A Beginner’s Guide to Blockchain: What is the difference between Blockchain and Bitcoin

In the previous article we noted that blockchain is a digital ledger that allows for the recording of digital assets. One of those digital assets and probably the best known digital asset is bitcoin. What this post is hoping to achieve is to outline the difference between bitcoin and blockchain and to show how the two are linked together.  

Bitcoin is what is known as a cryptocurrency. A cryptocurrency is basically digital money that uses mathematical formulas to control its own supply rather than the supply being controlled by a central bank or government. Bitcoin can be used to buy and pay for goods on the internet, even companies like Dell and Microsoft now accept bitcoin payments, however in most instances bitcoin has a lot of similarities to gold it both its supply and its use for investments.  

Both bitcoin and gold have a limited supply and from economics we have learned that when demand goes up and supply remains the same it causes the price to increase. An additional reason that both bitcoin and gold prices increase is because they are both used as a store of wealth for investments. What this means is that investors buy both gold and bitcoin in bulk and hold onto them long term. This reduces the available supply to the market causing an increase in demand and price. This causes their investment value to go up. While gold has an intrinsic value as a efficient conductor in electronics and this helps stabilize the price, bitcoin is much more susceptible to speculation and therefore has gone up and down in value in massive spikes in the past. 

Normally when supply is limited you can segment your market in high value and low value customers based on what they are willing to pay for a better service or product. As an example airplane seats are a fixed supply, but for 1st class people are willing to pay more, unfortunately this does not work for either bitcoin or gold. This is because both bitcoin and gold are homogeneous and divisible. This means that every bitcoin is the exact same as the other and it can be broken down into smaller parts and still retain the same value. In the case of bitcoins they are made of the same code and you can buy and sell bitcoin even down to a level deeper 0.00000001 of a single bitcoin, although not practical with transaction charges it is still technically feasible.  

So we now know what blockchain and bitcoin are we can summarize the difference as being;   

"Blockchain records and processes the transactions and bitcoin is the valued item that is being transacted."  

The best comparison in real life is the stock market. The stock is the item that has value but in order to trade that stock you need to be registered on the stock market as this is the only location where stocks can be bought and sold. Similarly with bitcoin if you want to trade bitcoin you have to be registered on the blockchain as the bitcoin blockchain is the only place that bitcoin can be bought or sold. In each case for stock and bitcoin there may be third parties who offer this transfer without the need to register on the blockchain but since bitcoin is only located on the blockchain they are merely facilitating this transfer within the role of a bitcoin/stock broker.   

So if blockchain is only a method to transfer bitcoin and record data of multiple kinds than why is there such a buzz around it? That question will be solved in my next article entitled "What makes blockchain so disruptive?"