Go Beyond Bitcoin with Blockchain Networks
Learning Objectives
After completing this unit, you’ll be able to:
- Explain the difference between Bitcoin and blockchain.
- Explain how blockchain technology has evolved.
- Explain how blockchain networks work.
What’s up with Bitcoin and Blockchain?
Are Bitcoin and blockchain the same thing? No, they aren’t. But they are closely related.
Bitcoin was the first to use blockchain. In fact, blockchain was invented to support Bitcoin. As a result, people often inadvertently used the term Bitcoin to mean blockchain and vice versa.
However, Blockchain technology has since been applied in other industries, but there is still some lingering confusion.
How Bitcoin and Blockchain Differ
Bitcoin is an unregulated digital currency that was first created by Satoshi Nakamoto in 2008. It’s also known as a cryptocurrency. The idea behind Bitcoin was to bypass government controls and simplify online transactions. Of course, accomplishing this required more than just the money itself. There had to be a secure way to track transactions themselves.
Bitcoin transactions are stored and transferred using blockchain on a peer-to-peer network that is open, public, and anonymous. In other words, blockchain is the foundation that helps maintain the Bitcoin ledger.
How Blockchain Networks Work
Blockchain eliminates the need for third parties such as banks to mediate transactions. To establish trust and transparency, blockchain uses:
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Hashing, such as the SHA256 cryptographic hash, to ensure even the smallest change results in a different block with a different hash value. In other words, everyone in the network can clearly see when there is a change because they are represented by a unique ID.
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Digital signatures, to ensure transactions come from the appropriate participants. In other words, no imposters.
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Consensus, which is a series of checks to verify the data. In other words, there’s a specific proof of accuracy that all participants agree to.
In the case of Bitcoin, a form of consensus is used called “mining.” It involves members processing complex, resource-intensive equations to create strings of characters that other members use to verify the legitimacy of the transaction. (See Resource for more on mining.)
The decentralized nature of the blockchain network prevents any single participant or group of participants from undermining the entire system. Everyone is equal, adhering to the same rules.
This results in transactions that cannot be altered or reversed, unless the change is agreed to by all members in the network in a clear, transparent, and trustworthy way.