What is bitcoin?

Bitcoin works by moving the account records of a payment from a bank to a ledger that every node of the network holds. In classic finance a bank or card scheme keeps the accounts. The white paper names that model as its starting point: online commerce relies "almost exclusively on financial institutions serving as trusted third parties to process electronic payments". It proposes "an electronic payment system based on cryptographic proof".

A bitcoin transaction works through digital signatures. The owner signs a hash of the previous transaction and the public key of the next owner. The network then follows six steps from the white paper:

1. New transactions are broadcast to all nodes.
2. Each node collects new transactions into a block.
3. Each node works on a proof of work for its block.
4. The node that finds it broadcasts the block.
5. Nodes accept the block only if all transactions in it are valid and not already spent.
6. Nodes build the next block on top of it.

In simple terms, the longest chain of blocks is the valid record, and a coin spent in it cannot be spent twice.

Bitcoin mining is the work of computers that compete to add the next block and receive new bitcoins for it. Bitcoin miners are the operators of these computers. The proof of work in the white paper "involves scanning for a value that when hashed, such as with SHA-256, the hash begins with a number of zero bits". Finding the value is a process of many attempts; checking it takes one hash.

The difficulty, explained in the white paper, follows "a moving average targeting an average number of blocks per hour". The result is one block about every 10 minutes on average (bitcoin.org). The first transaction in each block creates new coins for the miner, and the fees of the transactions in the block go to the same miner. To change an old block, an attacker has to redo its proof of work and that of all later blocks.

The bitcoin supply is limited to 21 million because the software issues new coins at a falling rate that ends at that total. The bitcoin.org FAQ states: "The number of new bitcoins created each year is automatically halved over time until bitcoin issuance halts completely with a total of 21 million bitcoins in existence." This step is known as the bitcoin halving.

After the last coin, miners are paid from transaction fees alone. The white paper planned for that: "Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees." Payments below one bitcoin use sats, with up to 8 decimal places.

No company runs the bitcoin network. Its users and miners run it, and in that sense bitcoin is decentralized. The bitcoin.org FAQ compares it to email: "Nobody owns the Bitcoin network much like no one owns the technology behind email." Developers cannot force a change of the rules, because each user chooses which software to run.

The limit of this design is written in the white paper. The system is secure "as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes".

Bitcoin is a crypto-asset in EU law. Under the Markets in Crypto-Assets Regulation (MiCA, also MiCAR) it belongs to the group of crypto-assets other than asset-referenced tokens or e-money tokens. MiCA defines a crypto-asset as "a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology" (Article 3(1)(5)).

Bitcoin is no stablecoin. An e-money token or an asset-referenced token purports to keep a stable value by reference to a currency or other assets (Article 3(1)(6) and (7)); bitcoin makes no such claim. Bitcoin also has no identifiable issuer. Recital 22 of MiCA says that such crypto-assets "should not fall within the scope of Title II, III or IV", while the firms that provide services for them are covered.

In Germany and Austria MiCA applies directly, and the legal duties fall on the service providers: exchanges and custodians of bitcoin need an authorization under Article 59. BaFin writes that the other tokens under MiCA include "gängige Kryptowerte wie Bitcoin und Ethereum" (BaFin, July 1, 2024). BaFin supervises in Germany.

Institutional clients in Germany can also trade crypto-assets on an exchange. Deutsche Börse, based in Frankfurt, has run the Deutsche Börse Digital Exchange (DBDX), a regulated spot platform for crypto-asset trading, since March 5, 2024; Crypto Finance (Deutschland) GmbH, which holds four BaFin licenses, handles settlement and custody (Deutsche Börse, March 5, 2024). Since March 11, 2025, clients of Clearstream can hold and settle bitcoin in their existing Clearstream accounts, with the same German firm as sub-custodian (Deutsche Börse, March 11, 2025).

In Austria the FMA is the competent authority for crypto-asset service providers and names bitcoin as an example of a crypto-asset (FMA, August 7, 2024).

Switzerland is outside the EU, so MiCA does not apply there. FINMA's ICO guidelines of February 16, 2018 require payment tokens to comply with anti-money laundering rules, and FINMA "will not treat payment tokens as securities". The guidelines add that this is "consistent with FINMA's current practice (e.g. in relation to Bitcoin and Ether)". This page gives no legal advice.