Blockchain, cryptocurrencies, NFT & CBDC: Difference explained in 4 paras

Summary

  • Confused between the four? Let’s clear your doubts before you make any investment decision.

Blockchain is a technology. It stores data in blocks, which can be chained. Blockchain is not controlled by any single person or entity. It is a decentralized network where users collectively manage and control the stored data. The data is stored permanently on blockchain, and it is immutable. No one can reverse an entry made on blockchain network, although all entries can be viewed by anyone in the system.

Cryptocurrencies are digital currencies. They differ from fiat currencies like the US or Canadian or Australian dollar, which are backed by central banks like the Fed or the Bank of Canada. In cryptocurrency space, there are no regulators. All cryptocurrencies are underpinned by blockchain technology. Not all digital currencies are same. Bitcoin, for example, is a digital currency that is earned as a reward for mining. In contrast to bitcoin, ether – the currency of ethereum network – is used to pay for all work done using smart contract services of ethereum, which includes building apps and even ERC-20 tokens like Tether.

NFTs, or non-fungible tokens, are neither a cryptocurrency nor a separate blockchain. They are a unit of data associated with any digital asset like music or artwork, and entered into distributed ledger. In most cases, NFTs are entered as smart contracts on the Ethereum network. They are a proof of ownership of any digital asset and this proof is unalterable.

CBDC, or a central bank digital currency, is a work-in-progress. They are issued by central banks like the Fed as digital version of fiat currency. They are regulated, unlike cryptocurrencies, and hence their value remains stable just like their traditional paper note currency counterparts. China recently launched digital yuan as CBDC.

Image Source: Pixabay 

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