Cryptocurrencies, as well as blockchain technology as a whole, will typically get used interchangeably within the crypto space from a crowd that is unfamiliar with what this is and how all of this works; however, they are two completely separate parts that make up the system.
A cryptocurrency is essentially the digital currency that is used as a volume of exchange or for a variety of different use cases within the blockchain, while the blockchain is the technology itself.
Today, we will be diving into what cryptocurrencies are and what blockchain technology is to clear the air surrounding these two specific topics.
Blockchain Technology Explained
The blockchain is defined as a system that is able to record information which makes it extremely difficult or near impossible to change, hack or cheat due to its underlying structure. The blockchain is a digital ledger of transactions, which is duplicated and then distributed across a network of computers. These computers are spread out on a global scale, and the owners of these machines do not know one another, ensuring that no single person or authority can have control over it.
The transactions that get recorded on top of the network do so within the form of blocks, where each block is filled with the number of transactions that occurred throughout a specific time frame. Every time a new transaction ends up occurring on the blockchain, there’s a record of that transaction that gets added to every participant’s ledger.
The decentralized database is managed by these nodes. The first block to ever get recorded on top of a blockchain is known as the genesis block, and this block then gets followed by each additional block that gets confirmed, which forms a chain.
In order to verify the transaction and prevent issues such as double spending, the blockchain utilized a consensus mechanism.
One of the most popular and most-used consensus mechanisms is known as Proof-of-Work (PoW), where miners, or nodes, contribute processing power as a means of verifying transactions.
They race one another to solve a complex cryptographic puzzle that comes in the form of a hashing algorithm, where the miner that ends up verifying the transaction by solving the puzzle gets to add the block on top of the network and gets rewarded in the form of the network’s native cryptocurrency.
Recently, many new projects have utilized a different consensus mechanism, and even some old projects, such as Ethereum, have transferred to it, known as Proof-of-Stake (PoS). In this system, users stake or lock their cryptocurrencies that are native to the network, through which they contribute to its security and verify transactions that way, leading to lesser electricity usage and lower hardware requirements.
Now that we have gone over what blockchain technology is, you might have noticed that the term cryptocurrency has been used numerous times. This is due to the fact that cryptocurrencies do fill an important role within the blockchain but are not the exact same thing. Let’s go over what they are and how they differentiate themselves.
Cryptocurrencies Explained
A cryptocurrency is essentially a class of digital assets, which are defined as ones that get created through the utilization of cryptographic techniques. However, the main reason why they can identify as currencies is due to the fact that each person has the ability to buy them, sell them, or trade them, which means that they have value associated with them.
At this point, you might be wondering how they differentiate themselves from FIAT currencies such as USD, EUR, AUD, and so on. They are not controlled by national governments, however, can circulate without any monetary authority behind them, such as a bank example.
Cryptocurrencies are brought into existence through the process of mining. Some blockchains have all of them pre-mined and ready prior to the project’s launch, while others allow users to mine them as an incentive for them to secure the network.
This means that cryptocurrencies serve the role of digital currencies that have a value associated with them but are also used as incentives for the maintenance of the tamper-resistant record of transactions.
The individual units of cryptocurrencies are referred to as coins or tokens.
There are Layer-1 blockchains, which have coins.
Layer-2 blockchains are networks that get built on top of pre-existing, Layer-1 blockchains. They can scale them or bring a specific function, such as smart contracts to them, and these have tokens.
The Different Types of Token Standards Found within Ethereum
Ethereum is by far one of the largest blockchain networks out there in terms of popularity as well as market capitalization, right behind Bitcoin (BTC).
One of the key reasons why Ethereum (ETH) blew up so much in terms of popularity is due to the fact that it introduced smart contacts, which contributed to paving the way to the creation of Decentralized Finance (DeFI), which is accessible through decentralized applications (dApps), and on top of which non-fungible tokens (NFTs) get used.
With that in mind, there are numerous token standards that Ethereum has, including:
ETH (Native Token) – Ether goes by the ticker symbol ETH and is the native cryptocurrency used across the network. While the network used the Proof-of-Work (PoW) consensus mechanism, ETH was the reward miners received. After “The Merge,” where Ethereum upgraded to Proof-of-Stake (PoS), this is now the staking token.
- ERC20 (Fungible/Utility/Payment Tokens) – this is essentially a scripting standard that gets utilized on top of the blockchain network. This indicates a number of rules, as well as actions that each token or smart contract has to follow in order to be implemented. This is a blueprint or a set of guidelines that every developer needs to take into consideration when creating a token or a project that requires a token on top of Ethereum.
- ERC721 (NFTs) – this refers to the data standard for the creation of non-fungible tokens (NFTs), where every single token is unique and cannot be divided or directly exchanged for another token that follows the same standard. You can think of it as a template or a format that developers need to follow in order to mint their NFTs on top of Ethereum and allow the NFTs to have compatibility with a wide range of applications such as exchanges, dApps, and wallets.
- ERC1400 (Security Tokens) – this is essentially the standard for security tokens that incorporates differentiated ownership alongside features such as error signaling, document references, gatekeeper access control, alongside issuance and redemption semantics. This standard aims to bring consistency to how developers build, issue, trade, and manage security tokens on top of the blockchain.
Now that we know everything surrounding the various token standard let’s go over how USP stands out.
How USP Stands Out Within the Crypto Space
United States Property Coin (USP) is a project and token that aims to tokenize U.S. real estate portfolios, which can provide value on the blockchain. The USP token is utilized for this specific use case.
It aims to provide a wide range of benefits, such as being used as a hedge fund against inflation, alongside providing a lower cost associated with entering the space for investors that might not have the biggest budget out there.
As such, USP is a security token that leverages blockchain technology, and its value is stored in a real estate portfolio, not the underlying blockchain.
What this essentially means is that this project leverages the power of blockchain technology to move around the value from something that has a real-world value associated with it, to a digital token, in the form of USP.
USP, as a result, can make an otherwise illiquid asset into a liquid one and distribute its value to the owners of the cryptocurrency.
Moving Forward with Cryptocurrencies
Hopefully, now you know everything there is to know surrounding how cryptocurrencies work and how blockchain technology works as a whole.
There are numerous differences between them, as, ultimately, cryptocurrencies are digital currencies that are required for the operation of the underlying blockchain network, which is the technology that drives and ties all of this together.
Without cryptocurrencies, there would be no incentive for blockchain networks to operate or be secured. Without blockchains, cryptocurrencies would not exist or function in the way through which they do now.
Blockchain technology has fundamentally changed the way we perceive and have access to financial services, and USP aims to leverage this technology to revolutionize the real estate space and provide anyone with access to the asset class that might have otherwise been inaccessible to them.
As blockchain technology evolves, so will the use cases surrounding cryptocurrencies. Both coins, as well as tokens have their role to play within the crypto space, and there are now more token standards than ever before that have laid down the foundation on top of which developers can build projects and tokens and evolve them to a higher standard than previously possible.
As more projects are brought within the crypto space, we will likely see new blockchain technology concepts get brought to life alongside numerous cryptocurrencies that accompany them.
