Blockchain was created with the world’s first cryptocurrency, Bitcoin. Since then, some have used these terms interchangeably without understanding their differences.
Blockchain is a technology built to record transactions made with cryptocurrencies. Cryptocurrency is a digital currency spent on a developed blockchain. Blockchain and cryptocurrency are independent, so one cannot exist without another.
Understanding the distinct differences between these terms will update your knowledge and boost your confidence in understanding cryptocurrencies.
What is Blockchain?
Blockchain is a distributed ledger technology that ensures transparency, decentralization, immutability, and security. It stores cryptocurrency transactions, supply chain logistics, and health records.
The word “blockchain” was coined from the process of its formation. A transaction forms a block. Each transaction—block—gets linked to the next and eventually to consecutive blocks. This continuous linking creates a chain of blocks, hence the name.
One of the core features of blockchain is decentralization, which means that all transactions made using blockchain technology are distributed across computers worldwide. These computer units are known as nodes, and the interconnection of nodes forms a dense network of users who verify every transaction made on the blockchain.
What is Cryptocurrency?
Cryptocurrencies are decentralized digital currencies that serve as a means of exchange and hold value similarly to fiat currencies, such as USD and CD. They are a peer-to-peer digital payment system where coins and tokens can be traded without modifications from a central authority like the government.
Cryptocurrencies operate on blockchain technology, where all transactions are verified and stored. Cryptography technology ensures the verification of every unit of financial transaction created on the blockchain technology, ensuring security.
Common examples include Bitcoin, Ethereum, BNB, and others. They are used in everyday payments, investments, and decentralized Finance (DeFi).
Significant Similarities Between Blockchain and Cryptocurrency
Intangibility: Cryptocurrencies do not exist in physical forms. Likewise, blockchain technology does not have a physical data center.
Technological Advancement: Cryptocurrencies are more technologically advanced than fiat money. Blockchain is an advanced database compared to older-generation databases.
Interdependence: Blockchain was created to record cryptocurrency transactions. Cryptocurrencies rely solely on their blockchain technology to function.
Critical Differences Between Blockchain and Cryptocurrency
Technology vs. Application
Blockchain technology is a database for recording transactions made on a decentralized network, not just cryptocurrencies. Cryptocurrency is one of the applications operating on blockchain technology.
Scope of Use: Blockchain records transactions in multiple sectors, including health, banking, supply chain, and retail. Cryptocurrencies are digital currencies used to exchange value, purchase products, and make investments.
Independence: Blockchain can function without cryptocurrencies, but it isn’t the same for cryptocurrencies.
Economic Value: Blockchain has no monetary value and is not used in online marketplaces. Cryptocurrencies have varying financial values depending on demand and supply. They can be used to purchase products.
Centralization: Blockchains can exist as a decentralized or centralized technology, depending on their network structure. Cryptocurrencies exist only in decentralized chains—no superior authority.
Security: Cryptocurrencies employ digital encryption, cryptography, and unique digital signatures to ensure security. Blockchain uses consensus mechanisms such as proof of work or proof of stake.
Finally,
Blockchain and cryptocurrencies are single entities that function interdependently. Blockchains have a wide range of applications in healthcare, supply chain management, identity verification, and safeguarding of intellectual properties.
Some cryptocurrency assets—tokens—are excluded from the blockchain network and are built on other ledger technology.