Are blockchain and Cryptocurrency the same?

To-may-to, To-maa-to? After all, the word ‘Blockchain’ didn’t exist before the advent of Bitcoin. So they must be the same right? Well, not really! Let me explain. You see, Blockchain as a technology is extremely fundamental. Think of it like the internet. Whereas crypto currency is a manifestation of that technology. Think of it like Gmail or Facebook. So equating crypto and Blockchain would be similar to saying that the internet is Gmail or Facebook. So where do we draw the line?

Today, we are going to talk about a question that newbies often fiddle with. Are Blockchain and crypto currency the same? So hold tight as this one is going to be loaded with information. By the end of this article, you would be able to drive the dinner table conversations like a boss. Promise!

What is Blockchain?

Full disclosure, this needs a post of its own. But this time around, I will try to wrap it in a few paragraphs. Also, assuming that you are reading this, I will give you an analogy that you could use for your 7-year old nephew as well.

So, say a boy (let’s call him Jitu) wants a dog on Christmas. He writes a letter to Santa telling him how he has been a good boy and now wants a dog. He hands over that letter to his dad to deliver it to the North Pole. His dad, a typical father, reads it on his way and changes the dog to a book (he hates dogs). Lo and behold! Jitu is pretty sad about the book.

Next year onwards, he writes the same letter demanding a dog but plans to upload it on the ‘North Pole’ Blockchain. This Blockchain has Santa Claus, Elves, many kids like Jitu and their parents on this Blockchain.

Every time a kid uploads a letter, a copy of it is sent to everyone on the Blockchain. Once again, when Jitu’s dad finds out that his son has demanded a dog, he changes it to a water bottle this time.

North Pole Blockchain with all Nodes and Jitu’s father

But wait. Now Jitu’s father’s copy is different from the version every other individual has on the Blockchain. So his copy is simply disregarding and Jitu gets a dog. Yay!

A quick adult version of what just happened here; All these parents, kids and Santa himself are nodes of this Blockchain. Every transaction is visible to everyone. And if at all anyone tries to tamper with the Blockchain, they are caught immediately as everyone knows the truth at any given point.

This brings me to some of the really great properties of Blockchain:

  • Secure: All this information is encrypted by the most complex cryptographic algorithms. Therefore, blockchains are quite secure
  • Decentralized: Nobody owns these blockchains. In our example, everyone (nodes) are helping maintain it. No one can centrally take a call on its future
  • Immutable: Since you can’t go about changing the data at will, blockchains are immutable in nature
  • Faster Settlement: Blockchains are P2P. Since there are no intermediaries involved in the transaction, it is extremely fast in terms of settlement. There is no reconciliation required
  • Distributed: There is no single point of failure. The blockchain would run until the last node is surviving

What is Cryptocurrency?

With the blockchain explanation out of the way, let us dive deeper into the world of cryptocurrencies. I will start with a bookish definition. As per Google, cryptocurrency is a digital currency in which transactions are verified and records are maintained by a decentralized system using cryptography, rather than by a centralized authority.

And as always, it does NOT help much. Remember we talked about how cryptocurrency is an implementation of blockchain technology. A use case of it so to say. Let us try to understand this definition with what we have learnt so far.

There are a few keywords here:

  • Digital Currency: Yes. Cryptocurrency does not exist in a physical format. Unlike fiat which can be found in paper notes and coins, something like Bitcoin is purely digital.
  • Decentralized: Ah! We meet again. We talked about how no one owns the network here. This property becomes way more relevant when you are dealing with a cryptocurrency that wants to become the world’s first fully implemented state-free money aka Bitcoin.

If Bitcoin weren’t decentralized, any government could have shut it down. It’s because it is decentralized, it has become this mighty force.

In theory, a similar principle could be applied to your data where the big tech corporations don’t own and monetize your data due to decentralization.

  • Cryptography: Cryptography is a technique of securing messages in such a way that only the sender and the intended receiver can read them.

In an oversimplified explanation, think of securing your message with a password and only you and the intended receiver can unlock it.

In a similar fashion, cryptocurrency allows you to send and receive value in a secure format.

Apart from the above, there are certain key features of cryptocurrency that make them worth your time and interest. Let us discuss them in detail. This would also give you a hint of the overall direction this industry is headed in.

  • Censorship Resistance: Since the network is decentralized and immutable, it makes it a great haven for censorship resistant transactions.

For example, Bitcoin or any cryptocurrency owned by you cannot be confiscated by the government authorities. No one can steal it from you either. All the transactions are signed via your private key and that’s it.

Try comparing that with traditional finance. You are prone to account freeze, hacks, illicit confiscation and dependent on rules laid down by a central authority.

  • True Ownership: Because it’s you and only you who can decide the future of your funds, this is ownership in a real sense. Let us compare this with the example of stocks. Right now, you purchase stocks from brokers like Zerodha, ICICI Direct etc. What happens if they shut down?

Your stocks are safe with NSE or BSE. But what if a government authority like CBI, Taxation

Department orders NSE or BSE to freeze your account? Well, there’s not much you could do there.

Therefore, ownership is an illusion in traditional finance.

  • Ownership Beyond Currency: While we are at it. Why should we apply these amazing features just to our money? Well, that’s exactly what Vitalik Buterin had thought when he was some 17 years old.

Hence, Ethereum was born. Ethereum aims to decentralize core aspects of human interaction to enable peer-to-peer, open transactions. For example, all the data that you create (like this beautiful blog, images, videos, reels) is at the mercy of a centralized platform.

These platforms decide if your content is worthy of distribution or should be taken down. To top it all, if these platforms shut down, your data is doomed.

Therefore, Ethereum wants to become this Blockchain that would facilitate the building of Decentralized Applications or dApps to overcome these problems.

And finally:

Blockchain has many use cases apart from cryptocurrency. But we’ll talk about them some other day. For now, let me know your opinion on the future of cryptocurrency and blockchain. What’s your take on the regulatory impact of censorship resistance?

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