For people with high tech knowledge, these two terms are nothing they can’t decipher. However, they are not easily differentiated by the layman. The basic idea and difference between these concepts have to do with how distributed ledger technology is used. As much as possible, this piece will comprehensively break down the meaning of Cryptocurrency and Blockchain individually then juxtapose them to highlight the obvious differences.
Fundamentally, blockchain is a network technology. It can be used to build many types of networks within an industry or within a company. Blockchain equals a ‘chain of blocks’ that serves as the distributed ledger that forms an immutable record of transactions on a network, providing both transparency and trust. Simply put, it is a DLT (distributed ledger technology or a distributed network of interconnected computers via the Internet) that enables (technological backbone) use of the cryptocurrency. The basics are that blockchain is the platform that brings cryptocurrencies into play.
Blockchain mechanism that enables a world without intermediaries; instead of trusting central authorities to control each individual bank ledger like in the conventional financial system, the blockchain distributes account balances, verification, identity, and transactional flow — without any 3rd party. This type of network allows strangers to reach consensus and builds trust. For example, blockchain networks now are used to facilitate international money transfers between banks.
Summarily, Blockchain is transparent, secure/ unchangeable in nature, transactions are irreversible on it, and anyone can examine the code or run a server that verifies blockchain transactions. Blockchain’s most notable advantage is distribution and lack of centralized governance; this also doubles as one of its biggest weaknesses: scalability and interoperability. Another known downside to the technology is that the network is more computationally expensive to run than a centralized data server. This is due to the fact that data has to be distributed around a network of servers with no central control, every individual server has to store a copy of the data, and the entire network has to agree to new transactions before validating them. However, its potentials of the technology that be leveraged in building applications, running businesses, amplifying tech operations in any sector are ground-breaking so far.
Cryptocurrency is simply ‘encrypted digital cash’. Cryptocurrency is a sort of cryptographic currency; it has to do with the use of tokens based on the distributed ledger technology. They are essentially digital assets that can be sent on a peer to peer basis with no need for a central authority acting as a source of trust. i.e Cryptocurrencies represent the possibility of currency with an established value that is independent of government.
It’s a tool or resource on a blockchain network, it is a digital currency by definition “the art of solving or writing codes” These tokens can serve different purposes on the network and we all know that not all cryptocurrencies are created equal. Cryptocurrencies are also described as tokens of value that allow the underlying technology to capture the value of any applications built on top of it. This has resulted in the possibility of their becoming investment vehicles that allow individual and institutional investors to invest in blockchains. Cryptos can also be traded on exchanges and between different users.
There have been contentions as to the possibility of cryptos taking over traditional currency however, this isn’t the case or maybe not yet. Traditional regulators fear cryptos may affect the running of the economy generally by central banks since their power is in controlling the circulation of money in an economy. Cryptos are not physical cash that can be injected into circulation at the discretion of the different governments. So far, the freedom of choice in life has enabled the possibility of both types of fiat money and cryptocurrencies to exist side by side performing their intended functions accordingly. The known downsides to the existence of cryptos are the high level of volatility and low supply- in that it is not globally accepted yet. From the ease of transacting with just access to the internet to less time spent on transactions and even low charges in comparison to traditional methods; the impending benefits of crypto adoption are rewarding for as many that have adopted it.
The first known cryptocurrency is Bitcoin which is the largest and most popular as we have it. It is important to note that Bitcoin is a cryptocurrency that has its own blockchain. This is possibly the start of the confusion that cryptocurrency and blockchain are the same including; Blockchain technology used to be interchangeable with Bitcoin as it was first developed to support them till other virtual currencies sprang up. There is also Ether, the second largest cryptocurrency by trading volume that has its own Ethereum blockchain where Ether is built on. In the case of ether, the cryptocurrency and blockchain are separately named making it clear that blockchain and cryptos are different.
Clarifying the difference
Blockchain and cryptocurrency work together, but they are not the same. A practical scenario is this; Blockchain is the highway, cryptocurrency is the car. Bitcoin cannot exist without the blockchain to move off and on of. With these following sentences preceded by bullets, points highlighting the difference between Blockchain and Cryptocurrency abounds.
· Blockchain is an underlying technology to build decentralized networks. Cryptocurrency is an application that can be built on those networks. Typically, cryptocurrencies are used to incentivize people to contribute to the network.
· Initially BitCoin was the only blockchain and usually (but not always) cryptocurrencies use blockchain as the platform used to conduct transactions. Blockchain is the distributed ledger that creates the means for the transactions to be recorded and the crypto to be transferred (the possibilities of blockchain as an open ledger are almost limitless across businesses – you can do logistics, QC, etc.)
· The hope of cryptocurrency is to reduce intermediaries and fees (such as banking and credit card fees) but it is blockchain technology that enables an economy of trust with unchanging publicly viewable records of transactions to protect the interests of people on both sides of the transactions.
· Cryptocurrencies and blockchains are separate but related concepts. With the passing of time, a lot more uses for blockchain technology, over and above altcoins, have sufficed and have been developed. Now Cryptocurrencies are just one of the many applications that blockchain can be used for.
Over the past decades, the framework of financial regulation and the traditional finance system has been what we are used to. The emergence of blockchain has been able to introduce a platform for never-before-seen innovations, different means of protecting our data and handling transactions in a ‘modern way’ as well. This is a huge leap forward from our traditional thinking around currency, which has been limited to fiat currency (a currency issued by a national government) and occasionally the use of a commodity as currency (though more recent examples of this happen in the cases where there is a very weak fiat currency or government in crisis).
Credits – MackieHill, Aleksander KatulusVidmar, Ashley Hayes, Sean Allen,
Justin Roberti, Mark Brinkerhoff, David Balter
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