With cryptocurrency getting popular every day, millions of people have turned towards investing in a large number of cryptocurrencies. But, many users still have a lot of confusion about what is cryptocurrency? Many people still feel that cryptocurrency or Bitcoin is synonymous with the blockchain, but fundamentally both of them are actually very different.
Bitcoin is a currency that has a worth and can be traded, purchased, and accumulated over time, just like any other currency. On the other hand, blockchain is a well defined technical concept on which cryptocurrency operates. Bitcoin might have been the first-ever scalable application of the blockchain that has worked out over the last decade.
Many countries throughout the world are trying to adopt blockchain technology into their systems, whereas a large number of countries have banned the use of cryptocurrencies.
What is blockchain?
Blockchain was first introduced to developers in 1991 when Stuart Haber and W. Scott Stornetta created the first cryptographically secure chain of blocks (or database). They aimed to create a set of documents that cannot be meddled with by hackers and other snooping organizations.
In 2008 this concept was further developed by Satoshi Nakamoto (true identity unknown). All the data that was contained in this document was distributed across many computers. It formed a distributed ledger network that was decentralized, meaning all the data was very much open but could never be changed or accessed without changing more than 50% of the ledger.
This decentralization made blockchain unique and trustable; Unlike the traditional centralized database where all the records were processed by a single administrator like a company or a government. The amount of power over a large amount of private data seems rather unfair. So, a decentralized network made sure that no single person or organization had that kind of power.
Similarities between Blockchain and Bitcoin
Blockchain being a decentralized network, does sound a whole lot similar to Bitcoin. In reality, Bitcoin is based on blockchain technology. It was the first-ever example of a successful and scalable model that was secure and out of the reach of organizations and cybercriminals. One can say that blockchain was specifically developed for cryptocurrencies like Bitcoin.
That is why both these names are commonly used synonymously, but they are not the same thing. Bitcoin being a decentralized digital currency, works on a peer-to-peer payment system where the user can make transactions without a particular third party taking a fraction of the credit.
Blockchain vs. Bitcoin
The purpose of blockchain is to allow digital information to be stored in a ledger of sorts. This data, once stored and distributed, cannot be edited or altered. It may sound a little confusing until we have a look at the technology first hand. So, let us look at the first-ever application of blockchain technology that was ever implemented. Once we paint a clear picture, blockchain and cryptocurrency would be easier to wrap our heads around.
The inception of blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Strornetta. These two researchers wanted to form a system where a third party could not change document timestamps (a sequence of characters or encoded information that identifies with certain private data and information on a network or computer).
It was merely a theory and concept that was not really scalable at the time. Not until late December of 2008, when a coder or a group of coders known as Satoshi Nakamoto posted a series of codes on an online forum of the same concept, but this time with a real-world application of currency. That was the first time when Bitcoin was introduced to the world.
There are millions of people around the world who have purchased at least some portion of the bitcoin. Since the value of bitcoin increases and decreases from time to time, some people would want to spend it on groceries or any other commodity online. The transaction is where blockchain comes into the picture.
Printed currency is regulated and verified by a central authority or government, so the value of a particular currency can be increased or decreased by the government at any given time. But, cryptocurrencies like bitcoin are not controlled by a central authority, and hence the value of any cryptocurrency is verified by a large network of computers, mining, or using the cryptocurrency thus, making it decentralized.
During a transaction, when one person would pay the other party for the commodity, the network of computers would sprint to verify that transaction. The verification process involves solving a complex mathematical problem called a “hash.” Once the complex problem is solved by “hashing” a block, the algorithm would verify the transaction that has taken place in that block.
This transaction information is then stored in a public ledger, where it cannot be changed or modified by anyone or anything. For verifying a particular transaction, computers are rewarded for their computing power to solve the complex equation. That is known as “mining.”
Though these transactions are publicly recorded on the blockchain, the users’ information is not complete. In order to complete the transaction, let’s say, on a Bitcoin network, users have to run a program known as a “wallet.”
Every wallet is a secure software that has two distinct cryptographic keys: a public key, which holds the information of the location where the transaction has to be deposited to or withdrawn from, and a private key which keeps the user information on the ledger secure in the form of a digital signature.
So, even if a user would receive a payment in bitcoins to their public keys, they would not be able to possess or withdraw the amount without the private key. The public key is a shorter version of the private key, which is created through complex mathematical equations. Because of the complexity of the equation and process, it is impossible to generate a private key from a public key. That is why blockchain is very secure and confidential.
Both Bitcoin and blockchain are largely complicated and heavily detailed concepts. Any person who is looking forward to entering this world would need the basic knowledge surrounding this market. However, the return of investments on Bitcoin is very high and quick when compared to other trading assets. Other than currency, blockchain has real-world applications, and cryptocurrency is just one of them.