What is the relationship between bitcoin and blockchain? This has been a very common question ever since the inception of blockchain in 2008. They are closely related. Bitcoin is what introduced blockchain to the world, being the very first cryptocurrency to be built on this technology. No wonder then that Bitcoin is often used interchangeably for blockchain. Of course, blockchain technology has evolved tremendously since then, and is today being widely used across various sectors. Businesses, large and small, across the world are undertaking R&D to discover how this disruptive technology can be applied to their business model.
Bitcoin vs. Blockchain
Bitcoin is a digital currency, created for conducting hassle-free transaction, without government intervention or the involvement of any middlemen for processing the transaction. The cryptocurrency can be transferred and stored using a digital distributed ledger, on a peer to peer network. This makes the transaction transparent, anonymous and secure. Blockchain technology is the backbone of this digital distribution ledger.
How Does the Bitcoin Blockchain Operate?
The Bitcoin blockchain is a digital ledger or database that contains the records of all Bitcoin transactions. This ledger is spread across a network of computers, without any central database or authority. The participants in the network must reach a consensus on the authenticity of a transaction for it to be completed. This consensus is reached through a process called “mining.” Mining creates “proof of work,” fulfilling certain criteria to confirm a transaction. However, mining is time and energy intensive, despite making authentication easy and fast. For a valid transaction, proof of work is needed to prove that consensus was achieved. Due to this feature, transaction records are tamperproof after being added to the ledger.
How is Blockchain for Other Applications Different?
Bitcoin is just one of the applications of blockchain technology. The technology has been modified and adapted to a plethora of different applications, across sectors and industries.
Today, blockchain is being used for smart contracts between parties, not just for business purposes, but also for bonds, private equity, insurance claims and securities. The transactions are automatically executed once the conditions of the smart contract are met. This reduces cost, since it eliminates the fee given to a middleman. It can be only altered by something with access to the contract, increasing authenticity. Everledger, a global emerging technology enterprise, uses blockchain to, “track the provenance of luxury goods to minimise fraud, document tampering and double financing.” Over one million diamonds have been secured on blockchain.
Bitcoin gained popularity due to the anonymity it offered. Every transaction was visible but tamperproof. Banks and businesses require authentic communication with their clients to confirm who they are conducting business with. Blockchain technology simplifies this complex process by providing one digital source ID, which can be used by banks and other financial institutions for authentication of the customer. This reduces administrative cost with foolproof data security.
Blockchain is highly versatile. It offers a wide range of features, far beyond its application for monetary transactions. The technology has been widely applied across the world, from healthcare to product management systems. Governments and companies are investing billions of dollars to increase the use of blockchain and its products.
Bitcoin requires the authentication of a transaction through approval from all the peers on the network. On the other hand, blockchain technology offers the use of selective endorsement to validate transactions, making the process much faster than that for Bitcoin. This is one of the reasons why Mastercard, American Express, Visa and others have started implementing blockchain in their payment systems.
How Will Blockchain Revolutionise the World Economy?
Just as the Internet revolutionised the world, blockchain technology seems next in line to do the same. The technology has already proven its potential to secure transactions carried out across the world. It has made transactions quick, transparent and cheap, while increasing accountability. Over 40 banks across the globe are investing huge amounts of time and resources to incorporate blockchain technology in their systems.
The biggest advantage of blockchains is that once data is recorded on the distributed ledger, it is immutable. This fosters greater security and trust. Governments and the public sector are in the process of applying blockchain technology to various areas, especially to secure voting. For instance, Estonia already provides all government services on a blockchain-based platform. The Department of Homeland Security (USA) has started using blockchain to protect data collected by Border Patrol cameras and sensors.
So, what is the scope of blockchain, apart from Bitcoin? Despite still being in its nascent stages of application and adoption, the technology definitely holds promise to solve many of the problems plaguing society and business today. Blockchain-based projects have seen a tremendous rise and are only expected to continue to grow in future.