Is Blockchain Just Crypto: What’s the Difference?

Published: 21st June, 2024 | Last Updated: 30th June, 2024

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

Blockchains are a technology that cryptocurrencies use, but blockchains don’t need to use a cryptocurrency. The concept of a blockchain was developed in 1982. So, it precedes the notion of cryptocurrencies by 26 years.

In this post, I will elaborate on the difference between blockchains and cryptocurrencies. By the end of the post, you will understand how crypto and blockchains work together. 

What Is a Blockchain?

Blockchain Illustration

A blockchain is a distributed database. It is like a large folder with a pack of spreadsheets in it.

Each spreadsheet contains information, and at the end, it links to the next spreadsheet you need to look into to continue reading. 

In our analogy, each spreadsheet is a block.

A secret code connects the blocks of data.

Cryptographers can decipher the code to confirm which block should connect to the other.

This way, no one can alter the information in existing blocks. Anyone seeking to modify existing blocks of data would need to put a lot of investment capital upfront, which they are guaranteed to lose if they try to mess with the data. 

Blockchains can contain any type of data.

They can include identity information, weather data, supply chain data, messages, and intellectual property.

Anything imaginable.

In this context, a blockchain can also be a distributed ledger showing who owns what.

It might say, “Johhny has 3 acres of land. Laura has 2.”

Or it might say, ” Vivek has 20 FUNKY coins, and Shen has 2 FUNKY coins. 

What’s a FUNKY Coin? 

Nothing. It’s just something I have written on the digital ledger I created. Out of nothing, I have created something. 

What is unique about putting FUNKY digital currency on a blockchain is that you can’t spend it twice. 

If I send you a text message saying “Here have a FUNKY coin”, you will laugh. You know it’s nonsense because I can send the same message to 10 other people.

And I can create as many FUNKY coins as I like. Which makes the notional coin I have created worthless. 

However, the moment I place it on a blockchain, I have a way to guarantee that when I say I am sending you a FUNKY coin, the ledger updates so that I have one less FUNKY coin, and you have one more. 

Compare this to when you Venmo dollars to a friend. When Josh Venmos Alex $5, Venmo debits Josh’s account $5 and credits Alex’s account with $5. Venmo is the central intermediary coordinating who gets what. 

With a blockchain, there is no central intermediary.

Using cryptography, anyone can participate in a blockchain to verify and confirm messages and transactions.

When Josh sends Alex 5 BTC on a Bitcoin blockchain, the Bitcoin miners can check Josh’s cryptographic signature to verify that this is indeed what he is requesting and that he has the BTC in the first place. 

What Is a Cryptocurrency?

Crypto Mining Rig

A cryptocurrency is a data entry that lives on a type of blockchain that is a distributed ledger. 

Let’s take Bitcoin, for example. Also see What Is the Difference Between Crypto and Bitcoin?

If you download the Bitcoin blockchain to your computer, you will find entries that look somewhat like this

  • 123x…feysr: 3 BTC
  • reri8…97erf: 5 BTC
  • rwufwr…759: 1BTC
  • etc

Each of those long strings of codes is called a public key. 

Think of it like your bank account number or IBAN. 

As the public key owner, you can share it with others to receive Bitcoin.

Anyone who connects your name to that address will be able to see your complete financial transaction history for that address. 

You sign a transaction using your private key. You can think of your private keys and the password you enter to verify transactions in your bank account. Anyone with access to your private key can access your crypto, so you need to protect it and keep it safe. 

What Do Cryptocurrencies Do? 

There are two main uses for digital currencies. 

The first is Bitcoin, which is seen as a store of value similar to gold. The reason it holds value is that it has a fixed supply, and there is no central bank or government that can print more of it. 

The second is digital assets that use blockchains with smart contracts. These blockchains allow anyone to build an automated decentralized application on top of them. Examples include savings and lending apps, decentralized crypto exchanges, etc. 

To transact on this app, you need the native coin of the blockchain. This is like an entry ticket for a theme park. To go on all the rides, you need a native token.

For example, the medium of exchange on Ethereum is Ether (ETH). 

How Do You Get Cryptocurrencies?

Cryptocurrency Coins

The easiest way to buy a cryptocurrency is to deposit cash on one of the large crypto exchanges and hit the buy button.

You will need to go through a verification process to sign up.

Once you verify, you will need to make a bank deposit to move money to the exchange.

After the transactions go through, you can buy virtual currencies with the money you deposited into the exchange. 

Types of Blockchains

There are two main categories of blockchain systems and consensus mechanisms.

1. Proof of Work

In a proof-of-work blockchain, network participants called miners, verify transactions and compete to add a new block of data by solving a complex mathematical puzzle called a cryptographic hash.

To solve the puzzle, they need to deploy special mining rigs that consume a lot of energy. 

Environmental Impact

It is estimated that Bitcoin consumes 141-160 TWh of electricity per year. 

About 50% of this is from renewable energy sources. 

Bitcoin, Bitcoin Cash, Litecoin, and Dogecoin are all examples of blockchains that use proof of work. 

The miner who solves the puzzle can add the next block of cryptocurrency transactions. In exchange, they are rewarded with newly minted coins plus transaction fees.

If anyone wanted to cheat and try to change the data on a proof-of-work blockchain, they would need to spend an enormous amount on electricity. 

The algorithm is set up so that this only makes sense if you own more than 50% of the computing power tackling the problem.

The large established players are decentralized enough that this is not a risk. 

2. Proof of Stake

A proof of stake (PoS) blockchain is way less energy-intensive.

For example, Ethereum consumes 23,000 times less energy than Bitcoin.

In a PoS system, validators are chosen to create new blocks and validate transactions based on the number of coins they hold and are willing to “stake” as collateral.

The more coins a validator stakes, the higher their chances of being selected to validate the next block.

Anyone who tries to cheat has their stake slashed. This way, there is always an incentive to be truthful. 

Public Vs. Private Blockchains

Public Blockchain

All of the cryptocurrencies that are popular today exist on public blockchains. This means a shared ledger is open for anyone to download and check its information. 

This is why cryptocurrencies such as Bitcoin are not suitable for money laundering since the sources and paths of such money can be traced.

There are ways around this, such as tumblers and mixers.

Also, some blockchains can obscure the origin and end point of their virtual currency transactions even though they are public.

Some notable examples of privacy-preserving are Monero and ZCash. 

Private Blockchains

A private blockchain network is like any other database, except you need special codes to access and perform transactions.

For example, you can imagine a banking consortium developing a private blockchain to manage the flow of funds between them. 

Blockchain Real-Life Examples

Is Blockchain Just Crypto?

Blockchain can have various applications. Here are some examples:

1. De Beers’ Tracr

Industry: Diamond Industry

Description: Tracr is a blockchain platform developed by De Beers to track the provenance of diamonds. It provides a secure and immutable record of a diamond’s journey from mine to retail, ensuring the authenticity and ethical sourcing of the stones. This helps to build consumer trust and prevent the circulation of conflict diamonds.

2. Walmart’s Food Safety Blockchain

Industry: Retail and Food Safety

Description: Walmart has implemented a blockchain-based system to enhance food safety. By using blockchain to track the origin and journey of food products, Walmart can quickly identify and address issues related to foodborne illnesses. This system improves traceability and allows for faster recalls of contaminated products, ensuring greater consumer safety.

3. Estonia’s e-Residency Program

Industry: Government and Digital Identity

Description: Estonia’s e-Residency program leverages blockchain technology to provide secure digital identities to global citizens. E-Residents can access Estonian government services, start and manage businesses online, and sign documents using their digital fingerprint. The blockchain ensures the security and integrity of digital identities and transactions.

4. Power Ledger

Industry: Energy

Description: Power Ledger is an Australian blockchain-based platform that enables peer-to-peer energy trading. It allows consumers to buy and sell excess renewable energy directly to each other, bypassing traditional energy providers. The blockchain ensures transparent and secure transactions, promoting renewable energy sources.

5. MedRec

Industry: Healthcare

Description: MedRec is a blockchain-based system developed by MIT for managing electronic medical records. It provides patients with control over their health data. It also ensures secure, interoperable, and transparent access to medical records for authorized healthcare providers. This enhances data privacy and improves the efficiency of healthcare services.

FAQs

Is blockchain possible without cryptocurrency?

Yes, a blockchain can contain information other than who owns what cryptocurrency. Blockchain use cases include:

  • Supply Chain Management data, 
  • Healthcare Records
  • Digital Identities
  • Voting Systems:
  • Intellectual Property data
  • Real Estate Transactions

Why is Bitcoin not a blockchain?

Bitcoin is two things. The Bitcoin network uses a blockchain to store and verify transactions on a digital ledger. Lowecap Bitcoin is the native currency of the Bitcoin Network. Also see what is a bitcoin.

Is Ethereum a blockchain or a coin?

The Ethereum Network is a distributed network of computers that use a blockchain. People often use the terms Ethereum network and ethereum blockchain interchangeably. Ether, denoted as ETH, is the native coin of Ethereum. It is the second largest coin by market cap after bitcoin.

What is blockchain, in simple words?

The best analogy is to think of a blockchain as a bunch of spreadsheets with data. At the end of each spreadsheet or block, there is a link to the next one. The link is cryptographically secure, so no one can mess with it or point it to the wrong block. 

Who invented blockchain?

The first person to describe the concept of a blockchain was David Chaum in his dissertation in 1982. The concept was further developed in 1991 by Stuart Haber and W. Scott Stornetta. However, the person or group using Satoshi Nakamoto’s pseudonym is credited with creating the first cryptocurrency blockchain in 2009. No one knows who Satoshi Nakamoto is or if there is only one person.

Why is blockchain so safe?

Blockchain is safe due to its decentralized network, cryptographic security, consensus mechanisms, and immutability. Decentralization distributes data across multiple nodes, reducing single points of failure. Cryptographic techniques ensure data integrity and authenticity. Consensus mechanisms like Proof of Work (PoW) and Proof of Stake (PoS) prevent malicious activities. Finally, immutability ensures that it cannot be altered once data is recorded, providing a permanent and tamper-proof ledger. These features collectively make blockchain a highly secure technology.

Can blockchain exist without cryptocurrency?

Yes, using a cryptocurrency is not a prerequisite for a blockchain. A blockchain can contain any data. 

Do banks use blockchain?

Yes, banks use blockchain technology to enhance security, transparency, and efficiency in financial transactions. Major banks leverage blockchain for cross-border payments, trade finance, and digital identity verification. Blockchain reduces transaction times, lowers costs, and improves fraud prevention, making it an attractive solution for the banking industry. Examples include JPMorgan’s Quorum and HSBC’s use of blockchain for trade finance.

What are the disadvantages of blockchain?

Despite its benefits, blockchain has several disadvantages. These include high energy consumption, particularly in Proof of Work (PoW) systems, scalability issues due to limited transaction throughput, and storage inefficiency as the blockchain grows. Additionally, blockchain can face regulatory challenges and lacks interoperability between different platforms. The technology can also be complex and costly to implement and maintain, which may limit its adoption in some sectors.

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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