Bitcoin and Blockchain: What is the Connection?
Those who are considering investing in crypto assets would know about the connection between the Bitcoin and blockchain. Bitcoin is a digital decentralized currency that is not under any bank or centralized financial institution.
How do Bitcoin and Blockchain work?
You can send Bitcoins to another individual or business and this transaction is viewable by many computers working 24x7; the transaction then gets verified and confirmed. Once this happens, all transaction records are stored in the blockchain which is essentially a public ledger.
Since transactions are stored in the blockchain, every transaction here is a block. Blockchain technology is the technology for recording these transactions and the Bitcoin rests on this technology. So, in short, the Bitcoin depends on blockchain, and without it, there is no secure method for transaction. This makes their interrelationship very significant.
What is the connection between Bitcoin and the blockchain?
Through this blockchain, the computers recording and verifying transactions have to agree that transactions and valid and only then can a new block be added to this chain. This kind of security is something that has not existed earlier and the belief is that the trust placed on centralized institutions like banks to maintain accurate records will ultimately be replaced by such a consensus-based system. Proof-of-work algorithms will allow this consensus to be reached. This shows that substantial efforts have been made when miners spend computing power to solve complex cryptographic problems.
Because of these proof-of-stake and proof-of-work algorithms people get more power for validating transactions. Their own more digital assets and they are motivated to continue their efforts to get more coins. Whether proof-of-work or proof-of-stake, valid transactions will be grouped and confirmed with hashes and thereafter linked to earlier hashes in the blockchain. Once any record is added here, the data is immutable.
Bitcoin is appealing because it is a decentralized currency and when individuals use this, they do not have to conform to the bank or government. Since many parties will check the entries for validity, the record-adding method is also decentralized. Advocates of blockchain argue that this technology can be used for recording all kinds of transactions not only the financial ones. So, the blockchain technology is being hailed as a disruptive technology with huge potential for the future.
It is believed that Bitcoin transactions are not completely anonymous on the blockchain. Even though identities may not be revealed, transactions can be traced. What makes the Bitcoin attractive is that you do not have to resort to time-taking costly money-transferring services. Since the blockchain is public, anyone can view the transactions and they can be traced. As all computers in the network have records of transactions, anyone trying to hack into the network will need to compromise all computers right away. This turns out to be far more challenging for hackers than hacking a regular network. While there have been instances of hacks in the past, the inherent transparency has successfully attracted banks and other financial institutions; these are now considering using blockchain technology for verifying transactions and reduce incidents of fraud and hacks.