How does the cryptocurrency Bitcoin work?

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Imagine you want to send 1,000 € from Germany to Indonesia via a bank. Due to complex processes between international banks, the transaction will take some time and will cost transaction fees. This means that of the 1,000 € you originally sent, only 900 € may arrive in Indonesia two weeks later.

With Bitcoins on the contrary, you can send money very quickly, with low transaction fees and on a worldwide basis. You could send the equivalent of 1000 € to Indonesia, where it would arrive in full after only ten minutes.

Bitcoins are based on the blockchain technology. A blockchain is a distributed ledger that is synchronised between multiple computers. These computers, or nodes, together maintain the Bitcoin network. The nodes contribute the hardware and electricity which the blockchain needs to operate and are themselves paid for it with Bitcoins. This process, called mining, provides incentive to its participants and ensures that the blockchain continues, even if a single node leaves the network.

The value of Bitcoins is determined by their scarcity. The total number of Bitcoins that can be mined is limited to a maximum of 21 million coins. At its current rate of development, Bitcoin and other cryptocurrencies will likely play an important role in future global trade.