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What the Hell are the Differences Between Blockchains and Cryptocurrencies? by@dave-balter

What the Hell are the Differences Between Blockchains and Cryptocurrencies?

Dave Balter Hacker Noon profile picture

Dave Balter

CEO of Flipside Crypto

Finally, some clear answers.

Simplifying the distinction between blockchains and cryptocurrencies, excerpted from Flipside Crypto’s guide on the blockchain and cryptocurrency sector .

So what the [email protected]$k are blockchains, really?

Blockchains are digital public accounting systems in which transactions between users are stored in a secure, verifiable and permanent way.

Blockchains are the underlying technology and protocol that make distributing data and trust in a decentralized fashion possible.

Why is the blockchain even here?

Blockchain is a mechanism that enables a world without intermediaries.

Decades of financial regulation and experience have created a framework where we should trust financial institutions to process transactions and protect our data.

However, this is nowhere near foolproof; see Wells Fargo, Equifax, Heartland, JP Morgan and CheckFree as prime examples.

Instead of trusting central authorities to control each individual bank ledger like in the conventional financial system, the blockchain distributes account balances, verification, identity, and transactional flow — without any 3rd party.

What is a blockchain node?

Nodes are an international network of servers that host the cryptographic toolset which is the blockchain. They are distributed around the world, with no central authority controlling activities.

Nodes must agree on a common set of rules (known as a “consensus protocol”) in order to create and stream valid data. In order to accept a new block of transactions for Bitcoin, miners have to show proof of valid work in order to get their “reward”: a block of Bitcoin and transaction fees for mining that block.

Any individual can run a Bitcoin node on their laptop.

What is blockchain’s weakness?

Because data and has to be distributed around a network of servers with no central control, every individual server has to store a copy of the data, and the entire network has to agree to new transactions before validating them. This makes the network more computationally expensive to run than a centralized data server.

Blockchain’s biggest selling point — its distribution and lack of centralized governance — is also one of its biggest weaknesses: scalability and interoperability.

What are the advantages of blockchain?

  1. Transactions are decentralized, so there are no intermediaries
  2. Transactions are immutable (unchangeable) once recorded on the distributed ledger
  3. Transactions on blockchains are transparent and public by default
  4. Transactions are non-reversible
  5. Anybody can examine the code or run a server that verifies blockchain transactions

Differences between blockchain and traditional finance

So wait, what the f*%k are cryptocurrencies?

Cryptocurrencies are digital or virtual currencies that are built on top of blockchains.

Bitcoin is a cryptocurrency that has its own blockchain. You’ve likely also heard of Ether, the second largest cryptocurrency by trading volume. Ether is built on the Ethereum blockchain. In this case the cryptocurrency and blockchain unlike Bitcoin, are separately named.

Cryptocurrencies are the tokens of value that allow the underlying technology to capture the value of any applications built on top of it — as a result, they have become investment vehicles that allow individual and institutional investors to invest in blockchains.

Key Features of Cryptocurrencies

  • Built on top of blockchains
  • Allow you to invest in the value of the underlying blockchain
  • Can be traded on exchanges and between different users

How do blockchains and cryptocurrencies really intersect?

If TCP/IP were a blockchain, you’d need InternetCoin to access Facebook or Amazon or Netflix.

InternetCoin would be the cryptocurrency while TCP/IP would be the protocol layer equivalent to the blockchain. You’d trade in InternetCoin and use it to access the services built on top of TCP/IP.

The result? Instead of all of the value of Facebook accruing to Facebook shareholders, you’d actually have the protocol layer — the technology Facebook is built on — gain and capture value through the use of cryptocurrencies.

TL;DR

  • Blockchains are a decentralized and distributed data protocol.
  • Cryptocurrencies are tokens of value built on top of blockchains that allow you to ascribe value from the underlying technology.
  • Cryptocurrencies and blockchains are separate but related concepts.

Want more content like this? Check out Flipside Crypto’s guide to blockchain and cryptocurrencies!

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