Whenever the word blockchain is used, cryptocurrency automatically comes to mind, and it’s true the other way as well. Many people believe that the two are synonymous and, thus, are often used interchangeably, but it couldn’t be more wrong. Cryptocurrencies are a type of money that use 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 the records of transactions, and these ledgers cannot be altered. So, once a transaction has been 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 means there is no central authority that owns it or manages it. It is for consumers and belongs to them.
The data is saved on blocks. Each block is made up of a certain number of transactions. When a block is completed, the network approves it, and it is added to the blockchain, making it unchangeable.
What Is Cryptocurrency?
Cryptocurrency is made up of two words- crypto and currency. While the meaning of currency is clear 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 created to foster easy exchange, and that’s where blockchain comes into the picture. All the 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 Blockchain and Cryptocurrencies 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, a warehouse where the servers are kept, or any other place where the operations are carried out. The similarities between the two are discussed below:
Both blockchain and cryptocurrencies are advanced technologies that are still a matter of curiosity for many. The reason that there is no authority to supervise irks many. Cryptocurrencies are also an advanced technology that did not make sense when they made their debut. People were skeptical as to how they could undertake transactions using a type of money that didn’t exist physically. But today, they are widely accepted.
Both the blockchain and cryptocurrencies are intangible. There is no server or computer from which you can access the entire data. Thus, there is no blockchain ownership as it is a distributed ledger. The same goes for cryptocurrency because it is so unlike a fiat currency. You can’t touch or hold it physically.
Blockchain technology was created to support Bitcoin. Or it can be said that if there had been no blockchain, Bitcoin would not have come into existence. Thus, blockchain is the foundation for cryptocurrency. Both technologies are interdependent.
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.
To Ease Exchange and Transfer
Blockchain will drive the future of the financial sector. The aim of the financial sector is to facilitate easy transfers and exchanges, but traditional banking methods are time-consuming, whereas blockchain transactions are easier, fast, and more secure. Plus, they eliminate the need for intermediaries like banks and offer users the ease of transacting directly with each other. Furthermore, since all the transactions are recorded and irreversible, it increases transparency and security.
Since blockchain technology is decentralized, there is no single point that a hacker can target. The data is distributed, and it makes blockchains the safest storage. Plus, if an unauthorized change is made, it is easily traceable.
The latest blockchain technologies have introduced smart contracts which are transparent, self-executing, and safe. These smart contracts record the terms of the agreement, and as and when the parties fulfill the conditions of the contract, they execute automatically. As a result, they can be used for many purposes, which can significantly cut down on business costs.
NFTs, or Non-fungible tokens, are gaining immense popularity due to their uniqueness. They portray ownership of an asset. It can be anything from an art piece to a digital asset like coins. They are commonly used in the metaverse and have obtained a new identity since their popularity. They are also blockchain-based.
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. In addition, since the data on the blockchain is verified, insurance companies can easily process claims.
Elections are often termed fraudulent, and no matter how advanced technologies have been used, there is always a doubt lingering about their authenticity. Blockchains can eliminate that. An election system aided by blockchain technology will leave no room for fraud and tampering with voting records. Instant results will be an added benefit.
Is There Any Future for Cryptocurrencies Without Blockchain Technology?
The first ever cryptocurrency, Bitcoin, was based on blockchain technology. Though they made each other popular, there has always been a question of whether there is a future for cryptocurrencies without blockchain technology.
Following Bitcoin, all the new cryptocurrencies started using blockchain technology, and blockchain and cryptocurrencies became inseparable in the eyes of the public. Even today, most cryptocurrencies are working on blockchain technologies.
But it doesn’t guarantee the alliance of the two technologies in the future. IOTA is one such cryptocurrency that is not blockchain-based. Instead, it is created on a mathematical concept called “Tangle,” and it has already created a buzz. Reason? Its owners claim that it will become faster than Bitcoin and outperform it.
It is only the start of another era where blockchain and cryptocurrencies will be transformed in unimaginable and will impact the future in unforeseeable ways.
The future only promises that blockchain technology and cryptocurrencies will witness more acceptance. However, these two are distinct 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!