How Does the Bitcoin Network Work? One Payment, 6 Steps

The Bitcoin network is a large group of computers that check every payment against the same rules. None of them is in charge.

The facts come from the white paper, Bitcoin's design document written under the name Satoshi Nakamoto, and the developer documentation, the project's official technical guides. Bitcoin Core is the main Bitcoin software project. Its code sets the defaults quoted here. Our guide to what Bitcoin is covers the coin and its price.

A node is a computer that runs Bitcoin's software. It checks every payment and block against the rules, then passes the valid ones on. Each node keeps its own copy of the record, so no owner has to trust a miner.

A miner is a computer that builds new blocks. The reward is newly created Bitcoin, paid to the miner who adds a block. Senders also attach a fee to each payment. The miner collects those too. The reward and the fees pay for the work.

Nodes reject a block that breaks the rules, so its reward is never paid.

Step 1 happens inside the sender's wallet, the app that holds a private key. A private key is a secret number that only the owner knows.

A payment spends coins received in earlier payments. Bitcoin calls each received piece an output. Think of a banknote: a payment hands over the whole note.

The wallet lists where that value goes, including any change back to the sender. Whatever is left over is the fee, which goes to the miner.

The wallet then adds a digital signature, a code that only the holder of the private key can produce. Changing the amount afterwards breaks it.

Step 2 is the broadcast. The wallet sends the payment to a few nodes. Each node checks the signature and that the spent outputs are still unspent. It drops a bad payment and passes on a good one.

Step 3 is the wait. The mempool, short for memory pool, is a node's list of valid payments that are not in a block yet. Such a payment has zero confirmations.

Each node keeps its own mempool. The documentation says a payment there should generally not be trusted without a risk check.

Miners include payments to collect their fees. A payment with too low a fee can wait a long time. The sender can send a new version with a higher fee.

Step 4 is the block. A miner picks payments from its mempool. The first payment in the block pays the miner the reward and the fees.

Step 5 is the guessing. A hash is a short code that a fixed calculation produces from the block's header, a summary of the block. Change the header slightly and the code changes beyond recognition. No miner can aim for a chosen code.

Think of rolling dice until the total is low enough. The miner needs a hash below a target number. The miner changes one throwaway number in the header, the nonce, and tries again.

The first miner to succeed broadcasts the block. Each node checks it and accepts it. Miners then build the next block on top. The reward cannot be spent for 100 blocks, in case a rival block replaces it.

Hash rate is the number of guesses made each second. Difficulty is the number that sets how rare a winning hash must be.

Every 2,016 blocks, nodes compare the time those blocks took with two weeks. Faster blocks raise difficulty in proportion. Slower blocks lower it.

Each change is capped. Difficulty can rise to at most four times its old level (a 300% rise). It can fall to at most a quarter of it (a 75% fall).

A change at block 973,728, on 29 October 2026, came after the 2,016 blocks before it took 13.27 days from first to last, less than the two-week target. So difficulty rose 5.5%, from 140.6 trillion to 148.4 trillion. Both figures come from the blockchain's block headers.

Step 6 is the build-up. A payment in the newest block has 1 confirmation. Each block added on top adds one more.

Chart 1 shows the gaps between the 2,016 blocks from block 971,712 to 973,727, mined from 16 to 29 October 2026. The design aims for 10 minutes on average.

The mean gap, the average, was 9.5 minutes. The median, the middle gap, was 6.4 minutes. Slow blocks pull the mean above the median.

In Chart 1, 34.0% of the blocks came 10 minutes or more after the one before. The first bar includes 74 blocks whose time label, set by the miner, is no later than the block before.

Two miners can find a block at nearly the same moment. Each node keeps the one it saw first, so the network briefly holds two versions of the record.

The next block extends one of them. Nodes then drop the other. A payment only in the dropped block goes back to the waiting area. That is why 1 confirmation can still be undone.

The documentation says software handling high-value payments should wait for at least 6 confirmations, about an hour.

The white paper tests that advice. An attacker builds a secret rival version of the record in which the payment never happened. The attacker wins only if that version grows longer than the honest one. Chart 2 gives the attacker's chance when holding 10% and 30% of the mining power.

At 10%, the chance falls from 20.5% after 1 confirmation to 0.024% after 6. At 30%, it falls from 62.8% to 13.2%.

The table lists seven terms with a plain definition and one fact each.

Source: Bitcoin Core source code; Bitcoin developer documentation; Bitcoin blockchain block headers; YX Insights calculation

The white paper assumes the attacker's share of mining power stays constant. The mempool limits are Bitcoin Core's defaults. A node's operator can change them. This article makes no forecast.

Our Multi-model Signals cover Bitcoin. Our Macro & Megacaps Systematic Portfolio, a rules-based set of holdings, includes it.

Our comparison of Bitcoin, Ethereum, and Solana covers how other networks do the same jobs.

A Bitcoin payment reaches the nodes, waits in the mempool, enters a block that a miner found by guessing, then gains a confirmation with each block after it.

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A node checks payments and blocks against the rules, while a miner builds new blocks by making guesses. Miners collect the reward, which is newly created Bitcoin, plus the fees. Nodes reject any block that breaks the rules, so a miner's block only counts once nodes accept it.

A payment that pays enough fee needs about 10 minutes on average, according to the developer documentation. In the 2,016 blocks mined from 16 to 29 October 2026, the median gap between blocks was 6.4 minutes. Still, 34.0% of blocks came 10 minutes or more after the one before. Gaps vary widely.

The developer documentation says software handling high-value payments should wait for at least 6 confirmations, about an hour. It calls the number somewhat arbitrary. In the white paper's calculation, 6 confirmations leave an attacker with 10% of the mining power a 0.024% chance of reversing a payment.

Difficulty changes every 2,016 blocks, which is about every two weeks at 10 minutes a block. The change at block 973,728, on 29 October 2026, raised difficulty by 5.5%, because the previous 2,016 blocks took 13.27 days against the two-week target.

Each node keeps its own mempool in its memory, so no single shared mempool exists. In Bitcoin Core's current development code, the default limit is 300 megabytes. Payments expire after 336 hours, which is 14 days. A node's operator can change both settings.

DISCLAIMER: This article is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.