The world of cryptocurrency is defined by two terms, “cryptocurrencies” and “blockchain”. The nexus between these two terms gives the investor an understanding of the true picture of cryptocurrency. Regardless of the tech-savviness of investors, the use of these two terms gives ideation of the conversation surrounding digital currency.
In this article, we will be taking a look at cryptocurrency and blockchain and the link between them.
Blockchain Is The Foundation Of Cryptocurrency
It has become a norm for investors to believe that cryptocurrency and blockchain are the same, especially for becoming popular right at the same time. But, the fact lies in the popularity of blockchain as a function of the raving cryptocurrency.
Although blockchain technology has been much around but has not been widely used until the advent of cryptocurrency. Therefore, the blockchain is affirmed as the foundation beholding cryptocurrencies.
Blockchain technology is very useful such that it can br put into use in different sectors peradventure the cryptocurrency world ceases to exist.
How Do Blockchains Work?
Blockchain can be described as the way to manage data in the digital form in a decentralized format. This feature is synonymous with what cryptocurrencies are characterized by as “decentralized currencies”. The operation of a blockchain can be described as follows:
1. The term “blockchain” was coined from two words, “block” and “chain”. This simply means that there is a conversion of data into individual blocks by the system which stores them in form of a chain.
2. A single block of data can be referred to as a single transaction. This data then generates a unique identification called ” the hash” when stored in the blockchain. Each of the blocks has three pieces of information, namely, the data, the hash, and the hash of the previous transaction.
With each block identified with a previous transaction, all the blocks are in linkage to form a single chain. This is what provides an exhaustive record of transactions of all blocks in the blockchain.
3. The chain becomes longer when more transactions take place on the blockchain. However, the data on the block becomes difficult to manipulate with a longer chain. On the blockchain, a new hash is always generated following the manipulation of data. The new hash is very different from the old hash and as such breaking the link for the easy identification of manipulated data on the system.
Why Is Blockchain The Foundation Of Cryptocurrencies?
1. The basic drive behind the creation of cryptocurrencies is the autonomy of power to decentralize funds. Its conception was hinged on an even distribution of monetary power instead of it solely resting on the shoulder of central banks.
The use of blockchain technology has indeed brought this initiative to fruition. With the blockchain, all parties could have undeniable access to the blockchain at any time. Cryptocurrencies would have just been digital currencies being issued by various agencies, without the use of blockchain, hence having vulnerability to manipulations of all sorts.
2. The possibility of having a complete data record by every party at the same time is because of the blockchain technology being put to use. This presents a transparent system of technology that forms the bedrock of building trust among cryptocurrency users and the general public.
3. The reliability of records on the blockchain is owed to the different security framework designs on thr blockchain technology. The network could be susceptible to hacking with loss of monetary value, assuming the blockchain technology was put in place for cryptocurrency operations.
Serving a similar purpose as the safety vault of banks in the 1800s, its almost impossibility to be broken into is one of the crucial rationales behind cryptocurrency system stability.
Cryptocurrencies and blockchain are two different but related concepts. As cryptocurrency is reputed as the biggest application of blockchain technology, it is not the only application exclusive to the use of blockchain. Also, cryptocurrency has walked its way through to shoot blockchain technology from digital obscurity into the limelight.