For those new to cryptocurrency, the basic terminology can seem quite confusing and even misleading. Some people refer to Bitcoin when talking about blockchain technology, while others mention blockchain when talking about cryptocurrencies in general. However, these terms are not interchangeable and refer to completely different things. In this regard, you need to know what the difference is between them. In this article we will introduce you to the basics of blockchain technology, as well as concepts such as Bitcoin and cryptocurrency.
A simple analogy
Let's look at this with the following example:
Websites are a specific technology used to disseminate information.
Search engines are one of the most popular and well-known uses of web technology.
In turn, Google is the most popular and well-known search engine.
The same way:
Blockchain is a special technology that is used to record information in the form of data blocks.
Cryptocurrency is one of the most popular ways to use blockchain technology.
In turn, Bitcoin is the first and most popular example of a cryptocurrency.
Blockchain: concept
Most blockchains are designed as a distributed and decentralized digital ledger or digital ledger. In simple terms, a blockchain is a digital ledger that is basically an electronic version of a paper ledger whose main purpose is to record all transactions in a sequential order.
To be more specific, a blockchain is a linear chain of many blocks that are interconnected and protected by cryptographic evidence. This technology can be used in many other activities besides financial transactions, but when it comes exclusively to cryptocurrencies, the blockchain is responsible for maintaining a permanent record of all confirmed transactions.
Terms such as "distributed" and "decentralized" refer to the structuring and maintenance of the ledger's operation. To understand the difference, think about common forms of centralized ledgers, such as public records of home sales, ATM withdrawals, or listings of items sold on eBay. In each case, only one organization controls the register: a government agency, a bank, or eBay. Another common factor is that there is only one master copy of the registry, and everything else is just a backup copy that is not official. For this reason, traditional registries are centralized because they are maintained by a single organization and often depend on a single database.
In turn, the blockchain is built as a distributed system that functions as a decentralized ledger. This means that there is no single copy (distributed storage) and no single controlling authority (decentralization). Simply put, each user who chooses to join and participate in the process of maintaining the blockchain network maintains an electronic copy of all data, which is often updated with each latest transaction, along with copies of other users.
In other words, a distributed system is supported by the collective work of a large number of users who are scattered around the world. Also, such participants are known as nodes (nodes), and they all participate in the process of verifying and confirming transactions in accordance with the rules of the system. Consequently, all work is decentralized (i.e. there is no regulation by a narrow circle of subjects).
Blockchain in practice
The word blockchain comes from the way records are organized in the form of a chain of interconnected blocks. A block is a piece of data that, among other things, contains a list of recent transactions. Blocks, like transactions, are public and visible, but they cannot be changed (it's like laminating documents). As new blocks are added to the blockchain, they form a continuous chain (for example, a physical ledger with many pages). This is a very simple analogy, but the process of operation of the entire mechanism is much more complex.
One of the main reasons why blockchains are so resistant to updates is that the blocks are linked and protected by cryptographic proofs. To create new blocks, network participants must work on expensive and computationally intensive calculations, also known as mining. Essentially, miners are responsible for validating transactions and grouping them into newly created blocks, which are then added to the blockchain (after certain conditions are met). They are also responsible for introducing new coins into the system, which they receive as a reward for their work.
Each new confirmed block is associated with the past one that came immediately before it. The benefit of this feature is that it is virtually impossible to change the data in a block once it has been added to the blockchain. The reason for this is the protection of cryptographic proofs, which are very expensive to create and extremely difficult to remove.
To summarize, a blockchain is a chain of interconnected data blocks that are organized chronologically and protected by cryptographic evidence.
Cryptocurrency
To put it simply, cryptocurrency is a digital form of money that is used as a medium of exchange within a distributed network of users. Unlike traditional banking systems, these transactions are tracked through a public digital ledger (blockchain) and can occur directly between participants (in a peer-to-peer environment) without the need for third-party intermediaries.
“Crypto” refers to cryptographic techniques that are used to protect the economic system and ensure the smooth creation of new cryptocurrency units and verification of transactions.
Not all cryptocurrencies can be mined, but many of them, like Bitcoin, rely on a mining process and have a slow and controlled growth in their circulating supply. Thus, mining is the only way to create new monetary units and thanks to this, it is possible to avoid the development of inflation, which threatens traditional fiat currencies, due to the fact that the amount of money in circulation is controlled by the government.
Bitcoin
Bitcoin is the first and most famous cryptocurrency. It was introduced in 2009 by a developer under the pseudonym Satoshi Nakamoto. The main idea was to create an independent and decentralized electronic payment system based on mathematical proofs and cryptography.
Despite the fact that Bitcoin is the most famous, it is far from the only crypto asset. There are many other cryptocurrencies, each of which has its own functions and operating principles. However, not all cryptocurrencies have their own blockchain. Some took an existing blockchain as a basis, while others were created from scratch.
Like most cryptocurrencies, Bitcoin also has a limited supply, meaning the system will not generate new coins after reaching the maximum supply. Although this varies from project to project, the maximum supply of Bitcoin is 21 million units. Typically, the total supply is public information that is determined when the cryptocurrency is created. You can check the number of circulating coins and the price of Bitcoin on Binance Info.
The Bitcoin protocol is open source; anyone can view or copy its code. Thanks to this, many developers around the world contribute to the development of the project.
