What is Bitcoin Blockchain?
Before we try to understand how bitcoin and blockchain are related, we must be adept with the precepts of bitcoins. We must also understand what role blockchain plays in the world of bitcoins.
If you say that bitcoin is a cryptocurrency, you are correct. It is a form of electronic cash that functions just as general currency units. BUT there is much more to dwell on bitcoins.
Bitcoin is basically a digital currency that was created in the year 2009. With a promise of lower transaction fees than traditional online payment mechanisms unlike government-issued currencies, bitcoin has emerged as a popular trend in recent years. Bitcoins do not exist physically; rather, they are maintained as balances on a public ledger in the cloud, which are verified by a massive amount of computing power. Despite not being a legal tender, bitcoin is quite high in popularity, and in due course of time, it has stimulated the launch of other virtual currencies collectively referred to as Altcoins.
PS: According to the official Bitcoin Foundation, the word “Bitcoin” is capitalized in the context of referring to the entity or concept, whereas “bitcoin” is written in the lower case when referring to a quantity of the currency or as units.
Watch this video on “Bitcoin Currency & Blockchain”
Are Blockchain and Bitcoin the Same?
No. They are not. Bitcoins are simply online currencies or cryptocurrencies, while blockchain is the technology that is leveraged to manage bitcoins. Bitcoin was launched to bypass government currency controls and simplify online transactions by getting rid of third-party payment processing subsidiaries. Bitcoin transactions are stored and transferred using a distributed ledger on a peer-to-peer network that is open, public, and anonymous. The technology that maintains the Bitcoin transaction ledger is Blockchain.
How Does the Bitcoin Blockchain Work?
In simple terms, the Bitcoin blockchain is a ledger that is comprised of Bitcoin transaction records. This ledger is distributed across a peer-to-peer network and is without a central authority. Therefore, network participants must agree on the validity of transactions before they can be recorded. Known as consensus, this agreement is achieved through a process called bitcoin mining.
After an individual uses Bitcoins, bitcoin miners engage in sophisticated and resource-intensive computational equations to verify the legitimacy and authenticity of those transactions. Through the whole process, Proof of Work that meets certain requisites is developed.
A piece of data that is both costly and time-consuming to produce, Proof of Work can, however, be easily verified by others. To be considered a valid transaction on the blockchain, an individual record must have Proof of Work to prove that a consensus was achieved before it got added to the blockchain. By this design, transaction records cannot be tampered with or manipulated post added to the blockchain.
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Bitcoin Blockchain Size
The bitcoin blockchain size is subjected to continuous increase. Presently, the bitcoin blockchain size is around 15 GB, however, the bitcoin blockchain size is increasing at the speed of around 1 MB per hour. If Bitcoin Network were to process the same number of transactions as Visa does per second, the bitcoin blockchain size would increase by 1 GB per second.
Does Blockchain Technology Only Work with Bitcoin?
The blockchain that supports Bitcoin was developed specifically for cryptocurrency. That is the main reason for why it took a while for people to realize that blockchain technology could also be adapted for use in other areas. The technology also had to be modified substantially to meet the rigorous standards that today’s businesses demand.
Three main characteristics distinguish the Bitcoin blockchain from a blockchain that is designed for a business. They are:
- Assets over cryptocurrency: Blockchains can be used for a much broader range of assets in disparate verticals rather than just cryptocurrency.
- Identity over anonymity: While blockchain bitcoin thrives due to unmatched anonymity, businesses have KYC and AML compliances. Blockchains for businesses consider these regulations and abide by them. They are designed keeping in mind the emerging compliance guidelines.
- Selective endorsement over Proof of Work: Consensus in a blockchain for a business is not achieved through mining but by a process which is referred to as ‘selective endorsement.’ With selective endorsements, businesses can control who exactly is verifying transactions. For instance, if we transfer money to a third party, then our bank, the recipient’s bank, and a payment provider would verify the transaction.
How Can Bitcoins Help Ordinary Users Like You and Me?
With bitcoins, no individual or bank is maintaining our transaction ledger. The ledger is available to everyone, and transactions are linked to our Bitcoin address. This makes our transactions and money really secure as there is no centralized control.
Additionally, unlike normal transactions where there is a need for us to punch in our personal details and credentials, the only thing we need to mention while transacting bitcoins is our Bitcoin wallet address. This ensures anonymity and safe online transactions.
Most importantly, when we make a Bitcoin transaction, our Bitcoin software signs the transaction with our private key. This cryptographic signature is the mathematical mechanism that allows someone to prove their ownership. Secure, fascinating, and alluring, Bitcoins are the best form of online transactions that we can look up to in this world where piracy and hacks have become as rampant as human beings.
Further, check the Blockchain course for certification and prepare yourself with free Blockchain interview questions listed by the experts.