You may have never used an electronic currency in your life, but that will likely change. A special form of electronic currency, “cryptocurrency” is perhaps the future of currency. Soon, everyone may have their own “digital wallet” to store their cryptocurrency.
One of the main features of cryptocurrency is a technology called “blockchain,” which offers cryptocurrency special features unavailable to traditional cash. The main feature of blockchain technology is the ability to verify and record all transactions within the currency itself.
What is (a) Blockchain?
A blockchain is a computerized record of transactions that is verified by an anonymous network of computers. This record is often called a “digital ledger.”
The subject of blockchains can be very confusing, especially to people who are not computer programmers. Blockchain terms like “hash” and “digital ledger” are perhaps just as easily understandable to the layperson today as “World Wide Web” was prior to the Internet taking off.
How “blockchain” is referred to can muddy the waters. In many news articles, “blockchain” might appear without an “a” or “the” in front of it, implying that there is just one blockchain. “Blockchain” mentioned in this way often refers to “blockchain” as a technology. A specific instance would be “a blockchain” – such as the blockchain that undergirds Bitcoin, the world’s first decentralized cryptocurrency.
Bitcoin uses blockchain technology to record transactions. Bitcoin, Ethereum, and Monero are all forms of cryptocurrency. Note that Bitcoin’s blockchain is different from Ethereum’s blockchain, which is different from Monero’s blockchain. What sets them apart from one another is how they use their blockchains.
Blockchains are most common with cryptocurrency, but the technology has other applications outside of financial transactions. For example, blockchain technology can be used to maintain patient health records.
3 Different Ways Cryptocurrencies Use Blockchain Technology
Understanding the technical intricacies of how blockchain works is not necessary to benefit from the technology. What is important is to understand how different cryptocurrencies apply blockchain technology, because this is what sets them apart from one another.
1. Bitcoin vs. Bitcoin Cash
The original Bitcoin cryptocurrency still exists, but on August 1, 2017, Bitcoin Cash split off from the main Bitcoin blockchain. Bitcoin Cash was created due to an argument about the size of the Bitcoin blockchain. Bitcoin Cash advocates claim the Bitcoin block size was too small, which was hampering the currency. (What is a block? A block is an individual unit of a blockchain.)
According to the Bitcoin Cash website: “In 2017, [Bitcoin] capacity hit the ‘invisible wall’. Fees skyrocketed, and Bitcoin became unreliable, with some users unable to get their transactions confirmed, even after days of waiting.
Bitcoin stopped growing. Many users, merchants, businesses and investors abandoned Bitcoin. Its market share among other cryptocurrencies quickly plummeted from 95% to 40%.”
Bitcoin Cash has a much larger block size, which is designed to support more transactions.
Many cryptocurrencies, like Bitcoin, record transaction information in their blockchains, including the “wallet address” of the sender and receiver of the digital money. While real names are not recorded, the wallet addresses are public, and you can actually find information online about any Bitcoin transaction.
Some websites even have listings of Bitcoin transactions. For example, if you are curious about the largest recent Bitcoin transactions, you can find this information on the web.
Monero distinguishes itself as a cryptocurrency that is completely anonymous. Monero wallet addresses and transaction amounts are “obfuscated” to offer a deeper level of privacy than currencies such as Bitcoin.
3. Ethereum vs. Ethereum Classic
The original Ethereum cryptocurrency set itself apart by incorporating contracts into its blockchain. Then, a major crisis occurred when a hacker took advantage of a loophole in one of these contracts to steal more than $50 million worth of “Ether” (the name of Ethereum’s coins).
The Ethereum organization decided to take the money back by wiping the theft transactions from the blockchain. Removing blockchain history is a big no-no to cryptocurrency purists. Blockchain transaction recordings are supposed to be permanent – this is considered to be part of the “integrity” of the system.
When the “hacked” part of the Ethereum blockchain was erased, crypto purists rebelled. They announced a continuation of the original Ethereum blockchain in a currency now called Ethereum Classic. Ethereum Classic still contains the transaction records of the infamous Ether steal.
Benefits of the Blockchain Explained
Whether you call it “blockchain” or “the blockchain,” the technology is going to far surpass its roots as the basis for cryptocurrency. Whether transaction records are held in blockchains for currencies, hospitals, retail businesses, or law enforcement, blockchains are definitely a big part of the technology future. Understanding the nitty gritty of the technical aspects is not half as important as understanding what blockchain can accomplish. From this understanding, new applications will be developed, many revolutionary.