The relationship between blockchain and cryptocurrency
Whenever the word blockchain is used, cryptocurrency automatically comes to mind, and it’s true the other way around as well. Many people think that the two are synonymous and are therefore often used interchangeably, but that could not be more wrong. Cryptocurrencies are a type of money that uses blockchain technology to operate.
In this detailed guide, you will learn about blockchain technology, how it works and how cryptocurrency relates to it.
What is a blockchain?
Blockchain was first introduced with the debut of Bitcoin. Bitcoin was a cryptocurrency, and from then on myths spread that blockchain and cryptocurrencies are the same.
Blockchain is a decentralized ledger that keeps records of transactions, and these ledgers cannot be changed. So once a transaction is approved and included in a block, it becomes permanent. Now it will always exist in the blockchain. What makes blockchain technology different is that it is completely decentralized meaning that there is no central authority that owns or manages it. It is for the consumers and belongs to them.
The data is stored in blocks. Each block consists of a certain number of transactions. When a block is completed, the network approves it and it is added to the blockchain, making it immutable.
What is cryptocurrency?
Cryptocurrency consists of two words – crypto and currency. While the meaning of currency is clearly that it is money, crypto means encrypted or written in codes. So the meaning of a cryptocurrency is that it is a digital asset that has a value like money. It is designed to promote ease of exchange, which is where blockchain comes into play. All crypto transactions that take place are recorded using blockchain technology.
The first ever cryptocurrency was Bitcoin, which became synonymous with blockchain. Since then, thousands of cryptocurrencies have entered the market.
How do blockchain and cryptocurrency complement each other?
Cryptocurrencies and blockchain work together to create a chain of transactions that is decentralized, secure and completely digital. There is no office, warehouse where the servers are kept, or any other place where the operations are carried out. The similarities between the two are discussed below:
Advanced technologies
Both blockchain and cryptocurrencies are advanced technologies that are still a curiosity for many. The reason why there is no authority to supervise annoys many. Cryptocurrencies are also an advanced technology that didn’t make sense when they debuted. People were skeptical about how they could transact with a type of money that did not exist physically. But today they are widely accepted.
Intangible
Both the blockchain and cryptocurrencies are intangible. There is no server or computer from which you can access all the data. Thus there is no blockchain ownership as it is a distributed ledger. The same applies to cryptocurrency because it is so different from a fiat currency. You cannot physically touch or hold it.
Mutually dependent
Blockchain technology was created to support Bitcoin. Or it could be said that if there had been no blockchain, Bitcoin would not have been created. Thus, blockchain is the foundation of cryptocurrency. Both technologies are dependent on each other.
Blockchain use cases other than cryptocurrency
While cryptocurrencies are highly dependent on the blockchain, blockchain has a reach far beyond cryptocurrencies. It can be used in several innovative ways, such as e.g.
To facilitate exchange and transfer
Blockchain will drive the future of the financial sector. The goal of the financial sector is to facilitate easy transfers and exchanges, but traditional banking methods are time-consuming, while blockchain transactions are easier, faster and more secure. In addition, they eliminate the need for intermediaries such as banks and offer users to easily transact directly with each other. Furthermore, since all transactions are recorded and irreversible, it increases transparency and security.
Cyber security
Since blockchain technology is decentralized, there is no single point that a hacker can target. The data is distributed, and that makes blockchains the most secure storage. Additionally, if an unauthorized change is made, it is easily traceable.
Smart contracts
The latest blockchain technologies have introduced smart contracts that are transparent, self-executing and secure. These smart contracts record the terms of the agreement and as and when the parties fulfill the terms of the contract, they are automatically executed. As a result, they can be used for many purposes, which can significantly reduce business costs.
NFTs
NFTs, or non-fungible tokens, are gaining immense popularity due to their unique nature. They depict ownership of an asset. It can be anything from a work of art to a digital asset such as coins. They are often used in the metaverse and have taken on a new identity since their popularity. They are also blockchain based.
Record availability
The transparency of blockchains can be used to share records across industries to facilitate faster processing. For example, in the case of health insurance, patient records can be easily made available to insurance companies. Additionally, since the data on the blockchain is verified, insurance companies can easily process claims.
Voting
Elections are often labeled as fraudulent, and no matter how advanced technology has been used, there is always a doubt about their authenticity. Blockchains can eliminate that. An electoral system aided by blockchain technology will leave no room for fraud and tampering with voter registrations. Immediate results will be an added advantage.
Is there any future for cryptocurrencies without blockchain technology?
The first cryptocurrency, Bitcoin, was based on blockchain technology. Although they made each other popular, it has always been a question whether there is a future for cryptocurrencies without blockchain technology.
After Bitcoin, all the new cryptocurrencies began to use blockchain technology, and blockchain and cryptocurrencies became inseparable in the eyes of the public. Even today, most cryptocurrencies work with blockchain technologies.
But that does not guarantee the alliance between the two technologies in the future. IOTA is one such cryptocurrency that is not blockchain based. Instead, it’s based on a mathematical concept called the “Tangle,” and it’s already created a buzz. Reason? The owners claim that it will be faster than Bitcoin and surpass it.
It is just the beginning of a new era where blockchain and cryptocurrencies will be transformed into unimaginable and will affect the future in unpredictable ways.
Last word
The future only promises that blockchain technology and cryptocurrencies will witness more acceptance. However, these are two different technologies and run parallel to each other. This guide has included everything you need to know about the relationship between the two and their differences.
Inner Image Credit: Provided by the author; Thank you!
Featured Image Credit: Provided by the author; Thank you!
