The blockchain is a revolutionary technology that has enabled the emergence of cryptocurrencies such as Bitcoin. It is a decentralized digital system, a formation of digital information, or blocks, stored on a network of computers that create a database. When verifiable transactions are made, information is stored in blocks that, when full, are added to the chain. Cryptocurrency operates through the blockchain, as it is also a decentralized digital system.
Defined as a digital or virtual currency, cryptocurrencies use cryptography for security reasons and are not owned by any particular authority. Cryptocurrencies such as Bitcoin and Ethereum work with a technology called blockchain. At its core, a blockchain is a list of transactions that anyone can view and verify. The Bitcoin blockchain, for example, contains a record of every time someone sent or received bitcoins.
Cryptocurrencies and the blockchain technology that powers them allow value to be transferred online without the need for an intermediary, such as a bank or credit card company. In short, the blockchain is an encrypted digital database shared by several parties in a distributed network. Any transaction that occurs on the network is recorded, verified and stored in a database. Transactions are transmitted to all network participants, creating an unalterable transaction log.
This section of the FinTech guide briefly covers cryptocurrencies (such as Bitcoin) and blockchain technology (a protocol for a peer-to-peer electronic cash system). The blockchain brings about significant changes to business and the economy. It provides tools to leverage blockchain technology to drive innovation and efficiency in organizations. Non-Fungible Tokens (NFTs) are tokens on blockchains, but they differ from cryptocurrencies in that they are unique digital assets.
Blockchain is the technology that underpins the Bitcoin cryptocurrency, but Bitcoin isn't the only version of a distributed blockchain registry system on the market. By design, the blockchain allows multiple participants to view the entire life cycle of a digital ledger. The ability to track all transactions also increases the transparency and security of blockchain-based payments. Nearly all cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, are protected through blockchain networks.
Digital currencies such as Bitcoin and Ether use a public blockchain to transfer value and record ownership. The decentralization of technology has also caused several schisms or bifurcations within the Bitcoin network, which has created branches of the ledger in which some miners use a blockchain with one set of rules and others use a blockchain with another set of rules. The Internet and printed collections of the Library of Congress are useful sources for learning more about cryptocurrency and blockchain technologies. Like a bank's ledger, the blockchain tracks all the money that comes in, out, and goes through the network.
The terms have become synonymous because the first blockchain was the database in which every bitcoin transaction (the first cryptocurrency) was stored.