Beginner guides, explanations, and everything about Bitcoin

Bitcoin is for everyone

Unlike traditional forms of money, bitcoin isn’t backed by physical assets or government policies, instead, it’s backed by a novel system that uses decentralization, incentives, energy, and cryptography.

![](https://www.datocms-assets.com/99305/1734386385-learn-what-is-backing-bitcoin-state-hero.png)

To properly answer “What is backing bitcoin?,” we first need to establish what “backing” means.

In the context of money, “backing” historically meant a currency that was directly linked to a specific quantity of a commodity, like gold. This system, known as the “gold standard,” provided tangible assurances of the currency’s value as it could be exchanged for set quantities of a valuable metal.

In 1971, the US dollar’s gold-backing ended, along with that of all other major currencies. This marked the shift to “fiat” money (from the Latin word for “decree”), where the money’s value relies on government policies and public trust, rather than redeemability for gold. 

Neither gold nor fiat money are backed by redeemability for anything or by any ability to generate cash flows. They are “base-layer” monetary assets, meaning their value relies on their *inherent* properties and the assurances that those properties will persist into the future. People own gold or fiat because they’re useful for storing and/or exchanging value, made possible by their reliable [monetary properties](https://strike.me/learn/what-is-money):
* **Gold:** Gold’s value relies upon its resistance to corrosion, ease of verification, physical weight, measurable purity, and natural scarcity, which are established by the unchanging laws of physics. Additionally, gold’s superior scarcity is safeguarded by the economic barriers of production, since there is no other way to produce gold other than through energy-intensive work.
* **Fiat money:** Fiat’s value relies upon government-mandated acceptance for taxes, debts, and legal transactions, combined with public trust in the issuing authority’s ability to maintain its value. If policies change or the authorities print money excessively, the money’s value could drop and popular trust could be lost (see 1920’s Germany, 1990’s Yugoslavia, 2000’s Zimbabwe, or 2010’s Venezuela).

Base-layer monetary assets are backed by nothing other than themselves and the forces that assure their valuable properties will persist into the future. 

Bitcoin is the same. It’s a base-layer monetary asset, backed by the forces that assure its valuable properties will persist. 

## How is bitcoin backed?
[Bitcoin](https://strike.me/learn/what-is-bitcoin) is a peer-to-peer electronic cash system, letting people acquire, hold, and spend bitcoin in a similar way to traditional forms of money.

Bitcoin has valuable [monetary properties](https://strike.me/learn/what-is-money), including: 
* **Scarcity:** Bitcoin has a fixed supply limit of [21 million bitcoin](https://strike.me/learn/how-many-bitcoin-are-there)
* **Divisibility:** Each bitcoin can be effortlessly subdivided into [100 million satoshis](https://strike.me/learn/what-are-satoshis)
* **Portability:** Bitcoin can be moved digitally and securely transferred from one person to another without a 3rd party intermediary by authorizing the transaction using their unique [private key](https://strike.me/learn/what-are-private-keys-and-public-keys)

These valuable monetary properties are established through a novel system that combines decentralization, incentives, energy, and cryptography. 

Let’s examine.

![](https://www.datocms-assets.com/99305/1704930771-learn-better-ai-agents-state-default.png)

## Decentralization of rule-enforcing nodes
Bitcoin’s monetary properties are defined by its [rules](https://strike.me/learn/how-does-bitcoin-work), which are encoded in Bitcoin’s free and open-source software and run by a global network of independent computers, called “nodes.” The rules determine the operations of the Bitcoin network (uppercase “B”) and the characteristics of the bitcoin asset (lowercase “b”):
* **Network operation rules:** Transaction formatting, node connectivity processes, the block time interval, the mining difficulty adjustment, etc…
* **Asset characteristic rules:** The supply limit, the supply schedule, the divisibility of each bitcoin, the authorization requirements for initiating a transaction, etc…

When you operate a node, it connects to every other node in the network to share valid transaction information. Any transaction that violates the rules is easily detected and automatically rejected by each and every node. Although any node can change their *own* copy of the software, thereby altering *their* version of Bitcoin’s rules, no one can force *other* nodes to adopt those changes. The unchanging nature of the rules is what establishes the reliability of Bitcoin’s monetary properties. 

This network of countless independent nodes forms a globally decentralized system that collectively ensures the integrity of Bitcoin’s rules and operations. Each node operates equally and redundantly, meaning no single node holds unique authority or is critical to the network’s operation. This decentralization ensures that no individual or group can unilaterally change Bitcoin’s rules while safeguarding it from censorship or shutdown.

➔ **Assurance:** The rules that establish Bitcoin’s monetary properties can’t be changed, blocked, or banned by any individual or group.

## Incentives
Although nodes are free to adopt new rules, such as increasing the supply limit, any transactions they process under incompatible rules would conflict with all other nodes’ rules and be instantly rejected. This makes the effort pointless, as their time and resources would be wasted. The same principle applies to [Bitcoin mining:](https://strike.me/learn/what-is-bitcoin-mining) producing a valid block is resource-intensive, and if any transaction within that block violates Bitcoin’s rules, the block will be rejected, the miner’s energy wasted, and no rewards issued.

Nodes and miners are not only incentivized to avoid rule changes, they’re incentivized to strictly enforce established rules. The unchanging nature of Bitcoin’s rules assures its monetary properties are reliable and its operations are stable, giving rise to Bitcoin’s value. Node operators want their own valuable transactions accepted, while miners want to earn valuable bitcoin rewards. This incentive alignment creates a system where:
* **Adopting incompatible rules is costly:** Breaking consensus leads to rejected transactions and wasted resources.
* **Enforcing existing rules is profitable:** Stability in Bitcoin’s rules secures its value, protecting nodes’ transactions and miners’ rewards.

➔ **Assurance:** All network participants are financially incentivized to uphold the existing rules and avoid any rule changes, ensuring the reliability of Bitcoin’s monetary properties and continued operations.

## Energy and computational power (aka “hashpower”)
[Bitcoin mining](https://strike.me/learn/what-is-bitcoin-mining) involves computers performing computational work, called “hashing”, to earn a set reward paid in bitcoin for each block of transactions they add. This is how new bitcoin are issued, new transactions are added, all previous transactions are re-asserted, and the entire network is secured against attack.

The only known way to produce a [valid hash](https://strike.me/learn/what-is-a-hash-function) is by using energy in a computationally-intensive process of trial and error. However, once a valid hash has been found, it’s trivially quick and easy for each node to mathematically verify that it’s correct. This asymmetry between the difficulty of mining and the ease of verification means only miners who have mathematically proven to have expended real world resources can add blocks, while verifying validity remains simple, efficient, and widespread.

A key rule in Bitcoin is the **mining difficulty adjustment**, which ensures blocks are mined roughly every 10 minutes, regardless of the total computational power (hashpower) of all miners. Every 2,016 blocks (roughly 2 weeks), mining difficulty automatically adjusts to maintain this pace, making mining harder if hashpower increases and easier if hashpower decreases. This dynamic scaling keeps block times and the supply schedule consistent, while ensuring mining remains efficient and profitable, incentivizing ongoing participation.

The combination of mining with the difficulty adjustment creates a global, decentralized, scalable, and open competition that ties real-world resources (energy and compute hardware) to the supply and operations of Bitcoin. This system ensures:
* **Predictable supply schedule:** Block intervals and the [supply schedule](https://strike.me/learn/what-is-the-bitcoin-supply-schedule) are maintained by the difficulty adjustment, regardless of the total hashpower deployed by miners. 
* **Transaction processing:** Transactions can’t be blocked by mining bans or miners colluding to produce empty blocks, as mining is an open, global competition where miners can join or relocate freely and empty blocks miss out on [transaction fees](https://strike.me/learn/what-are-bitcoin-fees).
* **Miner incentives:** The difficulty adjustment ensures global mining remains profitable for the most efficient miners by dynamically scaling with network hashpower, keeping revenues above expenses and sustaining or increasing miner participation.
* **Transaction permanence:** Reversing a transaction requires re-mining all subsequent blocks and exceeding the network’s total computational power.

➔ **Assurance:** Bitcoin’s monetary properties and operations are secured by energy, as new bitcoin can only be issued through energy-intensive work, while attacks on its supply consistency and transaction security are deterred by a globally distributed network of incentivized energy resources.

## Cryptography and mathematical principles
Bitcoin relies on cryptographic hash functions and the use of immense numerical spaces to create computational barriers against attacks. [Hash functions](https://strike.me/learn/what-is-a-hash-function), like the industry-standard SHA-256 used in Bitcoin, generate unique outputs from input data. Even the slightest change to the input completely alters the output, and there’s no known way to reverse the process. 

Alongside hash functions, Bitcoin’s use of extremely large numbers ensures the security of private keys, transaction authorization, and mining rewards.
* **Private keys:** Bitcoin [private keys](https://strike.me/learn/what-are-private-keys-and-public-keys/) come from a numerical space with approximately 115 quattuorvigintillion possible combinations (a number with 78 digits). This immense scale ensures it’s computationally impossible for anyone to guess your private key, even with all the computing power on earth.
* **Transaction authorization:** To authorize a transaction, your private key generates a unique [digital signature](https://strike.me/learn/what-is-a-digital-signature/). The strong reliability of hash functions means there is no known method to reverse engineer your private key from the signature or the hash output of a transaction.
* **Bitcoin mining:** To add a block and be rewarded, miners must produce a [valid hash](https://strike.me/learn/what-is-a-hash-function/) that meets the network’s required output and difficulty. There is no known way to produce valid hashes other than completing the energy-intensive proof-of-work. 

➔ **Assurance:** The security of bitcoin ownership and mining operations is assured by industry-standard cryptography and mathematical principles.

## Summary
Bitcoin is a base-layer monetary asset, designed to store and exchange value–a fundamental human need.

Its value relies on its robust monetary properties, which are assured through a novel combination of decentralization, financial incentives, energy resources, and cryptography. 

This assurance isn’t abstract, it’s tangible. Real nodes enforce Bitcoin’s rules globally, real miners use computational resources and energy to secure the network, and industry-standard cryptography underpins its security – the same cryptography that secures global financial and communications networks. The entire system is self-sustaining as *all* participants are aligned through transparent financial incentives to promote Bitcoin’s continuation and defend against attacks.

Dismissing Bitcoin as “unbacked” because it lacks physical presence or government oversight is to miss its revolutionary innovation. Bitcoin is the first successful peer-to-peer electronic cash system – something entirely new – and its innovative design to link real-world resources and established cryptography to let people hold and exchange value is worth your attention.

Decentralization, incentives, energy, and cryptography

What is backing bitcoin?

## Protocols are standardized rules
Bitcoin works as a set of standardized rules. 

In computer terms, standardized rules are known as "protocols", and they enable devices and apps worldwide to communicate with each other. These rules govern how Bitcoin functions as a peer-to-peer electronic cash system. The rules are encoded within the Bitcoin software, so when someone downloads and runs the software on their computer (aka node), they become an enforcer of the rules and an active participant in Bitcoin’s operations. 

![](https://www.datocms-assets.com/99305/1704930859-learn-what-is-a-protocol-state-hero.png)

What this means is that Bitcoin operates as a worldwide network of independent nodes, each running the software containing the standardized rules for adding valid transactions to their own copy of the transaction database (called the blockchain). 

To better understand how this works, it’s helpful to define some terms:
* **The Bitcoin protocol:** The set of standardized rules within the Bitcoin software that determines how Bitcoin works
* **The Bitcoin software:** The software program (aka Bitcoin Core), which can be downloaded and run on computers, thereby making them a node in Bitcoin’s network
* **The Bitcoin network:** The global web of connections between nodes that are running the Bitcoin software, through which transaction information can be shared
* **The bitcoin asset** (lowercase “b”): The amounts that are specified within each transaction
* **The Bitcoin blockchain:** The entire history of all bitcoin transactions, structured as a sequential “chain” of blocks of transactions and which is held and maintained by each node independently 

You can think of it like this: bitcoin is an *asset*, that's transacted through a *network*, which is built on a *protocol*. 

Each node can start or stop running the software (join or leave the network), without any problem since they’re each redundant to the system as a whole. Whenever a node joins or rejoins the network, they simply follow the rules to check the validity of the transactions that took place in their absence.

Alongside the nodes are the Bitcoin miners – the computers that confirm bitcoin transactions by grouping them into blocks and adding them to the blockchain. Miners perform computational work in a lottery-style competition to win the right to add the next block and earn a reward for doing so – a system known as “proof-of-work.” Miners also follow the rules of the Bitcoin protocol, because if they don’t, any block they *attempt* to add risks being rejected as invalid by the nodes, which means their time and efforts will be wasted.

Bitcoin works because nodes and miners follow the same set of rules.

## What are the rules of Bitcoin?
The standardized rules of Bitcoin’s that are encoded within the Bitcoin software define the different aspects of Bitcoin’s operations:

### Supply rules:
* The total possible [supply of bitcoin](https://strike.me/learn/how-many-bitcoin-are-there/) is capped at 21 million. 
* New bitcoin are to be issued with each block, according to a strict [supply schedule](https://strike.me/learn/what-is-the-bitcoin-supply-schedule/) that decreases the issuance amount by half (aka a "[halving](https://strike.me/learn/what-is-the-bitcoin-halving/)") every 210,000 blocks (roughly 4 years) until the 21 million limit is reached.
### Mining rules:
* New blocks are to be created on average every 10 minutes.
* Miners must perform computational work to win the cryptographic “lottery” to add a new block of transactions to the blockchain, thereby confirming that block’s transactions and re-confirming all preceding blocks upon which it is built.
* The difficulty of winning the lottery automatically adjusts every 2,016 blocks (roughly 2 weeks), to maintain the 10 minute block time regardless of the total mining power (aka hashpower) being deployed.
### Transaction rules:
* Transactions require the digital signature that corresponds to the sender’s address, ensuring that only the owner of the bitcoin can send it.
* All transactions must have inputs and outputs to specify the sender, recipient, and amount of bitcoin being sent, except for “coinbase” transactions (the newly issued bitcoin in each block), which lack input details.
* The amount of bitcoin in the inputs must equal the amount in the outputs, less the fee amount to be paid to the miner for the service of confirming the transaction.
* Invalid transactions (e.g., invalid signature, invalid bitcoin amount, or double-spending of the same bitcoin) are to be automatically rejected.
### Consensus rules:
* Nodes accept the longest valid chain with the most cumulative proof-of-work as the correct version of the blockchain (aka the “heaviest chain”) and discard any other version of the blockchain
* To undo a transaction that has been added to the blockchain requires performing a greater amount of proof-of-work than the total accumulated work since the transaction was made, an effort which exponentially increases with time and makes bitcoin transactions effectively unchangeable after a few blocks.
### Scripting language rules:
* Any scripts included in a transaction, which can define bitcoin transaction conditions, must  follow certain rules regarding their size and complexity.
### Connectivity rules:
* Nodes must follow specific rules for how to communicate with each other, such as how data is to be formatted and transmitted.
### Blocksize rules:
* Blocks of transactions have a maximum size of 1 megabyte (with some additional space allowed for other data), which indirectly limits the number of transactions that can be included in a block.

Collectively, these rules define how to form the network, make transactions, and establish the attributes of the bitcoin asset, namely its scarcity and peer-to-peer transactability. When nodes run the software, a network is formed through which bitcoin transactions can be sent.

![](https://www.datocms-assets.com/99305/1702580888-is-bitcoin-money-02.png)

## Incentive-alignment of Bitcoin
As more nodes run the software, the rules become more difficult to change. Changing the rules entails creating a new version of the Bitcoin software and getting nodes to download and run that new version. Unlike mandatory smartphone software updates, the Bitcoin software can’t be forced on nodes, as they’re free to download and run whatever version of software they want. Nodes will only download and run software if it’s in their best interest, and will avoid any software that doesn’t.

Additionally, since any block or transaction that violates the rules is automatically rejected by all other nodes, both miners and nodes are incentivized to avoid adopting incompatible rule changes, lest their time and efforts be wasted. Furthermore, bitcoin’s value as an asset is intrinsically linked to the unchanging nature of the rules, as they establish its scarcity, transactability, and reliability. Since miners are rewarded in bitcoin and nodes process bitcoin transactions that they want added to the blockchain, everybody has a vested interest in maintaining the rules that support the value of bitcoin and the network’s consistent operations.

In this way, Bitcoin benefits from network effects – people run nodes, mine bitcoin, or buy bitcoin because it offers them a way to acquire, transact, and secure an immutable digital asset with desirable and robust attributes. Through their activities, the bitcoin asset is made more robust, immutable, and scarce, further incentivizing others to do the same. It’s a self-reinforcing cycle of network strengthening, rule solidifying, and price appreciation. 

The openness of the Bitcoin protocol stands in contrast to legacy financial systems, which are closed and opaque. There aren’t clear and transparent rules governing the supply of dollars, or who is to receive newly issued dollars and in what quantities and for what reasons. Also, entrepreneurs can’t simply build their own dollar app, capable of holding or transacting dollars independently – that’s a privileged service performed by financial institutions within predetermined limits and jurisdictions. 

What this means is that Bitcoin is structurally different from legacy finance. It’s an open, transparent, and rules-based system, with specific built-in incentives that people can opt-into, rather than being forced into. It’s fair, radically transparent, and therefore opens new possibilities for building products and services, unconstrained by arbitrary rules, privileges, and limits. Those possibilities are set to transform how money can work.

Ultimately, Bitcoin works because well-aligned incentives lead all participants to follow Bitcoin’s rules.

Understanding how standardized rules lead to a global network for transactions

How does Bitcoin work?

## Getting started
The [Strike app](http://strike.me/download) is a fast and easy way to get into Bitcoin. 

Strike is one of the world’s most licensed Bitcoin-focused companies and the Strike app is available in [tons of countries](https://strike.me/faq/where-is-strike-available-wr/) globally. It supports a variety of different payment methods, so you can use your cash to buy bitcoin, starting as little as $0.01.

![](https://www.datocms-assets.com/99305/1704930819-learn-how-to-buy-bitcoin-on-strike-state-hero.png)

Buying bitcoin with Strike is as easy as three steps:
1. Create your free account
2. Connect your cash payment method
3. Buy bitcoin

Let’s get started!

## Create your account
To get started, visit the [App store](https://apps.apple.com/app/apple-store/id1488724463) or [Google Play store](https://play.google.com/store/apps/details?id=zapsolutions.strike) to download the Strike app and complete the signup process. 

Signup is free and can take less than a minute to verify your identity and create your account. Depending on your country, some features such as higher account limits and additional payment methods may only be available after completing the additional verification steps.

Once your signup is complete, you can explore the app and make transactions.

## Connect your cash payment method
Cash payment methods enable you to buy bitcoin, by letting you deposit cash to your Strike account or charge the payment method for your bitcoin purchase. Depending on your country, there are different methods available, such as bank accounts, debit cards, wire transfers, direct deposits, or mobile money accounts. 

To link a payment method, follow these steps:
1. Go to your <UserIcon> Account screen
2. Tap "Payment methods"
3. Tap "Add method"
4. Follow the instructions, which may include retrieving a verification code from your bank account

Wire transfers and direct deposits are available in select countries and can be accessed by going to your Account screen, then tapping on <TransferIcon> Wire transfer or <BankIcon> Direct deposit. Your transfer details will be generated, which can be used to initiate the deposit from either your or your employer’s bank.

![](https://www.datocms-assets.com/99305/1705011631-learn-how-to-buy-bitcoin-support.png)

## Buy bitcoin
With a payment method connected or cash deposited into your account, you can now buy bitcoin.

To buy bitcoin, visit your Bitcoin screen and follow these steps:
1. Tap “Buy”
2. Enter the cash amount to purchase
3. Tap “Next”
4. Confirm the purchase

When the purchase is complete, the bitcoin will be added to your bitcoin balance and you’re done!

You can buy as much bitcoin as you want from your cash balance or up to your payment method’s deposit limit. You can view your limits for adding cash and sending bitcoin by going to your <UserIcon> Account screen and tapping <LimitsIcon> Limits. The cash for your bitcoin purchase needs to settle before you can send your bitcoin, which can take a few business days depending on your bank or method.
	
Strike also lets you buy bitcoin via recurring purchase or target orders:
* **Recurring purchases:** Set up [automatic purchases](https://strike.me/learn/how-to-dollar-cost-average-into-bitcoin/) on an hourly, daily, weekly, or monthly basis to help smooth out price fluctuation. At Strike, recurring purchases incur no trading fees after the first week.
* **Target orders:** Set specific [target prices](https://strike.me/learn/what-is-a-bitcoin-target-order/) to buy or sell bitcoin, and your trade will only execute if your desired price is reached.
	
With bitcoin in your account, you can:
* Make borderless peer-to-peer transactions
* Pay for goods and services with bitcoin
* Send your bitcoin to your own custody
* Sell your bitcoin for cash
* Hold your bitcoin

Let’s go!

It has never been easier to buy bitcoin through Strike

How to buy bitcoin

## Lightning as a payments network
The Lightning Network was proposed in 2015 as a payments network for transacting bitcoin *outside* the Bitcoin blockchain.

Essentially, the Lightning Network is a way to transact bitcoin faster, cheaper, and more privately than on the Bitcoin blockchain. 

![](https://www.datocms-assets.com/99305/1702580934-what-is-the-lightning-network-01.png)

Unlike legacy networks for inter-bank cash transfers or credit and debit card payments, the Lightning Network offers instant settlement, no chargebacks, and uses bitcoin as the underlying asset. 

It helps solve a key obstacle for Bitcoin, mainly the ability to scale to lots of users making lots of payments. Whereas the Bitcoin blockchain is designed first and foremost for security and decentralization, the Lightning Network is designed for speed, cost, and volume of payments. 

Lightning is a new kind of payments network, one that’s borderless, open, low-cost, and instant.

## How does the Lightning Network work?
The Lightning Network is kinda like the Bitcoin Network, in that it’s made up of computers (nodes) all running the Lightning Network software. Unlike Bitcoin, Lightning transactions aren’t publicly broadcast on the blockchain; instead they’re made privately and directly between nodes. 

Also like Bitcoin, the Lightning software is a standardized set of rules (aka protocol) that’s open and free to use for anyone or any company who wants to join.

So how does it work?

It all starts with bitcoin. Every bitcoin on Lightning begins with a transaction on the Bitcoin blockchain. That on-chain transaction is shared between two parties and serves as the reference point to start transacting *outside* the blockchain. 

With that on-chain bitcoin secured, the two nodes can then open a payment “channel” – a peer-to-peer connection through which bitcoin can be transacted. It’s like a direct link between two computers that update their own mini, private bitcoin ledger, with the start of their ledger being that first on-chain transaction. 

In their channel, they can transact as fast and often as they want by simply updating their private record, and when they’re done, they can close the channel by settling the original on-chain transaction. 

It’s like opening a tab at a bar, so that you don’t have to pay the bartender each time you buy a drink. Once you open the tab, you can order lots of drinks and just have the tab updated each time. At the end of the night, you make one single payment to settle up. 

It’s the same with Lightning. One on-chain transaction to start, countless off-chain transactions, and one on-chain transaction to close. 

What’s more, each node can open as many channels with as many nodes as they want, forming a global web of connections. Through this web, nodes can “route” payments to other nodes, even if they’re not directly connected. This means person A can send to person C, via their shared connections with person B. These *indirect* payments open a global network of payment possibilities, since each node can be indirectly connected with every other node in the network.

Lightning is a peer-to-peer payments network that helps scale the Bitcoin blockchain, without making tons of on-chain transactions.

![](https://www.datocms-assets.com/99305/1702580946-what-is-the-lightning-network-03.png)

## Lightning and global money transfers
Lightning helps deliver instant, low-cost, and interoperable payments for the world.

Payments routed via Lightning move at lightspeed. When they arrive, they’re final. Instant plus final is what legacy networks can’t do. Legacy cash payments sit in “pending” status for days, with the risk of failing or reversing, adding to merchants’ costs and headaches. 

On top of that is Lightning’s extreme low cost. Lightning payments are just information sent between computers, which costs little to nothing. When indirect payments are routed, a routing fee is paid to any in-between nodes, and those fees are typically a couple satoshis (a fraction of a penny). Payments themselves can be that small, unlocking new possibilities for micro-payments. Compare that to card payment processors, who take a couple percent per transaction in fees and can’t practically process penny transactions (let alone sub-penny amounts).

What’s more is Lightning’s interoperability. Like Bitcoin, Lightning is an open protocol, which means any person, any company, or any app can join and start making Lightning payments themselves. It’s the opposite of how bank or card networks operate, which are closed and don’t allow people to hold electronic money themselves.

With Lightning, you can make payments across apps, for less than a penny, and the payment will be instantly spendable. 

To really get it, you have to see a Lightning app in action. 

People send payments from Miami to Mumbai, via Manila, Mexico City, and Munich. Each person uses a different app, each transaction is sent for fractions of a penny, each payment is finalized and immediately spendable. No 1-5 business days, no bank holidays, no manual approvals, no opaque fees. Secure global payments that just work. 

And since bitcoin is traded 24/7/365 across all major currencies, you can use cash to buy bitcoin, send via Lightning, and sell back into cash. That’s exactly what the Strike app and Strike API do. 

The Lightning Network is a new standard for payments. 
It’s fair — nobody has privileged access.
It’s global — across the street as across the world.
It’s interoperable — across apps, across companies, across borders.
It’s secure — it all begins and ends with Bitcoin, verifiably secure and scarce.

The global bitcoin payments network that’s instant, private, and low-to-no cost 

What is the Lightning Network?

## Bitcoin ETFs
First of all, what’s an ETF?

ETF stands for Exchange Traded Fund, which is a type of investment product that can be traded on stock exchanges. ETFs hold assets, such as stocks, bonds, or commodities, and then issue shares, which investors can buy to get investment exposure to those underlying assets. 

![](https://www.datocms-assets.com/99305/1705929799-learn-what-is-a-bitcoin-etf-state-hero.png)

The idea is that the shares of the ETF *track* the price of the underlying assets, which means that as the assets go up or down in price, the shares in the ETF go up or down in a similar way. For example, if you buy shares in a Gold ETF, your investment would go up or down alongside the price of gold. It's a way of getting investment exposure to gold, without having to buy physical gold coins yourself. 

For the service of operating the ETF, the company that manages it (aka ETF Provider) charges a fee, typically a percentage of the total value of the fund’s assets.

So what’s a Bitcoin ETF?

A Bitcoin ETF is simply an ETF that holds bitcoin. It holds no other underlying asset – no other crypto, coin, or token… just [bitcoin](https://strike.me/learn/what-is-bitcoin). 

When the price of bitcoin goes up or down, the share price of the Bitcoin ETF goes up or down too. It’s a way to get investment exposure to bitcoin, without actually buying and owning the bitcoin *directly*.

Bitcoin ETFs differ from direct ownership of bitcoin, most notably in that ETFs incur ongoing management fees and don’t let you send, withdraw, and control your bitcoin yourself. The [Strike app](https://strike.me/download) is a way to buy, sell, hold, send, and receive bitcoin, as well as withdraw it to your own custody, without incurring any management fees.

![](https://www.datocms-assets.com/99305/1705598787-engineering_06-blended-bitcoin-fee-estimations-default.png)

## How does a Bitcoin ETF work?
From a high-level perspective, all you really need to know is that you can buy shares of a Bitcoin ETF in a brokerage account, and then as bitcoin’s price goes up or down, so too does your investment. 

Under the hood, the operations of a Bitcoin ETF are a bit more technical and involve creating and redeeming shares. Before digging in, there are a few terms you might need to know:

* **Net Asset Value (NAV):** The value of the ETF’s holdings
* **Authorized Participants (AP’s):** Special designated partners (usually large financial institutions) that can participate in creating or redeeming shares of the ETF
* **Custodian:** The company that actually holds the bitcoin, which could be the ETF Provider itself or a 3rd party company

So how does a Bitcoin ETF work?

1. Bitcoin ETF shares each represent a certain portion of the fund’s underlying bitcoin holdings (for example, 1 bitcoin per 1,000 shares), and are traded on a stock exchange.
2. The share price rises and falls according to supply and demand.
3. When there’s increased demand, the ETF share price rises, leading to a *premium to NAV*, meaning the ETF shares are higher in price than the underlying bitcoin they represent.
4. This premium to NAV acts as a signal to the APs to create new ETF shares, which they do by delivering cash to the ETF Provider who buys bitcoin and deposits it to the fund’s custodian.
5. The NAV of the Bitcoin ETF is updated to reflect the fund’s newly acquired bitcoin and the APs receive newly created ETF shares.
6. The APs can then trade the shares in the open market, thereby collecting and closing any premium to NAV.

The reverse can also occur when there’s a *discount to NAV*, meaning the ETF shares are lower in price than the underlying bitcoin they represent. This leads APs to gather shares and return them to the ETF Provider, *redeeming* them in exchange for the cash value of the bitcoin they represent. The ETF Provider delivers the cash to the APs by selling the underlying bitcoin.

This whole system is designed so that the ETF tracks the market price of bitcoin. Whenever there’s a premium or discount to NAV, either due to trading of ETF shares or price fluctuations of the underlying bitcoin, the APs are able to bring the share price back in line with the value of the bitcoin they represent. This system also provides liquidity, as the APs are able to participate in trading of shares, even when regular investors may be reluctant or illiquid.

The above scenario describes cash-create type ETFs, where the APs create or redeem shares by exchanging cash with the ETF Provider, rather than bitcoin. Different Bitcoin ETFs around the world may operate with different creation/redemption processes, bitcoin-per-share ratios, management fee amounts or schedules, or settlement times for when the bitcoin or cash need to be exchanged. You can read about each ETF’s details on their website.

Overall, APs and ETF Providers work to keep deviations from NAV to a minimum, so that the share price tracks the price movements of bitcoin. A 5% move in bitcoin’s market price should result in a corresponding 5% price move in the Bitcoin ETF share price. 

![](https://www.datocms-assets.com/99305/1705011631-learn-how-to-buy-bitcoin-support.png)

## Should you buy into a Bitcoin ETF?
If you’re getting into bitcoin, the question arises: should you buy shares of a Bitcoin ETF or buy bitcoin directly?

Ultimately, it’s up to you. 

For some, the convenience and familiarity of buying within their brokerage account is a big plus. For others, they might be swayed by “unit bias” – feeling better about owning *whole* shares of an ETF rather than owning *fractions* of a bitcoin, despite the fact that shares themselves represent a fraction of a bitcoin. 

Before deciding what’s best for you, there are some factors to consider:

### Management fees:
Bitcoin ETFs incur management fees, typically as a percentage of the total value of the fund’s holdings, while direct ownership has no ongoing management fees. From a long-term perspective, fees add up and are compounding, which steadily erodes the value of your holdings.

### Control of funds:
Owning bitcoin directly gives you the freedom to move your assets where, when, and how you want, while ETF shares can only be held via a brokerage service and have limited or no ability to be transferred to an alternate brokerage or custodian.

### Trading access:
Bitcoin ETFs can only be traded during market hours on business days, whereas owning bitcoin directly affords you the ability to buy and sell, any time, any day. During periods of high volatility, ETF-holders have to wait until markets open to be able to trade, while direct bitcoin-holders are free to trade and transfer when they please.

### Counterparty risk:
Bitcoin ETFs require trust in certain 3rd parties: the ETF Provider and custodian must securely manage the bitcoin, the Authorized Participants must ensure liquidity and limit deviations from NAV, and your brokerage service must provide reliable trading and access to your holdings. With direct ownership, you can decide where your bitcoin is held and by who, including self-custodying where you are the holder and sole authority over your assets.

### Future opportunities:
As the Bitcoin ecosystem grows, new use cases may arise for bitcoin holders, including using bitcoin to collect routing fees within the [Lightning Network](https://strike.me/learn/what-is-the-lightning-network) or posting bitcoin as collateral into escrow accounts to borrow against. Although these use cases are nascent and come with their own set of risks and complexities, they’re simply unavailable if your holdings are locked inside an ETF.

When considering whether to buy shares of an ETF, it’s important to consider the tradeoffs compared to buying bitcoin directly. 

The [Strike app](https://strike.me/download) offers a way to get into Bitcoin that’s simple and secure. You can sign up and buy bitcoin in minutes using regular cash payment methods, with little as $0.01 or as much as you want. Strike Private (private@strike.me) also provides OTC-desk bitcoin buying and selling for large orders from individuals, businesses, or institutions. 

With Strike, you control how you trade, hold, transact, or withdraw your bitcoin – and never pay any ongoing “management fee”. 

*Please note: this content is for educational purposes only. Strike does not provide financial advice.*

Bitcoin Exchange Traded Funds – what they are and how they work

What is a Bitcoin ETF?

Taking self-custody of your bitcoin is a process involving setting up a self-custodial wallet then sending your bitcoin to one of your addresses.

![](https://www.datocms-assets.com/99305/1704930777-learn-better-ai-agents-state-hero.png)

[Private keys](https://strike.me/learn/what-are-private-keys-and-public-keys) are central to bitcoin ownership.

Every bitcoin transaction must be authorized using the correct private key, meaning if you exclusively hold the private key, then you alone can spend the bitcoin associated with that key. The control of private keys– their creation, security, and management – is how you own bitcoin without relying on any 3rd party.

Custodial wallets, like [Strike](https://strike.me/download), handle private keys on behalf of their users. The process of taking [self-custody](https://strike.me/learn/what-is-self-custody) of your bitcoin involves setting up a new self-custodial wallet, then sending your bitcoin to an address created from that wallet. 

There are two basic types of self-custodial wallets:
* **Hardware wallet:** A physical device, usually with a screen, that runs its own wallet app to generate a [seed phrase](https://strike.me/learn/what-is-a-seed-phrase) and manage private keys directly on the device.
* **Software wallet:** A mobile or desktop app that you download, which generates a seed phrase and manages private keys within the app.

One of the major threats to your private keys is malicious or faulty software. If bad software infiltrates your wallet app, it could compromise your bitcoin. For this reason, it’s crucial to be cautious about your wallet’s connection to the Internet. 

Wallets can be further categorized based on their Internet connection:
* **Hot wallet:** A wallet that’s connected to the Internet
* **Cold wallet:** A wallet that’s disconnected from the Internet
* **Air-gapped wallet:** A wallet that is never connected to the Internet, and which passes transaction information via physical SD card or some other means.

## When should I take self-custody
Many people start their Bitcoin journey using a custodial app, like Strike, since it offers convenience, simplicity, and security. However, as you gain a deeper understanding of Bitcoin or allocate an increasingly significant portion of your wealth into it, self-custody should become an essential part of your financial plan.

Before proceeding with self-custody of your bitcoin, it’s best to understand key concepts:
* **Private and public keys:** Learn how bitcoin transactions are created and authorized via [private and public keys](https://strike.me/learn/what-are-private-keys-and-public-keys).
* **Seed phrases:** Understand how your private keys are generated from a [seed phrase](https://strike.me/learn/what-is-a-seed-phrase) and how to recover them in case your wallet is lost, damaged, or destroyed.
* **Private key security best practices:** Know the best practices to [properly safeguard](https://strike.me/learn/how-do-i-protect-my-private-keys) your private keys and seed phrase to prevent loss or theft.
* **Mult-signature setups:** Especially for large amounts of bitcoin, consider multi-signature (multi-sig) wallets that require multiple, geographically distributed private keys to authorize transactions.
* **Cold vs. hot vs. air gapped wallets:** Understand the differences between cold wallets (offline storage), hot wallets (online storage) and air-gapped wallets (never-connected storage), and how to use each safely.
* **The UTXO system:** Learn how [UTXOs](https://strike.me/learn/what-is-a-utxo) (Unspent Transaction Outputs) work to avoid issues that could make your bitcoin uneconomical or unspendable and protect your privacy.

Once you have a strong grasp of these concepts, research and choose the right self-custodial wallet that suits your needs. Many people opt for a hardware wallet, which can cost around $100 or more. Whether you choose a hardware or software wallet, be prepared to stay updated on the latest software or firmware to protect against security vulnerabilities.

Online tutorials, videos, and step-by-step walkthroughs are great resources for researching wallets and how to use them.

## How to take self custody
Here’s how to take self-custody of your bitcoin using a hardware wallet:

1. **Buy a hardware wallet:** Research and choose a reputable hardware wallet and follow the setup instructions provided in the package. For security reasons, it’s best to purchase the wallet from the manufacturer, rather than from a reseller.
2. **Set up your wallet:** Turn on the device, follow the on-screen instructions to begin creating your new wallet.
3. **Record your seed phrase:** As part of the setup process you’ll be prompted to write down a 12, 18, or 24-word [seed phrase](https://strike.me/learn/what-is-a-seed-phrase), which can be used to recover your wallet if it’s lost or damaged. It’s vital to record the words accurately and in the correct order, and to follow [best practices](https://strike.me/learn/how-do-i-protect-my-private-keys) when storing them for safekeeping.
4. **Generate a Bitcoin address:** Initiate a “receive” transaction in your wallet to generate a new Bitcoin address.
5. **Copy and paste the address:** Copy the address and paste it into the service you’re using to send bitcoin (like [Strike](https://strike.me/faq/how-do-i-send-bitcoin/)). This can be done either by having your wallet generate a QR-code, or by sharing the address to yourself, preferably using a secure and encrypted message app. Double check that the address’s characters are correct.
6. **Set your fee and amount:** Choose a transaction fee and enter the amount of bitcoin you want to send, making sure it aligns with [UTXO best practices](https://strike.me/learn/what-is-a-utxo).
7. **Send a test transaction:** As an optional step, you can send a small “test” transaction to your Bitcoin address to be absolutely sure that the address is correct. 
8. **Initiate the transaction:** After reviewing all details, initiate the transaction to your address.
9. **View the transaction on the blockchain:** Once your transaction has been initiated, it will typically appear as a pending transaction. As a final step, you can monitor your transaction’s progress on a [blockchain explorer](https://mempool.space) by searching for your Bitcoin address.

Once your transaction has six confirmations (~60 minutes), it is generally considered complete. 

At this point, you exclusively own the bitcoin because you control the wallet with your private keys, and you have securely stored your seed phrase.

Sending your bitcoin to an address where you control the private keys

How do I take self-custody of my bitcoin?

## Cash –> Bitcoin –> Cash
Send Globally is a feature in the Strike app that lets you send cash through the [Bitcoin Lightning Network](https://strike.me/learn/what-is-the-lightning-network) and have it delivered as local currency to bank or mobile money accounts. It’s a way of sending money globally or locally that can cut out unnecessary middlemen, achieve lower costs, and deliver at faster speeds.

It’s cash, sent through Bitcoin, delivered as local currency.

![](https://www.datocms-assets.com/99305/1702407736-learn-what-is-send-globally-state-title.png)

To understand how it works, let’s take a look at Bitcoin.

[Bitcoin](https://strike.me/learn/what-is-bitcoin) is a digital asset that trades 24/7/365, uninterrupted. People worldwide buy and sell bitcoin across all major currencies. This means you can buy bitcoin with your local currency, send the bitcoin to someone else, who can then sell that bitcoin for a different currency. Cash to bitcoin to cash.

On top of Bitcoin is the Lightning Network, a second-layer scaling solution that lets people securely send real bitcoin faster and cheaper. With Lightning, people can now send and receive bitcoin, anywhere in the world at lightspeed, for low-to-no cost. 

With Bitcoin and Lightning, all you need are cash on/off ramps to make global cash transfers… which is where Strike comes in.

The [Strike app](https://strike.me/download) has full functionality for Bitcoin, Lightning, and cash. Strike has also built a global network of partnerships with bitcoin-powered companies. These global partners can receive bitcoin, convert it to their local currency, and deposit it directly to bank or mobile money accounts. 

So, how does it work?

With cash in your Strike account, you add your recipient’s bank or mobile account details, enter an amount to send, and hit “Confirm”. Immediately, your cash is converted to bitcoin, bitcoin is sent via Lightning to the global partner, the global partner sells the bitcoin for local currency, and the local currency is deposited into your recipient’s account.

The entire operation is automated, and can be done in seconds. Neither you, nor your recipient, ever owns bitcoin. It’s a cash to foreign currency transaction, made possible through Bitcoin.

![](https://www.datocms-assets.com/99305/1702580906-using-bitcoin-to-send-money-abroad-02.png)

## Bitcoin as public payments infrastructure
This is a new approach to using Bitcoin. 

It’s using Bitcoin, not as an asset, but as a network to transfer value. It’s Bitcoin as public payments infrastructure for the world – an alternative to traditional money transfers.

In traditional finance, sending money internationally to friends and family (aka remittances) is slow and expensive. The average cost to remit money globally is roughly [6.20%](https://remittanceprices.worldbank.org/sites/default/files/rpw_main_report_and_annex_q223.pdf) — as in you send $100 and $6.20 is lost to fees, exchange rates, and/or middlemen. 

There’s also delays. The money can take hours, days, or even weeks to arrive and be spendable. You’re also limited if you’re trying to send really small or really large amounts. It all depends on the country, currency, or companies involved.

But why is that?

Put simply, international banking processes.

To transfer local cash in a local bank to foreign cash in a foreign bank involves payment batching, net clearance schedules, chargeback risks, business hours, bank holidays, and of course fees for all middlemen involved. If the countries or currency-pairs are small or uncommon, then the rates, delivery times, and limitations are going to be worse. 

It’s an inefficient system, not designed for speed and savings.

![](https://www.datocms-assets.com/99305/1702580912-using-bitcoin-to-send-money-abroad-03.png)


## Lightning delivers real savings and real value
Send Globally is for saving time and money.

By using Bitcoin as the network to send value, Strike can deliver even better cross-currency exchange rates. That’s because the transfer is able to bypass a lot of the processes and middlemen that drive up costs. And since the money is sent through Lightning, it can arrive much faster than traditional money transfers.

Strike has already launched in a [number of countries](https://strike.me/faq/which-countries-are-available-for-send-globally/) (with more to come), each with super low minimums. All you need is your recipient’s bank or mobile account details, and then you can send to them in their local currency, typically in seconds. 

It’s as easy as texting.

You can also use it for travel. Airport money changers charge crazy high fees and bad rates, so why not use the cash in your Strike app while traveling abroad? On your next trip to the Philippines, just use your cash to pay people in pesos, by Sending Globally right to their mobile money account.

If your recipient doesn’t live in one of the supported countries, that’s okay. The Strike app is available in [countries worldwide](https://strike.me/faq/where-is-strike-available-wr), so you can send them cash or bitcoin instantly to their Strike account. Or they can use any other Lightning-enabled wallet app to receive payments. Bitcoin is interoperable, and is traded across all major currencies. It just works.

You can use Send Globally the Strike app today, or check out this [step-by-step walkthrough](https://strike.me/learn/how-to-use-send-globally) to learn more.

Happy sending.


Bitcoin's Lightning Network makes global money transfers faster and cheaper

Using Bitcoin to send money abroad

UTXO stands for Unspent Transaction Output, and is the technical term for a discrete portion of bitcoin. Put simply, your UTXOs are your bitcoin that you’ve received, but not yet spent.

![](https://www.datocms-assets.com/99305/1721348184-learn-what-is-a-utxo-state-hero.png)

Amounts of bitcoin exist as records of transactions on the Bitcoin [blockchain](/learn/what-is-a-blockchain). Owning bitcoin means that there’s a transaction on the blockchain to an address for which you control the private keys. That record of an amount of bitcoin is called a UTXO.

The way Bitcoin works is that transactions have inputs and outputs. When a transaction is made, the sender specifies one or more inputs and one or more outputs, which can be of any amount, ranging from fractions of a bitcoin to multiple whole bitcoin:
* **Input(s):** An input in a bitcoin transaction references a previous unspent transaction output (UTXO) and is used to fund the new transaction. It includes the previous transaction’s ID, the specific output being spent, and a signature to prove ownership.
* **Output(s):** An output in a bitcoin transaction specifies the recipient of the bitcoin and the amount to be transferred, which can be an address controlled by the sender.

When a UTXO is spent as an input, it’s destroyed, and one or more UTXOs are created as the output. The one exception to this input-output system is the first transaction in each block, called the “coinbase.” The coinbase transaction has no input since it is newly issued bitcoin entering circulation as a reward to the miner, according to the strict [supply schedule](/learn/what-is-the-bitcoin-supply-schedule).

You can look at any given block on the [blockchain](https://mempool.space) for yourself and find the assorted transactions, each with one or more inputs and outputs, alongside the inputless coinbase. The network of nodes running Bitcoin’s software maintains a record of all UTXOs, known as the “UTXO set,” which represents all valid coins in the system. 

## Comparison with the account model
This UTXO model is different from the “Account model” used by banks. In the Account model, balances are tracked as single figures that are adjusted with each transaction, while the UTXO model treats each transaction output as a discrete, spendable unit.
* **Account model:** Balances are updated by debiting and crediting accounts, similar to how banks manage cash balances. When you deposit or withdraw any amount, your balance will adjust accordingly.
* **UTXO model:** Each transaction output is like a separate piece of physical cash (paper notes and metal coins). When you make a payment, you must select specific notes or coins to use. As part of the transaction, you might receive change in return, which are new notes or coins in your wallet.

A key difference to this physical cash analogy is that the recipient of a bitcoin payment receives it as a unified UTXO, not as an assortment that matches the inputs. Overall, what this means is that your bitcoin holdings are simply a collection of outputs from previous transactions that you haven’t yet spent, hence “Unspent Transaction Outputs” or UTXOs.

## Understanding UTXOs and fees
When you make a transaction on the Bitcoin blockchain, you need to pay a [transaction fee](/learn/what-are-bitcoin-fees) (aka on-chain fee) to get it added to a block and be “confirmed.” Transaction fees are paid to the [miner](/learn/what-is-bitcoin-mining) who adds the block and offers an incentive to get transactions confirmed sooner.

In any given transaction, the fee amount is simply the difference in amounts between the inputs and outputs. If the total amount of the inputs is 1 bitcoin, and the total amount of the outputs is 0.99 bitcoin, then the fee payable to the miner is 0.01 bitcoin.

Bitcoin blocks have a limited amount of space and are only added on average every 10 minutes. This ensures the entire blockchain remains small enough to be downloaded and verified on an average laptop computer, helping Bitcoin stay decentralized by keeping participation open to all. Fees are therefore based on the *amount of data* a transaction requires, rather than its *financial value*. Transactions that occupy more bytes of data, such as those with many inputs and outputs, pay more in fees, since they’re using more of the scarce resource of block space. 

![](https://www.datocms-assets.com/99305/1702407727-learn-how-to-buy-bitcoin-state-title.png)

## Fees and UTXO sizes
Fees are measured in [satoshis](/learn/what-are-satoshis/) per virtual byte (aka “sats/vbyte”). Since the market for fees is free and open, anyone can include any amount of fee for their transaction, and miners can select which transactions to include in a block. Fees can be competitively bid up, especially during periods of high network traffic. Higher fees means it’s more expensive to have your transaction added to the blockchain, even for transactions with a single input and output, since each input and output incur a cost based on the bytes of data they require.

This becomes a problem for low-value UTXOs. 

When fees are high, using a low-value UTXO as an input can become uneconomical, since the fee cost to include that UTXO could be a significant percentage of its value – as in you might end up spending half of the UTXO’s value just on fees. What’s more, if the cost of including a specific UTXO as an input surpasses its value, it effectively becomes unspendable. Such low-value UTXOs, which cost more in fees to spend than they’re worth, are often referred to as “dust” – they’re lost.

For example, a [single input](https://bitcoinops.org/en/tools/calc-size/) could require between 57.5 vbytes for a Taproot transaction to 148 vbytes for standard P2PKH transaction (or more for complex transactions like multi-sig), so if fee rates were to reach [200 sats/vbyte](https://mempool.space/graphs/mining/block-fee-rates#1y), the following UTXO sizes or smaller would become unspendable, depending on the transaction type:
* 57.5 vbytes * 200 sats/vbyte = 11,500 satoshis UTXO 
* 148 vbytes * 200 sats/vbyte = 29,600 satoshis UTXO

What this means is that as fees rise, smaller UTXOs can become uneconomical or even unspendable. UTXOs worth thouands, tens of thouands, or even low hundreds of thouands of sats might cost a third, half, or even their entire value in fees to add to the blockchain. In the long term, fees are expected to rise with increased Bitcoin adoption, as more individuals, businesses, apps, and even governments begin to transact on-chain. When self-custodying your bitcoin, you need to plan accordingly to manage your UTXOs effectively.

## How to manage your UTXOs
Using an app like [Strike](https://strike.me/download) to custody your bitcoin is a way to delegate UTXO management, including the selection of inputs and the setting of fee rates to process your transactions economically. With Strike, you can buy as little as $0.01 of bitcoin either as a one-time purchase or through dollar cost averaging (DCA) via recurring purchase, without affecting UTXOs, since the purchases aren't recorded on the blockchain. However, when you make an on-chain transaction, like sending bitcoin to your own custody, you'll need to manage your UTXOs, as your bitcoin purchases on Strike will be combined into a single UTXO sent to your chosen Bitcoin address.

When you’re ready to take self-custody of your bitcoin, managing your UTXOs becomes crucial and requires that you consider a number of factors, suchas fee rates, privacy, and the economic viability of your future transactions. 

Below are some UTXO management best practices to follow: 
* **Not too small:** Keep your UTXO’s at least around 1 million satoshis (0.01 bitcoin), to ensure they remain economically viable, even as fees rise. UTXOs as low as 10,000’s or even 100,000’s satoshis may become uneconomical or unspendable in high-fee environments.
* **Not too big:** Avoid having all your bitcoin in a single large UTXO. Using a large UTXO as an input in a future transaction can reveal your holdings to your recipient, as they can see which UTXO was used as an input and where the change was sent, potentially affecting your privacy.
* **Diversify your UTXO sizes:** If possible, maintain a mix of UTXO sizes, to give yourself options when selecting appropriately sized inputs for future transactions. 
* **Segregate UTXOs:** Keep UTXOs from different sources separate, including any non-kyc sources, to maintain privacy and prevent traceability by transaction recipients.
* **Time your sends:** Monitor [fee rates](https://mempool.space/graphs/mining/block-fee-rates#1y) and aim to send transactions when fees are relatively low, but avoid waiting too long as your desired fee rate may not materialize.
* **Avoid reusing addresses:** To promote privacy and avoid traceability by your recipients, use a new Bitcoin address each time you transact on-chain.
* **Consolidate when fees are low:** Use periods of low fees to combine smaller UTXOs as inputs into larger outputs to ensure future economic viability.
* **Be wary of fee spikes:** Sudden increases in fees may be temporary and could subside within hours or days. For non-urgent transactions, waiting might be wise, though long-term fees are expected to rise with increased Bitcoin adoption.
* **Use Lightning:** For small transactions, use the [Lightning Network](/learn/what-is-the-lightning-network). Lightning enables real bitcoin transactions, without recording each one on the blockchain, avoiding on-chain fees and wait times. Transactions on Lightning are instant and low-to-no cost, allowing you to send even single satoshis to friends or your own Lightning wallet.

For a more in-depth explanation of UTXO management and best practices, read [this article](https://strike.me/learn/how-to-manage-utxos/).

By carefully managing your UTXOs, you can optimize your transaction costs, maintain privacy, and ensure you’re able to spend your bitcoin in the future the way you want, regardless of future fee market conditions. 

Unspent transaction outputs are discrete portions of bitcoin

What is a UTXO?

Make your move into bitcoin.

Learn

On-chain and Lightning are two different ways of transacting bitcoin, each with their own unique characteristics and use cases.

![](https://www.datocms-assets.com/99305/1752018650-learn-what-are-bitcoin-on-chain-vs-lightning-transactions-state-hero.png)

Transacting bitcoin “on-chain” offers final settlement, public verifiability, and decentralized security, whereas transacting via Lightning offers speed, minimal fees, and convenience.

But why is that?

To understand the difference between on-chain vs. Lightning, it’s best to look at Bitcoin from a “layer” perspective. 

Bitcoin is designed to be a peer-to-peer electronic cash system, where all transactions are recorded on a public ledger, called a [blockchain](https://strike.me/learn/what-is-a-blockchain). The blockchain can be understood as the base layer (or ‘layer 1”) of a financial system, where transactions are:
* **Final:** Transactions are settled with verifiable certainty.
* **Immutable:** Once confirmed, a transaction cannot be altered or reversed.
* **Publicly verifiable:** Copies of the blockchain are maintained by every node running Bitcoin’s software, each ensuring all transactions follow [Bitcoin’s rules](https://strike.me/learn/how-does-bitcoin-work).
* **Absolutely scarce:** Bitcoin issuance follows the supply schedule, capped at 21 million.

These characteristics are achieved through a well-designed structure that uses industry-leading cryptography and incentive alignment. However, Bitcoin’s design comes with certain tradeoffs: 
* **Confirmation time:** Final settlement can take roughly 10 to 60 minutes.
* **Limited throughput:** A maximum of a few thousand transactions can occur per block.
* **Variable fees:** Fees fluctuate based on market demand.

To overcome these limitations, Bitcoin supports *second-layer* solutions, the most prominent being the [Lightning Network](https://strike.me/learn/what-is-the-lightning-network). Lightning enables real bitcoin to be transacted *outside* the blockchain (aka “off-chain”) via private, peer-to-peer channels. 

Channels can only be opened with an on-chain transaction, which locks up an amount of bitcoin to then be transacted *off-chain* – faster, cheaper, and more privately. Because channels are anchored to that initial on-chain transaction, Lightning payments retain a direct link to the security and scarcity of Bitcoin. In essence, Lightning serves as a scalable, low-cost transaction layer that enhances Bitcoin’s usability without compromising its foundational integrity.

## Key differences: On-chain vs. Lightning
At a high level, here are the main differences for transacting bitcoin on-chain vs. Lightning:

| **Feature**            | **On-chain**                                 | **Lightning Network**                             |
|------------------------|----------------------------------------------|---------------------------------------------------|
| **Transaction speed**  | ~10 minutes (average)                        | Instant (milliseconds)                            |
| **Fees**               | Variable, can be high                        | Typically minimal                             |
| **Final settlement**   | Directly on Bitcoin's ledger                 | Deferred settlement at channel closure            |
| **Global scalability**        | Limited by block size and block time         | Scales to millions of transactions per second     |
| **Transaction minimum value** | \~546 satoshis (dust limit); [₿0.01 recommended](https://strike.me/learn/how-to-manage-utxos/) for efficient UTXO management | 1 [satoshi](https://strike.me/learn/what-are-satoshis/) (fraction of a cent) or even 1 millisatoshi |
| **Transaction maximum value** | No protocol limit — can send full holdings                                     | No theoretical limit; depends on channel liquidity (typically up to a few thousand USD) |
| **Privacy**            | Transaction details are publicly visible     | Transaction details are generally more private    |
| **Use case**           | Large, secure, final transactions            | Small, fast, or frequent payments                 |

The dust limit is the smallest amount of bitcoin that can be sent on-chain without being rejected by the Bitcoin network. It’s the point where the transaction fee to spend the amount exceeds the amount itself, making it effectively unspendable (aka "dust"). For standard [Pay-to-PubKey-Hash (P2PKH) addresses](https://strike.me/learn/what-is-a-bitcoin-address/), this threshold is roughtly around 546 satoshis.

## When to use on-chain vs. Lightning
Choosing between on-chain and Lightning depends on your specific needs. Here are some scenarios where each is most appropriate.

#### Use on-chain when:
* You need to make a large transaction
* Finality and full security are top priorities
* You’re sending an amount to cold storage greater than [₿0.01](https://strike.me/learn/how-to-manage-utxos/)
* You're interacting with an exchange, wallet, or service that doesn't support Lightning
* You're opening or closing a Lightning channel

#### Use Lightning when:
* You're making small payments (e.g., buying coffee).
* You’re making many frequent payments
* You need instant settlement
* You want more private transactions
* On-chain fees become too high for your transaction

When transacting on-chain, it’s important to follow best practices when it comes to [UTXO management](https://strike.me/learn/how-to-manage-utxos/) and [Bitcoin address management](https://strike.me/learn/how-to-manage-bitcoin-addresses/). 

The combination of on-chain and Lightning capabilities offers the best of both worlds: the security and global consensus of Bitcoin's base layer with the speed, efficiency, and scalability of Lightning. Understanding the difference helps users take full advantage of what Bitcoin can offer across a variety of payment contexts.

The [Strike app](https://strike.me) offers a seamless experience for transacting both via on-chain or Lightning, including the ability to send both cash or bitcoin.

To understand exactly why the differences between on-chain and Lightning exist, we need to go a a bit deeper to understand how these layers work. Let's go.

## How bitcoin works as a base layer
Bitcoin is a peer-to-peer electronic cash system – one that functions without any central authority. This structure is not a convenience; it’s a necessity. 

Centralized entities can impose rules, censor or reverse transactions, arbitrarily inflate the money supply, or otherwise compromise the system. To guard against these threats, Bitcoin is designed to resist central control and move continuously toward greater decentralization, where no single party can alter its rules or enforce policy over others.

Decentralization is the root of Bitcoin’s security, monetary integrity, and trustlessness. This principle is enforced through the roles of two key categories of participants:
* **Nodes** are the rule-keepers. Anyone can run a node to independently verify that every transaction and block follows [Bitcoin’s rules](https://strike.me/learn/how-does-bitcoin-work). Nodes do not trust, they verify, and they reject any invalid or non-compliant transaction.
* **Miners** are the block producers. They gather valid transactions and compete to add new blocks to the blockchain, securing the network through [proof-of-work](https://strike.me/learn/what-is-proof-of-work) mining operations.

To make decentralization real – not just theoretical – Bitcoin must be accessible. It must be possible and practical for anyone, anywhere, to run a node or mine bitcoin. This is why Bitcoin’s rules include two specific limitations:
* **10-minute block times:** Blocks occur every 10 minutes on average to give miners time to stay in sync, reducing the likelihood of conflicting blocks and wasted work.
* **Block size limits:** Data limits keep the blockchain file small, so that even older laptops or modest hardware can download, validate, and store the entire history of transactions.

These rules intentionally limit throughput – only so many transactions can fit in a single block and blocks occur on average every 10 minutes. Given these limitations, Bitcoin uses a [market-based fee system](https://strike.me/learn/what-are-bitcoin-fees/) to prioritize transactions. Each transaction includes a fee offer per byte of data; miners naturally prioritize higher-fee transactions. This means:
* **More demand = higher market fee rates**
* **Larger transactions (in bytes) = higher cost**

As a result, sending an on-chain transaction can sometimes be expensive or delayed, especially when lots of other people are trying to transact at the same time.

By enforcing decentralization through its design, Bitcoin’s base layer prioritizes finality, security, and transparency. Rather than compromising these guarantees, scaling to faster transaction speeds and lower costs is achieved through second layers, like Lightning.

## How the Lightning Network works
The fees and transaction throughput of Bitcoin’s blockchain makes it less practical for small, everyday transactions, as well as for high-frequency or immediate transactions. You can’t easily buy a coffee if the network is congested and the fee exceeds the cost of your drink.

To solve this, developers built 2nd-layer solutions, the most prominent of which is the [Lightning Network](https://strike.me/learn/what-is-the-lightning-network) – a system that enables instant, low-cost bitcoin payments without compromising the base layer’s trust model.

Here's a simplified breakdown of how Lightning works:
1. **Opening a channel:** Two participants “lock-up” a specified amount of bitcoin in a multi-signature transaction on the Bitcoin blockchain. This opens a private, off-chain payment channel between them.
2. **Transacting within the channel:** Once open, the parties can send unlimited bitcoin transactions back and forth instantly, at low-to-no cost, and without publishing each transaction on the blockchain.
3. **Routing payments:** As more participants each open multiple channels, a network forms, where every node is directly or indirectly connected with each other. Payments can be routed through this network, with routing nodes able to charge a small fee for forwarding.
4. **Closing the channel:** When users are done transacting, they broadcast the final balances of their channel to the Bitcoin blockchain, thereby closing the channel. This single transaction settles all intermediate activity with finality.

Because each channel is opened and closed with a 1:1 reference to an on-chain bitcoin transaction, every Lightning transaction is secured by Bitcoin’s base layer – without needing to record every transfer on it.

The Lightning Network’s offers several benefits:
* **Speed:** Payments can arrive in milliseconds, without needing confirmation wait times.
* **Low fees:** Routing fees are usually minimal and sometimes less than a penny’s worth.
* **Scalability:** The network can handle millions of transactions per second, with no theoretical limit on the value of those transactions.
* **Privacy:** Transaction details are not publicly recorded on the blockchain.

By anchoring to Bitcoin's base layer and conducting fast transactions off-chain, the Lightning Network allows for a more scalable and efficient use of bitcoin.

When and where to use different kinds of bitcoin transactions

Transacting bitcoin on-chain vs. Lightning

A Lightning invoice is a payment request used in Bitcoin’s Lightning Network. It usually appears as a scannable QR-code and contains all the necessary information to send a bitcoin payment from one Lightning-enabled wallet app to another. 

![](https://www.datocms-assets.com/99305/1715906702-learn-what-is-a-lightning-invoice-state-hero.png)

Lightning Network invoices (aka “LN invoices”) are how payments are made within the [Lightning Network](https://strike.me/learn/what-is-the-lightning-network). The Lightning Network is a second-layer on top of the Bitcoin blockchain, which enables real bitcoin transactions to be made faster and cheaper than on “on-chain” transactions. It’s able to do this through a global network of peer-to-peer connections, called “channels,” through which real payments can be routed instantly and privately.

If you’re making a payment or a purchase using bitcoin, including amounts ranging from less than $0.01 to a few hundred or thousand dollars, Lightning is often the fastest and cheapest way to go.

Whenever a transaction is made within the Lightning Network, it’s done using a Lightning invoice. A Lightning invoice is a compact, encoded form of payment instructions, which can be shown as a QR-code for easy sharing and scanning. The QR code is just a representation of the invoice, which is actually a string of alphanumeric characters (letters and numbers) that contain the encoded payment instructions.

The payment process for Lightning typically works like this:
1. The payee enters a payment amount to request using their Lightning-enabled wallet app
2. Their wallet app generates a Lightning invoice and displays it as a QR code
3. The payee shows or shares this QR code with the payer
4. The payer scans the QR code with their Lightning-enabled wallet app
5. The payer reviews and confirms the payment in their app
6. The payment is sent and delivered at lightspeed via the Lightning Network

The whole process can be done in a matter of seconds, which is ideal for person to person payments or day-to-day purchases.

## What’s in a Lightning invoice?
Lightning invoices are encoded with the necessary details for making the payment, such as the payment amount, destination, timestamp, and authorization information. 

To make a payment with a Lightning invoice, you don’t need to understand the details of the invoice. Your wallet app will decode the information and then prompt you to either confirm or deny the payment amount. Below is an example of a Lightning invoice:

`Lnbc2m1pnrjd6epp5xg37tadmcc479dt8c3rqk9mu4p08y8a5uvdd4repy4r8zzs40y4qdqqcqzzsxqrrs0fppqhsrcf2xszcp9nu4xgxzjwx6m3qnvlvrtsp5nft6epu8wxaxytyadq95ygyqvewuhuqh4zw6wevwvufxjr0zc0qq9qyyssqtafnv4cz4uuccg8xfw0ec2lgmr9u23rg85ac86zdnkn4mkq93krn283prlthqky5ujpv8x4cecs4634uu4gcw4f57l3haur8vg6myggp7z6erh`

Although it may appear random and complicated, we can break it down. 

A few important things to know about Lightning invoices:
* **Encoded:** They use bech32 encoding, which is a type of encoding that features built-in error detection, case-insensitivity, succinctness, and scalability.
* **Standardized:** The format follows standard rules, known as “BOLT” ([Basis of Lightning Technology](https://github.com/lightning/bolts/blob/master/00-introduction.md)), which is publicly available and free to use so that anyone, anywhere can build their own Lightning-enabled bitcoin app.
* **Tamper-resistant:** If a single character is changed or omitted, the invoice will be invalid, which is useful to protect against manipulation or error.
* **Efficient:** Invoices can be quickly and easily generated, shared, decoded, and processed by any Lightning-enabled wallet app.
* **Scalable:** Invoice amounts can range from fractions of a penny to multiple whole bitcoin (provided there’s sufficient channel capacity), and can contain a variety of optional features.

So what do all those letters and numbers mean?

Lightning invoices can be broken into two main parts: the human readable part and the data part. These two parts are separated by the character “1” found near the beginning of the invoice.

The human readable part: “lnbc2m”
* **“lnbc”:** This is the standard Lightning prefix, with “ln” standing for “Lightning Network” and “bc” standing for bitcoin
* **“2m”:** This is the payment amount. The “m” suffix stands for “milli-bitcoin” (aka 100,000 [satoshis](https://strike.me/learn/what-are-satoshis)), which means “2m” is equal to 200,000 satoshis. Amounts can also be set as “u” for micro-bitcoin (aka 100 satoshis), “n” for nano-bitcoin (aka 0.1 satoshis), or “p” for pico-bitcoin (aka 0.0001 satoshis).

The data part: all the rest
* **Timestamp:** The time at which the invoice was created.
* **Payment hash:** A cryptographic hash of the payment preimage, which is used to verify that the correct payment has been made.
* **Public key of the payee’s node:** This is the destination of the payment
* **Description:** An optional note explaining the purpose of the invoice, which can be displayed to the payer.
* **Expiry time:** An optional time at which the invoice is no longer valid.
* **Routing information:** The optional information for how the payment can be routed through the Lightning Network.
* **Fallback address:** An optional Bitcoin address included to make a payment on-chain if the off-chain payment fails.
* **Signature:** To maintain security, the entire invoice is signed by the recipient’s node. This signature, which includes the human readable and data parts (minus the signature itself,) verifies that the invoice is genuine and that the payment is sent to the correct recipient.

If someone modifies or makes an error in copying the invoice, the signature will be invalidated. This helps prevent mistakes and manipulation of the information, such as the node ID, payment hash and fallback address, which if they were modified would let someone steal funds.

The structure of Lightning invoices is designed so that payments are robust, flexible, and accommodate various optional features without complicating the payment process. You can read all about Lightning invoices and how they work in the [Lightning documentation](https://github.com/lightning/bolts/blob/master/11-payment-encoding.md).

![](https://www.datocms-assets.com/99305/1712088217-blog-migrating-a-ln-node-01.png)

## What are zero-amount or “amountless” Lightning invoices?
A zero-amount invoice is a type of Lightning invoice that doesn’t specify an amount for the payment. This is a flexible feature that allows the payer to decide how much to send. 

Zero-amount invoices are particularly useful for certain situations:
1. **Donations:** Payees can create invoices, which don’t specify an amount, allowing the payer to enter how much or little they want to send.
2. **Variable payments:** For pay-as-you-go or metered services, zero-amount invoices let payees generate invoices that can flexibly accommodate payments of unknown or changing amounts.
3. **Promotional payments:** Businesses can let customers pay what they want or offer a promotional program where different payment amounts result in different products or services rendered.

Not all Lightning-enabled wallet apps support zero-amount invoices since they require additional steps of communication between the payer and payee’s wallet apps.

## How to use Lightning invoices in the Strike app
The [Strike app](https://strike.me/download) is a fully functional Lightning-enabled bitcoin wallet. It lets you receive payments by generating Lightning invoices, including zero-amount invoices, as well as send to any other wallet’s Lightning invoice. 

With the Strike app you can also create Lightning invoices for either cash or bitcoin amounts, and the Strike app will receive the funds as you specified.

### Receiving bitcoin
To receive a bitcoin payment via the Lightning Network, visit your Bitcoin screen and tap the “Receive” button, then “Bitcoin wallet.”

By default, the Strike app will generate a zero-amount Lightning invoice, which is ready to be scanned or can be shared by copying the invoice’s string of characters and sending via instant message or email. You can edit the amount of the invoice by tapping the “Edit” button, which will generate an entirely new invoice to be scanned or shared. Also, the Lightning invoice will have a default expiry time, shown in the top right-corner of the invoice screen.

### Receiving cash
The process of receiving a cash payment via the Lightning Network follows the same steps as a bitcoin payment, except for a few key differences:
1. The process begins on your Cash screen, rather than your Bitcoin screen
2. If you specify a cash amount for the invoice, the invoice’s expiry time will be shorter, since it involves a temporary cash-bitcoin conversion rate.
3. The payment will be converted to cash and delivered to your cash balance.

The Strike app also lets users send and receive payments using [Lightning addresses](https://strike.me/learn/what-is-a-lightning-address), which can be a more familiar and intuitive way of transacting via Lightning.

Bitcoin payment requests within the Lightning Network

What is a Lightning invoice?

A Lightning address is like an email address, except instead of for messages, it’s for payments. It’s a unique identifier that enables simple and easy payments to be received through Bitcoin’s Lightning Network. 

![](https://www.datocms-assets.com/99305/1707356652-learn-what-is-a-lightning-address-state-hero.png)

Lightning addresses are a user-friendly way to send and receive payments on the Bitcoin [Lightning Network](https://strike.me/learn/what-is-the-lightning-network). They’re designed to simplify transactions by using a familiar format that looks and functions much like your email. This lets you make fast and secure bitcoin transactions, while matching a familiar experience.

Lightning addresses follow the standard email-like format: “username@domain.com”
* **Username** (the part before the “@”): This is the unique name that identifies the user. 
* **Domain** (the part after the “@”): This is the name of the service providing the Lightning address, similar to an email service provider.

Each Lightning address is unique, just like how each email address is unique. Before sending to a friend’s Lightning address, make sure they’re the owner of that Lightning address because Lightning payments are not reversible.

It’s also important to note that not all Lightning-enabled Bitcoin wallet apps currently support Lightning addresses, though they are gaining popularity. The [Strike app](https://strike.me/download) is a Bitcoin app that supports both sending and receiving via Lightning address.

## How does a Lightning address work?
Using a Lightning address is as easy as using email. You input the Lightning address in your Lightning-enabled wallet app, enter an amount to send, tap “Confirm,” and the payment will be sent.

Under the hood, there are a couple extra steps that make this convenience possible. Here are the basics of how payments work using a Lightning address:

1. **Entry of the address:** In your wallet app, you enter the Lightning address of your recipient, an amount to send, and tap “Confirm.”
2. **Invoice request:** Your wallet app then contacts the server of the domain of the Lightning address, such as “strike.me,” and requests that the server generate a new [Lightning invoice](https://strike.me/learn/what-is-a-lightning-invoice/), payable to the specific username.
3. **Invoice generation:** The server then generates a Lightning invoice, containing the encoded details for the payment, such as an amount , a timestamp, and a unique identifier (the payment hash) required to secure and verify the transaction.
4. **Invoice delivery:** The server shares the Lightning invoice with your wallet app, which it is able to process automatically.
5. **Completion of payment:** The Lightning invoice is paid and the funds are transferred instantly through the Lightning Network.

Each time a payment to a Lightning address is initiated a new invoice is requested, generated, and paid ensuring that each transaction is unique and secure.

## What are the benefits of Lightning addresses?
Lightning addresses offer convenience and familiarity to transacting via the Lightning Network. They add new dimensions to the payment experience:

* **Simplicity:** When requesting payments, people don’t have to generate a Lightning invoice, show and scan a QR code, or deal with expiration times of invoices.
* **Memorability:** Just like an email address, a Lightning address is easy to remember, making it much more convenient for sending payments.
* **Reusability:** Unlike Bitcoin addresses, which are best used only once for security and privacy reasons, a Lightning address can be used repeatedly. Each use will generate a new invoice, maintaining the same level of security and privacy, while offering added convenience.

The convenience of a Lightning address means that you can easily share your Lightning address with friends and family, post it on your social media account or add it to your email footer. Since bitcoin is a global money that operates 24/7/365 and the Lightning Network offers immediate payment delivery with no chargebacks, you can easily receive payments from anyone, anywhere, anytime.

## How to get a Lightning address with Strike
Every Strike user is automatically given their own Lightning address when they sign up. 

Your Strike Lightning address is simply your username followed by “@strike.me,” for example “jack@strike.me”. You can visit your Account screen to check your Lightning address and to share it with friends.  You can also post your Strike Lightning address to your social media account, your email footer, or business card as a way to receive payments or tips into your account.

### Receiving to your Lightning address:
When someone sends a payment to your Lightning address from any other Lightning-enabled wallet, the payment will be delivered to your Strike account. You can also choose to receive such unrequested (aka “passive”) payments to either your cash or bitcoin balance by visiting your Account screen, tapping “Bitcoin” settings, selecting “Receive currency,” and setting it to either cash or bitcoin. 

Whenever someone sends you a payment that you didn’t request, that payment will be delivered according to your settings (unless the payment is less than $0.01, and therefore must be delivered as bitcoin).

### Sending to a Lightning address:
You can also send cash or bitcoin payments to any Lightning address globally using the Strike app. As always, cash transactions are made from your Cash screen, while bitcoin payments are made from your Bitcoin screen. 

To send to a Lightning address, tap “Send,” select “Username,” then input your recipient’s Lightning address. You can then enter an amount to send and confirm the payment. The Strike app will send the payment from your account (with cash payments being automatically converted to bitcoin when sent).

Strike also provides every user with their own unique “Tipping page,” which is like your own website through which to receive payments. Your tipping page is simply https://strike.me/username (with your actual username in place of your username).