I know what you’re thinking. Nobrainer, right? Ask just about anyone what the difference between cryptocurrency and blockchain is and they’ll tell you one is digital money and the other is the technology behind it. Or some such variation on this, depending on whether your source has a technical background or not.
But, talking about cryptocurrency as “virtual money” and blockchain as a “technology” draws a line between the two, when, in fact, they’re really deeply intertwined.
Cryptocurrencies are essentially digital assets that can be sent on a peer-to-peer basis with no need for a central authority acting as a source of trust (and taking fees). We all know by now that not all cryptocurrencies are created equal. There are plenty of bogus tokens out there. There are also plenty of excellent projects with inane tokens that have nothing to do with their business models’.
Then there are other cryptocurrencies like Bitcoin and Ethereum that are more than just digital forms of money. Check out the Ethereum FAQ page if you want to know more about why cryptocurrency is so tied to the blockchain.
First of all, talking about “blockchain” is not really appropriate, since there are many blockchains. It’s far more fitting to talk about blockchain tech or blockchains in the plural.
Going past the notion of a chain of blocks connected to each other, and putting hash pointers and Merkle trees to one side, essentially, blockchains are record-keepers shared over thousands of computers. Any change to one record needs to be accepted by all of the systems contained within the network.
All transactions and movements of cryptocurrencies are recorded on blockchains, which cuts out the need for a bank. It’s also extremely hard to tamper with, due to the decentralization of servers.
Cryptocurrency and Blockchain Are One and the Same
According to Steve Tendon, a prominent member of Malta’s National Blockchain Task Force and author of Malta’s National Blockchain Strategy, cryptocurrency and blockchain technology cannot be separated.
He says, “Cryptocurrencies are a subset of the broader range of applicabilities of blockchain technologies, but they’re also extremely tightly connected.”
So, for example, in the area of regulation, finance, and even the general public, people often see cryptocurrency as something negative, criminal even. Cryptocurrency is associated with money laundering and scams, but blockchain technology is generally respected.
“That negative statement (about cryptocurrencies) is often countered by a positive one on blockchain technology,” Tendon notes, “For me, the two are very tightly connected. What makes blockchain technologies really interesting/exciting and gives rise to all these incredible opportunities of affecting any industrial sector is the notion of a smart contract (for decentralized computation). There’s no way you can have a smart contract platform that’s as sophisticated as the Ethereum one unless you also have a cryptocurrency that is used to pay for the computation. So the distinction between cryptocurrency and blockchain is really artificial.”
While it’s important to note the different facets of cryptocurrency and blockchains, it’s problematic separating them since they are so closely intertwined. In fact, this is what led Malta to create new legislation that doesn’t simply obsess about labeling cryptocurrencies as “securities” or “utilities,” but understands that they can be hybrids–and that decentralized computation must be paid for in cryptocurrency.
So, it’s not a case of good and evil, right and wrong, the separation simply, according to Tendon, “shows that there is a lack of understanding.” As all these concepts start to be assimilated into our daily vocabulary, hopefully, the mist surrounding the two clears up fast.