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Community-associated with cryptocurrency and Blockchain technology is increasing gradually. There has been a rising number of products and services which are captivating the interests and also investments of enthusiasts. But with the expanding community, confusions have also started engulfing the minds of the enthusiasts. People are using some concepts and terms interchangeably because of the huge similarities and are blatantly ignoring the differences among them. In this article, we will try to induce more clarity, while clearing confusion related to commonly misinterpreted terms of Blockchain and cryptocurrency.
Digital Currency | Virtual Currency | Cryptocurrency
In the world of digital financial systems, digital, virtual, and cryptocurrency are used interchangeably without realizing the difference among the three of the terms. Let us try to know what three of them actually mean and how they differ from each other.
Digital currency is the diversified term among three. It is a blanket term that signifies electronic money including both virtual and cryptocurrency which can be both regulated or unregulated. As the name suggests, it does not exist in the physical form like note or coin but in digital form and is intangible. Transaction takes place on the dedicated connected digital networks with minimal transaction fees.
Virtual currency which is sometimes interchanged with digital currency while other times with cryptocurrency. It is a kind of digital currency that is generally administered by the creators and transacted between the people of specified virtual communities. Most of the time, they are unregulated and not backed by any central authority. Virtual currency represents an issuance of monetary value to a currency that involves peer-to-peer transactions. Cryptocurrencies such as Bitcoin and Ethereum are considered as virtual currency.
Cryptocurrency is digital currency with encryption algorithms and “cryptographic” techniques to ensure the security of the connected network. The major difference between virtual currency and cryptocurrency is that cryptographic techniques maintain a high level of security and make the currency hard to counterfeit in crypto space. Many cryptocurrencies operationalize blockchain-based decentralized systems without any need for an intermediate party.
Thus, digital currency is not a cryptocurrency or virtual currency; virtual can be digital currency or cryptocurrency, and cryptocurrency is both digital and virtual currency. So, besides digital currency vs cryptocurrency, it is crypto which is digital itself.
Crypto coins | Tokens (Blockchain and Cryptocurrency)
In crypto market places, coins and tokens are interchangeably used and many times people just use the term without considering the difference between coin and token in cryptocurrency.
Coins are the cryptocurrencies that work on their independent Blockchain network like that of Bitcoin. Coins are like self-made from scratch to hatch and the network is exclusively meant to fulfill their vision and mission. Generally, projects associated with coins adopts the innovative technologies and integrate them together for specific purposes. Just like Ethereum which designed the Blockchain network to implicate the all-new experience of smart contracts and Decentralised Apps or DApps in crypto space. Coins are exchanged on cryptocurrency exchanges as they are made on non-standardized code protocols.
Token or crypto-token is also cryptocurrency but they are the derivatives of the primary Blockchain. Tokens are basic functions in an application ecosystem to incentivize particular behavior or paying fees. For instance, ERC 20 token DAI is native to MakerDAO DApp on Ethereum which lets users access credit instruments on the network like lending or borrowing. Tokens can be exchanged with internal applications in a hassle-free manner as they are made on standardized code protocols.
Blockchain | Distributed Ledger (Blockchain and Cryptocurrency)
Blockchain and distributed ledger? Do they relate to each other or are they the same? When I was a newbie I used to think that they both are more or less the same but now after learning a bit about them, I can acknowledge that “distributed ledger technology: beyond blockchain”. Let us find out how they are different and their application to the industries.
The distributed ledger is a technology that works on the decentralized concept and removes the role of intermediaries while establishing the direction of communication or transaction between two parties. Blockchain technology is just a type of distributed ledger which works on the consensus mechanism of “Proof-of-work” (most of the time!) to validate and update a block on the connected network. Distributed ledger need not to have blocks or any consensus mechanism or any data structure. Thus, Blockchain is a subset of distributed ledgers which is meant to record transactions in highly secured and transparent networks but the vice-versa is not true.
Blockchain | Cloud Computing
Many times, Blockchain technology is conceived as cloud-based technology, but they both are completely different technology.
Blockchain technology offers ledger databases to record immutable and cryptographically signed consensus-based validating protocol. Blockchain follows the decentralized model where parties involved in the transaction agree on the details and the community of miners validates the transaction and maintains the trustless network.
On the other hand, cloud computing is an infrastructure that provides the accessibility of technological components along with services related to them like application development and integration. Unlike, Blockchain model, cloud computing is based on a centralized client-server model. In fact, some of the companies are planning both the technologies to revitalize the digital world with Blockchain hybrid cloud.
Blockchain and cryptocurrency, both of the concepts are not easy to understand as they are relatively new to the community and did not receive that exposure till now. But, they both have the potential to accelerate the digital revolution in the coming years. Are you clear with both of the terms? Right? So, cryptocurrency is the Blockchain technology-based digital currency that aims to revolutionize the payment system across the globe.
Cryptocurrency is gaining the hype since the price skyrocketed to $20,000 in 2017 and also storming the financial markets amid the pandemic. Blockchain technology though misconceived as only meant for fintech or crypto industry, but recently other industries are also deploying this technology to increase the efficiency of their particular sectors. Thus, both Blockchain and cryptocurrency are here to stay, therefore you must brush up your basics as soon as possible with this article on commonly misinterpreted concepts.