What is Blockchain? What is a Cryptocurrency?
A blockchain is a decentralized ledger. This decentralized ledger records information in a time-stamped, immutable way. Unlike traditional ledgers, a decentralized ledger is not totally owned by a single entity. This means that a blockchain is free for anyone to use i.e. permissionless. Unlike centralized ledgers which are often private, blockchain is highly transparent as everything has an immutable record.
What is a “block” in blockchain?
A block represents a basket of transactions. These are transactions that take place between different people all operating on the network. In order for transactions to be added to the blockchain, the block needs to be verified by multiple computers distributed perhaps globally. There are many different ways to verify that a transaction has taken place. Proof of Work, for example, is the way blocks are verified on the Bitcoin blockchain. This is when computers solve complex computational problems requiring high amounts of energy. When a computer successfully solves the problem, the block of transactions is added to the blockchain as being correct. A blockchain, therefore, is simply a long series of transactions that take place on the network. Each block is completely unique with a unique chain of transactions that took place before it. Trying to lie and say that a transaction took place is therefore impossible, as it would mean falsifying the entire history of the blockchain.
What is a Cryptocurrency?
A cryptocurrency is a digital asset that uses cryptographic security. Cryptocurrencies that exist on the blockchain are entirely decentralized. This means they can be used for transactions of value between parties without a 3rd party needed to verify that a transaction took place. A cryptocurrency such as Bitcoin is based on the Bitcoin blockchain. Cryptocurrencies are given as rewards to people who validate that transactions have taken place on the blockchain. This means that those who verify and add blocks (these people are known as “miners”) are rewarded with cryptocurrency tokens. These tokens reward the miners for using resources and taking the time necessary for securing the network. Once a miner receives cryptocurrency tokens, they can convert them into fiat currency or choose to spend them on goods and services.
In conclusion, blockchain is a decentralized way to record information. This information is shared between multiple computers to ensure all information is unchangeable (immutable). As a reward for verifying that transactions have taken place, cryptocurrencies are digital assets given to those who help process blocks and add to the network. Blockchain technology introduced a powerful way for capturing, storing and distributing data.