Even if you are not a trader, you must have heard of blockchain and Bitcoin. The two terms are synonymous with the cryptocurrency markets.
Because the crypto markets use highly complex algorithms, most people find it challenging to grasp the concept.
Therefore, it is understandable that people will confuse the terms. However, as you will discover in this article, the two concepts are very different. Bitcoin would not exist without blockchain technology.
Three things about Bitcoin and blockchain to know before starting:
- They are not the same thing and have distinct differences.
- BTC was the first crypto coin created in 2009.
- Blockchain technology has complete transparency, and information cannot be changed or reversed.
What is blockchain?
It is an accumulation of electronic data stored on an extensive computer system. Blockchain is a decentralized system and is not controlled or manipulated by banks or governments.
Due to its transparent network, anyone can trace the movement of BTC or any other cryptocurrency via the blockchain. Blockchain uses a peer-to-peer system to verify transactions which makes tampering of data impossible.
Furthermore, it has three components:
Mining is another component of the blockchain. However, the network is not dependent on mining activities.
If blockchain is a ledger, we can think of the blocks as the pages of the ledger. Blocks contain three key elements: the data, the previous block’s hash, and its own hash. The hash is a unique identifier of a block, much like a fingerprint. The hash identifies all the content stored within the block.
Each block contains different types of events. Once a block is complete, a new block starts, which is how the chain forms.
The type of data determines the type of blockchain. For example, a Bitcoin block will contain details of the transaction, such as the sender, receiver, and the number of coins.
The information recorded in the blocks has a timestamp, and it cannot be changed or reversed. Furthermore, the transactions are anonymous; no one can see who performed the transactions.
They are devices we use every day, such as computers, internet routers, or cellphones. The blockchain also has nodes, and it has full and partial nodes. A full node is a computer that contains the entire blockchain.
Every time a new block starts, the full node verifies it and stores it in the blockchain. According to Statista.com, the blockchain size is about 355.52 GB as of September 2021. Therefore, you can imagine requiring a large node or computer server to store all this data.
An example of a partial node is your cell phone. When you create a crypto wallet, you have a part of the blockchain. However, you cannot store the entire it on your phone, but the crypto application you use on your phone forms part of the blockchain, the partial node.
Nodes are a vital part of the blockchain since it helps to secure the network. In addition, full nodes can function as miners if the full node contains the mining software. However, the full node doesn’t need to perform mining activities.
Mining activities are not required to sustain the blockchain. However, miners are well rewarded when they solve complex mathematical algorithms. Miners solve these problems which exist for each block, and the miners who can solve the equation first, receive Bitcoin as a reward.
To ensure fair competition, the information is shared with other miners and therefore validated. The reward of 12.5BTC goes to the winning miner, and it takes about ten minutes to solve an equation.
Miners require a large amount of computing power to solve these complex algorithms, and they use CPUs (central processing units) and GPUs (graphic processing units). These processing units help them process the data faster and handle large quantities of data simultaneously.
What is Bitcoin?
It is the first digital currency and most notable crypto coin by market cap. The coin was created in 2009 by an anonymous group or individual. Bitcoin runs on a decentralized network, the blockchain, which, as we mentioned, is free from manipulation and control of government entities or financial organizations.
Since it is a digital currency, it is not physically available, which means you cannot touch or feel it like fiat currencies. BTC is tradeable on an exchange platform that supports cryptocurrencies.
Bitcoin price reached an all-time high in April 2021 of $64,83.10
Blockchain vs. Bitcoin
As a novice to the cryptocurrency world, you might have heard of the terms blockchain and Bitcoin. It is normal to confuse the terms since the cryptocurrency market is complex and unlike the traditional financial markets. The two terms are not the same thing, and they have distinct differences.
- Crypto transactions use the blockchain network that provides the technology for all digital transactions.
- Blockchain is a public ledger with a transparent mechanism, and BTC transactions are completely anonymous.
- The Blockchain has extensive usage; in contrast, BTC is a currency used for payments and exchange of other digital currencies.
- Furthermore, the entire cryptocurrency market would not exist without blockchain since it is the primary supporting technology.
Ethereum is the second-largest cryptocurrency by market cap and reached an all-time high in May 2021 of $4380.64
What is the future of blockchain and BTC?
The cryptocurrency market has changed the way the world looks at finances. Banks are now adopting this technology. Since the crypto markets are mainly unregulated, blockchain must comply with KYC policies for banks and other financial entities to use its services.
While there are constantly new crypto coins in creation, the future is very bright for blockchain. As we mentioned, it has many uses, unlike Bitcoin, which is a currency only. Furthermore, the corporate industry is adapting cryptocurrencies and will rely on blockchain technology.
The relative volatility index shows the change in Bitcoin’s volatility over time. Bitcoin is a volatile digital currency, and its price reached all-time highs during the Covid-19 pandemic. It has garnered tremendous interest across the world in terms of its profitability but also cybercrime.
Since the cryptocurrency markets are prone to cybercrimes, its anonymity opens a door of opportunity for hackers and internet scams to flourish.
However, Bitcoin has the largest market cap and is now even accepted as the payment method in various industries.
Furthermore, countries like El Salvador have approved it as legal tender since 2021. Therefore, the future for a crypto king is still uncertain, but it seems to be gaining more popularity globally.
Pros & cons
|Worth to use||Worth to getaway|
BTC’s volatility makes it a very profitable digital currency to trade.
BTC’s massive price swings make it a risky investment, especially for new traders and investors.
|Bitcoin legal tender|
Countries are adopting Bitcoin as legal tender, which gives users flexible payment methods which are efficient and swift.
|Bitcoin attracts scams|
Cybercrime has increased since the inception of Bitcoin, and hackers use scams to defraud individuals and corporations by requesting a ransom in crypto king or hack into their crypto wallets.
Blockchain’s decentralized nature makes it impossible for manipulation by banks or government entities.
|Blockchain data is irreversible|
Once the block stores the data, it cannot be changed or reversed.
This network has transparency which gives users the ability to view any transaction in the network.
|Blockchain power usage|
Blockchain transactions consume high levels of energy, which is not suitable for the environment.
Whether you are an active crypto trader or just an interested individual, you must admit that the cryptocurrency market is quite exciting and unpredictable.
It has changed the view of how financial structures work and will perform in the future. The idea of using currency without actually seeing or touching it is foreign to most of us. However, it brings many facets that can be beneficial to how we transact in the future.
Bearing all this in mind, we should not ignore the risks associated with this unregulated and secretive market. The risks involve the loss of money and the potential loss of user information.