The phrases blockchain and cryptocurrency are frequently used interchangeably. There is, however, a significant distinction between the two. This was before the necessity to distinguish them became apparent. When various types of cryptocurrencies first appeared on the market, the term “blockchain” had to take on a new connotation.
Cryptocurrencies are digital currencies that use the blockchain as a ledger to keep track of transactions. These tokens have monetary worth and can be purchased, traded, invested in, micro-tipped, and used to make payments. Blockchain, on the other hand, is a ledger system that establishes a chain of unique blocks. The many blocks each carry distinct information about the transactions that have taken place. Beyond cryptocurrencies, blockchains can be used to store and retrieve medical data, supply chain and logistical data, and financial records.
What is a Blockchain?
While many people mistake blockchain technology for Bitcoin, it is not a type of digital currency. Blockchain technology is a distributed ledger system for storing and validating data. Data is effectively kept in a digital chain in the form of blocks (fixed structures) or hashes (algorithm functions).
Once a consensus is established verifying the transaction’s authenticity, a “block” with the time of its creation and a reference number are added to the database. Prior blocks in the chain can be reviewed by users, allowing them to verify assets and data in all blocks that are stored in chronological sequence using cryptographic methods.
We went into further detail about what blockchain is and how it works here.
What is a Cryptocurrency?
The words cryptography and currency were combined to form the term cryptocurrency. Cryptography is the skill of writing codes, whereas currency refers to a country’s monetary system. Cryptography is a type of virtual and digital currency that is created via cryptography. Because of its ethereal nature, the currency is only available online. Cryptocurrencies are distinct from traditional currencies in that they are acquired through software and computer programmes rather than being issued by a government (algorithms).
Unlike other currencies such as the dollar and the euro, the value is not determined by market forces. However, speculation is equally important in determining the value of cryptocurrencies. Unlike traditional currencies, which must be earned through hard labour, cryptocurrencies are acquired through a process known as mining.
We went into further detail on what cryptocurrency is and how it works here.
Relationship Between Blockchain and Cryptocurrency
Cryptocurrencies are built on blockchain technology. It’s a system that acts as a distributed digital ledger since it saves data in a digital format that’s shared among computer network nodes.
It keeps track of all crypto transactions and organises massive volumes of data into little clusters or groups known as blocks. When a block is filled, it closes and is linked to the one before it, producing a data chain known as the blockchain.
When it comes to cryptocurrencies, they are similar to digital money that can be used as a store of value or to purchase goods and services, but they rely on blockchain to function.
Similarities Between Blockchain and Cryptocurrency
Cryptocurrencies and the blockchain are both technological developments. Blockchain is the technology that underpins cryptocurrencies. Traditional databases are far less advanced and secure than blockchain. Physical or paper-based currencies are technologically inferior to cryptocurrencies.
Blockchain was created to keep track of bitcoin transactions, the world’s first cryptocurrency. Blockchains are used to record transactions in all major cryptocurrencies. When someone purchases a new bitcoin, the transaction is recorded in the bitcoin blockchain.
Cryptocurrencies and the blockchain are both intangible. Cryptocurrencies are ethereal digital tokens that, unlike the US currency or the Nigerian naira, cannot be physically held. Blockchains, which are used to store cryptocurrencies, do not reside in a single location or in a single physical data centre.
Differences Between Blockchain and Cryptocurrency
Blockchain is a data storage technique that is used on decentralised networks to save data. It allows for automatic transaction recording and storage of cryptocurrency data. Cryptocurrency, like the US dollar, is a medium of exchange. It is used as a medium of exchange, as well as for investing and trading in order to make money.
A monetary value exists for all cryptocurrencies. You’ve probably heard about Bitcoin reaching a high of $65,000. Bitcoin is still considered a great investment, despite its recent meltdown, which reduced the value of a bitcoin to roughly $30,000. Ethereum is the second most popular cryptocurrency, with a market cap of approximately 2,000 dollars. Despite the fact that the blockchain technology sector is worth billions of dollars, a blockchain has no monetary value. It is not tradable or investable. It can only be applied.
Beyond cryptocurrency transaction records, a blockchain can be used to store a variety of data. In the banking, healthcare, supply chain, and retail industries, blockchain can be used to record transactions without a central authority or middlemen. Cryptocurrency is a type of digital money that may be used to buy goods and services as well as to invest.
Blockchain technology is decentralised and globally dispersed. There is no single location where all of a blockchain’s records are kept. Cryptocurrencies can be accessible through mobile wallets, despite the fact that they are stored in blockchains. If you have a bitcoin wallet, you can use it to conduct business with anyone who accepts bitcoins.
Because it is a public ledger, blockchain is extremely transparent. Anyone can join a blockchain network and look at the data it contains. Cryptocurrencies, on the other hand, provide anonymity. As a result, while anybody can see the source and destination of a bitcoin transaction, no one can tell who is behind it.
As a result, cryptocurrency transactions are regarded as safe. Although the source of the transaction may be observed, cryptocurrency does not expose the genuine owner of the coin and keeps it anonymous.
The future of Cryptocurrencies and Blockchain
In 2028, the global spend on blockchain is expected to reach $104.9 billion. Blockchain and cryptocurrencies are causing upheavals far beyond the financial services sector, as more start-ups and traditional institutions seize the momentum this technology affords. The rate of technological advancement shows no signs of decreasing.
While some are sceptical about the future of bitcoin, many see 2021 as a watershed year for their investing strategy. It has to be seen whether it is a good long-term investment. Some believe Bitcoin’s fixed quantity will cause it to rise over time, while the Ethereum blockchain platform’s large ecosystem of decentralised applications should boost its value in the long run.
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