You should know all these before investing in cryptocurrency
17.06.2022
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Since the first cryptocurrency , bitcoin entered the market, the internet has been awash with…
Cryptocurrency isn’t a Blockchain, here is the point
If people are not mentioning bitcoin then they would be speaking about cryptocurrency or blockchain. To say the least, so many have embraced virtual currencies and it is no surprise that currently, terminologies associated with cryptocurrency keep flying all over, almost becoming household concepts. As a crypto investor or trader, you want to be accurate in whatever you mention and set yourself apart from street talks.
WARNING: Investing in crypto, or other markets, can be of a high risk for your savings. Do not invest money you cannot afford to lose, because there is a risk for losing all of your money when investing in crypto, stocks, CFDs or other investments options. For example 77% of retail CFD accounts lose money.
As much as people use cryptocurrency and Blockchain to mean the same thing, they are different. Therefore, a blockchain is a ledger technology, which develops exclusive blocks, on the other hand, a cryptocurrency is a token exchanged in blockchain technology. Every block has distinct information regarding transactions.
To understand the difference better, we may use Legoland as an example. If you want to go to Legoland, you will use the money to purchase the tickets to use while in Legoland. It means that when outside Legoland you may not use the tickets. In such a case, the Legoland tickets are the cryptocurrency coins while Legoland is the blockchain network. The network offers an ecosystem of participants by giving them the chance of using money to gain access to touring Legoland.
Cryptocurrency
A cryptocurrency refers to a digital store of value. Its main use is selling and purchasing services, goods, and property. Examples of cryptocurrencies include Bitcoin, Litecoin, Ether, DOT, and Tether. In addition, the digital currencies are highly secured against cyber theft and counterfeit. The reason is that they are not controlled or even issued by a central authority such as a bank. Instead, the participants are the ones who are in charge. The cryptos come in form of coins and tokens.
Apart from the cryptos serving as a medium of exchange, they act as a unit of measure and a store of value. Also, even though they have little inherent value, they are utilized in pricing other assets’ value. Initially, the aim of the cryptos was just to act as a mode of transferring value without using a trusted third party or bank. To acquire a cryptocurrency, you do so by mining. It is different when acquiring the regular currencies that one earns through hard work.
The Features of Cryptocurrencies
- Secure and fast
- Cryptos are anonymous, meaning that you will not know the person behind a transaction
- Irreversal; to mean that after performing a transaction, you cannot go back or undo it
- There are no debts
- The market supply is controlled. For instance, Bitcoin and ADA (Cardano) are capped at 21 million coins and 45 billion.
- There is no asking permission to take or give someone money
Blockchain
A blockchain refers to a technology in which data or transactions are stored. Every block has unique information and data. The confusion about crypto and blockchain commenced when Satoshi Nakamoto named his blockchain and crypto in the ecosystem Bitcoin. This made people believe that they are just the same and may be used interchangeably.
A block is part of the blockchain and it is responsible for recording transactions. After the transaction is complete, the block is stored in a chain via cryptography. After a block completes a task, a new block is developed. Every block in a blockchain can be traced because it has a former block’s hash. However, the number of blocks in a chain may result in issues such as synchronization and storage. The good thing about blockchain technology is that the blocks can only be distributed. They cannot be altered, copied, or even deleted.
For Bitcoin crypto, there is a Bitcoin blockchain. Also, Ether runs on the Ethereum blockchain database. However, crypto like Tether does not have its blockchain. Therefore, its tokens exist in the blockchain of Ethereum and that is where transactions are recorded. This is an indication that some cryptos can share a blockchain database. Ethereum also hosts some Non-Fungible Tokens (NFTs).
The main Features of a Blockchain
- It is a tamper-free ecosystem
- Blockchain is decentralized meaning that no individual can manipulate or even modify the way that it works
- The main use is minting coins
- Blockchain is a distributed ledger that bolsters easier management and against fraud.
How Blockchain is different From Cryptocurrencies
As I said earlier, people believed that cryptos and blockchain were the same, however, they are very different. The differences come in different forms such as inherent nature and usage. Also, while cryptos have value, blockchain does not have any value attached to it.
Transparency
Since Blockchain is a public ledger, it is very transparent. It gives any investor the chance of joining a blockchain network and viewing the information that is available. However, in cryptocurrency, there is anonymity. As much as anyone can see the destination and source of a bitcoin transaction, no person can know the one behind the transaction.
Monetary Value
Each cryptocurrency across the globe has a value. For instance, currently (today 4th August 2022), the top cryptos including Bitcoin, Ether, and Tether are worth $22,964.95, $1,627.01, and $1.00 respectively. On the other hand, a blockchain does not have any monetary value.
Mobility
Blockchain technology is decentralized. Besides, it is distributed all around the globe. The decentralization means that there is no single place where blockchain records are stored. However, cryptocurrencies, even though they are held in blockchains, can only be accessed through mobile wallets. For instance, if you have a bitcoin wallet, then you may utilize it anywhere when transacting with people or institutions that accept Bitcoin.
Inherent Nature
Blockchain is mainly a storage technology utilized in saving data on decentralized networks. Also, a Blockchain may help in storing various forms of information apart from the crypto transaction records. On the other hand, cryptocurrencies are a medium of exchange. An example is the US dollar.
Use
Cryptocurrency is digital money. It is utilized in purchasing goods as well as services and investment purposes. As for Blockchain technology, it has more uses beyond cryptos. For instance, it helps in recording transactions in the retail, supply chain, healthcare as well as banking.
The Similarities Between Blockchain and Cryptocurrency
Although there are differences between Blockchain and cryptos in terms of their usage, intent nature, monetary value, and mobility, they have some similarities. These include interdependence, intangible, and technology.
Interdependence
Blockchains and cryptos depend on each other. For one to work, the other one must exist. The reason is that while blockchain offers transaction records path, cryptocurrencies are the tools (coins) being transferred.
Intangible
Both cryptocurrencies and blockchain are intangible. You cannot touch them like fiat currency. Besides, they are virtual.
Technology
Cryptos and blockchains are part of recent technological innovations. Satoshi Nakamoto invented the first blockchain in 2009. His aim was to do away with third parties when making a transaction.
