Whenever the word blockchain is used, cryptocurrency automatically comes to mind, and so does the opposite. Many people think the two are synonymous and therefore are often used interchangeably, but it couldn’t be more wrong. Cryptocurrencies are a type of currency that uses blockchain technology to operate.
In this detailed guide, you will learn about blockchain technology, how it works and how it relates to cryptocurrency.
What is a Blockchain?
Blockchain was first introduced with the launch of Bitcoin. Bitcoin was a cryptocurrency and myths have spread since then that blockchain and cryptocurrency are the same thing.
The blockchain is a decentralized ledger that holds transaction records and these records cannot be changed. Therefore, once a transaction has been approved and included in a block, it becomes permanent. From now on, it will always exist in the blockchain. What makes blockchain technology different is that it is completely decentralized, which means that no central authority owns or operates it. It belongs to the consumers and it belongs to them.
The data is stored in chunks. Each block consists of a number of transactions. When a block is completed, the network approves it and is added to the blockchain, making it immutable.
What is cryptocurrency?
Cryptocurrency consists of two words: cryptocurrency and currency. While the meaning of currency is clear that it is money, crypto means encrypted or written in codes. Hence, the meaning of a cryptocurrency is that it is a digital asset that is as valuable as money. It was created to promote easy trading, and this is where blockchain comes into play. All cryptographic transactions that take place are recorded using blockchain technology.
The first cryptocurrency was Bitcoin, which has become synonymous with blockchain. Since then, thousands of cryptocurrencies have entered the market.
How do blockchain and cryptocurrency complement each other?
Cryptocurrencies and blockchains work together to create a decentralized, secure and fully digital chain of transactions. There are no offices, warehouses where servers are kept or any other place where operations are performed. The similarities between the two are discussed below:
Blockchain and cryptocurrencies are advanced technologies that still arouse the curiosity of many. The reason there is no supervisory authority irritates many. Cryptocurrencies are also cutting-edge technology that didn’t make sense when they debuted. People were skeptical of how they could transact using a type of currency that didn’t physically exist. But today they are widely accepted.
Blockchain and cryptocurrencies are intangible. There is no server or computer from which you can access all data. Therefore, there is no blockchain ownership as it is a distributed ledger. The same goes for cryptocurrency because it is so different from a fiat currency. You cannot physically touch or hold it.
Blockchain technology was created to support Bitcoin. Or we can say that if there had not been the Bitcoin blockchain it would not have been born. Therefore, the blockchain is the basis of the cryptocurrency. The two technologies are interdependent.
Blockchain use cases other than cryptocurrency
While cryptocurrencies rely heavily on blockchain, blockchain has a reach far beyond cryptocurrencies. It can be used in several innovative ways, eg.
To facilitate the exchange and transfer
Blockchain will guide the future of the financial sector. The goal of the financial sector is to facilitate transfers and exchanges, but traditional banking methods take time, while blockchain transactions are easier, faster and more secure. Furthermore, they eliminate the need for intermediaries such as banks and offer users the ease of transacting directly with each other. Furthermore, since all transactions are logged and irreversible, it increases transparency and security.
Since blockchain technology is decentralized, there is not a single point a hacker can target. Data is distributed, which makes blockchains the most secure storage space. Furthermore, if an unauthorized modification is made, it is easily traceable.
The latest blockchain technologies have introduced transparent, self-executing and secure smart contracts. These smart contracts record the terms of the agreement and, when the parties meet the terms of the agreement, they are executed automatically. As a result, they can be used for many purposes, which can significantly reduce business costs.
NFTs, or non-fungible tokens, are gaining popularity due to their uniqueness. They represent the ownership of an asset. It can be anything from a work of art to a digital asset like coins. They are commonly used in the metaverse and have taken on a new identity since their popularity. They are also blockchain based.
Availability of recordings
Transparency of blockchains can be used to share records across sectors to facilitate faster processing. For example, in the case of health insurance, patient records can easily be made available to insurance companies. Furthermore, since the data on the blockchain is verified, insurance companies can easily process claims.
Elections are often branded as fraudulent and no matter how much advanced technologies have been used, there is always some doubt as to their authenticity. Blockchains can do away with it. An electoral system aided by blockchain technology will leave no room for electoral fraud and tampering. The immediate results will be an added benefit.
Is there a future for cryptocurrencies without Blockchain technology?
The first cryptocurrency, Bitcoin, was based on blockchain technology. Although they have become popular, there has always been a question of whether there is a future for cryptocurrencies without blockchain technology.
After Bitcoin, all new cryptocurrencies started using blockchain and blockchain technology and cryptocurrencies became inseparable in the public eye. Even today, most cryptocurrencies operate on blockchain technologies.
But this does not guarantee the alliance of the two technologies in the future. IOTA is one such cryptocurrency that is not blockchain based. Instead, it was created on a mathematical concept called “Tangle” and has already created a buzz. Reason? Its owners claim it will get faster than Bitcoin and surpass it.
This is just the beginning of another era where blockchain and cryptocurrencies will be transformed in unimaginable ways and impact the future in unpredictable ways.
The future only promises that blockchain technology and cryptocurrencies will be more accepted. However, these two technologies are distinct and work in parallel. This guide has included everything you need to know about the relationship between the two and their differences.
Internal image credit: provided by the author; Thank you!
Featured image credit: provided by the author; Thank you!
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