As a newcomer to Bitcoin it is easy to feel overwhelmed and become confused by all the jargon. Not to worry! I only want to make your journey into Bitcoin and crypto more digestible so let us go into the fray together.
Today I want to talk about the core technologies that Bitcoin is comprised of. One of these technologies is blockchain, which is arguably the most overused and misused word in the entire crypto space right next to Bitcoin. I will not go into the details of how it works — such as explaining how miners solve cryptographic algorithms to confirm transactions which add new blocks to the blockc…zzz — nope, I will instead discuss blockchain’s general role and how it won’t, by itself, ‘change the world’ as many claim.
The Bitcoin blockchain
The thing about Bitcoin is that we use the same word to describe the network and the money. The Bitcoin network is a protocol or agreement that has a built-in asset or money by the same name, Bitcoins.
Now, lets focus on the Bitcoin network and briefly discuss the four technologies behind it:
- Peer-to-peer network — open to anyone, where you interact person to person and there is no central power or group(s)
- Proof of work consensus — A.K.A mining, whereby network participants use computer power to confirm transactions
- Cryptography — technology that ensures secure transactions
- Blockchain — a type of ledger or database keeping track of transactions
As you can see blockchain is only one of four pieces which makes the Bitcoin network possible. The Bitcoin network is open, distributed, trust-less, and unchangeable due to these four technologies working together, which results in its most important benefit of all, decentralization. Let’s take a pause here because this is where things get out of whack.
The blockchain hype train
Since the creation of Bitcoin the word blockchain has slowly become an omniscient and meaningless marketing term that is consistently thrown into interviews, ted talks, white papers, everyday conversations etc. whenever someone wants to sell you ‘consulting’ services or ‘explain’ why it is more important than Bitcoin. When in reality a blockchain is just a slow database that is not inherently decentralized.
There are countless articles claiming that ‘Blockchain will change the world!’ Many of these articles describe the technology as follows: An open, distributed, trust-less, and immutable database that is decentralized! Hold on, that sounds a lot like…yes, all these articles are actually describing the Bitcoin network: An open (#1), distributed (#1), trust-less (#1, 2, 3), immutable (#2, 3, 4) database! (#4). These articles are incorrectly attributing the Bitcoin network’s properties to describe blockchain.
Blockchain was chosen for the Bitcoin network because it allows any individual to carefully (and slowly) track and confirm activity in the open and distributed network. This is to ensure consistency and trust among other things. Its block by block nature is clunky and inefficient by design, which works well to manage Bitcoin, a digital money and new asset class. Yet, using it for anything other than digital money will be extremely challenging — more on this later. I mean, can you really put farm cows on the blockchain? Should you even?
Do you really want a blockchain?
Sure, you can rip blockchain out of the Bitcoin network, make it more ‘efficient’ and provide ‘instant’ data transmission, but you immediately lose the trust-less, transparent, and unchangeable properties by using it this way. You could create a private and closed version such as IBMs Hyperledger. The problem here is that this will be controlled by consortiums A, B, C (limited network) and there is no mining because Mary, Juan, Bob etc. aren’t important, so it is way faster!
Even so, a blockchain is literally stacking blocks and blocks of data. This is a burden to maintain compared to other data structures such as an Oracle Database, which is private and fast! See, I just solved your problems without blockchain. In essence, when you use a private blockchain it is not really decentralized and an unnecessarily complicated and clunky database.
Many companies want to appear to be ‘in the know’ by saying they use blockchain, but they are just capitalizing on a trend and taking advantage of uninformed consumers for their benefit. If you see companies or groups using it in this way, then understand that you are getting a product that does not provide all the magic of the Bitcoin network, it suits their own interests, they don’t understand how it works, and its an oversold promise of what it can actually do.
The blockchain does not solve all problems my friend.
Well then! Now you know a little more about the core technologies behind Bitcoin, the real value blockchain brings and to remain critical whenever it comes up in any context outside the Bitcoin network or digital money. If you want to take a deeper dive into this topic, then check out this great article. This is a long journey with many paths to travel, so join me next time as we dig deeper into this whole Bitcoin thing. Later!
You’re not alone! No one understands Bitcoin or blockchain was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.