Crypto vs Blockchain – What is the Difference Between the Markets?
Blockchain is a technology that powers cryptocurrencies like Bitcoin and Ether. Together, blockchains and cryptocurrencies make it possible to transfer value without needing a financial institution, like a bank. While blockchain is a list of transactions, which can be viewed and verified by anyone, cryptocurrencies are the units of value in the transaction. This crypto vs blockchain article explains how a cryptocurrency and blockchain relate to each other, and how blockchain technology acts as the operating system for cryptocurrencies. Knowing how a cryptocurrency’s blockchain works can you understand the investment potential of a coin, so read on if you want to learn how to make better crypto investments.
What is Cryptocurrency?
Like any other currency, cryptocurrency is a medium of exchange and a store of value. The difference between a cryptocurrency and fiat currency, like the US dollar, British pound, or euro, is that it is not issued or backed by any government or central authority. Also, it is purely digital, with no physical form, and uses cryptographic techniques and a protocol to create the monetary units and verify the transfer of funds.
Over recent years, cryptocurrency has gained more global acceptance. The global crypto market cap was more than $1 trillion in January 2023. This has been driven by its acceptance from leading companies like Microsoft, PayPal and Starbucks, as payment for their products or services and its popularity as an asset among retail and institutional investors and traders. There are over 12,000 cryptocurrencies in circulation, with the number more than doubling between 2021 and 2022.
Cryptocurrency Pros and Cons
Before trading or investing in this digital asset, it is important to understand its advantages and risks.
- Faster transfer of value: Transferring fiat currencies across borders may take a few hours to even days, cryptocurrency transfers are instant.
- Cheaper transfer of value: Since cryptos are decentralized, they eliminate the middlemen (like banks and other financial institutions), making it a more cost-effective mode of transaction. Sending cryptocurrency across borders has negligible or zero transaction fees.
- No single point of failure: Since the ledger of transactions is distributed across several computers around the world, the system cannot collapse at a single point. This also reduces the risk of hacking.
- Portfolio diversification: Cryptos can be used to hedge risks that impact other assets, including inflation, political turmoil, and geopolitical concerns.
- Lack of acceptance: Most businesses still do not accept crypto as payment for goods and services, unlike fiat currency.
- High volatility: Crypto prices tend to fluctuate often, with steep rises and subsequent declines. It is typically far more volatile as a category than other financial instruments. However, volatility in Bitcoin, which is by far the biggest cryptocurrency by market cap, has declined over time due to increased institutional participation.
- High energy consumption: Crypto mining activities consume vast amounts of energy. Bitcoin consumes an estimated 150 terawatt-hours of electricity annually, which is more than the energy consumed by Argentina’s population of 45 million people. This emits around 65 megatons of carbon dioxide annually, equivalent to the emissions of Greece. Cardano, Nano, Ripple and Solarcoin have emerged as more eco-friendly options.
- Regulatory risks: While some governments have tried to regulate cryptos, the regulatory status of most cryptocurrencies is unclear. A ban of cryptocurrencies by a country can cause sudden and steep price declines.
- Security concerns: Although blockchain is a highly secure technology, wallets for storing cryptocurrencies can be hacked.
What Is a Blockchain?
Blockchain is a digital database or public record of cryptocurrency transactions. The ledger of transactions is decentralised, meaning that it does not exist in one place. Instead, it is distributed among the nodes of a peer-to-peer computer network. Blockchain technology stores sets of information in a block, which has a defined storage capacity. When one block gets filled, it is closed and linked to the previous block, forming a chain of such blocks. Hence, the name blockchain.
Blockchain Pros and Cons
This decentralised and distributed ledger of transactions, which is owned and managed by users of the network, offers unique advantages but also has certain shortcomings.
- Immutability: It is impossible to delete or replace data once recorded, which prevents data tampering within the network. This not only prevents data manipulation, but also makes blockchain far less prone to hacking. Traditional ledgers, which use conventional databases, allows the user to erase or replace data, making them highly prone to manipulation by administrators.
- Transparency: Being decentralized, the data on Blockchain can be viewed and verified by any network member. This means the records are trustable. Users cannot view or verify any data on a traditional database.
- No censorship: Blockchain is not controlled by any single individual or organization, which means that no authority, not even the government of a country, can interrupt the network’s operations.
- Traceability: Anyone can trace changes made on the network, as blockchain allows an irreversible audit trail.
- Slow: Blockchain conducts more operations per transaction, which makes it slower than traditional databases. The speed of transactions is impacted by signature verification, the consensus mechanism used for verifying transactions, and redundancy, as each node plays a role in validating and storing a transaction.
- Lack of scalability: Blockchain, being slower than traditional databases, makes it less scalable.
- High cost: Blockchain is more expensive to implement and requires more time to integrate into an existing process than traditional databases.
- Difficult to modify data: By its very nature, blockchain does not allow modification of data once it is recorded and stored. An organization would need to rewrite the code of all the blocks to modify data, making it too costly to correct an error.
Is Blockchain Safe?
By its very design, blockchain is incredibly safe. Blockchain networks use powerful encryption and wrap data in several layers of security. This digital ledger exists on a distributed network of computers, which means there is no single point at which a hacker can erase or control the data. Although the transactions can be updated and validated by any network member, there are several security hurdles each transaction must clear before being added to the blockchain. No member or hacker can alter or delete existing data. Given the high degree of traceability, actions of a hacker can be easily traced back and the person can be removed from the network.
What are the Differences Between Crypto and Blockchain?
While cryptocurrency is a form of digital money (like Bitcoin, Ether, Ripple, and Litecoin), blockchain is a peer-to-peer database that stores transactions. Here’s a look at blockchain vs. cryptocurrency across a variety of parameters:
Cryptocurrencies are currencies, which means they have monetary value. They can be used to purchase goods and services or can be used as an investment or trading instrument. On the other hand, blockchain per se does not have any monetary value. Blockchain technology can store the monetary value of a cryptocurrency.
Blockchain is a public ledger or peer-to-peer storage technology that holds data on decentralised networks. Cryptocurrency, like any currency, is a medium of exchange and a unit of measure of value.
Cryptocurrencies can be used just like any currency. Depending on their acceptability, they can be used to pay for products or services, raise loans, work as an investment, or be traded. Blockchain technology can be used for storing any type of information, which means its use goes beyond cryptocurrency transactions. This technology is being used for maintaining health records, supply chain management, online identity verification, maintaining birth and death certificates, verifying real estate transactions, and more.
Blockchain does not have a single location and is distributed across computers around the world. Cryptocurrencies can be stored in a digital wallet.
Being a public ledger, blockchain supports high transparency. Anyone can become a network member and view the data. Cryptocurrencies are not traceable and support anonymity.
How Do Blockchain and Crypto Relate to Each Other?
Blockchain is the technology that has brought cryptocurrency in existence. Bitcoin, the most popular cryptocurrency, was created on blockchain technology. Cryptocurrency needs a blockchain for its creation and transfer. However, blockchain can exist without cryptocurrencies, as it has several other uses.
- Is blockchain better than cryptocurrency?Blockchain and cryptocurrency are very different, and each has its own uses. Blockchain is a public ledger or database of transactions that is highly secure, while cryptocurrency is a digital currency that can be used for making investments, trading, or purchasing goods and services. You can have a blockchain without crypto, but you cannot have a cryptocurrency without a blockchain.
- Is blockchain safe for crypto?Yes, blockchain is safe for crypto, as it is a decentralised and distributed technology. This means there is no single point of failure or a single place where a hacker can erase or alter the record of a transaction. Moreover, highly sophisticated encryption is used for the crypto records.
- Do all cryptocurrencies use blockchain?Yes, all cryptocurrencies are secured on blockchain networks. Blockchain is used by all the popular cryptos, including Bitcoin, Ether, Bitcoin Cash, Ripple, Litecoin, Dogecoin, Cardano and Solana.
- Can crypto run without blockchain?A configured blockchain is required to create and operate a cryptocurrency. So, crypto cannot run without blockchain. However, a cryptocurrency may originate on one blockchain and be used on another blockchain that is set up to receive or accept the crypto.