Bitcoin is the first successful implementation of a decentralized cryptocurrency and the first major blockchain innovation. Bitcoin appeared in an interesting period, when people lost trust in the banking system, due to the financial crisis. An interesting fact, embedded in the first block (known as the genesis block) of Bitcoin is the message “Chancellor on Brink of Second Bailout for Banks” which may hint that Bitcoin emerged as a response to the financial crisis of 2008.
In contrast, blockchain technology was initially designed to act as a backbone to Bitcoin. As such, the main difference between blockchain and Bitcoin is that blockchain is the underlying framework that made cryptocurrencies possible, while Bitcoin can be viewed as the first blockchain application. The reason why previous attempts to create digital currencies failed is because they were unable to provide a solution to the Byzantine Generals’ Problem, an allegory formulated as an analogy to a decision-making and security problem in electronics, that cannot be solved only with cryptographic digital signatures, as failures such as incorrect voltages can propagate through the encryption process. Through its unique set of characteristics, and consensus mechanism (Proof of Work), blockchain was the first technology to provide a viable solution.
Because Bitcoin is built on top of a blockchain, it gets many of its characteristics from the later:
- Decentralization – no single entity controls the Bitcoin network
- Limited Supply – there will only be 21 million Bitcoin
- Pseudonymity – Bitcoin users operate in semi-anonymity. Since there is no central authority, users do not need to identify themselves when sending Bitcoin to another user
- Immutability – once a transaction is performed and validated by the network, it can’t be reversed
- Divisibility – the smallest unit of a Bitcoin is called a satoshi. It represents one hundred millionth of a Bitcoin (0.00000001)
- Transparency – every transaction is seen by every network participant
Traceability– users can trace back every transaction