Although bitcoin and blockchain are standard features in financial news today, many people still don’t understand the connections between the two. However, they are the silver lining in the world of cryptocurrencies that you should know well enough if you want to get involved in the crypto world. The following article examines the two concepts and discusses how they work and how they are related.
What is bitcoin
Bitcoin is a cryptocurrency or digital currency primarily used as a fixed asset and means of payment. It works the same as other currencies, such as the US dollar. However, Bitcoin is decentralized and only accessible online. This means that it is not subject to any government regulations and is only valid for electronic transactions.
Bitcoin relies on encryption techniques to regulate the creation of new currencies and verify transactions. Unlike fiat currencies, which are issued by central banks, bitcoin miners generate new bitcoins by solving complex mathematical puzzles based on market demand. Bitcoin’s upper supply limit is 21 million, which means that there are only a certain number of Bitcoins in circulation.
What is blockchain?
Blockchain technology powers Bitcoin and all of its operations. The technology works as a decentralized ledger with data for all Bitcoin transactions. Blockchain technology performs various tasks to ensure that Bitcoin is running as intended. One of the tasks is to confirm transactions that are being carried out on the Bitcoin network. And this eliminates the role of intermediaries in verifying transactions as it does with fiat currency transactions.
Bitcoin’s underlying blockchain technology offers several advantages that allow Bitcoin to function seamlessly as a decentralized digital currency. The common ledger ensures accurate tracking of Bitcoin transactions, increased transparency and inexpensive money transfers. It also uses encryption to protect the transactional data from hacks and other forms of network breach.
Although blockchain works like a database, it uses a number of anonymous computers in different parts of the world to store the data. Every computer or group of computers has a copy of the blockchain, making it nearly impossible to intrude. Known as nodes, these computers are operated by individuals in different geographic locations, but they share the Bitcoin network.
In Bitcoin’s blockchain, each node has a full record of all transactions that have been made on the network since its inception. If a data error occurs at one node, the data of the other nodes in the Bitcoin network are automatically referred to in order to correct the errors. Even if a Bitcoin user tampered with the data, all other nodes would cross-reference and locate the compromised node.
As a result, one may have to hack into all the other nodes on the network at the same time to change the data. Because of this, Bitcoin transactions on the blockchain are irreversible. The blockchain helps determine the exact order of events in all Bitcoin transactions and acts as the heart of Bitcoin’s security. It generates and stores new blocks in chronological order so that users can keep track of all of their transactions on a single platform.
Due to the improved security and transparency, the applications of the blockchain now go beyond just cryptocurrencies. It’s next-generation technology that enables high-traffic websites such as: Crypto geniusto improve various business processes. Many financial institutions are currently exploring ways to use blockchains to improve processes like payment processing.
Overall, blockchain is the underlying technology that enables Bitcoin to function as a decentralized digital currency. The technology takes on the role of an intermediary, ensuring that Bitcoin users get the desired experience when sending and receiving payments. It contributes to the transparency of Bitcoin transactions and also ensures cost-effective money transfers. Therefore, Bitcoin cannot exist without blockchain.