Bitcoin’s Relationship to the Blockchain
Bitcoin and blockchain are two common terms that many believe to be the same. And although they are very similar, the two are not the same. Bitcoin is an implementation of a blockchain. But a blockchain isn’t Bitcoin. An analogy for this is “Bitcoin is to a blockchain” like “Tesla is to a car”. A Tesla is a car, but a car isn’t a Tesla.
Therefore, it is design of a blockchain that enables the creation of Bitcoin.
How does a Blockchain Work?
At it’s very basics, imagine the blockchain as a sequential link of “blocks”. Each “block” contains a predefined amount of data. When the “block” is full, the data is cryptographically signed, then added to the existing link of blocks, forming a single source of truth. What makes a blockchain secure is the cryptographic signature, which includes data from the previous “block” along with the current “block”. This link of “blocks” is the known as the ledger.
The blockchain needs a method to add blocks to the ledger. That role is fulfilled by Miner.
What makes a blockchain unique from other methods of the data storage (such as a simple database) is that the ledger is available to any of the distributed system, called Nodes, to download and more importantly confirm the “blocks”. This is not the case in a traditional database, where the owner of the database has the rights to make any change.
Blockchains can be public or private. A public blockchain is one that is open to anyone. These systems often times require more computational power and have less privacy. The flip side is a private blockchain, run by a single organization where participation isn’t public. In a private blockchain, although the rules of the blockchain can be changed at any time, all participants are guaranteed that the rules are being followed.
Although a blockchain is commonly referred to as a cryptocurrency, that’s not the only uses. Here are some examples:
- Healthcare: the movement of pharmaceutical drugs movement can be recorded on a blockchain to reduce counterfeiting.
- Retail: the movement of supply chain can be recorded on the blockchain to strengthen the trust in the consumer.
Bitcoin’s Implementation of the Blockchain
And so Blockchain is the underlying technology behind Bitcoin. Bitcoin stores peer-to-peer transaction related data and has a block size of roughly 1MB. A block is add roughly every ten minutes. The distributed parties that verify each block are called “nodes”. Anyone can download the bitcoin Full Node (available at Bitcoin.org) for Linux, Windows, or Mac OS X.
Bitcoin also has Miners that batch up Bitcoin transactions into a “block”, cryptographically sign it, and add it to the ledger. Since Bitcoin is open sourced, anyone can download the code and start mining. In Bitcoin, mining is a computationally expensive operation, with the goal to reduce fraud. In essence, each Bitcoin miner is competing to solve a “block”. The side effect of the competition is the more Bitcoin miners that exist on the network, the faster a block is solved. However, Bitcoin has an aim to add a block every ten minutes, so the Bitcoin network has a unique feature that automatically adjusts the difficulty to meet the goal. When Bitcoin was first released, a Bitcoin could be mined with a standard PC’s CPU. Today, it’s essentially impossible to solve a block without specialized hardware, known as Application Specific Integrated Circuit (ASIC).
A Bitcoin Full Node is vastly different that Mining. The hardware requirements to run a Node are very minimal and most people with basic knowledge of computing can set on up. A Node doesn’t compete with other Nodes. Instead, it’s only verifying the difficult work already completed by the Miner. And just like a miner, anyone setup a Node. In fact, it’s possible to run a Node using Raspberry Pi with attached storage. Once a Bitcoin node is setup, it can create a digital wallet, confirm Bitcoin transactions, and add overall security to the Bitcoin network.