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For the last few years, terms such as ‘cryptocurrency’ and ‘blockchain’ have become popular in the sphere of finance and IT (information technology).
But what are these two, and how are they connected? Here we will explain these ideas further and establish how they are connected.
Understanding cryptocurrency
Cryptocurrency can be defined as a digital or virtual currency that has attributes of money and makes use of cryptography to secure the transactions.
Cryptocurrencies are different from the government-backed currencies fiat currencies as they are based on the technology known as blockchain.
This means they cannot be regulated by any central power such as a bank or a government.
Bitcoin is the first and the most famous kind of cryptocurrency it was developed in 2009 by a person or a group of persons, later known as Satoshi Nakamoto.
After that, thousands of cryptocurrencies have been created. Each of them has its own characteristics and use cases.
Some of the most recognized ones are Ethereum, Ripple (XRP) and Litecoin.
The role of blockchain
Cryptocurrencies can be described as being based on blockchain technology.
It is an electronic recordkeeping system that is distributed across a network of computers and keeps a record of all the transactions that occur in the network.
This makes the network transparent and secure because every node in the network has a copy of the ledger and cannot be cheated.
A blockchain is made up of blocks of which every block is a record of multiple transactions.
The created block is linked to other blocks, which form a chain. Once a block is added, it cannot be altered.
This partiality of blockchain makes it remarkably secure mainly when any alteration in any of the blocks will affect all the subsequent blocks, making it almost impossible to do so, unless the person doing it controls the majority of the network.
The relationship between cryptocurrency and blockchain
It is important that you know that all cryptocurrencies work on blockchain technology.
Here’s how they are interconnected.
Decentralization
Cryptocurrencies and blockchain are similar in that they both are decentralized. This implies that no one organization or firm owns the whole network.
This is decentralization, which is one of the factors that guarantee security and confidence in the system.
Security
Cryptocurrencies entail the application of cryptography to protect the operations and the generation of new coins.
This security is boosted by blockchain which offers a public ledger of the entire flow of transactions.
Transparency
Transparency is why using blockchain is useful all the participants can see the records and check them. It reduces cases of fraud and manipulation, enhancing the trustworthiness of the cryptocurrencies.
Efficiency
A blockchain technology can therefore perform transactions better and faster than banking systems.
This efficiency is one among several factors that have made cryptocurrencies be adopted progressively in remittance and cross-border payments.
Applications beyond cryptocurrencies
Blockchain is the technology that powers cryptocurrencies but the use of blockchain does not stop with cryptocurrencies.
Here are a few examples.
Supply chain management
A supply chain application of blockchain is to track the movement of products in the supply chain and eliminate supply chain fraud.
Voting systems
Blockchain offers voting systems that are more secure and free from electoral fraud compared to the traditional methods.
Smart contracts
Such blockchains as Ethereum allow for the creation of smart contracts, which are contracts that contain or are defined by code that is automatically executed upon occurrence of specific conditions.
This can help to automate and improve numerous of your business activities.
Crypto and blockchain are changing the manner in which we look at money and transactions.
While cryptocurrency introduced a new type of electronic money, blockchain is a safe and effective system that can be used in other spheres apart from the financial one.
These technologies are still developing, and their presence will surely increase in the future.
So, they will influence the development of various industries and bring them new achievements in the realm of efficiency.
Therefore, knowledge of their relationship is important for anyone aiming to master the future of finance and technology.
Elizabeth Abbott is a tech writer at DevelopersForHire. She has a passion for simplifying complex technologies for readers, with a focus on blockchain, AI and cybersecurity. Her deep dive into the world of cryptocurrencies has led her to collaborate with cryptocurrency developers and gain a deeper understanding of this technology, offering unique insights into the digital currency landscape.
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