Are you confused about the difference between bitcoin and blockchain? Many people use these terms interchangeably when that’s far from the case. With the recent popularity of cryptocurrency, you may have encountered these terms at one point or another.
You should know the difference between the two, especially if you’re interested in joining in on the significant profits you can earn through cryptocurrency. This article will help differentiate bitcoin and blockchain to help you understand them better.
First, let’s discuss what exactly blockchain is.
What is Blockchain?
Blockchain is a database (commonly referred to as a “ledger”) containing data about every transaction it makes. Computers connected to the network (called “nodes”) have access to this database, making the network “decentralized.”
A central administrator or third party—a bank or company—processes payments in traditional transactions. Meanwhile, since blockchains are connected to computers that even you can own, it doesn’t need these third parties.
Suppose you have money in a bank. If the bank goes bankrupt or hackers attack the bank, your money is in danger. On the other hand, since blockchains are spread across a network of computers worldwide, there’s no single point where infiltrators can topple the system.
Additionally, when you transact with someone using blockchain, you send your money directly to them, unlike through bank transfers where your money passes through an organization first. Therefore, payments using blockchain are more secure and have a level of transparency (you know where your money goes) that isn’t possible with regular banks.
If that’s the case, then what’s bitcoin?
What is Bitcoin?
In 2009, “Satoshi Nakamoto” made bitcoin. The creator has yet to be identified as a single person or a group of unnamed people. Contrary to what you might see online, bitcoins don’t look like actual coins. Instead, they’re lines of code that use blockchain technology to work successfully. They also rely on blockchains to exist since bitcoins are digital currencies.
Three popular ways to earn cryptocurrency are buying, receiving, and mining.
Buying and investing in bitcoins is like paying $2 for a $1 bill today because you feel the bill could be worth $3 tomorrow. It acts like how you would invest in stocks.
Someone can also send you bitcoins like how someone would pay you for your services. On the other hand, mining bitcoin is when you contribute to the blockchain network by helping validate data on transactions and receiving cryptocurrency in exchange.
Mining bitcoin is a time-intensive process that requires specialized technology to handle the operation.
The Difference Between Bitcoins and Blockchains
Bitcoin needs blockchains to work and exist, but blockchains don’t need bitcoin. Bitcoins are a transfer of value (since they’re currencies), while blockchains can also transfer media and other digital assets.
Blockchains are public: your transactions are recorded on the network. However, bitcoin is anonymous as it uses cryptography to make your identity incomprehensible to humans.
One of the main reasons so many confuse the two is that bitcoin was the first cryptocurrency to use blockchain technology. Since then, more people have created newer cryptocurrencies to utilize blockchain technology. Some examples of these are Ether and Tether.
Moreover, there are many different blockchains, such as Ethereum and EOSIO. Not all cryptocurrencies work on all blockchains.
Now that you understand the general difference, let’s look at how to use them.
Uses of Bitcoins and Blockchains
One of the main intentions of cryptocurrency is to become an alternative form of currency, ideally to replace the fiat money people traditionally use. Several companies, such as Starbucks and Home Depot, have already allowed some customers to pay through cryptocurrency.
You can use crypto to purchase NFTs or non-fungible tokens. NFTs also use blockchain technology, meaning they have unique codes that differ from bitcoins.
The difference between NFTs and bitcoins is like the difference between paper money and art. If you and someone else physically trade a $1 bill, you’ll both lose and receive the same value (this is what “fungible” means: replaceable). But the exchange wouldn’t be equal if you swap a valuable item that’s one of a kind (an NFT with a unique code).
Since blockchain is a form of technology, people can use it across different industries besides finance. Blockchain can be applied to businesses like supply chain management, real estate, and healthcare. It can also be helpful in a government’s record management, voting process, taxes, and identity management.
Wrapping Up
The main point is that bitcoins are the currency, and blockchains are the technology. Bitcoins use blockchain technology, but so can other currencies.
The recent popularity of cryptocurrency has many believing that this is the next evolution of finance, much like how we evolved from bartering items to using gold coins.
While the future of cryptocurrencies is unpredictable, given their volatile nature, having a good grasp of these concepts will help you decide better the next time you encounter them.