What is Bitcoin and why does it matter?

What is Bitcoin, and how does it work?

Bitcoin is a shared ledger. Every transaction ever made is recorded in a public database called the blockchain, which is copied across thousands of independent computers. When you send Bitcoin, you sign a message with a private key that proves you control the coins. The network checks the signature, confirms you have not already spent those coins, and groups your transaction with others into a block.

No bank sits in the middle. There is no account to open, no business hours and no institution that can reverse a payment or freeze a balance. Settlement is final once enough blocks have been built on top of a transaction, and the ledger is auditable by anyone who runs a node. That combination, a public record with no central operator, is what the rest of this guide unpacks: how the record is secured, who built it, why people assign value to it, and how to hold it without losing it.

What is mining, and how does proof of work secure the network?

Blocks are added through mining. Miners compete to solve a computational puzzle, and the first to solve it earns the right to add the next block along with a reward of newly issued Bitcoin plus transaction fees. This is proof of work. It makes rewriting history expensive, because an attacker would need to redo the computation of every block after the one they wanted to change, faster than the rest of the network adds new ones.

The reward paid to miners is cut in half at fixed intervals, which is how issuance slows toward the 21 million cap. Roughly 19.7 million coins have already been mined, and the remaining supply arrives slowly over many decades on a schedule written into the protocol. Because the puzzle difficulty adjusts to keep block times steady, adding more mining power does not speed up issuance; it only raises the cost of attacking the chain. Proof of work is expensive by design. That expense is the security budget.

Who created Bitcoin?

Bitcoin was described in a white paper titled 'Bitcoin: A Peer-to-Peer Electronic Cash System', published under the name Satoshi Nakamoto in late 2008. The paper set out how a network of strangers could agree on a transaction history without trusting a central party. The software launched in January 2009 with the mining of the genesis block, the first block in the chain.

Nakamoto's identity has never been confirmed. The name may belong to one person or a group, and Nakamoto stopped communicating publicly a few years after launch. This matters more than it sounds. Bitcoin has no founder to lobby, no company to sue and no leadership team to replace. Changes to the protocol happen only when a broad majority of node operators and miners adopt them. That absence of a controlling party is a large part of the reason institutions treat Bitcoin as a distinct asset rather than as a technology company's product.

Why is Bitcoin considered valuable?

The first argument is scarcity. Supply is capped at 21 million coins, roughly 19.7 million have already been mined, and the schedule for the remainder is written into the protocol. No central bank can decide to issue more. For investors who worry about currency debasement, that predictability is the core of the store of value thesis. The Abra piece on Bitcoin and the dollar explores that argument in depth.

The second argument is network effects. Bitcoin is the original digital asset, it is widely held, and it is deeply liquid, and each of those facts reinforces the others. More holders attract more exchanges, custodians and regulated products, which in turn make it easier for the next holder to participate. The approval of US spot Bitcoin ETFs in January 2024 extended that network into brokerage accounts and retirement plans.

The honest counterargument is that Bitcoin produces no cash flow. Its value rests on continued demand for a scarce, censorship-resistant asset. That demand has grown across several cycles, but it is not guaranteed, and the price has fallen sharply more than once along the way.

Who holds Bitcoin today?

Ownership has broadened well beyond early adopters. US spot Bitcoin ETFs, approved in January 2024, now hold Bitcoin on behalf of brokerage and retirement account investors. Public companies hold Bitcoin as a treasury asset, with Strategy, formerly MicroStrategy, the largest and longest-running corporate example. Several sovereign entities hold Bitcoin through seizures or direct purchase.

Individual holders remain the majority by count, and long-term holders who have not moved coins in over a year account for a substantial share of supply according to on-chain analytics firms such as Glassnode. Exchanges custody a meaningful share on behalf of customers, and that concentration is a known risk. The Abra history of five crypto cycles traces how each wave of new holders changed the market.

For high-net-worth investors, the practical takeaway is that Bitcoin now sits alongside conventional assets in institutional portfolios. For many institutional investors, the discussion has expanded from whether to consider Bitcoin to questions of allocation, custody and governance. The question has shifted from whether it belongs to how it should be held.

How do you buy and custody Bitcoin safely?

There are three broad options. You can buy on an exchange and leave the coins there. You can buy and move the coins to a wallet you control, which means you alone hold the private keys. Or you can hold through a regulated adviser with a qualified custodian, which places the asset in a segregated account administered under fiduciary and custody rules.

Each option trades convenience against control. Exchange custody is simple but exposes you to the exchange's solvency; FTX customers learned that in November 2022. Self-custody removes counterparty risk and adds operational risk: lost keys are lost coins. Qualified custody is the institutional middle path. At Abra, client Bitcoin is held in segregated accounts titled to the client at Fireblocks Trust Company, LLC, protected by multi-party computation (MPC) key storage, which splits key material so no single party can move funds alone.

For larger positions the custody decision matters as much as the purchase price. The Abra Vault page explains the structure in detail.

What are the risks of holding Bitcoin?

Price volatility is the obvious one. Bitcoin has experienced multiple drawdowns of more than half its value, and a position sized for a calm market can become uncomfortable quickly. Investors who hold through cycles generally do so because the allocation was sized so that a severe decline would not force a sale.

Regulatory risk is real but has narrowed. The United States now has spot ETFs, a growing body of tax guidance, and clearer expectations for custodians and advisers. Rules still vary sharply by country, and tax treatment can change. Custody risk is the one investors control directly. Coins on a failed exchange, keys on a lost device, or assets that a platform has rehypothecated all represent the same outcome: Bitcoin you own on paper but cannot access. Celsius, Voyager Digital, BlockFi and FTX each demonstrated a version of this in 2022.

Finally, Bitcoin generates no income on its own. Yield strategies exist, including Abra's BTCaf, which pays its yield in BTC; the return is variable and not guaranteed, and such strategies add risk to the underlying asset and should be evaluated separately. BTCaf is issued by AbraFi and accessed through Abra Capital Management.

How is Bitcoin taxed in the United States?

The IRS treats Bitcoin as property, a position first set out in Notice 2014-21 and developed in later guidance. Selling, spending or exchanging Bitcoin for another asset triggers a capital gain or loss measured against your cost basis. The holding period determines whether the gain is taxed at short-term or long-term rates. Simply buying and holding Bitcoin is not a taxable event, and neither is moving coins between wallets you control.

Rewards from yield or staking are generally treated as ordinary income when received, measured at fair market value on the day they are credited, and a later sale of the rewarded coins can create a separate capital gain or loss. Borrowing against Bitcoin is generally not a sale, which is why some long-term holders raise cash through a crypto-backed loan rather than a disposal; a liquidation of that collateral, however, is a sale. Rules differ by country and change over time, so keep lot-level records and confirm your situation with a tax professional before you act.