What Is the Difference Between Bitcoin and Blockchain?
If you still think that Bitcoin and blockchain are the same, this quick guide is for you.
The cryptocurrency boom is among us — and things are moving fast. Just a couple of years ago, the words Bitcoin and blockchain were characteristically obscure, mysterious, and only discussed by niche groups. Now, not a day goes by without some major news platform throwing headlines on these topics.
So, here’s a quick fact check before we get started: Bitcoin and blockchain are not the same. On one hand, Bitcoin is a cryptocurrency, a.k.a., a digital or virtual currency secured by cryptography. On the other hand, blockchain is the technology field that allows recording information in a way that is impossible to cheat the system. This means blockchain is the system that supports Bitcoin. But that’s just the tip of the iceberg.
Are you still confused? Don’t worry! In the next paragraphs, we will go more in-depth about these two terms. You will become an expert.
Bitcoin (BTC)
Bitcoin was the first cryptocurrency and, naturally, it was also the first to reach widespread popularity. It was created in 2009 by an anonymous person (or group of people) known as Satoshi Nakamoto, giving birth to a beautiful baby that would quickly become a full-grown man, the first form of decentralized currency.
Using cryptography principles, Bitcoin promises faster transactions, lower fees than the traditional payment methods, infallible security, and a global peer-to-peer network where third parties are no longer needed, taking banks and Governments out of the picture. You can read all about it in the Bitcoin whitepaper.
You may have heard of a few people who invested in Bitcoin many years ago and deeply regret selling it through its many price fluctuations. That’s because, even after several market crashes, the value of the cryptocurrency has consistently increased throughout the years (and it still doing so). In fact, Bitcoin has been the best performing asset of the last decade.
Its success has inspired many other cryptocurrencies to be born. While there are countless differences between them, there all have at least one thing in common. And that thing is blockchain.
Blockchain
By definition, a blockchain is a digital ledger that records transactional data in files known as blocks. When one block is filled and processed, it is chained onto the previously filled block, creating a chain, hence the name. Bitcoin and every other cryptocurrency out there use their own blockchains to confirm transactions, create smart contracts, and do a whole lot of complicated stuff.
All of this works through peer-to-peer (P2P) authentication, where all the transactions made in the blockchain are duplicated and distributed across a massive network of computers — also known as the miners or nodes. This process allows every transaction to be verified by multiple computers while remaining independent from any central authority and guarantees that all transactions in the system are legit.
But where do all of these computers come from? Well, they are put to work by mortal people like you and me. Granted, these are not the average computers most people own, and they have to be tweaked and maintained to perform as expected. For each transaction the machine processes, these people receive a small cryptocurrency reward. Yes, that means cash. Nowadays this task, known as mining, is becoming more and more popular across the globe, with entire countries dedicating resources to it.
The Three Most Important Characteristics of Blockchain
Decentralized
All the information is decentralized so that no single person or group has complete control over it. A blockchain’s database is spread throughout thousands of different computers in different locations. If someone tries to alter the ledger in any way, the transaction will be rejected by the other miners. Decentralization ensures data is never lost thanks to the countless copies of the chain.
Transparent
All the recorded transactions in a blockchain are always public and can be viewed live by anyone, anywhere in the world. This makes for complete transparency. What is more, the data added is irreversible and immutable: it stays in the blockchain forever. In order to rectify something, it is necessary to add new blocks to the chain. If you’re curious, you can look at the latest Bitcoin transactions right now on blockchain Explorer.
But what about the public identity of the users? Will everyone know how much cryptocurrency you own? Luckily, that’s not the case. Transactions may be public, but the identities of users are kept anonymous thanks to their unique (and unlimited) wallet addresses. Let’s say Louis wants to transfer money to Mary. The nodes in the chain don’t need to know who they are, as they only record their wallet addresses, which are not linked to their identities. Louis just needs to say ‘I want to send money to Mary’ and the ledger will be updated.
Verified
Blockchain transactions are verified by its thousands of nodes. In simple terms, all computers in the network receive a complex computer problem, and they all must return the correct answer to it within a certain timeframe. Every record is encrypted and can only be solved by the original computer that received it.
To Sum Up
Once again, Bitcoin and blockchain are not the same, but they are closely related. As a cryptocurrency, Bitcoin relies on blockchain technology to do everything it does. As a technology, blockchain has countless use cases and we’re still far from reaching its full potential.
I myself am just starting my journey into the world of crypto, and I wanted to share all the things I’ve learned in the past weeks. I hope this article helped you in some way or another. There’s a lot more to say about blockchain and Bitcoin, but this should get you started with the basics.
