Blockchain and Bitcoin are often mentioned in the same context, but they have different roles in the world of financial technology. Blockchain is the underlying technology that supports a variety of applications, including cryptocurrencies like Bitcoin.
Bitcoin and blockchain offer a new concept that is different from the traditional banking system that relies on a central authority, Bitcoin and blockchain empower users to have full control over assets and transactions. In this article, we will discuss in full the relationship and differences between Bitcoin and Blockchain.
What is Blockchain?
Blockchain is a decentralized distributed database system that uses cryptographic technology to securely record and confirm transactions. And Blockchain has a digital database distributed across a network of computers without the presence of a central authority.
Blockchain stores transactions in blocks that include transaction information and links to previous blocks, creating an immutable block chain.
The uniqueness of blockchain lies in its high security and decentralization. Data distributed across the network makes it difficult to manipulate, thus providing a high level of trust.
What is Bitcoin?
Bitcoin is a digital currency or cryptocurrency that uses blockchain technology to record transactions and manage a decentralized block chain. And Bitcoin allows users to make transactions without involving a central authority or financial institution.
Bitcoin uses the mining process to validate and confirm transactions. Miners solve cryptographic puzzles to add new blocks to the chain, and in return, they receive bitcoins.
What describes the relationship between blockchain and cryptocurrencies?
Blockchain and Bitcoin are very closely related because Bitcoin is one of the most successful innovations in the development of blockchain technology. Here are some of the main connections between the two:
1. Technology Foundation
Blockchain is the underlying technology that creates a decentralized ledger that serves as a framework for storing and confirming transactions across a network without the need for a third party or central authority.
Bitcoin is one of the first implementations of blockchain technology that is used to record all transactions that occur on the network, forming a block chain that is transparent and cannot be manipulated.
2. Decentralization
The decentralized nature of Blockchain makes it resistant to manipulation, so that no single entity controls or has full access to the entire network. Bitcoin also implements the concept of decentralization, so that no central authority can control the supply of Bitcoin. In addition, transactions are carried out directly between users without involving banks or financial institutions.
3. Consensus
Blockchain uses various types of consensus algorithms, such as Proof of Work (PoW) or Proof of Stake (PoS) to reach agreement among network participants about the state of the ledger. Bitcoin uses Proof of Work as a consensus algorithm by solving cryptographic puzzles to verify transactions and add new blocks to the block chain.
4. Security
Blockchain security is supported by strong cryptography and decentralized concepts, making it difficult for data stored across the network to be manipulated or compromised. Bitcoin security is based on cryptography and consensus to help protect the network from double-spending attacks and transaction manipulation.
5. Uses of Digital Money
Blockchain opens the door to the development of a variety of applications, including digital currencies that can be used to create and manage cryptocurrency. Bitcoin serves as the first digital currency to utilize blockchain technology. Bitcoin is a clear example of how blockchain technology can be used as a means of payment and a store of value.
How was blockchain developed?
Blockchain technology began in the late 1970s when a computer scientist named Ralph Merkle patented the Hash tree or Merkle tree. These trees are computer science structures for storing data by connecting blocks using cryptography. In the late 1990s, Stuart Haber and W. Scott Stornetta used Merkle trees to implement a system where the timestamps of documents could not be changed. This implementation of the system was the first example in the history of blockchain.
The technology continued to develop over these three generations:
First generation – Bitcoin and other virtual currencies
In 2008, an anonymous individual or group of individuals known only as Satoshi Nakamoto outlined blockchain technology in its modern form. Satoshi’s idea for the Bitcoin blockchain used 1 MB blocks of information for Bitcoin transactions. Many features of the Bitcoin blockchain system remain central to blockchain technology even today.
Second generation – smart contracts
A few years after the first generation currencies emerged, developers began to consider blockchain applications beyond cryptocurrencies. For example, the inventors of Ethereum decided to use blockchain technology in asset transfer transactions. A significant contribution of the inventor is the smart contract feature.
Third generation – the future
As companies discover and implement new applications, blockchain technology continues to grow and evolve. Companies are breaking the limits of scale and computing, and the potential opportunities are endless in the ongoing blockchain revolution.
What is the difference between bitcoin and cryptocurrency?
Bitcoin and blockchain can be used interchangeably, but they are two different things. Because Bitcoin was an early application of blockchain technology, people accidentally started using Bitcoin to mean blockchain, creating a misnomer. However, blockchain technology has many applications beyond Bitcoin.
Bitcoin is a digital currency that operates without centralized control. Bitcoin was originally created to conduct online financial transactions but is now considered a digital asset that can be converted into other global currencies, such as the USD or the euro. The public Bitcoin blockchain network creates and maintains a central ledger.
1. The Bitcoin Network
The public ledger records all Bitcoin transactions, and servers around the world keep copies of this ledger. These servers are like banks. While each bank only knows about the money its customers exchange, Bitcoin servers know about every Bitcoin transaction in the world.
Anyone with a spare computer can set up one of these servers, known as a node. It’s like opening your own Bitcoin bank instead of a bank account.
2. Bitcoin Mining
On the public Bitcoin network, members mine the cryptocurrency by solving cryptographic equations to create new blocks. The system broadcasts each new transaction publicly to the network and shares it from node to node. Every ten minutes or so, miners collect these transactions into a new block and add it permanently to the blockchain, which acts like Bitcoin’s definitive ledger.
Mining requires significant computing resources and takes a long time due to the complexity of the software process. In return, miners earn a small amount of cryptocurrency. Miners act as modern-day clerks, recording transactions and collecting transaction fees.
All participants across the network reach a consensus on which participant owns which coins, using blockchain cryptography technology.
3. History
One type of cryptocurrency--a digital currency that uses cryptography for security that makes it impossible to counterfeit--has the same properties as currency, namely having a fluctuating exchange rate with a certain currency.
Hearing Bitcoin, the name Blockchain is also raised. Initially, a person or group of people using the pseudonym Satoshi Nakamoto, introduced Bitcoin in 2008. Until now, his/her real identity is unknown. Satoshi Nakamoto can only be contacted via email and social media.
In an article in 2015, Wired suspected that Nakamoto was a genius man from Australia, Craig Steven Wright. However, until now this suspicion has not been proven. To run Bitcoin, Satoshi Nakamoto created a database system which was later called Blockchain.
Simply put, Blockchain is a "public ledger" (digital ledger) to ensure that every transaction that occurs using valid Bitcoin and the movement of money is clearly recorded. In its development, Harvard Business Review said, Blockchain is known to be able to be separated from Bitcoin and used for other things related to cooperation between organizations or individuals.
Several other cryptocurrencies--for example Ripple, Litecoin, Nubits, Paycoin, and Dogecoin--also utilize this technology. With this database system technology, all cryptocurrency user transactions can be recorded in blocks protected by complex codes.
In its large scope, Blockchain will be publicly visible (open source) like a bank ledger that records all customer transactions. Because it can be viewed publicly, the possibility of fraud can be minimized. This technology can also be used for other contract-based agreements, and works in such a way that no single entity regulates transactions--because everyone regulates each transaction.
Conclusion
Blockchain and Bitcoin are the biggest innovations today in technological developments that provide new digital assets. Blockchain offers the potential to change the way we store, manage, and transfer data and assets globally. Along with that, Bitcoin continues to be an important subject in discussions about the future of finance and technology. These two innovations will continue to develop in the future, especially in the development of digital currencies.