For newcomers to the crypto space, many terms can be confusing and even misleading. Some people refer to Bitcoin when talking about blockchain technology, while others refer to blockchain when discussing cryptocurrencies. Although these terms are interrelated, they are absolutely not interchangeable. Therefore, here we will introduce you to the basics of blockchain, cryptocurrencies, and Bitcoin.

The Most Basic Analogy

Consider the following:

• A website is a specific technology for sharing information.

• A search engine is the most popular and common way to use website technology.

• In turn, Google is the most popular and well-known search engine.

Similarly:

• Blockchain is a specific technology for recording information (data blocks).

• Cryptocurrency is the most popular and common way to use blockchain technology.

• In turn, Bitcoin is the most popular cryptocurrency.

Blockchain: Concept

Most blockchains are designed as distributed and decentralized digital ledgers. Simply put, a blockchain is a digital ledger responsible for recording transactions, akin to a digital version of a paper ledger.

More specifically, a blockchain is a linear chain composed of multiple blocks, where the blocks are connected and secured by cryptographic proofs. Blockchain technology can be applied to activities that do not necessarily involve financial operations. In the context of cryptocurrencies, blocks permanently record confirmed transactions.

"Distributed" and "decentralized" refer to the structure and maintenance of the ledger. To understand the difference, consider common centralized ledgers in the market, such as public records of home sales, bank records of ATM withdrawals, or eBay's sales listings. In each of these cases, only one organization controls the ledger—government agencies, banks, or eBay. Another common factor is that these ledgers have only one master copy, with all others being backups, not official records. Thus, traditional ledgers are centralized because they are maintained by a single entity and typically rely on a single database.

Blockchain is entirely different. It is usually built as a distributed system and functions as a decentralized ledger. This means there is no single copy of the ledger (distributed), and it is not controlled by a single entity (decentralized). Simply put, every user who joins and participates in maintaining the blockchain network holds a copy of the blockchain data, which is typically synchronized with other users' copies and updated with the latest transaction data.

In other words, a distributed system is maintained by users working together worldwide. These network users are called nodes, and they validate and confirm transactions according to the system's rules. Thus, power is decentralized (no central authority exists).

Blockchain: Principles

The name "blockchain" comes from how records are grouped: a linear chain of interconnected blocks. Essentially, a block is a piece of data containing a list of recent transactions (like a printed record). These blocks and transactions are publicly visible but cannot be altered (as if each page of records were stored in a glass box). As new blocks are continuously added to the blockchain, the interconnected blocks form a continuous record (like a physical ledger with many pages). This is a very simple analogy, but the actual process is far more complex.

The main reason blockchains are difficult to tamper with is that all blocks are interconnected and secured by cryptographic proofs. To produce new blocks, network participants must engage in expensive and intensive computational activities, a process known as mining. Miners validate transactions and group them into newly created blocks, which are then added to the blockchain (if conditions are met). Miners are also responsible for introducing new tokens into the system, which are issued as rewards for their work.

Each confirmed block is linked to the previous one. The beauty of this setup is that once a block is added to the blockchain, its data cannot be altered because it is protected by cryptographic proofs, which are costly to produce and hard to reverse.

In summary, a blockchain is a chain of interconnected data blocks, where the blocks are sequentially linked in chronological order and secured by cryptographic proofs.

Cryptocurrency

Simply put, a cryptocurrency is a digital form of currency that serves as a medium of exchange in a distributed network. Unlike traditional banking systems, cryptocurrency transactions can be tracked via a public digital ledger (blockchain) and occur directly between participants (P2P) without any intermediaries.

The term "crypto" refers to the cryptographic techniques that ensure the security of the economic system, facilitate the creation of new cryptocurrencies, and enable smooth transaction validation.

Not all cryptocurrencies are mineable, but most, like Bitcoin, rely on the mining process to achieve a slow and controlled growth in circulating supply. Thus, mining becomes the only way to create new units of cryptocurrency, avoiding the inflation risks seen in traditional fiat currencies.

Bitcoin

Bitcoin is not only the world's first cryptocurrency but also the most well-known one in the market. In 2009, a developer or group of developers under the pseudonym Satoshi Nakamoto created Bitcoin. The main idea behind Bitcoin was to build an independent and decentralized electronic payment system based on digital proofs and cryptography.

Although Bitcoin is the most famous, it is not the only one. There are many other cryptocurrencies in the market, each with unique features and mechanisms. Additionally, not all cryptocurrencies have their own blockchain. Some are created on existing blockchains, while others are built from scratch.

Like most cryptocurrencies, Bitcoin has a limited supply, meaning no new tokens will be generated once the maximum supply is reached. Bitcoin's maximum supply is 21 million. Typically, the total supply of a cryptocurrency is announced upon its creation.

Because Bitcoin's protocol is open-source, anyone can view or copy its code. Numerous developers worldwide have contributed to the project's development.