Blockchain vs. Bitcoin
The world of cryptocurrency is filled with unfamiliar terms, and all the jargon can be confusing to newcomers. For instance, you’ve probably heard of blockchain and Bitcoin, but do you know how to differentiate between the two?
While it’s common for people to use the two terms interchangeably, they’re actually two separate things. Blockchain and Bitcoin are closely related technologies, but they have different scopes and practical applications.
If you want to expand your knowledge of cryptocurrency, you should start by learning how to tell blockchain and Bitcoin apart.
What is Blockchain?
Essentially, blockchain is a digital ledger that stores information. But unlike traditional bookkeeping ledgers, blockchain is much more secure, transparent, and accurate.
Blockchain works by distributing information across a decentralized network. The participants in the network all work together to verify the same information and ensure that it’s accurate. Once a piece of information is verified, it’s grouped with other pieces of information into a block. This block is then added to the rest of a blockchain, establishing it as a permanent record.
After a block is part of a blockchain, no one – not even a government or a bank – can change or delete the information. Since no single party controls a public blockchain ledger, it is verifiable by anyone and creates a shared record of information that everyone can trust.
Blockchain reached the mainstream because of its role in cryptocurrency, but its usefulness extends far beyond financial assets. It’s a reliable way to store any kind of data, so it has the potential to be integrated into a broad range of industries.
Outside of cryptocurrency, blockchain is used in supply chain monitoring, elections, healthcare records, gaming, real estate, electricity smart grids, asset transfers, and much more.
Uses for blockchain
Every day, new applications for cryptocurrency emerge. At the heart of all these developments is blockchain. Below are some of its most common use cases:
- Cryptocurrency
Without blockchain, cryptocurrency wouldn’t exist. It allows crypto networks to verify and keep track of every transaction that takes place.
- Smart contracts
This revolutionary development enables digital contracts to self-execute once specific pre-requisites are met. As a result, smart contracts can be used for anything from insurance to music royalties. For example, legal ownership of a house could be automatically transferred to the buyer once the required amount of money has been transferred to the seller’s digital wallet.
- Decentralized finance (DeFi)
Blockchain-based financial applications are the future of finance. It allows us to remove the current intermediaries from the system and enables a fairer environment for lending or borrowing, earning interest, asset trading, and much more.
- Supply chain monitoring
Ever wondered about a banana’s journey from the tree to your fruit bowl? Blockchain technology helps keep track of every stage in the journey.
- Record maintenance
Essentially, any type of record can be stored on the blockchain. Voting records, healthcare records, automobile ownership, and land registries are just a few examples of ledgers that can benefit from blockchain's immutable, verifiable qualities.
What is Bitcoin?
While blockchain technology was initially built to serve the needs of Bitcoin, they cannot be used interchangeably. Blockchain is a decentralized ledger of information, while Bitcoin is a decentralized digital currency.
Bitcoin was created to be a form of digital cash. It’s a peer-to-peer currency that is secure, transparent and doesn’t require any middlemen. To operate, Bitcoin uses a decentralized blockchain ledger to record transactions. But unlike blockchain, its function is limited to digital payments and its usefulness as a store of value.
In practical terms, Bitcoin functions like other digital payment systems. However, you’re exchanging digital assets, not fiat currency.
For example, Bitcoin allows you to transfer money easily to friends or relatives in other countries. Instead of paying high fees and waiting days for your bank transaction to be processed, you can deposit Bitcoin directly into a digital wallet in minutes and with minimal costs. All you have to do is enter the destination wallet’s address and click send.
Bitcoin is also referred to as ‘digital gold.’ That’s because its inherent characteristics make it valuable as an asset, just like physical gold or other precious metals. For starters, Bitcoin’s supply is regulated. It has a coin supply cap of 21 million, 90% of which are already in circulation.
This is in contrast to fiat currency, which central banks can print without limitations. Due to Bitcoin’s scarcity, more and more people are investing in it as a hedge against rising fiat inflation.
Bitcoin is decentralized, transparent, private, secure, mobile, accessible, irreversible, and has low fees compared to traditional financial networks. These aspects have attracted an increasing number of people to the technology, helping it become the most valuable cryptocurrency in the world.
Uses for Bitcoin
Bitcoin is the largest, most valuable cryptocurrency in the world. Its two primary use cases are functioning as a:
- Digital currency
Bitcoin can be used to buy goods or services online. Some physical stores also accept Bitcoin as payment. In addition, you can use it to send money across borders quickly and with low fees.
- Store of value
Bitcoin has the largest market cap of any cryptocurrency, which is currently over $1 trillion. It is often the first cryptocurrency that people buy and is the most popular crypto asset for institutional investors. Since it has in-built inflation control mechanisms, Bitcoin is seen as a hedge against inflation and store of long-term value.
Differentiating between blockchain and Bitcoin
Now that you’ve understood the basics, let’s dive deeper into the connection between blockchain and Bitcoin. We’ll also go over some of their real-life applications.
How are blockchain and Bitcoin related?
Blockchain is the foundation for all cryptocurrencies, including Bitcoin. Why is crypto built on blockchain instead of another technology? Because blockchain replaces trust in third parties, making every transaction more secure, accurate, and efficient.
Without it, no one would be able to differentiate between genuine and fraudulent transactions. Furthermore, there would be no publicly verifiable ledger that could function as a single source of truth for all parties involved. Instead, we would have to rely on a centralized authority like a bank or government to give their stamp of approval.
Like blockchain, Bitcoin’s influence can’t be overstated. Blockchain enables Bitcoin to exist, and the development of Bitcoin has paved the way forward for thousands of other cryptocurrencies.
Both have inspired a revolutionary crypto industry that is changing how we conduct financial transactions and approach new developments in almost every global industry.
Key differences
- Bitcoin is a cryptocurrency. In contrast, blockchain is the distributed ledger that cryptocurrencies are built upon.
- Blockchain has many applications beyond Bitcoin, whereas Bitcoin is a digital currency that relies on blockchain to function.
- Bitcoin is used for digital payments or as a store of value. On the other hand, blockchain has many use cases, including smart contracts, ownership rights, supply chain monitoring, governance systems, and much more.
- Bitcoin promotes anonymity, while blockchain promotes transparency.
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