Blockchain and Cryptocurrency Explained
Blockchain and cryptocurrency are linked to one another, as cryptocurrencies are developed using blockchain as the underlying technology. Blockchain is also used for the transaction of other digital assets focusing on ownership rights and security, such as in the case of NFTs (Non-Fungible Tokens). This post discusses the link between blockchain and cryptocurrency in detail and will help you understand how they work.
The world has been abuzz about blockchain and cryptocurrency for the past few years. Blockchain technology saw its first practical application in 2009 with the launch of Bitcoin. However, it took a while for the world to notice the limitless potential this technology had to offer until the skyrocketing of digital token values in online trading. Many big players, both individuals and corporations, have subsequently emphasized the need for this technology as it envelopes a massive array of practical applications across almost every industry. But what exactly are blockchain and cryptocurrency? Here is blockchain and cryptocurrency explained, with a deeper look into how they relate.
What is Blockchain?
In blockchain technology, ‘Blockchain’ refers to a peer-to-peer network of computers or nodes that archives information and transactions as it flows through the system. A blockchain is fundamentally a series of blocks where each block records encrypted information in connection to its previous blocks, and thus the chain is created. The information on each block is locked using encryption after validating it, and this is unalterable. Therefore, blockchain can also be defined as a highly secure information network.
A blockchain is also a digital ledger of data and transactions duplicated and distributed over the network. Hence, blockchain technology is also called Distributed Ledger Technology (DLT).
When a transaction is requested and subsequently authenticated in a blockchain network, a block is created representing the transaction. This block of information is then sent to all the nodes in the network for validation. Once validated, the block is added to the blockchain and updated to the network, thus completing the transaction.
Blockchain Technology: Key Characteristics
Blockchain technology has several powerful features fundamental to its operation. Below are some of the characteristic properties of blockchain technology.
- It is programmable, which allows it to be flexible according to the requirements of the network.
- It is secure as all the records have individual encryption.
- It provides anonymity to some extent to its users as the nodes in the network are either anonymous or have pseudonyms.
- It supports unanimous decision-making as all the nodes agree to the validity of each record.
- It has transparency as all the nodes have a copy of the ledger.
- It is immutable, which means any validated data is irreversible and cannot be altered.
- It is time-stamped.
How Many Blockchains Are There?
Currently, there are at least 1,000 blockchains with over 12,000 cryptocurrencies based on blockchain technology.
Blockchain networks are categorized based on how they function and the purposes they serve:
- Public blockchain: It is a fully decentralized blockchain with no intermediaries and is primarily used for cryptocurrencies. Every user or node in the network is independent and can validate any transaction.
- Private blockchain: It is generally used by private entities. It is usually centralized, and access is limited to approved participants.
- Hybrid blockchain: It is an amalgamation of public and private blockchains drawing from the valuable properties of both types. It can be used for purposes like real estate transactions and maintaining medical records.
- Consortium blockchain: It is used together by multiple organizations, such as two banks using it for recording interbank transactions. It has applications in the supply chain, banking, and research areas.
What is a Cryptocurrency?
A cryptocurrency is like a fiat currency but in a virtual or digital form that leverages cryptography to secure transactions and functions with the help of blockchain technology. Bitcoin and Ether are two examples of cryptocurrencies that run on Bitcoin and Ethereum blockchains, respectively. Cryptocurrency holds digital information corresponding to transactions verified and stored using cryptography. It is managed by the decentralized blockchain network system, and most cryptocurrencies are designed not to have a central regulating authority.
Thus, cryptocurrency is essentially an encrypted data string representing a unit of value like traditional currency. It is facilitated by the blockchain’s peer-to-peer network, which is a secure ledger of transactions. It is a tradable asset that exists only on the digital network.
Today, large virtual financial markets and ecosystems based on blockchains and cryptocurrencies exist online and provide almost all services like real-world financial establishments such as banks and fiat currency exchanges. The concept is generally known as DeFi (Decentralized Finance) as it functions using decentralized blockchain networks and cryptocurrencies. Users can easily invest in them using crypto to earn revenue. One method is HODL (Hold on to Dear Life), similar to depositing money in a bank to earn interest. With platforms such as Pokket, you also get additional rewards from other actions, such as referring a friend, besides benefits from HODLing and earning a passive income through interest.
Relation Between Blockchain And Cryptocurrency
Bitcoin was the first cryptocurrency developed through blockchain technology. It led to the practical application of generating and distributing cryptocurrencies as tokens with values on the network. Cryptocurrencies function using decentralized blockchain networks, and several blockchains have developed dedicated virtual currencies like Ethereum, Cardano, Solana, etc.
“Do all cryptocurrencies use blockchain?” is a question new crypto enthusiasts usually ask. The answer is that almost every cryptocurrency uses blockchain even though they do not necessarily use the same blockchain network. Some cryptocurrencies have dedicated blockchain networks, such as Bitcoin and Ethereum. In contrast, others are built on top of blockchains they do not own. They are usually called ‘tokens.’ Besides, there are a few cryptocurrencies that are not based on blockchain, such as IOTA. Thus, it can be said that all cryptocurrencies are not based on blockchain technology.
What is a Blockchain Explorer?
A blockchain explorer is an online blockchain search engine that displays the details of all transactions that have occurred in a given blockchain network. It is also called a cryptocurrency block explorer. A block explorer uses API (Application Programming Interface) and blockchain node to extrapolate data from a blockchain and employs a database to organize the searched data and present it to the user.
It allows users to get valuable information according to their metrics of interest. To understand the different uses of cryptocurrencies in a blockchain, users refer to blockchain explorers. They can quickly get information regarding transactions using cryptocurrencies in a network and how they are evaluated against other tokens. Examples of blockchain explorers are Explorer by Blockchain.com, Blockchair, etc.
Final Words
Blockchain or blockchain technology surfaced with the launch of the first cryptocurrency, Bitcoin. Bitcoin was seen as a virtual currency with a unit of value that can be used as a tradable asset for tangible and intangible assets. Blockchain and cryptocurrency appeared together initially. However, blockchain technology has been branching out with numerous practical applications other than cryptocurrencies, such as DeFi (Decentralized Finance) and NFTs (Non-Fungible Tokens).
However, the development of cryptocurrencies was the pioneering part. It became a means to trade valuable assets characterized by powerful features such as immutability, transparency, and security, allowing transactions without any central authority governing them.
To begin your crypto journey, you can open a Crypto Savings Account with Pokket, wherein you won’t have to worry about the volatility of crypto prices and get to earn interest on your holding at your terms!
References
- McGovern,T. (2022, April 15). How Many Blockchains Are There In 2022? EarthWeb.
How Many Blockchains Are There in 2022?
2. Software Testing Help (2022, April 3). Blockchain Explorer Tutorial — What Is A Blockchain Explorer.
Blockchain Explorer Tutorial — What Is A Blockchain Explorer
3. Coinbase. What is cryptocurrency?
https://www.coinbase.com/learn/crypto-basics/what-is-cryptocurrency
4. Orcutt.M. (2017, December 14). A Cryptocurrency Without a Blockchain Has Been Built to Outperform Bitcoin. MIT Technology Review.
