Welcome to the 21st century – a time of great technological shift and a time of new radical discoveries emerging from nowhere. Unless you’ve been living under a rock, there isn’t a chance you haven’t heard ‘Bitcoin’ or ‘blockchain’ being discussed on social media or the cable news.

However, what’s the actual connection between Bitcoin and blockchain – and what do these new technologies bring?

Below, we try to explain every aspect of Bitcoin and blockchain, their relation, and the major opportunities lying ahead.

What Is Blockchain?
The best way to define blockchain is to explain the problem that it actually solves. Basically, the blockchain is an invention that allows digital information to be distributed but not copied. As such, it creates the backbone of a new type of Internet which is originally devised for a new type of digital currency which has been the Bitcoin.

There are three principal technologies that are essential in combination for the creation of blockchain. These technologies include 1) private key cryptography, 2) a distributed network with a shared ledger and 3) an incentive to service the network’s transactions, record-keeping and security.

For example, if two people wish to transact over the internet, the blockchain acts as a system that builds a private key and a public key for each of the parties. The main purpose of this component is to create a secure digital identity which is based on possession of a combination of private and public cryptographic keys. This combination provides strong control of ownership. However, the distributed network makes it possible to secure digital relationships and make transactions even safer.

What Is Bitcoin?
Bitcoin is a new currency created in 2009 by an unknown person with the alias Satoshi Nakamoto. The transactions on the Bitcoin network are unlike any other – they’re made with no middlemen which means no banks. Bitcoins are used today in a variety of ways, from shopping to investing and trading them.

Bitcoins are produced through the process of “mining,” which is basically solving complex math puzzles using computers. This is how they are created. However, the process got more difficult lately with the rising price of Bitcoin and the limited supply of the digital currency online.

The greatest value of a Bitcoin is its price which has been rising lately. In 2017, Bitcoin’s price rose by more than 1500% which means that the currency’s value is always on the rise. One of the key advantages of Bitcoin is the decentralized network itself – as a market where people can send and receive funds without a central authority monitoring them. On top of that, sending Bitcoins involves lower fees per transaction.

The Basic Link Between Bitcoin And Blockchain
At this point, it’s safe to say that blockchain is the technology behind Bitcoin and a leading technology that may transform how the economy works.
The longer explanation, though, is that blockchain is the ledger that acts as the backbone of sending or receiving Bitcoins. It is used to track digital units of value and without it, sending or receiving Bitcoin would not be possible.

So, while Bitcoin is the digital asset (currency), blockchain is the actual technology that Bitcoin is built on. Therefore, Bitcoin is dependent on blockchain technology that holds all the databases and ensures that all purported transfers are actually transfers.

A Final Word
The relationship between Bitcoin and blockchain is significant and inevitable for safe transactions on the network. According to many analysts, blockchain will be likely used in industries like record keeping, property deeds, contracts, and shipping information in the future – and is already adopted by many businesses.
On the other hand, Bitcoin’s price continues to rise, and the currency is being accepted by more and more payment processors. The truth is that no one knows if Bitcoin will be accepted as a worldwide digital currency. However, it already raised more than $250 billion in its market capitalization and is certainly one of the most interesting concepts with a lot of potential advantages.

The real test for these new technologies will be in the next year or two. While some businesses have already adopted the blockchain and many investors are investing in Bitcoin, it is up to authorities to make the next move and make these two technologies evolve in a whole new way.

New Call-to-action

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.

New call-to-action
New Call-to-action