When dealing with a relatively new ecosystem and a slew of technical terms, it can be difficult to differentiate between these relatively new concepts and understand exactly how blockchain and cryptocurrency interact with each other. This is especially true for newcomers who may just be starting out in the crypto-sphere. So, what is blockchain, and what is cryptocurrency? Are they the same? Do they overlap?
Join us as we go over the basics of blockchain, cryptocurrency, how these terms differ, and how they complement each other.
Since blockchain technology and cryptocurrency are so closely related, it can be difficult to decide which one to explain first. For the most part, practically all cryptocurrencies that exist today rely on some type of blockchain. In fact, even the most popular alternative cryptocurrencies like Ethereum, Litecoin, and Dash all trace their roots to the original Bitcoin code created by Satoshi Nakamoto.
With that in mind, let’s dig into blockchain first. We’re going to keep things light and as jargon-free as possible. If you’re looking for more in-depth analysis of blockchain technology, we recommend you check out a site like BlockGeeks or the book Mastering Bitcoin by Andreas Antonopoulos.
In the simplest terms, a blockchain is essentially a database. It’s a way to store data so that it can be retrieved, verified, and have new records added. But if that’s all a blockchain was, this technology would be far from revolutionary.
A normal database, such as a list of orders from an online shopping site or list of customers, is completely or primarily centralized. That means all the data exists on a preselected set of computers, such as a corporate network.
Blockchain, on the other hand, exists in a completely decentralized fashion. That means anyone can download a complete copy of it and interact with it. In the case of bitcoin, each time someone sends or receives bitcoin, a record is created and added to the blockchain database.
So why does it matter that blockchain databases are decentralized? Decentralization offers some revolutionary features. For example, decentralized systems cannot be shut down easily. That’s because a blockchain exists on hundreds, thousands, or more devices spread out across the globe. This means that no individual, group, company, or government can shut down a blockchain like the one used by bitcoin, ever. If one country declares bitcoin illegal; the bitcoin blockchain can still run keep running in other places around the world.
Another major benefit to decentralization is that it is highly resistant to attack. If a hacker wants to shut down a website, they could do so by overwhelming the network with too many requests, such as in a DDOS attack. With a decentralized system like a blockchain, there are simply too many targets to attack. Even taking down dozens or hundreds of nodes would still leave the network fully operational.
Another critical feature that blockchains offer is what’s known as immutability. Simply put, immutability means that once data is put onto a blockchain, it can never be deleted. This is important because it allows the transactions we make, such as sending bitcoin, to be completely trustworthy. We know that once we’ve received the bitcoin, that transaction can’t be reversed. Immutability makes all transactions final, which means there is no chance of anyone changing or canceling transactions.
So how does a blockchain work? It’s called a “blockchain” because it can be thought of as a series of blocks of information that are connected in a sequential line one after another. The blocks in this line form an unbroken chain, and together they hold all the data about every transaction ever made on that specific chain.
In the case of bitcoin, a new block is created about every 10 minutes. When a new block is opened, people who want to send bitcoin can put their transactions on the network. Once your transaction is picked up and added to the current block, your transaction will be confirmed once that block is closed at the end of its 10-minute window.
As your transaction becomes older (meaning more and more closed blocks appear after the block your transaction was in) then your transaction becomes increasingly secure.
In explaining blockchain, we used the example of bitcoin a couple of times. But how exactly do these two technologies intersect? Are all blockchains cryptocurrencies, and vice-versa?
The short answer is no, not all blockchains are used for cryptocurrencies. A blockchain can be used for almost anything that needs a secure and immutable database. Some examples could include a blockchain that keeps track of packages as they travel around the world or a system that helps verify the authenticity of goods as they move between various buyers and sellers.
Inventive individuals are coming up with exciting use-cases for blockchain technology every day, and not all of them have or need a cryptocurrency.
Now let’s look at cryptocurrency. One way of understanding the relationship between blockchain and cryptocurrency is an analogy. It’s been suggested that blockchain is like the Internet, and cryptocurrency is like email. Email relies on the Internet to work, but it is far from the only thing that the Internet can do.
Cryptocurrencies are decentralized ledgers that allow for the transfer of value between anyone, anywhere, at any time. Most cryptocurrencies (as we know them today) rely on a blockchain of some type. One thing that separates cryptocurrencies from other blockchain entities is the added feature of encryption, meaning transactions are not only immutable, but once a block of information has been secured on the network, that data becomes encrypted making it virtually impossible to be hacked or stolen.
Many cryptocurrencies are largely or completely identical to Bitcoin, and others have undergone significant changes in customizations that make them significantly different. Some offer faster block times, some offer larger blocks the can fit more transactions, some offer privacy features, and some allow for the execution of computer code allowing for decentralized applications — such as Ethereum.
Not all cryptocurrencies have a blockchain, however. Some use similar but different means of tracking transactions. One example is Iota and its Tangle system. That’s beyond the scope of our discussion today, though.
Cryptocurrency could replace the modern banking system as we know it today thanks to its open and flexible design. According to Celsius founder Alex Mashinsky, when dealing with banks:
“There’s no transparency. Even though once a year some audit firm tells you everything is wonderful… we know that it’s not. In 2008 all these banks blew up even though a few months earlier the audit firms told us that everything was wonderful.”
Mashinky noted in an interview with popular YouTuber Ivan on Tech that the beauty of cryptocurrency in comparison to traditional banks is that cryptocurrencies can be easily audited and verified thanks to their decentralized nature. Mashinsky told Ivan in no uncertain terms that Celsius and its blockchain-powered solution is “all about transparency.”
To summarize once more, blockchain is a distributed database that offers many innovative features above and beyond what a traditional database offers. Cryptocurrencies are decentralized ledgers that almost always make use of a blockchain to keep track of and secure transactions.
If you find yourself getting confused, just remember that blockchain is to the Internet as cryptocurrency is to email. Cryptocurrency is likely just the first major widespread application of blockchain technology. There’s no telling what the future will hold.
Thankfully, using cryptocurrencies is getting easier every day thanks to technologies like the Celsius Wallet and CelPay.
So, hang in there and read as much as you can about these amazing and potentially world-changing technologies. You won’t regret it!
Celsius Network is a democratized interest income and lending platform accessible via a mobile app. Built on the belief that financial services should only do what is in the best interests of the community, Celsius is a modern platform where membership provides access to curated financial services that are not available through traditional financial institutions. Crypto holders can earn interest by transferring their coins to their Celsius Wallet and borrow USD against their crypto collateral at interest rates as low as 4.95% APR.
Download the Celsius Network app and start earning interest on your crypto today ➡️ celsiusnetwork.app.link