Part of the confusion around what is blockchain and what is cryptocurrency is due in part that the terms have come into use. Instead of being introduced by formal definition, the term blockchain developed from “chain of blocks”. Cryptocurrency is a sort-of portmanteau of “cryptographic currency”. But the fundamental difference between these concepts has to do with how distributed ledger technology is used.
With the recent crypto bubble, which made several bitcoin investors millionaires almost overnight, it is impossible not to have come across the terms blockchain and cryptocurrency. A while back when there was only one popular crypto-currency, the words blockchain and bitcoin were used interchangeably. This era was way before the need to differentiate them rose.
When different types of cryptocurrencies emerged in the market globally, the term blockchain had to acquire a distinct meaning. Today, blockchain refers to a ledger technology that creates a chain of exclusive blocks. The different blocks contain different information about the transactions made. Cryptocurrency, on the other hand, refers to the tokens exchanged within the blockchain technology. These tokens have monetary value and can be sold, bought, invested in, micro tipped and used for payments.
A “blockchain” is a sequence of states of a distributed database, each of which (but the first) contains a cryptographically strong reference to the prior state and further contains sufficient information to prove that the transition from the previous state is a valid one according to the system’s rules.
A “cryptocurrency” is a purely digital asset whose authoritative root record of ownership is maintained by a system whose participants enforce all of the system’s rules by their own choice to do so and wherein no party has any legal right to compel the system to operate any particular way.
A blockchain is thus one way to implement a cryptocurrency. You can use a blockchain to do other things and you can implement a cryptocurrency other ways (for example, with a DAG).
What is a Block Chain?
A blockchain is a decentralised and digitised ledger that records all complete transactions in chronological order. It is a mathematical structure that stores data in a way that is impossible to counterfeit or hack. Blockchains allow market participants to track all cryptocurrency transactions without the need for central recordkeeping. The computers connected to the network also known as a node, receive a downloadable copy of the blockchain once a trade is complete.
The blockchain was originally developed as an accounting method for the virtual currency Bitcoin. Today, the same technology is used in several commercial activities such as transaction verifications. With the use of this technology, permanent records that can’t be altered are created, which enables authenticity that can be verified by an entire community rather than a single centralised authority.
A block is the part of the blockchain that records the transactions. Once complete, the block is stored in a chain through cryptography. Once a block completes its job a new one is generated. The number of blocks in block chains are many causing issues related to storage and synchronisation. However, each block is traceable as it contains a hash of the former block. These blocks once recorded can’t be deleted, copied or altered; they can only be distributed.
When Bitcoin was the only blockchain, there wasn’t much of a distinction between the terms and they were used interchangeably. As the technology matured and a variety of blockchains bloomed, the uses quickly diverged from the pure money aspect. Instead, technologists experimented with ideas like decentralized name registry. Other uses utilized the peer-to-peer aspect to deliver messages in a discrete way. In the end, many of these projects failed to find a good use of the technology. The projects left standing helped demonstrate what was possible with beyond buzzwords.
A blockchain is a distributed ledger technology that forms a “chain of blocks.” Each block includes information and data that are bundled together and verified. These blocks are then validated and strung onto the chain of transactions and information in previous blocks. These blocks of transactions are permanently recorded in the distributed ledger that is the blockchain
What is a Cryptocurrency?
The term cryptocurrency came from the words cryptography and currency. Cryptography is the art of writing codes, while currency is a monetary system used in a given country. Cryptography is a virtual and digital currency formed through cryptography. Its intangible aspect only avails the currency online. Cryptocurrencies differ from other currencies in that they are not issued by a government but acquired through software and computer programs (algorithms).
The value is not determined by market forces like other currencies such as dollars and euros. However, speculation also plays a crucial role in the valuation of the cryptocurrencies. Acquisition of cryptocurrencies is done through a process called mining as opposed to the regular currencies which have to be earned through hard work. The main types of cryptocurrencies include Bitcoin, Ethereum, Litecoin, Monero and Dash.
Contrasted with blockchain, cryptocurrency has to do with the use of tokens based on the distributed ledger technology. Cryptocurrency can be seen as a tool or resource on a blockchain network. Anything dealing with buying, selling, investing, trading, microtipping, or other monetary aspects deals with a blockchain native token or subtoken.
It is a token based on the distributed ledger that is a blockchain. Cryptocurrency is a digital currency formed on the basis of cryptography, or by definition, “the art of solving or writing codes.” Although all are considered cryptocurrencies, these tokens can serve different purposes on these networks.
Referring to the token as the technology can be right in the case of Bitcoin, but is very different when dealing with other blockchain projects like Ethereum. In this case, the technology is known as Ethereum, but the native token is Ether, and transactions are paid in gas.
Similarities Between Block Chain and Cryptocurrency
Both are intangible and virtual.
Blockchains and cryptocurrencies form part of recent technology innovations. The first block chain was invented recently after the breakthrough of gurus under the name Satoshi Nakamoto in the late 2000s.
Both cryptocurrencies and block chains depend on each other. Blockchains provide the path for transaction records while cryptocurrencies are the actual tools being transferred.
Differences Between Block Chain and Cryptocurrency
Nature of Block Chain Vs. Cryptocurrency
A blockchain is a decentralised technology which records cryptocurrency transactions. A cryptocurrency is a virtual tool used in the transactions within a block.
Cryptocurrencies can be used to make payments, investments and storage of wealth. A blockchain is a vehicle that drives the cryptocurrency transactions.
Cryptocurrencies have monetary value and can be used as a measure of wealth. Blockchains have no monetary value and can’t be used as a measure of wealth.
Cryptocurrencies like bitcoins can be transferred from one account to another. Blockchains are not mobile.
Block chain vs Cryptocurrency
Summary of Block Chain Vs. Cryptocurrency
- Blockchains and cryptocurrencies are both recent technology-based developments.
- They both facilitate virtual transactions online.
- Blockchains are decentralised ledgers that record all transactions made. It is made up of blocks that link up to form a chain. The number of blocks made so far is countless.
- Cryptocurrencies are the digital currencies like Bitcoins and Ethereum, used as tools in the virtual transactions.
- Cryptocurrencies are made through cryptography which is an art of writing codes. The currencies are used in different ways including making payments, investments for the speculative investors and as a storage of wealth.
- Cryptocurrencies have monetary value and can be exchanged for real money. The primary determinant of their value, so far, is speculation.
- Cryptocurrencies different from all other currency types because instead of being issued by the government they are created through mining using specific software and equipment.