You’ve probably seen a ton of articles that mention “blockchain, the underlying technology of bitcoin.” Or others that tell you bitcoin isn’t taking off, but the “technology behind it” is compelling.
The word “Bitcoin” may refer either to the currency unit (or “token”) or the entire network itself. This network functions by grouping transactions in blocks every ten minutes, verifying them with a cryptographic function, and adding it to the last one to form a chain of blocks — called a blockchain.
Satoshi Nakamoto did not refer explicitly to a “blockchain” in his 2008 Bitcoin White Paper, though there are references to it in the notes of his original code.
The network awards new bitcoin units to the miner who mined the most recent ten-minute transaction block. A bitcoin has two purposes: as well as serving as a digital currency for anyone to use, it’s also a reward incentive for the costs and energy miners incur by working to keep the network secure.
Blockchain: Similar and Different
After observing how the bitcoin network works, many others decided they could use this technology to secure other types of data. They built blockchain-based networks to secure other cryptocurrencies (or “altcoins”), and also data that didn’t involve currency at all. Examples are: document verification, smart contracts, decentralized app platforms, and so on.
So the word “bitcoin” refers specifically to the currency token that exists only on the Bitcoin network. “Blockchain technology” refers to any project that uses a chain of data blocks to verify its data.
The advantage over previous systems is, supposedly, that a blockchain-based system requires no trusted third-party to check and verify the data. The network can therefore be decentralized or distributed. Participants also don’t need to trust each other — making the network “trustless”.
Since the word “blockchain” has no official definition, there’s a variety of network technologies that claim this name. Some are similar to Bitcoin’s, while others are vastly different. “Blockchain” is therefore often used as a technological buzzword, along with “cloud computing” and “artificial intelligence.”
Public and Private Blockchains
A “public blockchain” is an open platform that anyone may join, either as a miner, node or user (e.g.: Ethereum). A “private blockchain” is a proprietary system created for a specific purpose, e.g.: an inter-bank or stock market settlement system. Only authorized nodes and users may join, and these private chains often attempt to operate without a currency-like token.
Some critics of private blockchains say a blockchain network needs a digital currency token like bitcoin to survive, as its value creates a financial incentive for miners to keep mining. Without it, why would they go to all that effort and expense? Also, they say, smaller cryptocurrencies don’t have adequate value or network effect to stay secure for a long time.
Since the technology is still largely experimental, only time will tell who is correct. But until then, understand that bitcoin is a token that exists on the original blockchain network — and there are also hundreds of other networks that use a blockchain of some type or other.
Can you have blockchain without the Bitcoin? Let’s hear your thoughts.
Now that you know the difference between Bitcoin and the blockchain, you may have even more questions, such as:
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