Difference between blockchain and cryptocurrency

For those who are just starting to understand the world of cryptocurrencies, the terminology may seem complex and even confusing. Sometimes, when talking about blockchain technology, people may accidentally mention Bitcoin, and vice versa, when talking about cryptocurrencies, they may include blockchain in this concept.

However, it is important to understand that these are different concepts and they describe completely different aspects of the cryptocurrency world. Let's take a quick look at the basics of blockchain technology, and also look at terms like Bitcoin in particular and cryptocurrency in general to better understand their differences.

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Making analogies is not always the most professional way of teaching and explaining, but it is the most colorful and accessible. So let's look at this with an example:

Let's look at our topic today in a similar way:

Most blockchains are designed as decentralized digital ledger systems or electronic ledgers. Roughly speaking, a blockchain is a digital ledger that is similar to an electronic version of a regular paper ledger, and its main function is to record all transactions in a sequential manner.

To be more precise, a blockchain is a linear chain consisting of many blocks that are interconnected and protected by cryptographic methods. This technology can be applied in various areas, not limited to financial transactions. However, when it comes to cryptocurrencies, the blockchain plays the role of a permanent record of all confirmed transactions.

Concepts such as "distributed" and "decentralized" apply to the structure and maintenance of the ledger. To understand the difference, consider examples of centralized registers, such as government records of real estate sales, ATM banking transactions, or lists of goods sold on marketplaces. In these cases, the registry is managed by a single organization: a government agency, a bank, or a marketplace. There is only one main copy of the registry, and all others are simply backup copies with no official status. Therefore, traditional registries are centralized because they are managed by a single organization and depend on a single database.

In contrast, blockchain is a distributed system that functions as a decentralized ledger. There is no single copy (distributed storage is used instead) and no single controlling authority (decentralization). Simply put, each participant who decides to join and participate in the blockchain network stores an electronic copy of all data, which is regularly updated with each new transaction, similar to other participants.

That is, a distributed system is based on the joint activities of many users located in different parts of the world. These participants are also called nodes (or nodes), and they all actively participate in validating and confirming transactions, following established rules. As a result, the entire system is also decentralized, which means there is no control from a limited number of participants.

The term blockchain comes from the way records are structured as a chain of interconnected blocks. The definition of a block includes data and a list of recent transactions, and these, like the transactions themselves, are public and cannot be changed. As new blocks appear in the blockchain chain, a continuous sequence is formed, similar to a physical ledger with many pages. This is a simple comparison, but the process of functioning of the blockchain is much more complex.

One of the key factors ensuring the stability of the blockchain is its cryptographic support and interconnected blocks. To create new blocks, network participants must engage in computational operations that require costs, a process called mining. Basically, miners are responsible for validating transactions and grouping them into new blocks, which are then added to the blockchain (if certain conditions are met). They are also responsible for introducing new coins into the system and receive rewards for their work.

Each subsequent block that is confirmed has a connection with the previous block that immediately preceded it. The advantage of this characteristic is that it is virtually impossible to change the data in a block once it has been included in the blockchain. This is due to the use of cryptographic proofs, the creation of which requires significant costs.

As a result, we can conclude that the blockchain is a sequential chain of data blocks, organized in chronological order and protected by cryptographic methods.

In simple words, cryptocurrency is an electronic form of money that serves as a means of exchange between participants in a distributed network. Unlike traditional banking systems, these transactions are recorded on a public digital ledger (blockchain) and can be carried out directly between participants without the participation of intermediaries.

The term "crypto" refers to the use of cryptographic techniques to ensure system security and ensure the reliability of creating new cryptocurrency units and verifying transactions.

Not all cryptocurrencies are mineable, but Bitcoin and some other tokens are dependent on the mining process and have a slow, controlled increase in their total supply. Thus, mining is the only way to create new currency units, and this helps prevent inflation, which can threaten traditional fiat currencies due to government control over the quantity in circulation.

Bitcoin is the first and most famous cryptocurrency. It came into being in 2009 when an unknown developer known as Satoshi Nakamoto introduced the idea. The main goal was to create an independent and decentralized system for electronic payments based on mathematical proofs and cryptography.

There are many other cryptocurrencies besides Bitcoin, each with its own characteristics and unique way of functioning. However, not all of these cryptocurrencies have their own blockchain technology. Some of them are based on existing blockchains, while others are created from scratch.

Like many other cryptocurrencies, Bitcoin also has a limited supply of coins, which means the system will not generate new units once the maximum supply is reached. While this limit may vary from project to project, in the case of Bitcoin, the maximum supply is limited to 21 million coins. Typically, the total supply is public information and is established when the cryptocurrency is created.

The Bitcoin blockchain uses open source code that is available for anyone to view and copy. This allows many developers around the world to actively participate in improving the project.

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