21 Oct Blockchain and Cryptocurrency: What’s the Difference?
Blockchain and cryptocurrency are two terms that tend to get used interchangeably – but they’re not the same thing. Blockchain is the underlying technology that supports cryptocurrencies. It’s a distributed ledger of transactions, a record-keeping platform that transparently records and verifies trades of goods and services between parties. The use of blockchain has expanded beyond supporting cryptocurrencies. One report predicts that businesses will spend $2.9 billion on blockchain technology, up almost 90% from 2018. Blockchain has the potential to revolutionize health care, insurance, gaming, and even cannabis.
While analysts are quick to tout the benefits of blockchain, cryptocurrencies are similarly critical to changing the way we do business. Cryptocurrencies are supported by the blockchain; they’re a form of digital or virtual currency that uses cryptography for added security. Popular cryptocurrencies like Bitcoin and Ethereum routinely make headlines for their investment potential. The World Economic Forum predicts that around 10% of the world’s GDP will be held in some form of cryptocurrency by 2027. What makes cryptocurrencies so appealing?
What are cryptocurrencies?
At the end of 2018, there were more than 1,600 cryptocurrencies on the market. The biggest coins – Bitcoin, Ethereum, and Ripple – routinely make headlines due to wild fluctuations in value. In fact, the top 20 currencies account for 89% of the total market cap.
Why are cryptocurrencies so popular? One of the main reasons investors flock to the crypto market is because it’s easier to transfer funds directly, without the interference of a third party bank or credit card company, when using cryptocurrencies. Digital “wallets” store a user’s public and private keys which are integral to transferring crypto funds from one person to another. Transfers are also done with minimal processing fees and no lag time.
There are a few other features that make cryptocurrencies attractive to investors:
- The number of coins is clearly apparent and publicly available
- It’s free to download crypto software and start sending money
- There’s no reliance on banks or any other centralized organization to process the transaction
- Coins are divisible: a Bitcoin can be divided into smaller units for micropayments
- Coins or tokens are portable, unlike gold or other hard assets. They’re stored in a digital wallet and can be transported anywhere.
Cryptocurrencies and blockchain are not synonymous: blockchain is the technology that facilitates the creation and transfer of digital tokens and cryptocurrency.
A deeper dive on blockchain
At a basic level – if, say, you were to explain blockchain to your grandparents – you could compare this technology to Wikipedia. Blockchain works through a community of users who write entries of a record into a distributed ledger, and then the community can control how the information is updated or changed. Like a Wikipedia entry, no one person controls the information on blockchain: the record, whether it’s a financial transaction or legal document, is secure because a network of computers is accountable for that record. It’s a little more complicated than Wikipedia, obviously, but this comparison is a good illustration of why Blockchain is so popular.
Blockchain is appealing in many industries because it takes power away from a centralized authority, like a bank or other financial institution. When you make a purchase, a network of computers around the world verifies that the transaction happened as reported, checking the transaction time, dollar amount, and participants. As one McKinsey & Co analyst explains, “trust is established through mass collaboration and clever code rather than through a powerful institution that does the authentication and the settlement.”
Right now, blockchain and cryptocurrencies are linked together in nearly every headline. But, blockchain can also change systems like voting, healthcare, ride-sharing, and education. The process of verifying a voter’s identity, tracking and securing votes, and securing polls against bad actors can be overcome with blockchain tools. Even musicians can benefit from blockchain, using the technology to make content sharing fairer and to crack down on piracy and illegal downloads.
Some companies, like Ripple, combine blockchain and cryptocurrency in powerful ways. Ripple is a blockchain system (RippleNet) that owns a currency (XRP). The infrastructure of RippleNet is designed to support fast, convenient transactions. It’s become the preferred way to host cross-border payments for companies like American Express and other big financial institutions. Because Ripple owns the majority of XRP coin, the company can compete with the outdated SWIFT transfer method without having to raise funding (Ripple is worth an estimated $20 billion). Ripple is just one innovative company making the most of blockchain and cryptocurrency; we expect other entrepreneurs to explore the difference between blockchain and crypto in new and interesting ways in the next few years.