Bitcoin is the first iteration of the blockchain, but it is one of many cryptocurrencies. People hear the words, “cryptocurrency” and “blockchain” thrown around a lot. But most people don’t understand the difference between the two.
This article teaches you about the difference between cryptocurrencies and blockchains. Learn how they relate and which one is the more dominant technological innovation.
Difference Between Cryptocurrencies and Blockchains
To explain what blockchain and cryptocurrency is, the example to use is that of Bitcoin. Start by understanding the difference between cryptocurrencies and blockchains.
The biggest differentiator is the umbrellas under which each item exists. The blockchain is a large umbrella, under which sits cryptocurrency. Under the cryptocurrency, umbrella sits many different coins, one of which being Bitcoin.
Blockchain Technology: What is a Blockchain?
Blockchain technology enables the existence of cryptocurrencies. But the applications of a blockchain are not limited to that of cryptocurrency. Cryptocurrency is the poster-child for blockchain technology.
It is true blockchain technologies start was only for the creation of Bitcoin. But, since its invention, developers are finding more and more uses for the blockchain.
The blockchain is a non-centralized ledger. It facilitates and keeps a record of all person-to-person transactions on the network. It serves as the users central clearing authority for transaction confirmation.
So, it takes the place of your financial institution.
The whole reason you put your money in a bank is for safety and convenience. The bank acts as the clearing authority for any transaction from or to your account. Financial institutions charge a transaction fee, and the process takes several days.
The blockchain, as a secure public ledger, has many application possibilities for organizations.
Blockchain technology ensures the security of transactions. Sending and receiving tokens takes place without a fee and confirms within minutes.
The blockchain is so-named for the digital construct in which it records transactions. Each transaction is a block on the chain. Transactions are accessible for anyone to see and carry an identification number.
The identity of individuals making the transactions remain anonymous. The major benefit of this transaction is it cuts out the middleman.
What are the Applications for Blockchain Technology?
Blockchain technology has great potential to transform many industry sectors. The cost savings of using blockchain over a bank is vast enough that even banks are looking into a switch. Other than financial transactions, you can use a blockchain for:
A digital contract through the blockchain ensures the terms of the contract. The blockchain holds the contract in escrow and waits to uphold it until the necessary terms are met. For example, a signature by both parties.
Imagine, when you rent an apartment, singing the landlord agreement from your computer. You can buy a house in Singapore and sign the contract in Miami.
Digital files can be notarized and verified through blockchain much more conveniently. Create a multimedia file and notarize it for proof or property upon creating the file. Patents and proof-of-ownership become much cheaper and more efficient through the blockchain.
The blockchain is convenient, secure, and widely available. Blockchain technology enables citizens to have an active voice in their government. Government use of blockchain can revolutionize the voting process.
Maybe someday people will use blockchain to vote from their mobile device. Imagine an election system where no one is messing around with “chad”.
What is Cryptocurrency?
Cryptocurrency is a fiat currency which traders buy and sell on a crypto exchange. Cryptocurrency exchanges are like stock exchanges in how they operate.
Cryptocurrencies are a medium of trade. Government monetary notes and metal coins are a medium of trade. Unlike paper money, a cryptocurrency exists in digital space.
The blockchain is the ledger technology with which cryptocurrency transactions occur. Cryptocurrencies are expressed as tokens or coins. A single token or coin is equal to a single share of a stock.
Developers put in place sophisticated encryption methods to secure and verify monetary transactions.
Crypto Security and Restrictions
Hackers look for vulnerabilities in a system. The places where human error is likely is where hackers attack. Blockchain technology is safer than banks because it is free of human error.
A token which trades on a cryptocurrency exchange may not represent money. Bitcoin replaces the dollar, but many tokens are different placeholders, like casino chips.
If you want to play at the casino, you have to exchange dollars for chips. Likewise, to take part in the service offered by a cryptocurrency, you must exchange dollars for tokens.
For example, a voting token doesn’t represent monetary currency, but democratic currency instead. A cryptocurrency for the library might be used to track books getting checked-in and out.
Bitcoin is the cryptocurrency which brought international recognition to blockchain technology. The 2016 Bitcoin value was due in no small part to the revelation of the blockchains versatility.
In the years to come, you will see more novel uses of the blockchain. Developers find new ways to use it all the time.
So, when you invest in a cryptocurrency, keep in mind you are really investing in the companies use of the blockchain.
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