I’ve been diving deep into some cryptocurrency investment topics on the Illumination Wealth Blog this month. Today, I would like to go back and cover one of the most basic questions people have about crypto. Those who are less initiated into this mysterious world of decentralized digital currency and transactions will likely have at least heard the words “blockchain” and “Bitcoin.” Sometimes, people use them interchangeably. They are related. However, we’re here to set the record straight and explain the difference.
The first thing to understand is the concept behind blockchain. Blockchain is actually the technology behind cryptocurrency storage and exchange. It is not controlled through one network or stored within one magical server farm. The database is an open, distributed ledger. All data within the blockchain is distributed and duplicated across many computers. This is why crypto experts will promote decentralization as a major benefit. Your money (in digital cryptocurrency form) is not controlled by one bank, but exists purely in the digital world.
The primary advantage of blockchain technology is that it is completely transparent and verified by user consensus. This would make it seem like it is not very secure, but the opposite is true. There is not a central point for hackers to attack and steal data, and your crypto assets are therefore very well protected.
The blockchain/Bitcoin confusion often comes because Bitcoin is the reason why blockchain technology exists. The blockchain approach was developed and refined specifically for Bitcoin mining, purchases, exchanges and transactions. Bitcoin was the first cryptocurrency to burst on the scene and start this craze. Now, Bitcoin is just one of many cryptocurrencies using blockchain technology.
So, think of it this way. Bitcoin is a type of cryptocurrency. It is a decentralized digital currency with a peer-to-peer electronic payment system. Bitcoins can be exchanged anonymously without the control or interference of a third party (like a bank or a government, for example).
Blockchain, on the other hand, is the technology used to trade digital cryptocurrencies like Bitcoin. Bitcoin is the dollar bill. Blockchain is the cash register, bank, ATM, debit card, and everything else all rolled into one very advanced, decentralized platform.
Blockchain is evolving beyond Bitcoin and other cryptocurrencies. It is being used by major companies to enhance security and conduct significant transactions. Christie’s recently sold a piece of digital NFT (nonfungible token) artwork for millions of dollars’ worth of cryptocurrency. Blockchain can be utilized for smart contracts, shared database records, financial auditing, and so much more. Nationwide Insurance has explored using blockchain to provide proof-of-insurance information digitally and without fraud.
Judging by the amount of cryptocurrencies out there and the fact that more and more businesses and individuals are utilizing blockchain for so many different types of investments and transactions, the technology will only continue to expand and change the financial world. As an investor planning for your future, you should take the time to understand how blockchain and cryptocurrencies work. You may decide to explore that market yourself, or maybe it’s not for you. However, it never hurts to be educated because it’s not going away anytime soon.
To learn more about crypto investments and how blockchain technology might benefit you or your business, contact Illumination Wealth today. We can look at all aspects of your finances and help you keep working toward your financial independence.