Blockchain vs. Cryptocurrency

What is a Blockchain?

Blockchains are distributed ledgers secured by cryptography. They are essentially public databases which everyone can add to and read. Instead of the data residing on a single centralized server, the data is copied across thousands and thousands of computers worldwide. The consecutive string of every block ever executed makes up a blockchain: a distributed database of chronologically ordered transactions. More on blockchains here.

What is a cryptocurrency?

A digital store of monetary value the primary use of which is for buying and selling goods, services, or property, such as Bitcoin or Litecoin. Cryptocurrencies are cryptographically secured against counterfeit and often are not issued or controlled by any centralized authority. Cryptocurrencies can be referred to as tokens or coins. More on cryptocurrencies here.

What is the difference?

Blockchains enable decentralized platforms which sometimes require a cryptocurrency. The blockchain is the technology that serves as the distributed ledger and allows a network to maintain consensus. Distributed consensus enables the network to track transactions, and enables the transfer of value and information.

Cryptocurrencies are the tokens used within these networks to send value and pay for these transactions, or to provide network incentives. Furthermore, you can see them as tool on the blockchain, in some cases serving as a resource or utility, or to digitize the ownership of an asset.

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NEXT: What is Decentralization?

What is Decentralization?

Background

In the early 1960s, an American researcher at the RAND Corporation named Paul Baran identified a core issue with the United States security strategy: centralization. In an extensive paper he outlined his findings on how a system with any single point of failure could be easily compromised by a sophisticated attacker. The solution, as he saw it, was to build systems which had multiple hubs, so that if one failed, the others could still support the network. 
Centralized
Decentralized

The Modern Internet

At the same time that Baran was developing his theories on decentralization, researchers at DARPA were working on connecting computers over telephone lines. In 1969, the first email was successfully sent from UCLA to Stanford across the ARPANET. In the decades since, the internet has expanded dramatically to include billions of connected devices from smartphones and computers to robots and even satellites. Despite this, the core technology has remained unchanged. As with most technologies, the internet has been built on top of the previous systems, with each iteration wrapped around its predecessor like a shell. 

Today, fewer than a dozen data centers process the majority of the information being sent over the web. Most of this system is privately owned, and none of it was designed to sustain the demands of the modern audience. Beyond just the physical infrastructure, a few major corporations own the portals that we use to connect. Whether social media or search engines, these too, are vulnerable to compromise.  

The Place of Blockchains
Since the invention of Bitcoin in 2008, blockchain systems have rapidly developed as a means of allowing wide networks of computers to cooperate without central trusted parties. In the Bitcoin network, the public blockchain allows all of the nodes to transact and share value without the need for a physical bank, thereby ensuring that there’s no single point of failure. 

With the introduction of the Ethereum protocol in 2015, a new kind of blockchain was created which allowed software to exist on the same sort of decentralized network. In such a network, code can run without a single point of failure, which reduces the risk of failure or manipulation. As this technology has continued to develop, we’ve seen proposals to decentralize everything from energy production to content creation and video streaming, and it’s all thanks to blockchain and decentralized ledger systems. 

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What is Cryptocurrency?

Background

Cryptocurrencies such as bitcoin or ether are scarce digital assets which exist on a decentralized network of computers. The currencies, which are referred to as coins or tokens, can be used within their network as a store of value or a medium of exchange. 

Digital Ownership

In the same way that ownership of a house or a car is controlled by whoever holds the deed, a cryptographic asset is owned by whoever holds the private cryptographic key that is registered with the network. The difference with cryptographic assets is that instead of a central registry, a network of many peers keeps track of who owns each asset.

Transferring Digital Assets

When a cryptocurrency transaction occurs, the sender broadcasts a message to the network indicating that they are transferring assets under their control to another user on the network. They specify the receiver’s public address within the network, and the owner can only access assets transferred to that address if they have the corresponding cryptographic key. 

Fun Fact: The first ever purchase of physical goods using cryptocurrency was on May 22, 2010, when Laszlo Hanyecz purchased two Papa John’s pizzas on the Bitcoin network for 10,000 BTC. These may also have been the most expensive pizzas ever purchased. The total value of those 10,000 bitcoin is now over $65M USD.

Network Security & Blockchain
A blockchain is a digital file which new information can be added to over time. Data is added to this file in blocks, which are linked together with an encryption function to form a chain. Most blockchains are shared between a wide network of peers, which means that once the data is confirmed by a majority of the network, it cannot be edited. 

The original concept of the blockchain was first proposed in the Bitcoin whitepaper. The Bitcoin blockchain is used to keep a record of all transactions which have ever occurred in that network, and thereby acts as a communal registry of ownership of all the Bitcoins that have ever been created. When a participant in the network wishes to make a transaction, they must wait for all of the nodes in the network to update their copy of the record before they can spend their assets. 

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NEXT: What is Blockchain?

What is Blockchain?

Background

While the original concept of a blockchain came from the Bitcoin whitepaper in 2008, the concept has been expanded since to include many more features. The name blockchain largely refers to the structure of the technology. Blocks contain data that represents transactions. When a new block is added, it contains a unique signature or ‘hash’ representing the previous block. This process creates an immutable chain of data and makes it impossible to alter any data without breaking the chain. 

 

Security

Records on a blockchain are secured through cryptography. Network participants cryptographically sign transactions, creating a digital signature. If a record is altered, its signature will change, which makes it possible for network participants to easily identify fraudulent activities.

Blockchains are decentralized and distributed across peer-to-peer networks that are continually updated to reflect every transaction. Because they are not contained in a central location, blockchains do not have a single point of failure and cannot be changed by hacking a single computer. It would require massive amounts of computing power to access every node, or at least the necessary 51 percent majority, of a blockchain and alter each node at the same time.

 

Applications

Because blockchain data is stored across an entire network, they provide an ideal solution for sharing data on a peer-to-peer network. With a blockchain at its core, a network can operate without any single trusted authority, and nodes (computers) can come and go as necessary without compromising the system.

As a result of this unique architecture, blockchains are quickly being adopted across a wide range of sectors from energy to supply chain management to online content creation. Wherever there is a need to share data among a large network of peers, there may be an opportunity for a blockchain. 

 

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For more in-depth information about blockchain and cryptocurrencies, please be sure to visit out downloads and links pages, and be sure to subscribe to our mailing list below. 

For full course material and information about in-person seminars and training events please visit our education portal.

NEXT: Blockchain vs. Cryptocurrency