Media coverage of bitcoin and blockchain technology has increased over the last one year. Anytime you are on the web, you are likely to encounter a blog or website article that talks about blockchain and bitcoin. Investors have not been left behind either. Established businesses, as well as startups, are investing in blockchain technology. It would be unfortunate to just get used to the two terms but not really grasp the concept and the relationship between them. Here, we bring you all you need to know with regards to bitcoin and blockchain to ensure that you always remain current with the facts of these fintech trends.
Bitcoin is a form of digital currency that is currently being bought, sold and spent in many parts of the world. You can transact bitcoin outside the traditional banking system which requires that money goes through an intermediary, a bank. Once you send bitcoin to someone, the transaction is broadcast to a network of computers working round the clock. The transaction is then verified and confirmed almost instantaneously. The information regarding your transaction as well as other transactions involving bitcoin is recorded and stored in a public ledger. The public ledger is visible on all computers forming part of the network. All of these computers work towards the same goal, verification of every transaction involving bitcoin.
As mentioned above, bitcoin transactions are recorded and stored in a public ledger. Each transaction is recorded on the ledger as a block. A series of transactions form a blockchain. Notably, the term blockchain is also used to refer to the technology itself. While blockchain is the series of bitcoin transactions on a public ledger, blockchain technology is the technology that is used to record the transactions. This technology is also simply referred to as blockchain.
The Relationship between Blockchain and Bitcoin
While bitcoin is the digital asset (currency), blockchain is the technology that bitcoin is built on. Therefore, bitcoin is dependent on blockchain technology. Without blockchain, bitcoin would not be valuable because there would be no secure method of transacting in it. Blockchain provides a verifiable database ensuring that all purported transfers are actually transfers. As a result, you are protected from double spending and fraud.
Significance of the Relationship between Blockchain and Bitcoin
The relationship between blockchain and bitcoin is of great significance. Through blockchain, the distributed computers recording and verifying a transaction must agree that the transaction is valid before a new block can be added to the chain. This presents a level of security and protection that has not been witnessed before. No single computer can alter the history of the chain. The trust that is usually given to central institutions such as banks to keep accurate records will eventually be replaced with a consensus-based model.
It is suggested that although current discourse about blockchain has been limited to its applicability in the financial sector, it will in future be used in record keeping, property deeds, contracts, and shipping information. It is for this reason that many commentators have labelled blockchain a disruptive technology.