You may have heard the terms “blockchain” and “cryptocurrency” used interchangeably. Although the two technologies couldn’t be more different, they are inextricably linked.
Blockchain is a distributed database consisting of “blocks” of digital information that we can’t alter after creation. Once a block is full of verifiable transaction data, it gets added to the chain.
The blockchain is the backbone of the cryptocurrency industry since it, too, is a digital, decentralized system. Cryptocurrency, or “crypto,” is a digital or virtual currency secured using encryption and not controlled by any central bank or government. Below, in this article, we will be discussing the relationship between crypto and blockchain.
Blockchain Technology: Definition and Working
We use the term “blockchain” to describe a distributed database or ledger that is accessible from all devices on a network. A blockchain is considered a digital database because it keeps data in a decentralized, distributed ledger.
Most people know about blockchains because of their integral function in cryptocurrency systems like Bitcoin to maintain a secure and decentralized record of transactions.
A blockchain’s innovation is that it may establish trust among parties without requiring the intervention of a neutral third party to verify the accuracy and integrity of the ledger. Blockchain organizes the information into blocks that are linked together. Each new batch of information has its separate block.
When that block is complete, it is connected to the one before it through a chain. The information is thus linked together in a time-based chain. Several transactions’ worth of information is in each blockchain block.
Use a spreadsheet as a demonstration. Data is also present, but its accessibility and manipulation are limited to a select individual or group of people. Information stored in a database can be accessed simultaneously by many people.
On the other hand, these typically belong to a single owner with full authority over them. However, as previously mentioned, the blockchain is decentralized and not controlled by any institution. There is a higher degree of safety and reliability because of this addition.
Cryptocurrency: Definition and Working
Cryptocurrencies are not valued for themselves but rather serve as a means by which we might value other assets. Launched in 2009, Bitcoin is the first digital asset; it is both a cryptocurrency (a mechanism of payment) and a speculative commodity (how much it is trading for).
We can now represent value thanks to digital encryption and the blockchain. These digital representations are known as digital assets or crypto assets.
Cryptocurrencies are digital currency that relies on cryptographic methods for security. They allow the processing of safe online transactions without needing any middlemen. In this context, “crypto” refers to the numerous cryptographic approaches and encryption algorithms used to protect these entries.
Mine your coin or buy some on a cryptocurrency market. While many online retailers accept cryptocurrency payments, some do not. Even the most well-known cryptocurrencies, like Bitcoin, are rarely employed in everyday commerce.
However, because of their explosive growth in value, cryptocurrencies have become widely used as a medium of exchange. Some international wire transfers also make use of them.
Related: The Cryptocurrency that Is Performing Good in 2022
Cryptocurrency and Blockchain: How Do They Work Together?
Blockchain isn’t just a nice-to-have extra for crypto; it’s the system’s backbone. Cryptocurrencies, which can only function as a whole if connected to the blockchain, have been a driving force behind the technology’s expansion and improvement.
However, blockchain has broader implications than just in the bitcoin industry. The financial sector is not the only area that this technology has disrupted; other markets will also feel the effects in the future.
Perhaps this is because all Bitcoin transactions get recorded in the first blockchain. Before its first implementation in 2009, developers didn’t even give blockchain a name. The name comes from the hashing function used to string together groups of transactions.
This groundbreaking first cryptocurrency brought the system to the forefront. The idea of a cryptographically secured chain of information blocks had been conceived as early as 1982 and perfected in the early 1990s.
Related: The Top Crypto Coins to Buy in 2022
Advantages of Blockchain Technology
Advantage#1: Enhanced security
Your information is private and vital, and blockchain has the potential to alter how sensitive data gets handled drastically. Blockchain technology aids in the prevention of fraud and other forms of unlawful activities by producing an immutable record that has encryption throughout its whole.
Anonymizing user data and restricting access with permissions are two ways in which blockchain might help with privacy concerns. A distributed network of computers, rather than a central server, stores information, making it more difficult to access for hackers.
Advantage#2: Greater transparency
Without blockchain, every business needs to maintain its database. Distributed ledger technologies like blockchain ensure that all records of a transaction or piece of data are in more than one place.
All authorized users in a fully transparent network view the same data simultaneously. Every single deal is dated and timed. Because of this, members can see every step of a transaction’s history, effectively eliminating the possibility of fraud.
Advantage#3: Instant traceability
The blockchain records the history of an asset, including who handled it and when. It is beneficial in sectors plagued by counterfeiting and fraud or those in which consumers are worried about the product’s impact on the environment or human rights.
Blockchain technology makes it possible to give consumers access to provenance information without going through intermediaries. For example, traceability data can reveal a flaw in the supply chain when there is a delay in items on a loading dock before being sent.
Advantage#4: Increased efficiency and speed
Conventional procedures rely heavily on paper, which increases processing time, introduces opportunities for human mistakes, and frequently necessitates mediator involvement. Blockchain technology simplifies these procedures, allowing for the more rapid and reliable completion of financial transactions.
You can also use the blockchain to record supporting evidence of a transaction, doing away with the need for physical paperwork altogether. There is a reduction in clearing and settlement times without reconciling various ledgers.
Smart contracts allow for the automation of transactions, further improving efficiency and reducing turnaround time. When specific criteria are met, the subsequent action in a transaction or process gets initiated mechanically.
Smart contracts lessen the need for human involvement and third-party verification of contract fulfillment. For instance, once an insurance claimant submits all required paperwork, the claim is considered complete, and payment is issued.
Related: Bitcoin Price Drop: Reasons for the Decrease in Price
Is Blockchain Technology Safe for Cryptocurrency and Other Organizations?
In several ways, blockchain technology provides decentralized safety and confidence. The order in which newly added blocks are always chronological. It means that new blocks are in the “tail” of the blockchain.
Unless the majority of nodes in the network agree, changing the contents of a block is challenging once it is at the end of the blockchain. It is because each block stores not only its hash but also the hash of the previous block and the date discussed earlier.
A hash code is a string of numbers and letters generated by a mathematical function from digital information. The hash code will be invalidated whenever there is any change to the original data.
For example, a hacker who also operates a node on a blockchain network intends to steal cryptocurrency from everyone by changing the blockchain. If one person changed their copy, it would no longer be in sync with the rest.
This copy would stand out when everyone compares their documents to each other, and the hacker’s version of the chain would get disregarded as fake.
To successfully execute such a hack, the attacker would need to control and change 51% or more of the blockchain copies simultaneously, making the altered copy the majority copy and, hence, the agreed-upon chain.
Because of the new timestamps and hash codes, all of the blocks would have to be redone, which would be costly and time-consuming. The magnitude and rapid expansion of many cryptocurrency networks would make it too expensive to accomplish such a task.
It’s not only impractical but also highly unlikely to yield any results at all. Network participants would detect such a significant change to the blockchain immediately. Members of the network would like then hard fork off to a new, unaffected chain version.
Cryptocurrency and Blockchain: Final Words
Here we conclude our article “The Relationship between Cryptocurrency and Blockchain.” You can visit our cryptocurrency category page for more informative articles on cryptocurrencies. Stay tuned for more!
Comprehensive explanation of blockchains and Cryptocurrencies. Well researched article. People, usually tend to confuse the both. Keep it up.
I really appreciate it. 🙂