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Bitcoin and Blockchain Technology, Explained

Bitcoin and Blockchain Technology, Explained

If you’re like many people, you’ve heard of bitcoin and blockchain technology but aren’t sure how they work or how the two relate to each other. In that case, fear not. Keep reading to dive into bitcoin and blockchain technology, explained for you in straightforward language.

What Is Bitcoin?

Bitcoin is a digital currency that allows person-to-person transactions without bank accounts or intermediaries. In addition to people referring to bitcoin as a cryptocurrency, some of them also use the same name to discuss the protocol that defines each stage of a bitcoin transaction.

People can put bitcoin into someone’s digital wallet once they have the address for it. Each address gets used only one time, but a bitcoin wallet can create more addresses as needed.

You’ve also likely heard of bitcoin mining. It’s the process of creating new bitcoin for circulation. Unlike traditional paper money that gets printed, the available number of bitcoins goes up when people use computers to create them. Bitcoin miners verify previous transactions by solving complicated math problems. Doing it makes a miner eligible to get rewarded for their efforts in the form of more bitcoin.

What Is Blockchain?

The blockchain is a distributed ledger system that keeps an unchangeable record of all transactions associated with bitcoin and other cryptocurrencies.  Each record is called a block. A block has a cryptographic hash, which is a link between it and the previous block. It contains information about the transaction, plus a timestamp.

The hash for a given block contains details about it, as well as the block before it. So, if a person tried to tamper with or otherwise change a confirmed entry on the blockchain, the alteration would not go through successfully. The “chain” part of blockchain means that each block has a direct relationship to the one before it. Tampering with one, then, would upset the whole system.

The decentralized nature of the blockchain means that no single entity has complete control over the blockchain and the records stored on it. Even so, some analysts point out that a few scenarios exist whereby Bitcoin miners could collaborate to upset the blockchain’s immutability. Those possibilities have so far not come to fruition, but they give people pause and remind them that the blockchain is generally safe, but not wholly tamper-proof.

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What Is the Relationship Between Bitcoin and Blockchain?

Bitcoin is a cryptocurrency that uses the blockchain’s distributed ledger technology to offer peer-to-peer transactions across geographical borders. Bitcoin and all other cryptocurrencies need blockchain technology to work. Cryptocurrencies solely inspired the development of blockchain technologies. However, not all applications for blockchain relate to cryptocurrencies. The potential uses for blockchain are various. They include facilitating property transfers and protecting medical records.

Although blockchain uses span beyond bitcoin, there are also numerous ways that people can use the two together. For example, a company called Bakkt is working on a system to speed up and streamline transactions for consumers who want to pay for things with bitcoin. Starbucks is Bakkt’s first partner.

Also, when people purchase blockchain wallets, they store bitcoin and other cryptocurrencies in them. The software-based versions of these wallets come with a unique key that gives access. Unfortunately, if the key falls into the wrong hands, an unauthorized party could drain the wallet via a massive transfer. Another option is a hardware wallet. It’s an offline device that secures the information. But, if the rightful user loses a hardware key, they can’t access their funds.

Another thing worth pointing out about the relationship between bitcoin and blockchain is that blockchain technology came about solely because of bitcoin. It likely would not exist without the rise of bitcoin and other cryptocurrencies that happened afterward.

Cryptocurrency enthusiasts are excited about how the blockchain could promote more transparency in industries ranging from logistics to finance. Bitcoin set all those options in motion.

What is the Future of Bitcoin and Blockchain?

Now that you’ve had bitcoin and blockchain technology explained, you might wonder what’s ahead for both of them. Various parties are working hard to help bitcoin gain traction. Although cryptocurrency enthusiasts are on board with it, the overall adoption rate would be higher if more people understood how bitcoin works and could use it at the places where they usually shop.

As for the blockchain, research is underway to explore its potential, too. Much of it centers on helping people track products from their points of origin to the final destination. That advantage could cut down on fraud and fakery. People also hope that the blockchain’s digital ledger system could bring more visibility to matters that are sometimes not clear, such as how marketers use consumer information.

It’s too early to say how these efforts will pan out. But, something certain is that both bitcoin and the blockchain are making people both curious and hopeful about what’s on the horizon.

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Kayla Matthews is a technology writer and the editor of Productivity Bytes. Her work has been featured on Digital Trends, MakeUseOf, VICE, VentureBeat, The Daily Dot and WIRED, among others. Follow her on Twitter to read her latest posts.

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