I have decided to write this article, as every day when I talk about blockchain technologies, I meet with a response that goes more or less like this: ‘I don’t know man…this bitcoin craze is over, I don’t think it has any future’. Alternatively, I get a response like this: ‘Yea bro, I have also invested in crypto, I have like 6 altcoins at the moment, which ones have you invested in?’
Blockchain is not bitcoin! Nor it is any other cryptocurrency for that matter. Cryptocurrencies are just one use case of the blockchain uses.
In this article, I will talk about what blockchain is and what cryptocurrency is and draw the difference. My secret wish is so that this article gets read by as many people as possible so that this new emerging technology gets the understanding and support it deserves and steps out of the shadow that cryptocurrency boom created. It has a great potential to transform business transactions as we know them today.
What is blockchain technology?
By definition, blockchain is a trusted distributed ledger system across a network of users. It is a system, where the parties cooperate to ease the transaction process, make it more anonymous and yet more secure.
What it really means is, that blockchain is (unsurprisingly) a network made up of blocks of information. Each block represents a certain transaction that has been made on this network.
Transaction means changing the ownership of an asset that is on the blockchain, or any other change that is done to an asset. Assets can be tangible, intangible, or they can be in form of tokens (yes, yes — cryptocurrency).
An important feature of blockchain and the reason why it has such potential is the immutability of the blocks. Once a block is created and validated in the blockchain, there is nothing that can change it or erase it. Any change is recorded as a separate block that is again immutable.
Data on the blockchain is cryptographically encrypted, ensuring a high level of security and anonymity on the blockchain among the participants. I will soon post an article about what cryptology is and what methods blockchain uses to encrypt the data.
There are 4 key terms of the blockchain technology: Shared Ledger, Permissions, Consensus, and Smart Contracts, that make it unique. I call these The Big 4 of Blockchain.
Okay, now you know what blockchain is. Let’s now have a look at…
What is Bitcoin?
As you now hopefully know, blockchain deals with transferring assets and keeping records about it. There are two main types of assets — tangible and intangible assets. Some of these assets change the ownership physically, and the record is created on the blockchain, some of these assets change ownership virtually.
An asset is anything of value. A value that is transferred from one owner to another on a blockchain, can be represented in form of tokens. These tokens work with encrypted data, to ensure the privacy of the trading parties. You are guessing right that these tokens got the name — cryptocurrency. First and most famous of these is the Bitcoin.
Bitcoin is, therefore, a decentralized digital currency. It avoids the need for middlemen processing the transaction (such as your bank or PayPal) by enabling the peer-to-peer technology to manage and verify transactions. This is achieved by a proof-of-work system, where with every transaction, a certain number of ‘miners’ needs to solve an algorithm to verify the transaction. With blockchain for business use, this system is not required anymore, and other verification systems can be utilized, such as ring signatures.
The bottom line here is, that cryptocurrencies are only one of the use cases of the blockchain technology. Tokens are only one type of assets that can be transferred to this network. The use of blockchain goes far beyond cryptocurrencies. It can be utilized in big businesses to manage supply chains and large business transactions, and in smaller businesses, even on consumer levels to automate and manage reoccurring transactions.