Blockchain and cryptocurrencies: Similar, but Different Concepts
By: Eric Ervin
Blockchain. Cryptocurrency. Often, these two terms are interchangeably used when referring to currencies such as Bitcoin, Ethereum and a slew of others that have leaped onto the fintech scene over the past decade. Do these terms mean the same thing?
While both concepts work together to make up the basic structure of a currency such as Bitcoin, blockchain and cryptocurrency are distinct concepts. Here is a primer on the two technologies, their differences and whether or not they rely on each other.
Blockchain is the foundation of most digital currency
Conceptualizing virtual or digital currency is easy. On a fundamental level, a piece of code or a file contains information that one can exchange, like cash for goods or services. If someone possessed a code that represented $100, they could digitally send the code to a retailer, for example, and make a purchase. This transfer raises a simple risk - what if the code was sent to someone else? The risk of double dipping is high without some independent method of tracking transaction.
Blockchain is one solution to this problem. Blockchain is a distributed ledger, in which records of transactions are made permanent with online transparency. In the prior example, a blockchain digital currency, such as Bitcoin, would show whether or not the currency was previously transferred. Transactions are verified through a mining process, with miners being rewarded with coins for their efforts.
Cryptocurrencies are the tokens on the 'chain of blocks'
While blockchain is like a secure, virtual, public checkbook register, cryptocurrencies are the blocks of info and data that have value. Cryptocurrency is a digital currency. The difference between blockchain and cryptocurrency is that the chain is how the currency is verified and secured. Because of this, a particular cryptocurrency value may rely on the strength of its blockchain.
However, there are some separate applications of each technology.
Is blockchain useful without cryptocurrency?
Since blockchain does not represent value, but rather is the foundation for maintaining permanent records, it has potential noncurrency applications. The shipping industry and smart contracts can be tracked and verified through a blockchain ledger, and some have pushed the tech as a means for monitoring everything from refugees to votes.
What about cryptocurrency without the blockchain?
Cryptocurrency is less useful without the benefits of the blockchain. Going back to our simple example of the $100 piece of digital code, the stability of its value depends on how reassured others are that there are no copies of the code flying around the internet.
Blockchain, however, may not be the only game in cryptocurrency validation. Along with hundreds of digital currencies seeking to dethrone Bitcoin, one is using a proprietary "tangle" technology to store and secure transactions.
IOTA is a blockchain-free cryptocurrency that is aimed at payments between "internet of things" devices. Instead of a blockchain ledger, IOTA uses a "directed acyclic graph" - a tangle.
Bitcoin, Ethereum, blockchain and cryptocurrency are all separate but sometimes related concepts. Ultimately, the goal is to provide secure and reliable online transactions.