Blockchain and cryptocurrency are terms you’ll often hear being thrown together. While they are two distinctly different technologies, they are also inherently intertwined with one another.
In its most complex state, blockchain is a digitalised, decentralised, public ledger.1 Put simply, it’s a formation of digital information, or blocks, stored in a public database, or quite literally, the chain. When verifiable transactions take place, the information is stored by the blocks, and the blockchain grows in size. Cryptocurrency operates through the blockchain, as it too is a decentralised, digital system.2 Defined as a digital or virtual currency, it uses cryptography for security, and is not owned by any particular authority – essentially rendering it immune to authoritative control.
Bitcoin was the first and original cryptocurrency, but now the list is expansive. Additionally, Bitcoin was at one point, the only blockchain. Despite many doubts, and a lot of skepticism, it seems both technologies have become an important part of our economic systems, for at least the foreseeable future. Much has changed and advanced in recent years, but with the terms so closely aligned, a great deal of confusion still exists.
How blockchain technology and cryptocurrency work together
Blockchain isn’t an optional technology for cryptocurrency, but a foundational feature of cryptocurrency.3 Ultimately, blockchain and cryptocurrencies are joined through common beginnings. However, they are by no means of a similar calibre; when it’s one versus the other, blockchain transcends cryptocurrencies. Not restricted to the financial sector, blockchain offers multiple solutions that are likely to disrupt diverse markets in the years to come.4
Why the terms have become so synonymous is perhaps because the first blockchain was the database on which every bitcoin transaction was stored.5 When it originated in 2009, blockchain wasn’t known as such. It assumed its name due to the way the transactions were grouped into blocks of data, then chained together by way of a mathematical function which creates a hash code.6 The design had existed before Bitcoin’s emergence, but it was this revolutionary, and first, cryptocurrency that brought the system to prominence.
Three innovative applications of blockchain
You don’t need to look far to come up with a list of innovative ways in which blockchain technology is being applied. Even the most non-technical fields are finding a use for the decentralised database – healthcare, politics and voting, real estate, governments, and education are all finding a use for its powerful, secure way of storing, verifying, and encrypting data.7 Here are three more applications of blockchain technology, some of which are underscored by cryptocurrencies:
The finance sector was built on the need to transfer money from one person to another. To do so, a trustworthy intermediary, in the form of a bank, was needed. It made sure money got safely transferred.8 Blockchain is now effectively eliminating these intermediaries by decentralising transactions. A decentralised market offers buyers and sellers security within their transactions, by reducing the threat of cyber attacks and encouraging transparency between parties.9 Bitcoin is a perfect example of this, and if applied on scale, could potentially simplify millions of financial transactions a day.
Smart contracts act as self-executing programs that facilitate the terms of agreement between the seller and buyer directly through code.10 This agreement and code exists within a distributed, decentralised blockchain network, making the transactions trackable, transparent and irreversible. This type of automation can drastically boost productivity while slashing costs in business. Put simply, it helps you exchange property, shares, money, or anything of value in a manner that’s free of conflict and transparent, while also avoiding the expense of a middleman.11
Blockchain communications are transferred and completed by employing advanced cryptographic processes that confirm that the information originates from the right source. This technology diminishes the probability of hackers intercepting sensitive information, thereby securing data more effectively.12
The future of cryptocurrencies and blockchain
The worldwide spend on blockchain is forecasted to reach $11.7 billion in 2022.13 With blockchain startups and traditional institutions increasingly seizing the momentum this technology provides, blockchain and cryptocurrencies are providing disruptions far beyond the financial services sector.
It’s easy to fall prey to the hype, however the pace of the technology’s evolution shows no sign of slowing down. Despite all the talk of the bubble bursting, some continue to view blockchain-based currencies as a good long-term investment.14 As blockchain continues to establish its utility, so will the awareness of its uses and benefits, and with time, blockchain will become less and less associated to its former cryptocurrency partner, Bitcoin.
Blockchain and cryptocurrencies have been central to innovation across industries. MIT Technology Review notes that cryptocurrencies are down more than 90% from 2017, but they maintain the belief that the technology underpinning this, the blockchain, is by no means done.15 In fact, it’s continued normalisation shows that this technology could be our future.
- 1 Retrieved from Investopedia.
- 2 Retrieved from Investopedia.
- 3 Braun, A. (Sep, 2018). ‘Cryptocurrency vs. blockchain – what’s the difference?’ Retrieved from MakeTechEasier.
- 4 Elnaj, S. (Mar, 2018). ‘The problems with bitcoin and the future of blockchain’. Retrieved from Forbes.
- 5 Popper, N. (Jun, 2018). ‘What is the blockchain? Explaining the tech behind cryptocurrencies’. Retrieved from NY Times.
- 6 Popper, N. (Jun, 2018). ‘What is the blockchain? Explaining the tech behind cryptocurrencies’. Retrieved from NY Times.
- 7 Marr, B. (Jul, 2018). ‘Here are 10 industries blockchain is likely to disrupt’. Retrieved from Forbes.
- 8 (Oct, 2017). ‘5 applications of blockchain in business and economy’. Retrieved from Newgenaps.
- 9 (May, 2018). ‘Decentralised market’. Retrieved from Investopedia.
- 10 (Apr, 2018). ‘Smart contracts’. Retrieved from Investopedia.
- 11 (2018, Sep). ‘What is blockchain smart contract and how smart contract works’. Retrieved from Medium.
- 12 (May, 2018). ‘4 powerful non-cryptocurrency uses for blockchain technology’. Retrieved from Medium.
- 13 Goepfert, J & Shirer, M. (Jul, 2018). ‘Worldwide spending on blockchain’. Retrieved from IDC.
- 14 (June, 2018). ‘What does the future of blockchain and cryptocurrency hold?’ Retrieved from Skeila.
- 15 Orcutt, M. (Jan, 2019). ‘In 2019, blockchains will start to become boring’. Retrieved from Technology Review.