What’s the difference between Blockchain and Bitcoin?
Despite the apparent similarity of values, blockchain and Bitcoin are not synonymous. In this article, we will reveal the basics of blockchain technology and explain the meaning of the words “Bitcoin” and “cryptocurrency”.
An elementary example for an analogy:
- Websites are platforms for the dissemination of information.
- Search engines are the most common way to use web technologies.
- And Google is the most common search engine.
- The blockchain is a platform for recording information in the form of blocks.
- Cryptocurrency is the most common way to use blockchain technologies.
- And Bitcoin is the initial and most common example of a cryptocurrency.
Blockchain: the Concept
Blockchains are most often interpreted as distributed and decentralized digital ledgers. So, it is a digital register, being an electronic version of a paper ledger and serving for the sequential recording of all transactions.
To simplify, a blockchain is a linear chain of a large number of blocks connected to each other and protected by cryptographic evidence. Financial transactions are not the only way to use the blockchain, but in the concept of cryptocurrencies, it serves for permanent accounting of all verified transactions.
The structure of the register can be distributed (decentralized) and centralized. These types of registers differ in the number of bodies controlling them, centralized ones are controlled by one body, and distributed ones, respectively, by several.
Distributed registers also include the blockchain, which can be used by many users, also called “nodes”, who are also taking part in the verification of transactions according to the system rules.
Practical use of blockchain
The word “blockchain” comes from the way of organization of records, which represents a chain of interconnected blocks, i.e. information fragments that include a list of recent transactions. Blocks, like transactions, can be viewed by everyone, but they are not subjected to modification. The more blocks in the blockchain, the longer the chain that forms from them. This is just an external representation, which does not reveal its principle.
To protect blockchains from unauthorized modifications, cryptographic proofs and mining are used – this includes multi-stage and energy-intensive calculations, also known as mining. So, mining participants check transactions and sort them by new blocks, which are added to the blockchain after specific conditions are met. Miners are also responsible for introducing new coins into the system, received as a reward for their work.
All new verified blocks are connected to the previous blocks. This is aimed at preventing unauthorized modification of the information in the block after it is added to the blockchain, which is achieved by protecting it with cryptographic evidence. This process is extremely time-consuming and expensive to create and resistant to unauthorized deletion attempts.
To simplify, cryptocurrency is digital money exchanged by a certain group of users within a specific network. The main difference between cryptocurrencies and banking systems is that they track all transactions through a public digital register (blockchain) and that there is no need to involve persons who are not related to a particular network for the transaction.
The constituent part of the word “Crypto ” notifies those cryptographic methods are used to protect the economic system and simplify the creation of new cryptocurrency units, along with verifying transactions.
Not all types of cryptocurrencies depend on mining, but still most of them, for example, Bitcoin, is exactly like this. Their popularity and demand for them are growing every year, as the production volumes are also increasing. Therefore, new money can only be created by mining, which will minimize the impact of inflation, unlike traditional currencies, the number of which in circulation is controlled by the government.
Bitcoin is the initial and most popular type of cryptocurrency, founded in 2009 by a developer under the pseudonym Satoshi Nakamoto, who presented the idea of creating an independent and decentralized electronic payment system based on mathematical proofs and cryptography.
Along with Bitcoin, there are other types of digital currency differing in their unique functionality and working principle. But not all cryptocurrencies have a blockchain, some of them are based on existing blockchains.
Bitcoin, like many other cryptocurrencies, has a limited supply, i.e. when a certain limit of coins is exceeded, their release stops. Despite the difference in values depending on the specific project, the maximum supply of Bitcoin is 21 million units. Usually, information about the total volume of the offer is freely available, which is approved when creating a cryptocurrency.
The Bitcoin protocol is an open-source code available for public viewing or copying, which helps to accelerate the development of the project by attracting a large number of people to it.