Blockchain, currencies and tokens

To the uninitiated, the term crypto-currencies are interchangeable with tokens. However, there is a difference! All these points back to the underlying blockchain.

The more common blockchains are Bitcoin and Ethereum. Neo is up and coming though. These blockchains are the foundation of the distributed ledger technology being touted. The blockchain will contain data that will need to be mined (or confirmed by network). This data is usually transaction details and are time stamped. Miners provide massive amounts of computing power by solving complex mathematical equations. The one who successfully solves the equation in the fastest time mines the block of data and is rewarded in the blockchain’s native crypto-currency because work was done to ensure the legitimacy of the new block that was just added. Since the blockchain’s ledger is made public and confirmed by mining, it makes it near impossible for a lone rouge hacker to try to change the transaction details.

On the other hand, tokens are ideas/businesses that run off the blockchain’s distributed ledger. This is the large part of data that was mentioned earlier that needs to be mined to be confirmed on the blockchain. We have some interesting business ideas that utilise the blockchain to disseminate data, for example to distribute payments from a profitable company not unlike a traditional dividend payment. All of these ride on the blockchain to make public the transactions.

As an analogy, the blockchain is like our MRT train and tracks which provides the basic infrastructure to move people which is the data. Tokens are akin to the passengers onboard the train. As the amount of data gets larger, the chain gets longer as it has to “transport” this enlarged dataset. This is the reason why transactions on the Bitcoin chain take significantly longer time to get confirmed since it has been around for almost 10 years. The recent hardfork aimed to solve the issue of its growing length and hence confirmation speed, as well as to achieve an optimal blocksize for data so that more transactions can be put in a single block. This is the result of the developers and community coming together to try to optimise processing times and data.

By now, I hope through this simple analogy, you will be able to differentiate between a blockchain, crypto-currency and tokens.

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