What’s the difference between blockchain and cryptocurrency?
Part of the confusion around what is blockchain versus 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.
Keep reading for a clearer idea on blockchain and cryptocurrency.
Blockchain as a technology
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. Learn more about blockchain technology here.
Cryptocurrency as an asset class
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.
To learn more about cryptocurrency, check out our video and guide here.
Difference between cryptocurrency and blockchain & how they work together
Blockchain is the platform which brings cryptocurrencies into play. The blockchain is the technology that is serves as the distributed ledger that forms the network. This network creates the means for transacting, and enables transferring of value and information.
Cryptocurrencies are the tokens used within these networks to send value and pay for these transactions. Furthermore, you can see them as tool on blockchain, in some cases serving as a resource or utility function. Other times they are used to digitize value of an asset.
Blockchains serve as the basis technology, in which cryptocurrencies are a part of the ecosystem. They go hand in hand, and crypto is often necessary to transact on a blockchain. But without the blockchain, we would not have a means for these transactions to be recorded and transferred.
If cryptocurrencies are built on blockchain, can there be a blockchain without a native token?
Well, yes and no. In recent years, corporations and enterprises have been experimenting with blockchain technology, but the token as a valued asset presents a problem for most organizations and consortiums using it. If they don’t like the cryptocurrency aspect, than what do corporations get out of blockchain? For any institution, the anti-fragile distributed nature is beneficial, along with promises for a more hack-proof environment. Regulators will enjoy the auditability that cryptographic receipts provide–named “triple entry accounting”. That’s great and all, but one of the main benefits of blockchain is as a trust protocol to coordinate possibly untrusting entities. So how can they achieve this without the mining/validation process?
Instead of operating in a no-trust environment, companies and consortiums operate with a small amount of trust since they know who each other are. Because full anonymity isn’t necessary, using a public consensus algorithm like proof-of-work is no longer necessary. Consortiums, instead prefer to use a “ring signatures”, which allows them to achieve a majority vote effect–for example 5 of 7. When the minimum threshold of signatures is met, the information is said to be validated and appended to the blockchain like any other. This consensus style allows for most of the properties of blockchains without using a native token. But because validation can be performed only by a limited subset of all participants, this is said to be a “private chain.”