Module 1: What Bitcoin Really Is
Introduction
Before we can understand Bitcoin wallets, we must understand what Bitcoin itself actually is — at a technical level, not just as "money on the internet."
Bitcoin is not an app.
Bitcoin is not a bank.
Bitcoin is not a company.
Bitcoin is not stored in files on your computer or inside your wallet app.
Bitcoin is a global, decentralized ledger of who controls what — secured by mathematics, cryptography, and economic incentives.
This understanding is the foundation of everything else.
1.1 Bitcoin as a Ledger, Not an Account System
Bitcoin is fundamentally a distributed public ledger:
A global database of unspent transaction outputs (UTXOs).
Everyone can verify every movement of Bitcoin from the beginning of time.
There are no balances stored anywhere in Bitcoin. Instead, balances are calculated by summing up UTXOs associated with Bitcoin addresses.
Analogy:
Imagine a public notebook where:
Every time someone sends money, they cross out previous amounts and write new ones.
The notebook only shows the leftover pieces (UTXOs) that haven't yet been spent.
Your "balance" is just the total of the pieces you control.
1.2 The Bitcoin Ledger is Built on Blocks
The Bitcoin ledger is divided into blocks:
Every 10 minutes (on average), a new block is created.
A block contains a batch of validated transactions.
Blocks are chained together cryptographically (hence the term "blockchain").
Each block confirms the validity of previous transactions and extends the history forward.
1.3 Bitcoin is a Broadcast, Not a Direct Payment System
When a user sends Bitcoin:
They create a transaction that says "I want to move these coins."
They broadcast this transaction to the Bitcoin peer-to-peer network.
Miners include valid transactions in blocks.
Once included in a block, the transaction becomes part of Bitcoin’s permanent history.
There is no direct link between sender and receiver.
Both rely on the network propagating and confirming the transaction.
1.4 Bitcoin’s Security Assumptions
Bitcoin's security depends on:
Proof-of-Work Mining: making it costly to rewrite history.
Decentralization: no single party controls transaction verification.
Economic Incentives: rational actors (miners, nodes) prefer following the rules because it's more profitable.
No central server or authority guarantees Bitcoin's correctness. It is maintained by the collective agreement of thousands of independent nodes verifying rules independently.
1.5 Implications for Bitcoin Wallets
Understanding that Bitcoin is a global ledger of UTXOs in blocks has several critical implications for wallet product design:
| Principle | Wallet Impact |
|---|---|
| No account balances exist in Bitcoin | Wallets must scan and sum UTXOs associated with user addresses. |
| Transactions are probabilistic until confirmed | Wallets must explain transaction status: unconfirmed, confirming, confirmed. |
| Addresses are public, private keys control spend | Wallets must protect private keys while exposing public addresses. |
| No reversal once a transaction is confirmed | Wallets must warn users before sending. UX must explain finality. |
1.6 Practical Product Reflections
If you are building a Bitcoin wallet:
You are not "creating an account" for the user like a bank would.
You are helping them create a keypair that gives them control over certain UTXOs recorded on the Bitcoin network.
You are not "storing Bitcoin" in the app.
You are storing secret information (the private key) that allows users to control Bitcoin stored on the global Bitcoin ledger.
Your app is a control panel for keys and transactions interacting with Bitcoin — not a container for the Bitcoin itself.
1.7 Diagram: What Bitcoin Is (vs Wallet App)
Summary of Module 1
Bitcoin is:
A decentralized public ledger of UTXOs.
Extended through blocks and mining.
Verified independently by thousands of nodes.
Not controlled by any one person, company, or app.
Wallets:
Help users manage private keys.
Detect and spend UTXOs.
Must respect Bitcoin's trustless security model.
Understanding Bitcoin’s nature as a global ledger of unspent outputs is essential before building serious wallet products.
