Bitcoin, Cryptocurrency, Blockchains… it can get pretty confusing we know.
You just want plain word explanations for everything and even the “experts” don’t have a clue as they’re too focused on boring stocks and bonds. Well we got you fam.
Most of these talking TV heads wouldn’t even be able to tell you the difference between Bitcoin and Cryptocurrency, let alone elaborate on the finer points. But that’s why we’re here, to explain Bitcoin, simply. That and the memes!
Contents
What Is The Difference Between Bitcoin And Cryptocurrency?
First we’ll explain what the difference between Bitcoin and cryptocurrency is and then get into a bit more detail on each of them below.
A good example to help illustrate the difference is a Ferrari 296 GTB and the descriptive word Car. A Ferrari 296 GTB is a type of car, just like the Ford Model T is also another type of car. You have “car” as the general category and then many thousands of different cars underneath that.
Similarly, you have Bitcoin and then the descriptive word Cryptocurrency. There are many thousands of cryptocurrencies out there under the general category of “cryptocurrency” and Bitcoin is just one example. Ethereum is also another type of Cryptocurrency.
Dive Deeper: The Difference Between Bitcoin And Ethereum, Simplified
As Bitcoin was the first cryptocurrency, many people who don’t know much about the topic (eg talking heads on TV) use the two terms interchangeably which can lead to a lot of confusion. They also think that Bitcoin and these many other thousands of cryptocurrencies (or shitcoins as they’re known) are “similar” or comparable when in fact they are anything but.
Bitcoin is the original monetary network that has a number of absolutely critical aspects to it that elevates it orders of magnitude above all others. Not a single other cryptocurrency out there has its network effect, its creation conditions, its size, its branding, its recognition, its decentralisation or its security. All things that underpin anything that is trying to be money. There’s Bitcoin And Literally Everything Else. It is the apex predator of all monies and is why we only focus on Bitcoin.
But you probably want a bit more information than just that.
What Is Bitcoin?
OK explain Bitcoin to me like I’m 5: Bitcoin is online money that enables instant payments. Free for anyone, anywhere in the world to use at any time. It uses peer-to-peer technology (like torrents) and can be used without any permission from a government or central authority. It cannot be stopped or censored. Its rules cannot be changed, no matter how rich or powerful a country or person is.
Created by cryptographers (Cypherpunks technically) to cure the money problems caused by big governments and big banks it joins their other world changing technologies such as encryption of the Internet, encrypted messaging and the Tor project.
Difference between Bitcoin and the stock market: While many people confuse Bitcoin with a “stock” or even mistake it for a company, it’s absolutely none of that. Bitcoin is in fact a digital currency. While a stock will have a company, a CEO and need to comply with various regulations and laws a currency like Bitcoin has none of that just like gold or a barrel of oil has none of that. It is what they call a cash bearer instrument.
Difference between Bitcoin and the US dollar: While both are currencies, the main difference between Bitcoin and the US dollar is that the US dollar is what’s called a fiat currency. This means it’s backed not by a scarce asset like gold, but instead is backed only by the issuing government who can print as much of it as they like anytime. Bitcoin on the other hand is a scarce digital asset that cannot be copied or printed at anyones will. Just like you can’t make more gold out of thin air, new bitcoins are only distributed to Bitcoin Miners that solve the Proof-of-Work (PoW) challenge and there will only ever be 21 million of them.
If you’d like to know more about the fundamentals of Bitcoin (basically Bitcoin 101) check out What Is A Bitcoin. If you prefer a shorter, easier to digest piece that only takes about 4 minutes to read, check out How Does Bitcoin Work For Dummies?
What Is Cryptocurrency?
As noted above Cryptocurrency is a broad category term that covers many different things underneath, one of them being Bitcoin. However just like all cars have many things in common with each other, Cryptocurrencies all have the following core attributes in common:
- They are digital only, with no physical real world presence (like a $5 note or gold coin)
- They are secured using cryptography to prevent counterfeit or double-spending
- They are not issues by a central authority such as a central bank
- They use distributed ledger technology, typically called a Blockchain
From those core attributes, the almost 20,000 different cryptocurrencies start to diverge in terms of what they do, how they do it and what their purpose is. For example many use mining to process transactions and distribute their token, but some will use Proof-of-Work (PoW) where as others will use Proof-of-Stake (PoS). Others use mining methods that are different still.
Not all cryptocurrencies are built to be forms of money, some are used for other purposes such as tokens, art, wrapped versions of other existing cryptocurrencies like WBTC and Exit Liquidity. There is also a huge difference in the size of various cryptocurrency markets, some being virtually worthless while others command hundreds of billions of dollars.
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Some are built for huge transaction throughput, while others are built for social media or identity verification purposes. Some are heavily decentralised or private, while others are completely centralised and not private at all.
Another major part of all cryptocurrencies (or “cryptos”) is how they are governed. That is, who decides how the tokens will be distributed and to whom? How will the software code be changed in the future? Will some features be rolled out or ignored? Who gets final say over these code changes?
All of these factors allow all sorts of different possibilities and use cases from the original Bitcoin to the entire slew of meme coins to emerge. Many equate it to back in the 1990’s/2000’s when all manor of new and amazing internet companies were exploding onto the scene. Will all still be around 20 years from now? No. But some Google’s and Facebook’s are among us already.
For much more information on Cryptocurrencies such as how they’re created, what they’re used for, which ones are the largest and whether or not they’re a safe investment strategy, check out our more in depth piece: Is Bitcoin Cryptocurrency?
What is Blockchain Technology?
In order to keep track of who owns what tokens or coins, cryptocurrencies use blockchain technology. This is also referred to as a ledger and is essentially just a big database or file that is constantly updated to show who owns what. For example it might say “Bill owns 1 bitcoin”.
When a transaction is broadcast and ownership of various coins change hands, it’s bundled together into a “block”. This block is then added or “chained” onto all the existing ones. All these individual blocks, chained together form the blockchain.
Different cryptocurrencies have different rules surrounding how they mine and manage their blockchains. Some have large block sizes that get mined very quickly, this is a key Difference Between Bitcoin and Bitcoin SV for example.
If you’d like to learn more about Blockchains and how they are “mined” then have look at our super deep piece on What Is Bitcoin Mining?
FAQ
What Is Cryptocurrency?
Cryptocurrency is a broad category term that covers many different types of cryptocurrencies underneath it, one of them being Bitcoin. Cryptocurrencies all have the following core attributes in common:
– They are digital only, with no physical real world presence (like a $5 note or gold coin)
– They are secured using cryptography to prevent counterfeit or double-spending
– They are not issues by a central authority such as a central bank
– They use distributed ledger technology, typically called a blockchain
What Is A Bitcoin And How Does It Work?
Bitcoin is online money that enables instant payments. Free for anyone, anywhere in the world to use at any time. It uses peer-to-peer technology (like torrents) and can be used without any permission from a government or central authority. It cannot be stopped or censored. Its rules cannot be changed, no matter how rich or powerful a country or person is.
For more information check out How Does Bitcoin Work For Dummies?
Which Cryptocurrency Is Better Than Bitcoin?
This is a bit like asking which car is better than a Tesla Model 3. Different cryptocurrencies have different objectives that they are built to achieve just like you have sports cars and mini vans. Each serve their own purpose.
That being said, Bitcoin was designed and built to be a decentralised money and currently for that specific use case, there is nothing objectively bigger or better than Bitcoin. It is, by orders of magnitude, bigger, more decentralised, more recognised and more tested than any other cryptocurrency.
What Is The Best Bitcoin To Invest In?
While there are numerous Bitcoin copy cats or Bitcoin Forks as they are know, none of them are remotely close to Bitcoins size, security, recognition or level of decentralisation. As a result, investing in them is objectively much more risky than investing in Bitcoin itself.
That being said, Bitcoin itself is also very volatile and so whether or not it’s a “good investment” depends heavily on your unique personal and financial situation.
You should consult a registered financial professional on whether or not you should invest in anything, even Bitcoin, as only they will have access to your full financial situation, personal details and thus be able to make a properly informed opinion on whether it is a good investment for you.
