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What’s the difference between blockchain and Bitcoin?


Jane Goodwin

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The simplest way to explain the difference between blockchain and Bitcoin is that bitcoin is a digital currency and blockchain is the ledger that records and powers the currency transactions. Blockchain technology was originally created for Bitcoin, which is why the two are often linked in people’s minds. But the blockchain actually supports the entire cryptocurrency market, as well as many other peer-to-peer transactions across multiple industries. Bitcoin, like other cryptocurrencies, has no intrinsic value; in other words, it can’t be redeemed for another commodity. It is not a tangible asset in any sense of the word; it exists only within the network. Unlike currencies such as the USD or CAD, where supply is controlled by a central banking authority, there are no supply limits on Bitcoin. As a form of currency, Bitcoin has no applications aside from serving as a medium for exchange. The blockchain is a decentralized, self-sustaining recordkeeping system, or ledger, that tracks transactions across a peer-to-peer network. In the banking industry, for example, financial information is centralized within the bank, which owns the data about money in your account. You can request or view the information by logging into your account, but it resides within the bank’s network. Further, you cannot even spend the money in your account without going through your bank, either by withdrawing cash, writing a check, or using a debit or credit card. The blockchain removes the middleman in the transaction and enables true peer-to-peer exchanges. The data isn’t owned by a centralized authority, but by everyone on the network, which ensures transparency and accuracy. When you want to buy something with Bitcoin, the transaction is processed algorithmically and confirmed by multiple different computers, or nodes, connected through the network. Once it’s processed, it creates a “block,” which is then linked with a hash pointer to other blocks, creating the blockchain. The hash pointer is what makes the blockchain so revolutionary. It not only holds the address of the previous block, but also the data contained in the previous block. You can’t tamper with information contained in a single block because the hash pointer ensures the information is recorded across millions of other transactions. Blocks are continually added and shared in real-time across thousands of computers creating a truly distributed and immutable ledger. Blockchain has far-ranging applications outside the cryptocurrency market and is poised to potentially upset a number of industries. Banks are exploring blockchain as a way to cut costs and increase transparency on everything from clearinghouse transactions and settlement to smart contracts and insurance claims. Blockchain could also disrupt the emerging sharing economy. Currently, if you want to hire an Uber or book an Airbnb, you have to go through a third-party (the app developer) to initiate and complete the transaction. The blockchain would enable direct peer-to-peer interaction, lowering costs by cutting out the middleman. Governance, however, is one area where blockchain could have outsized impact. Imagine having elections where votes were transparent, immediately verifiable, and impervious to tampering? Finally, blockchain has obvious applications in the stock market, and in fact, many exchanges are prototyping models for peer-to-peer trade confirmation and share settlement. Bitcoin and blockchain are both parts of the cryptocurrency market, but blockchain has a much broader scope and potential to upend multiple industries and markets.
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