You must have heard people use the words blockchain and cryptocurrency together. The reason is it is hard to conceive of cryptocurrencies without the blockchain technology. The two may be distinct technologies but they are inextricably interlinked.
Cryptocurrency and Blockchain Explained:
Cryptocurrency is a digital asset, a decentralized peer-to-peer payment system, free from intervention by third parties. Blockchain, on the other hand, is a decentralized database or public ledger which records crypto transactions. When transactions in cryptos take place between parties, they are verified and validated by nodes in a blockchain network. The data is then stored into blocks which are connected to one another, thus forming a chain. Cryptocurrencies operate via the blockchain and use cryptography for security.
Bitcoin had been the first digital coin to have entered the world of cryptocurrency, and has been since then followed by many others. Both the cryptocurrency and blockchain technologies are now an integral part of our existing economic systems. Blockchain is not really an optional technology for Bitcoins; it is the foundation on which Bitcoin was created in 2009. But, blockchain technology has applications beyond the crypto world; today, this groundbreaking technology is slowly permeating into different industries like healthcare, fintech, and insurance.
These two terms have been used synonymously because the first blockchain was really the database on which Bitcoin transactions were stored. So, when this technology first made an appearance in 2009, not many people knew of it. However, after being around for 10 years, cryptos have exploded into the financial sector now. With people turning millionaires overnight by investing in cryptocurrencies, crypto investing has become quite the rage now.
How does the Blockchain work?
The blockchain is literally a database that contains records of crypto transfers that have taken place anywhere on the globe. It stores information in a manner that makes it next to impossible to change, cheat, or hack into the system. The blockchain distributes the data across all computers in the network and each holds an identical copy of the blockchain. There is no one centralized authority with power to reverse, edit, or delete records. While traditional databases are created and run by centralized authorities, the blockchain is decentralized. But it is more secure than ordinary databases because no individual or organization has the power to access records unless they have the right private key.
Data is stored inside blocks in the blockchain, when new records are created and verified, they form new blocks. When a block gets filled, it is automatically linked to the previous one. This forms a chain of blocks in chronological order. A spreadsheet, on the other hand, also contains data, but it is meant for a designated individual or group of individuals that have the right to manipulate it or access it. Databases can also be accessed simultaneously by many users. The blockchain, however, is decentralized, and not owned by any entity or individual. This is why it is more trustworthy and secure, and negates possibility of frauds and counterfeiting.
The most popular uses of the blockchain are for transfer of crypto funds, crypto trading, voting in elections, etc. It is believed that the global spending on blockchain will hit almost $11.7 billion by 2022. As more and more blockchain-driven startups are riding this wave, cryptos and blockchain are now making their presence felt in sectors beyond finance. While it is easy to get swayed by this positive development you need to remain cautious when investing in cryptos. Skeptics continue to talk about the Bitcoin bubble bursting soon but the blockchain does not show signs of disappearing anytime soon.