What's the difference between Bitcoin and blockchain?
In the world of FinTechs and the new technologies associated with finance, we see that the terms “Bitcoin” and “blockchain” can very often be closely linked to the point of sometimes being confused. Let’s disentangle the concepts.
By Isabelle de Laminne, editor of the blog www.moneystore.be
Blockchain is a technology that resembles a large accounting ledger allowing all kinds of data and transactions (for example on shares or even insurance policies) to be secured, stored and transferred. Bitcoin is a virtual currency based on the blockchain technology. There are 300 virtual currencies in existence around the world, the best known of which are Bitcoin, Ether, Ripple and Litecoin. So Bitcoin is a currency and blockchain is a technology.
Bitcoin has no underlyings, and with these virtual currencies we see denationalisation of currency. The royal prerogative to issue currency is thus undermined. The high degree of volatility exhibited by these virtual currencies calls for the greatest possible caution. Indeed, these currencies are not investment instruments but must be seen rather from the perspective of payment or trading.
Blockchain: not limited to the world of finance
The uses of blockchain technology are not confined to the world of finance and payments. Indeed most of the initial projects were developed outside the financial sector. Blockchain can be used to validate the authenticity of a document. The definitive version of a contract can thus be set by creating a digital key. This key, called a hash key, authenticates the document. This process is unassailable.
Some specific applications based on blockchain have already seen the light of day. For example, based on this technology the Isle of Man has developed both an infrastructure for the development of a virtual currency and a land title registry system. Similar developments are also to be found in such countries as Georgia and Nicaragua. In Ukraine, government land is auctioned using blockchain technology to avoid corruption. In the world of insurance, this development will allow certification of policies and facilitate relations between brokers and insurance companies. Thanks to this technology, insurance companies should be able to improve the quality of their transactions with brokers.
Blockchain for greater transparency and security
Specifically, blockchain technology allows greater transparency to be achieved, as well as continuity and validation of transactions. It improves security, harmonisation and the quality of collaboration among all parties involved. In certain sectors it will enable a common infrastructure to be adopted. It also offers certification in certain areas such as the diamond sector for example. Some countries use it to implement the electoral process. Denmark is looking at blockchain as a way of making voting secure. This technology would also allow results to be obtained from booths in real time.
However, we should not assume that blockchain will invade every area of society that requires a certification procedure. Some current procedures already provide a sufficient degree of security and do not need to resort to this new technology. So we should not change just for the sake of changing, but rather ask ourselves whether or not the line of business we’re in is likely to derive any real benefit from this new advance.