Bitcoin, the cryptocurrency born from the paper, was first used in a purchase in 2010 for pizza. In the years that followed, cryptocurrency exchanges emerged, bringing the ability to convert between fiat money- such as the US dollar- and Bitcoin. Other developments have also emerged, including other blockchain networks, initial coin offerings (ICO), and
While the terms Bitcoin and blockchain are undoubtedly intertwined, there are important differences to note in order to better understand the space and the industry.
The chart above depicts the number of transactions run on the Bitcoin network per month from 2009 to 2020.
Blockchain, on the other hand, refers to that allows Bitcoin to run. Blockchain is often defined as a distributed ledger. It stores information, and more importantly, it stores information immutably (it cannot be changed). This is crucial for Bitcoin to work because each node on the network must have the same version of the chain. If the chain must be changed in any way because of a new transaction, each node will receive a completely new copy. As a result, Bitcoin transactions are secure and authentic, with no ability to double spend.
Like stated before, Bitcoin transactions are made on the Bitcoin blockchain. That is the purpose of the Bitcoin blockchain. Other blockchains, however, can be used to store and send a myriad of other things. These include private company data, health records, logistics, among others.
VeChain, for instance, recently announced a new service known as ToolChain that can facilitate the food industry with food safety by tracing the origins of foods like dairy and alcohol across borders. Furthermore, this could help with food processing, packaging, and supply chain logistics.
In healthcare, a company called Chronicled provides blockchain-based solutions to pharmaceuticals. It uses a network known as MediLedger to track and authenticate products, allowing hospitals the ability to know the origins and integrity of the medication they give their patients. This is especially important now during the COVID-19 pandemic to combat fraud when treating patients with medication.
Supply chain management is probably one of the most widely applicable uses for blockchain technology, which UPS has embraced. In 2019, it announced a blockchain-based network that would improve supply chains. The purpose of the platform is to allow suppliers to store data about product inventory, pricing, transactions, and the movement of goods. This enables transparency between suppliers and customers, as well as security of data. Both parties are able to monitor prices and orders while communicating with the other.
Bitcoin transactions are run on a blockchain network. When users send Bitcoin, they sign the transaction with a private key, and the transaction is then approved by every validator on the network. Once transactions are approved, they are placed into blocks, with each block sporting a reference to the previous block on the chain. This makes the network secure and unchangeable without relying on a centralized intermediary.
In proof-of-work blockchains, the validators that produce blocks are called miners. Proof-of-work (PoW) is known as a consensus algorithm, which is a mechanism for which decisions can be made and a single truth is understood through a network with no centralized figures. Miners’ computing power is used to solve cryptographic puzzles with brute force, allowing them to produce a block. Once the block is verified by the network (which is much simpler than producing the block), it is added to the chain. For their efforts, miners are rewarded with new crypto, as well as the fees that users paid in the transactions.
Other blockchains also use PoW, such as Litecoin and Ethereum 1.0. However, recently, another type of consensus mechanism has become more popular due to the negatives of PoW involving large energy use and the price of resources required to become a miner. This consensus mechanism is known as proof-of-stake (PoS). Rather than risking computing power, PoS validators risk money. When validators validate blocks they think should be added to the chain, they stake their coins to the block. If the block does in fact get appended to the chain, the validators are rewarded with an amount proportional to the amount they staked. In fact, one of the major current events in the blockchain space involves Ethereum and their plan to launch a new blockchain network (Ethereum 2.0) that will utilize proof-of-stake.
There may be a few reasons for this. It may be as simple as the fact that interest in cryptocurrencies is typically limited to those who are tech savvy. Another possibility comes from the link between Bitcoin and illegal activity. According to the same YouGov report mentioned above, 25% of respondents believed that cryptocurrencies are used more commonly for illegal activity than legal purchases. As long as this connection exists, people will be hesitant to adopt Bitcoin and other cryptocurrencies.
The global blockchain market, right now estimated to be $3.0 billion, is projected to expand to $39.7 billion by 2025. This is according to a global forecast by market research company MarketsandMarkets. This projection is probably due to the ability for blockchain technology to be implemented in all sorts of businesses. In 2018, supply chain management and Internet of Things were the two most common use cases for blockchain, but applications extend to various other industries. It is likely that as industries successfully implement the technology, an increasing number of businesses will look into it as necessary for their growth.
Bitcoin and blockchain are irrevocably tied together. Bitcoin cannot exist without its underlying blockchain network, and blockchain would not exist without Satoshi Nakamoto’s proposal of a digital currency that could solve double spending. The blockchain industry began with Bitcoin, but it has expanded to include much more. Hopefully, with time, blockchain technology can revolutionize other aspects of our lives and allow other industries to achieve more trust, security, and transparency.