In the world of digital currency, there’s a common debate between blockchain vs. cryptocurrency. On one side, you have blockchain – the secure and transparent ledger system that underpins Bitcoin and other cryptocurrencies. Then, you have cryptocurrency, which is a digital or virtual currency that uses cryptography for security. Let’s discuss the differences between both cryptocurrencies and blockchains.
Blockchain vs Cryptocurrency – A Quick Summary
Blockchain is the digital ledger of all cryptocurrency transactions. It is the technology that enables developers to build cryptocurrencies and ensures that there is no double-spending. Blockchain technology has a lot more uses owing to its decentralized and trustless nature. Cryptocurrency is just one such use case of blockchains.
Cryptocurrency is a digital or virtual currency that uses cryptography for security. It was built with the purpose of replacing government-backed currency like the USD, GBP, INR, JPY, etc. Cryptocurrencies involve hundreds of thousands of computers across the globe running 24×7 to keep track of all the transactions occurring on the network. Cryptocurrency is based on blockchain technology and without blockchains, a truly decentralized cryptocurrency would not be possible.
What is a Blockchain?
The blockchain is a distributed database or digital ledger that enables secure, transparent and tamper-proof record-keeping of digital transactions. It is the underlying technology powering Bitcoin and other cryptocurrencies.
So what exactly is this digital ledger? It’s a decentralized database that stores information in a network of computers so that it cannot be controlled by any single entity. This means that no government or financial institution can tamper with the data. The beauty of blockchain is that it is constantly being verified by the community, so it is virtually impossible to commit financial fraud on the blockchain.
A blockchain is composed of a growing list of records, called blocks, which are linked together internally. Each block contains a information of the previous block in the form of a cryptographic hash, a timestamp, and transaction data. Cryptocurrency nodes use the blockchain to differentiate legitimate transactions from attempts to re-spend coins that have already been spent.
Blockchain technology has a number of potential applications, such as, but not limited to:
- Secure record-keeping: Blockchain could be used to create tamper-proof records of digital transactions, such as medical records, land registries, or voting systems.
- Supply chain management: Blockchain could be used to track the movement of goods through a supply chain, from manufacture to sale.
- Identity management: Blockchain could be used to create digital identities that are secure and tamper-proof. This could have applications in KYC (know your customer) processes, or in combating fraud.
- Smart contracts: Blockchain could be used to create and execute smart contracts, which are self-executing contracts that enforce the terms of an agreement between parties.
- Decentralized applications: Blockchain could be used to build decentralized applications, or Dapps, which are applications that run on a decentralized network.
Must read: Top 10 Blockchain Companies [Updated 2022]
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography for security. It is virtually impossible to hack a blockchain and double-spend cryptocurrencies due to the very nature of how they’re designed. Many cryptocurrencies are decentralized systems based on blockchain technology, a distributed ledger enforced by a disparate network of computers.
Cryptocurrency is a type of digital asset that uses cryptography to secure its transactions. Cryptocurrencies are decentralized, which means they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009.
Blockchain vs. Cryptocurrency
Let’s now look at what are the main differences between blockchains and cryptocurrencies. While the difference may not be obvious, both of these are very different from each other.
|Blockchains are the infrastructure that powers cryptocurrencies.||Cryptocurrencies run on top of blockchains, and they’re used as a way to send and receive value.|
|They are distributed ledger systems that allow for secure, decentralized transactions.||They are digital assets that can be exchanged in transactions on a blockchain.|
|Blockchains are often described as being “trustless” meaning that there is no need for a central authority to verify or approve transactions.||Cryptocurrencies, on the other hand, rely on cryptography to secure their transactions and to control the creation of new units.|
To make this even simpler, let’s consider an example of a computer. The hardware of the computer makes it possible for software developers to design apps and tools for you to use.
Similarly, the blockchain is the “hardware” that allows developers to build cryptocurrencies on top of it for us to use and play with.
Blockchains like Bitcoin, Ethereum, Solana, Cardano, Binance Chain, and others form the base of most cryptocurrencies.
But there’s one thing that adds more complexity to this whole blockchain vs cryptocurrency debate – if blockchains are decentralized and there are computers across the world running 24×7 to process the transactions, what’s in it for them?
That’s where gas fees come into the picture.
What are Gas Fees in Cryptocurrency?
While we’ll discuss more about gas fees in detail in a future article, let’s go over the basics so you don’t get stuck on the concept. Gas fees are one of the most important concepts in blockchain.
Without gas, transactions on the blockchain would be free. However, in order to ensure that the network remains secure and that participants have an incentive to participate in it, gas fees are necessary.
Gas fees are paid by users in order to have their transactions processed by the network. The fees go to the miners, who validate and confirm blocks of transactions. In return for their work, miners are rewarded with newly minted coins.
The amount of gas that a user needs to pay depends on the complexity of their transaction. For example, a simple transfer of tokens from one address to another would require less gas than a complex smart contract transaction.
Users can choose to pay more or less gas than the minimum amount required. The amount they choose to pay decides the priority in which the transaction will be processed on the chain. If a user chooses to pay less, their transaction may take longer to be processed or may not be processed at all. On the other hand, if they choose to pay more, their transaction will likely be processed more quickly.
It is clear that there are many differences between cryptocurrency and blockchain technology. Cryptocurrency is a digital or virtual currency that uses cryptography to secure its transactions and to control the creation of new units. Blockchain, on the other hand, is a distributed database that maintains a growing list of records called blocks.
With this article, my aim was to ensure you have the smoothest possible entry into the world of Cryptocurrency and Blockchains. In the future articles, will dive in further detail on both blockchains and cryptocurrencies, explore the different coins on the market and the blockchains they’re built on, and much more.
Until then, let us know what other questions you have in mind about blockchains and cryptocurrencies in the comments below! We’d love to hear them and answer them soon!