Blockchain and cryptocurrency have undergone a lot of criticism, largely because their concept is still ambiguous for many. It can be hard to grasp the relationship between the two, especially if you’re not the most tech-savvy person in the world. Yet blockchain and cryptocurrency are continuing to change the markets around the world, making it essential to understand what they represent.
The definition of blockchain
Blockchain has become the latest buzzword in the tech world. Everybody is talking about its prospects, potential, and benefits. Some are even discussing the challenges associated with its integration. But what is blockchain exactly and why has it garnered so much popularity?
Blockchain is the network of computers working together to create a chain. The information is stored in various nodes (i.e. computers) in the form of blocks. Unlike a traditional spreadsheet database, a blockchain sorts the information into time-stamped clusters. Since the data is collected and distributed across the nodes, it has an irreversible character.
Particularly, it’s impossible to modify, remove, or reverse information once it gets stored in the block of the network. This guarantees that large amounts of data aren’t lost if something happens to the original computer. It also increases security and transparency, as it eliminates the chances of external interference. When the new information gets to the blockchain, a new block is created and all computers get updated with the latest transactions.
Blockchain is a decentralized system, meaning that it’s not ruled by a single authority. The transactions happening on the network require approval from the members of the network, not a managing body. A decentralized character is what makes it so different from traditional systems.
Blockchain was originally created as a network that would facilitate the transactions for the first cryptocurrency, Bitcoin. It was created by a mysterious person (or a group of people) Satoshi Nakamoto. Even though the idea of a block-like chain dates back to the 1990s, it wasn’t realized until 2009.
The definition of cryptocurrency
A cryptocurrency is a form of money – a digital alternative to fiat currencies. It’s a coin or a token that requires a secure network, such as a blockchain, for safe and transparent transactions. Similar to fiat currencies, you can buy, sell, or trade crypto for other coins or traditional money. Cryptocurrency has value in fiat currency. Bitcoin, for example, reached an all-time high of approximately $64,000 in 2021.
Similar to the blockchain, cryptocurrency has a decentralized character. It doesn’t require the approval of third-party entities such as banks or other financial institutions. Anyone can create and launch a digital token or coin if it satisfies the basic requirements. It would require blockchain development services, white papers, and correct project management. However, it wouldn’t submerge you in bureaucracy forcing you to file loads of paperwork to get legal permission.
Cryptocurrency operates using a peer-to-peer system, allowing everyone around the globe to transfer their digital funds in seconds. It has encrypted code that guarantees security. Transactions are stored on the blockchain and everyone can view them without revealing personal information.
You can possess multiple cryptocurrencies at the same time and you can store them in a digital wallet.
The relationship between cryptocurrency and blockchain
Cryptocurrency cannot exist without blockchain, yet blockchain can have multiple applications that aren’t related to crypto. In other words, if the blockchain network collapsed or failed to operate properly, it would mean the end for cryptocurrencies. However, if cryptocurrencies disappeared, it wouldn’t affect blockchain – it would simply find other applications.
For example, blockchain can be used to store any type of data, including products, services, healthcare information, votes, and even legal contracts. According to common predictions, blockchain will find more and more real-life use cases in the upcoming years. Yet cryptocurrency can only fulfill a monetary function.
Notably, we should thank cryptocurrency for triggering the creation of the blockchain. Even though it’s not the primary application anymore, it’s still one of the main uses for the network. As blockchain starts occupying various fields on the market, crypto payments will find greater approval as well.
Cryptocurrency and blockchain shouldn’t be used interchangeably, as they represent completely different concepts. Cryptocurrency is a digital currency, while blockchain is a distributed network. Regardless of the close relationship between the two, they aren’t the same.