Since bitcoin does not have a regulatory authority of its own to oversee all transactions, it was essential that bitcoin could not be duplicated or tampered with.
Cryptocurrencies, but most importantly bitcoin, in India, has been retail investors’ darling bringing them unimaginable returns, well, for many. With soaring valuation, the digital token has been performing well consistently but has been subjected to a fair share of road blocks and volatility. Anybody who would have tried to understand how bitcoin technology works would have definitely come across the term “blockchain”. Bitcoin and its blockchain are like two sides of the same coin. Needless to say, they need to co-exist; which I would elaborate on further. So, what is bitcoin and why is it such an integral part of blockchain, and why do I say they are synonymous?
Understanding the basics
As the name suggests, a blockchain is a chain of blocks that stores information about every completed bitcoin transaction worldwide. Before we dive into the utility of the blockchain, one has to understand the efficacy of bitcoin. Satoshi Nakamoto envisioned a future where 2 parties could transact without the need of intervention by a trusted 3rd party such as a bank. Since bitcoin does not have a regulatory authority of its own to oversee all transactions, it was essential that bitcoin could not be duplicated or tampered with. If these two conditions could not be met, bitcoin would lose credibility as a form of currency. Enter blockchain. It helps resolve both these problems by using immutability. It means that once a transaction has been recorded onto the block chain, information on the chain cannot be changed. This not only adds credibility but also protects bitcoin’s sanctity. As the blockchain is not centralized, each individual on the bitcoin network has to construct and maintain their own version of the blockchain. Before a block is added onto the blockchain, it has to be validated by each system keeping track of the blockchain on the network. Hence, if someone tries adding invalid, outdated information or tampers with the history of the blockchain, all the other systems on the network invalidate the block and it is not added onto the blockchain.
Decoding why is one irrelevant without the other?
As unreal as it may sound, blockchain means nothing if it delivers no underlying value to the consumer. Bitcoin is the most voluminous cryptocurrency in the world. However, owing to the skyrocketing growth that it has seen since the time of its conception, it is seen as an asset today. Many celebrities and significant individuals have embraced cryptocurrency and raised awareness about its existence, which has resulted in a huge inflow of consumers. This has increased the general population’s trust in bitcoin’s monetary value and due to the mass social proof that bitcoin is safe. If bitcoin had no monetary value, the blockchain would not be of any use since consumers would not have the incentive to buy or sell bitcoin and any records of transactions would prove to be irrelevant. Without consumers, the blockchain would not run, which is why consumers having confidence in the financial incentive of bitcoin are integral to the decentralized system.
This financial incentive is not only applicable to consumers, but also to producers, who are also called “bitcoin miners”. Bitcoin miners keep track of every bitcoin transaction on the planet and for each new block added to the blockchain. Bitcoin mining stations need to house large number of computers, which require regular maintenance. If the financial return being offered was inadequate, bitcoin miners would not have an incentive to keep the blockchain running. In turn, inadequate compensation would result in a collapse of bitcoin since miners would be forced to cut their losses and without miners keeping track of the blockchain, bitcoin would have no monetary value since the legitimacy of transactions is lost. In a nutshell, the financial incentive is very important for producers to keep the blockchain running.
After weighing all the factors, it is safe to say that the financial value of bitcoin and the blockchain are interdependent. Saying that one can exist without the other is like saying that the pigs can fly.
Source: Business World
