Blockchain and cryptocurrencies are not the same thing, although one relies on the other.
Blockchain is the technology that enables the existence of cryptocurrencies, among many other potential applications. Cryptocurrencies are an electronic medium of exchange that are created and stored on the Blockchain.
Blockchain is a decentralized, cryptographically protected ledger of transactions that is stored across a distributed, peer-to-peer network. It was invented by Satoshi Nakamoto in 2008 to act as the public transaction ledger for Bitcoin, which he created as a solution for the double-spend problem that affects digital money systems. Unlike physical cash, digital cash consists of information held in a digital file that can theoretically be duplicated or falsified. As with counterfeit money, such double-spending inevitably leads to the loss in value of the digital cash by creating a new amount of copied currency that did not previously exist. With this loss in value comes loss in trust of the overall system. Blockchain solves this problem by creating a record, or ledger of these transactions that is stored across multiple computers in multiple geographies, thereby making it almost impossible to duplicate, delete or change records.
As Blockchain eliminates the double-spend problem, Blockchain-based systems can be absolutely trusted to represent an accurate record of each transaction, and this is what many people believe will lead to a radical rethinking of what money is and how we pay for things, as well as how we verify who owns what and how assets can be bought and sold.
One of the major innovations that Blockchain brings is the ability for market participants to transfer assets across the Internet without the need for a centralized third party, such as a bank or credit card company. The buyer and seller can interact directly with each without needing time-consuming and often expensive verification by a trusted third-party intermediary. Over the past two years we have seen an explosion of different cryptocurrencies that all seek to leverage this payment innovation. Although cryptocurrencies provide one of many potential use cases for Blockchain technologies, the vast number of potential usage cases and impact of Blockchain technologies is not directly correlated to the performance of the highly volatile crypto markets.
One of the major problems with transacting on the internet is lack of trust. For example, if someone offers to sell you over the internet a digital asset, such as some software, you have to trust them to send this to you once you have initiated the payment, and you also have to trust that they actually have sent it when they say they did. In this example, Blockchain technologies can solve this problem by enabling the software to be released at the precise moment that the payment is received, as well as keeping a true record of transaction that can be viewed by both parties. As a technology, Blockchain offers a way of significantly improving some of the major problems associated with trust.
If we can remove the requirement for trust and know that we can absolutely depend on the technology to manage the transaction, then Blockchain will provide the foundation that enables people across the world to have access to a global payment system, where anyone with a mobile phone can participate, anywhere, anytime, without needing a credit history or a bank account.
Blockchain has the potential to disrupt a wide variety of transactions beyond traditional payments systems. In healthcare for example, Blockchain technologies could be used by patients to store their own medical history securely while creating rules to control who can access it.
Financial services organizations can use Blockchain technologies where records are stored digitally, as well as transactions that currently need to be verified by a trusted third party, such as stocks and shares trading. These transactions could include those that transfer digital or physical assets, such as real estate, protecting intellectual property, such as the downloading of an artist’s song, and verifying the chain of custody as an asset moves from owner to owner.
Blockchain is a highly effective tool for removing friction from transaction-related processes, as well as being a fraud- resistant system for protecting and authenticating almost any kind of transaction. Blockchain will have a revolutionary impact on a number of industries worldwide, especially in an era of cybercrime and increasing regulatory requirements, and over time will provide a practical, low cost and efficient mechanism to finally include the millions of unbanked people in the global economy.