It uses a private key to create a digital signature. In a properly designed wallet the key does not leave the device; the signed transaction is sent to the network.
Nodes check signatures, format, available inputs and other consensus rules. They may relay a valid transaction and hold it in the mempool. Miners select transactions for a candidate block. A transaction before inclusion is not as final as one with several confirmations.
- a wallet manages keys and prepares transactions
- nodes independently check compliance with the rules
- miners propose transaction order and prove expended computation
Blocks, mining and consensus
A miner searches for a block-header hash below a target. Attempts consume computation and energy; a node can verify the result quickly. A successful block references the previous one, forming a chain. Nodes accept only rule-compliant blocks, so a miner cannot arbitrarily create extra bitcoin or spend somebody else's coins.
When two temporary branches appear, nodes follow the chain with the greatest accumulated work under the rules. Further blocks raise the cost of changing history. Confirmation is not magical absolute finality, but increasing economic assurance whose required level depends on a payment's value and risk.
Supply, strengths and limits
New bitcoin enters through the block subsidy, which halves roughly every 210,000 blocks. Consensus rules converge on a maximum supply of 21 million BTC. Users pay fees for block space, and fees are expected to become a larger share of miner revenue over time.
Strengths include open access, independent verification, portability and self-custody. Limits include volatility, base-layer capacity, proof-of-work energy use, a public transaction trail and high responsibility for key holders. Lightning and other layers improve some payments but bring their own trade-offs.
What is inside a wallet
Bitcoin is not stored in a phone or hardware wallet as a file of coins. The network records unspent outputs and their spending conditions. A wallet stores or derives keys, monitors relevant records and helps create a valid signature.
Anyone obtaining the seed phrase or private key can generally create a valid transfer. If it is irretrievably lost without a backup, there is no central password reset. The first security step should therefore be a small test of backup, receipt, sending and recovery—not a large purchase.