Terms like cryptocurrency and blockchain have been in use since 2008. The global economic crisis in 2008 paved the way for cryptocurrencies. It entered the global financial market in 2009. In the last decade, the craze for cryptos has only surged. Investors are reaping heavy returns. Since then, we often come across these terms. But what exactly are cryptocurrency and blockchain. Is there an interlink between the two? Or are both the same sides of a coin used for different purposes. And why invest in bitcoin?
Let us find out how cryptocurrency and blockchain works.
Before going ahead, it is best to understand that these two terms are different. There is no direct linkage between these two terms. In simple terms, cryptocurrencies are transactions using blockchain as a platform. Cryptocurrencies use blockchain technology to store all records about digital transactions. But wait, that’s not all. Blockchains besides allow storing any and every type of information/records. Besides crypto transactions, blockchains also store medical records. You can also save logistics information, and supply chain management, etc.
Defining blockchain and its functionality
As mentioned above, blockchain is a storage medium. It enables users to store and retrieve any amount of information in its database. This is an open ledger. The transaction details stored in blockchain distribute themselves over many computers. In technical terms, there is a duplication of data. There is no central point or database pinning to every record. This makes it decentralized and removes the threat of hacking as well.
Defining cryptocurrency and its functionality
But, cryptocurrency is like any other currencies with a market value attached to it. Due to this market value, it is possible to store cryptocurrencies in the form of gold, coins, or tokens. Bitcoin launched in 2009 and became the first crypto enter global market. Bitcoin uses the model of blockchain technology. Rather, blockchain technology came into existence for bitcoins.
Today, bitcoin is one of the cryptos using blockchain technology. Even Ethereum today works on blockchain technology.
Understanding similarities between blockchain and cryptocurrency
Before determining the difference, pros, and cons, it is important to understand similarities. These similarities are the prominent reason to use both these terms interchangeably.
Nonphysical form: Both crypto and blockchain adopt a non-physical or intangible form. Both these are digital currencies and allow investors to execute a transaction. Unlike traditional or fiat currencies, an investor cannot convert crypto to physical form. Another added factor is no central data center. Blockchain transactions do not take a central location or server. It spreads across many servers and is hence impossible to track.
Codependent: Blockchain exists because of Bitcoin crypto. The use of blockchains was first introduced to record transactions about bitcoins. It records every new buy and sale of bitcoin as a transaction in the bitcoin blockchain.
Now that we have understood the similarities, let us also look at the key differences. Understanding these differences is important to deal with any digital transaction.
Inherent: It is important to understand that cryptocurrency is a medium of exchange. It takes a similar value to that of a US dollar or an Indian Rupee. But, blockchain is a technology. There is no physical form to it. Blockchains exist to store details of crypto transactions. In recent times, blockchains are also used to store data about other events as well.
Usage: Cryptocurrency allows only peer-to-peer transactions or as a medium of exchange. But, there is a variety of uses of the blockchain. Besides Bitcoin, today Ethereum also utilizes blockchain technology. Other than cryptos blockchains allow users to store data about other services. This could vary from healthcare, insurance, supply chain, and logistics, etc.
Transparency to the transaction: There is indeed no trace to your crypto transaction. Tracing the source and destination of any crypto transaction. But, a regulatory authority can access the details of people involved in traditional transactions. But, blockchain is a ledger platform accessible by the public at large. The information available on the blockchain platform is visible to everyone in the network.
Transaction mobility: Blockchain is a decentralized platform used to store your crypto transaction. There is no central database to it and store records in many locations.
As an investor, it is important to understand the following similarities and differences. You can also continue here to buy BNB.