The Benefits of Using Blockchain Technology
Blockchain technology has been in the news a lot this past year, with the tech press eager to explain how it’s the ‘real innovation’ behind Bitcoin. This revelation won’t come as a surprise to anyone who has been following the money, though. The litmus test for any upcoming technology is to look at the private equity flowing into it, and VC investment has been pouring into the blockchain ecosystem recently.
In this article, we’re going to look at the reasons behind the increasing popularity of blockchain technology. But before that, I want to explain how the technology works, and the differences between Bitcoin and Blockchain. It’s an important distinction because, while Bitcoin is limited to the financial sector, blockchain technology can be programmed to record virtually anything of value. Which means it has potential applications across a much wider range of industries.
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The Difference Between Bitcoin and Blockchain
Our current financial system relies on ‘trusted’ third parties to manage transactions. These intermediaries protect us from problems such as the ‘double-spending’ issue. This is the risk that any digital money can be spent multiple times. It’s a problem that is unique to digital currencies because they are so easy to duplicate. After all, you don’t need a third party with cash transactions. If you want to buy a coffee, simply give $4 to your barista and grab your coffee!
When Satoshi Nakamoto wrote his infamous 2008 Bitcoin white paper, he was writing at the height of a financial crisis. Public confidence in financial institutions was extremely low at the time. Bitcoin advocates were saying that it was the intermediaries making the whole system insecure. Every time a credit card is used online, they said, it divulges sensitive personal information to multiple parties. That information is then at risk of being accessed, stolen and misused.
Bitcoin positioned itself as an alternative to this existing system, by suggesting a cryptographic solution to managing transactions. One that replaced the need to ‘trust’ these intermediaries with the logic of math.
But while the two terms are often used interchangeably, blockchain and Bitcoin are not the same. The confusion is understandable; it stems from the fact that the public was introduced to both of these radically new concepts at the same time. The difference is that Bitcoin is a digital currency, whereas blockchain is the technology under the hood. Think of Bitcoin as the Ford Model T, the first mass-produced car. The Model T changed the way society thought about transportation. But this societal shift was made possible by drastic cost savings from another innovation: the production line. And while this production line was initially just used to create Model Ts, it would go onto to revolutionize the way we create all consumer products. You can think of Blockchain as the production line for Bitcoin. It’s the true innovation here, and will likely outlive Bitcoin itself.
What Is Blockchain Technology?
Here is a fairly typical definition you will find on the internet:
