How is Blockchain different from Banks and is Bitcoin a Blockchain?
Blockchain vs bank
How different is a blockchain from traditional banking? Before starting this, we need to understand the fundamental difference between public blockchain and private blockchain, Any Blockchain can be seen as a single digital ledger where all the transactions within a cryptocurrency ecosystem are recorded. The system so built, adds the new records in chronological order and is open for public to see live.
This system is decentralized and the nodes available, are at different locations and is administered by different individuals/systems, if these individuals are part of the same organization, this blockchain so conceived is called private else public. In exact words, a private blockchain, is developed and maintained by a private organization who has the authority over its mining process and consensus algorithm. The organization that owns the Private blockchain, has the decisive power to allow who can join their network and have access to download the nodes. In this type of blockchain, no one other than the organization itself has the authority to read, write or audit or can override the blockchain commands or amend whatever within the blockchain anytime. This can been identified as a distributive ledger, shared between chosen individuals rather than a public ledger but as the ledger is encrypted and no one can really extract the information or keep an eye on the money so it serves the basic purpose of a blockchain.
There are pros and cons to this but we will be taking this to another blog, and will concentrate here on how different blockchain technology from traditional banking.
In traditional banking culture, the central banks shares the ledgers with commercial banks and other financial institutions as and when needed. and traditional banking system relies on a centralized database which is a single point of failure that could lead to the entire banking system to fail, whereas Blockchain technology is a distributive ledger where any node with error could be corrected by referring to other nodes around.
So the probability of failure of an entire blockchain is minimal and hacking and changing one block is meaningless and is not fruitful at all.
Each year banks and other financial institutions spend a huge amount to keep a check on their customers under (know your customer) certain programs and other regulations that they have to follow, to reduce illegal activities like financial terrorism and money laundering. With Blockchain, this could easily be cut down to a minimal possible amount as information gathering about a particular client need not to be duplicated by different organizations.
Besides this, with private blockchain, process could easily be automated about execution of contracts. Like in smart contracts, the terms are encrypted using keys of both the parties, and are distributed over the network so these are traceable but irreversible (because of use of particular time stamp, that is successive of previous and preceded of the next), which makes things easy and more secure.
Also, traditional banking needs to contact the central authority to share the information and takes time to interchange currencies and therefore the transfer takes days and client losses money because of interchange of currencies (besides commission) but with the blockchain, transfer takes seconds and as the currencies associated are not governed by countries so there is no loss due to interchange of currencies.
Is Bitcoin and Blockchain same?
The Bitcoin protocol is built on a blockchain. Satoshi Nakamoto, the Bitcoin inventor, referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” So we can see this as, Bitcoin merely uses blockchain as a means to transparently record a ledger of payments, but blockchain can be used to immutably record any number of data points for any service it is used for, eg., voting, sharing information about clients, end to end delivery of products etc.