Can Blockchain Work Without Cryptocurrency?
This blog post will cover:
- How does blockchain technology work without cryptocurrency?
- Does blockchain technology need cryptocurrencies to function?
- How do I invest in blockchain without purchasing cryptocurrencies?
- Can smart contracts function without blockchain technology?
It’s easy to get lost in the highfalutin technical mumbo-jumbo behind blockchain technology and the cryptocurrency industry it powers.
And while you may already know that blockchain technology serves as the foundation of cryptocurrencies like Bitcoin and Ethereum, you might not know that blockchain technology isn’t exclusive to just cryptocurrency and digital asset applications.
Blockchain technology can be utilized in many applications outside the decentralized ledger known as Bitcoin, such as financial services and payments processing. The latter is because it enables payment settlement without a centralized entity overseeing the transactions.
But blockchain technology goes far beyond just enabling permissionless payment settlement systems. As we speak, blockchain technology is evolving towards its successive iterations, such as smart contracts, public and private blockchain applications, and reputation management systems, just to name a few.
How does blockchain technology work without cryptocurrency?
Blockchain technology simply refers to a distributed ledger keeping track of the state of an open, decentralized database shared with a set of users.
This database might include data pertaining to transactions involving cryptocurrencies, confidential health data related to a patient’s medical history, or election-related voting data that cannot be altered or erased from the database once appended, for instance.
In short, blockchain technology isn’t exclusive to just cryptocurrencies. Instead, blockchain is primarily centered on decentralized data storage.
Simple enough, right? But can you use blockchain technology for other non-crypto-related ends? Does blockchain actually need cryptocurrencies to work? Let’s take a look at these points.
Does blockchain technology need cryptocurrencies to function?
Before we answer this question definitively, we must first distinguish between the two main types of blockchains: public and private.
Public blockchains are open, permissionless, and decentralized ecosystems that allow anyone and everyone to join and participate in their operation, validation, and governance. Meanwhile, private blockchains allow the same without the key ingredient of decentralization, as these blockchain networks are invite-only and governed by a single entity.
Public blockchains do need cryptocurrencies to function. That’s because cryptocurrencies are the primary incentive for network participants such as miners who solve complex cryptographic puzzles which verify transactions that are appended to the decentralized ledger to achieve consensus. This is the case for Bitcoin and other public blockchains that use native crypto to incentivize participants.
Meanwhile, permissioned blockchain solutions such as Linux’s Hyperledger, were developed to create distributed ledgers that host confidential business data. Another private blockchain solution is Corda, enabling the development of interoperable applications that support digital trust and proprietary data between regulated entities. Private blockchains don’t need cryptocurrency to maintain operations or incentivize participants as that branch of oversight is managed by third parties like R3 or the Linux Foundation.
How do I invest in blockchain without purchasing cryptocurrencies?
You don’t need to participate in direct investing in cryptocurrencies to get some indirect exposure to the emergent blockchain space.
All you need to do is to buy stock in companies with a straight financial stake in the future of blockchain technology or invest in companies offering or working with blockchain technology as part of their service portfolio. This includes companies such as IBM, Amazon, or R3, to name a few.
You can also contribute to the blockchain space by investing in companies that hold significant amounts of cryptocurrency such as Tesla and Microstrategy. Both companies can be accessed and traded through S&P 500-tracking funds, making it easier for non-crypto savvy retail investors to get into the action.
Nevertheless, whether you invest your money on company stock, exchange traded funds, or digital assets themselves, investment experts advise keeping your exposure to such volatile investments at a minimum.
Can smart contracts function without blockchain technology?
Blockchain technology is a prerequisite for smart contracts. After all, blockchain enables automated contract logic to be programmed and implemented without third-party involvement.
Granted, while existing database systems can be programmed to have automated triggers and procedures, they cannot provide the immutability that blockchain technology offers. Ultimately, database systems require administrator rights that grant the ability to delete logs, alter records, edit transactions, and otherwise make a transaction look like it never existed.
Implementing secure, immutable, and tamper-proof smart contracts requires blockchain technology. However, smart contracts also need oracles that pull and distribute off-chain data to the ledger at set times to determine whether an agreement should be triggered.
It must be noted that using oracles introduces another third party to the participants apart from creating another potential point of failure if the oracle ceases operations, delivers incorrect data, or failure in transmitting required smart contract data. Smart contracts need to address such limitations to gain more traction and widespread adoption as a viable technology.
Once you overcome the technical concepts and cryptographic jargon, blockchain technology is quite simple. It’s an immutable database that records transactions as they happen, and anything that goes on the ledger cannot be edited or back-dated.
Blockchain technology offers exciting new possibilities as far as its use cases are concerned – and we’ve barely scratched the surface of what it can do across industries. Whether you believe in or are skeptical about the long-term viability of cryptocurrencies, it’s hard to ignore the utility and value of blockchain technology.
As the blockchain industry matures along with its technology, it’s not a matter of if, but rather when more legacy companies will implement and make use of it. We’re moving towards a tokenized world, and the next few years will be a hotbed of innovation and growth for blockchain technology.
SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.