Anyone who is well-versed with cryptocurrency and blockchain technology understands that the two of them are completely separate from one another. In today’s media, many people accidentally refer to them as the same thing without knowing why they’re wrong. Let’s analyze the key differences between them and how they are related to each other.
This is not financial investment advice.
This article will describe the differences between cryptocurrency and blockchain technology.
In this article
- What Is Blockchain
- What Is Crypto?
- How Are They Related?
- Key Differences
- Common Misconceptions
What Is Blockchain
The easiest way to understand blockchain is to think of it as a fully transparent and continuously updated record of the exchange of information through a network of personal computers, a system which nobody fully owns. This makes it decentralized and extremely difficult for anyone to single-handedly hack or corrupt the system, pretty much guaranteeing full validity and trust in each exchange of information.
To be more specific, the blockchain network utilizes cryptography to record each transaction in chronological “blocks” and ensure that it can’t be altered or corrupted. This way, everyone can track down the information on each exchange without gaining access to any personal information. By providing a platform for trust-less public exchanges to be recorded, the possibilities are endless for its applications and how they can impact today’s society.
Think of blockchain technology as a kind of operating software, like MacOS or Windows, which would make a cryptocurrency serve as one of the many applications that can run on that network. Without the accompanying blockchain technology, cryptocurrencies wouldn’t exist in the first place! To summarize, cryptocurrency and blockchain technology are two very separate entities which are generally misinterpreted by many people who aren’t well-versed with crypto terminology. Blockchain is the underlying network which allows cryptocurrencies to exist in the first place, but what makes the technology so revolutionary is actually its potential to significantly improve all kinds of industries outside of just finance.
The easiest way to understand blockchain is to think of it as a fully transparent and continuously updated record of the exchange of information through a network of personal computers, a system which nobody fully owns.
What Is Crypto?
Now that you have a good understanding of what blockchain technology is, and more importantly what that entails, let’s go over what cryptocurrency is and its relationship to blockchain. If you take away all the noise around cryptocurrencies, you’ll realize that it’s just limited entries in a database which no one can change without fulfilling specific conditions. This may seem ordinary, but this is exactly how you can define a currency.
Put simply, cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled. Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems.
You can buy all sorts of coins and other cryptocurrency from online exchanges which allow you to trade fiat for crypto. Unless you have the necessary equipment required to pursue mining, it’s just not feasible to solely mine. The price of cryptocurrency is determined solely by what people are willing to buy it for. As such, the price quoted by one cryptocurrency exchange with one book of buy orders can be drastically different from the price of another exchange with another book of buy orders.
Cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. The price of cryptocurrency is determined solely by what people are willing to buy it for.
How Are They Related?
So how are these two related to one another? Well, cryptocurrencies run on blockchain technology. In other words, blockchain serves as the underlying technology for cryptocurrency and can be implemented in a number of other industries outside of just finance. These terms go hand in hand with each other, but one is needed for the other to exist in the first place.
Crypto is often necessary to transact on a blockchain. However, without the blockchain, we would not have a means for these transactions to be recorded and transferred. Think of cryptocurrency as an application of blockchain, one of the seemingly endless applications of blockchain technology. Despite these intrinsic differences in functionality between the two entities, cryptocurrency and blockchain have the potential to work well with each other.
Cryptocurrencies offer a convenient way to reward users of the blockchain network. ICOs (Initial Coin Offerings) have proven to be a suitable way to raise funds for new projects. In this case, tokens are distributed to finance projects and pay users of a blockchain to encourage them to help it move forward. It’s like issuing shares in the stock market, but here, users and investors overlap in the sense that users would also be rewarded with shares and become shareholders automatically. As long as the community of users remains trustful with one another, the tokens will continue to have value and remain high in worth.
Crypto is often necessary to transact on a blockchain. However, without the blockchain, we would not have a means for these transactions to be recorded and transferred.
So, if ICOs are what connect cryptocurrency to blockchain, what separates them from each other? Well, remember that blockchain is the platform which brings cryptocurrencies into play. Blockchain is also the technology that serves as the distributed ledger which forms the network. This network creates the means for transacting and enables transferring of value and information.
Cryptocurrencies, on the other hand, are the tokens used within these networks to send value and pay for these transactions. Additionally, you can think of them as tools on the blockchain, in some cases serving as a resource or utility function. Other times, they are used to digitize the value of an asset.
The blockchain network creates the means for transacting and enables transferring of value and information. Cryptocurrencies, on the other hand, are the tokens used within these networks to send value and pay for these transactions.
A good way to build your own understanding of blockchain and cryptocurrency is to address several common misconceptions that exist in the industry. First, understand that Bitcoin does NOT equal blockchain. Since Bitcoin is far more popular than its root technology, blockchain, people get mixed up between the two. Blockchain enables peer-to-peer transactions to be recorded on a distributed ledger throughout the network. Bitcoin is a cryptocurrency that can be exchanged directly between two people without passing through a third party like a bank.
Also, you’ll need to understand that Blockchain’s only application is NOT just cryptocurrency. Blockchain and cryptocurrency go together like peanut butter and jelly. They’re outstanding together, but it’s important to remember that there isn’t just one use for blockchain. Every business and industry can use the underlying technology of distributed ledgers. Overall, these common misconceptions might arise in situations where the people involved don’t know much about cryptocurrency and blockchain. As long as you know the difference between the two and their relationship, you’ll be an expert at this subject when it comes to discussion.
Cryptocurrency is NOT blockchain. Although this may seem straightforward, there are still a lot of people who use the terms interchangeably. However, it’s extremely important to be aware of the fact that these two concepts are different but work hand in hand. In fact, they work really well on their own too. What’s important to remember is that there are still tons of people who don’t understand this difference and falsely use the terms interchangeably. As long as you can explain the difference between them, you’ll be good to go when it comes to talking about cryptocurrency and blockchain.
Do you know of another way to distinguish cryptocurrency from blockchain? Let us know in the comments!