Do All Cryptocurrencies Use the Same Blockchain?

When bitcoin launched back in 2009, it had zero competitors in the digital currency realm. Today, over 2000 virtual currencies utilize blockchain technology. So, the question arises, do all these cryptos run on the same blockchain?

Cryptocurrencies do not use the same blockchain, and instead, use different blockchain technologies. Developers create cryptos for various purposes and use cases. Since blockchain provides a way to record information securely, each cryptocurrency can choose what data it wishes to store.

This article will give you an in-depth explanation of how blockchain works and why cryptos use different chains. Let’s get started.

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Technologies That Cryptocurrencies Use

Cryptocurrencies were designed for different purposes and have different underlying technologies/algorithms. Whereas Bitcoin uses Proof of Work, Ethereum is Proof of Stake. 

Bitcoin’s supply limit is 21 million coins, while there’s no supply limit for Ethereum.

Most public projects that issue “native” coins have their blockchains. The different blockchains include:

  • Bitcoin blockchain
  • Ethereum blockchain
  • EOS blockchain
  • Dogecoin Blockchain
  • Litecoin blockchain

On the other hand, most tokens don’t run on native blockchains but take advantage of existing chains (smart-contract platforms). ERC-20 tokens utilize the Ethereum blockchain, including:

  • ChainLink
  • Basic Attention Token
  • Aragon
  • Decentraland
  • Enjin. 

Digital tokens can therefore use the same blockchain.

Since blockchain technology is open-source, it’s common for a blockchain to mirror another. For example, the Litecoin blockchain is a spinoff of the Bitcoin blockchain. The number of blockchains will continue to grow as long as new altcoins adopt blockchain technology.

Chains vary, with each trying to overcome the blockchain trilemma of decentralization, scalability, and security.

Each Crypto Is Built on a Different Blockchain

All transactions of a particular coin are handled by the blockchain that supports that coin. For example, any Ether transaction you make is made on the Ethereum blockchain, whereas any BTC transaction you make is made on the Bitcoin blockchain.

Crypto blockchains differ in several ways.

Consensus Mechanism

Crypto transactions are handled and validated by a network of individual nodes working together. A consensus mechanism is necessary to ensure all nodes are synchronized and valid transactions are made on the blockchain.

Blockchains use different consensus algorithms, depending on their use case.

Proof of Work (PoW)

PoW mechanism involves users solving arbitrary mathematical puzzles when creating new blocks, which is helpful in crypto mining. The miner who matches the target hash with the previous earns the right to add a new block and is rewarded.

Bitcoin, for example, uses the SHA-256 algorithm to generate new hashes. The first miner to create the target hash wins the race to add the next block. Besides Bitcoin, Litecoin and Dogecoin use the PoW consensus mechanism.

Proof of Stake (PoS)

PoS is a type of cryptographic proof that selects validators based on their stake in a cryptocurrency. Unlike in PoW, miners don’t solve a cryptographic puzzle. Instead, they have to stake cryptos to validate transactions. 

Examples of projects that leverage this protocol include:

  • Ethereum
  • Cosmos
  • Polkadot
  • Cardano
  • Solana

Other Consensus Mechanisms

Consensus MechanismProject
Proof of CapacityStorj, Chia, SpaceMint
Proof of AuthorityVeChain
Proof of BurnSlimcoin
Proof of ContributioniExec, ICON Network
Proof of CapacityBurstcoin, Permacoin

Speed To Make a Block (Scalability)

Blockchains differ when it comes to scalability, while block time refers to the rate at which miners/validators make new blocks in a cryptocurrency blockchain. 

Each crypto has a unique block time dependent on the difficulty of the hash.

It takes approximately 10 minutes for each block in the bitcoin blockchain to be created and validated. Conversely, each block of Ethereum takes 10-20 seconds to be developed and validated, but Dogecoin’s block time is 1 minute.

Blockchain’s Use Case

Coins can’t run on the same blockchain because each chain is designed for specific purposes. Blockchains like Bitcoin handle transactions and nothing else. That’s why the Bitcoin blockchain cannot execute smart contracts.

The Ethereum blockchain is programmable and can handle various uses. Smart contracts and decentralized apps (dApps) can be built and run on the Ethereum blockchain. 

Such chains that can handle different uses are referred to as second-generation blockchains.

How Blockchains Work

A blockchain is a decentralized distributed ledger, and was intended to timestamp documents but later was adopted by Satoshi Nakamoto when developing Bitcoin. A blockchain is a chain of blocks. 

Each block houses:

  • Data
  • The block’s hash
  • The previous block’s hash

Each blockchain dictates the type of data stored in a block. For example, a Bitcoin block harbors information about a transaction. This information includes the sender, receiver, and the number of coins.

The Ethereum block stores transaction details and algorithms to which smart contracts can link to. A blockchain’s hash is a unique fingerprint that identifies the content in each block, and changes in a block alter the hash’s fingerprint.

The previous block’s hash links the existing to the last block to minimize the tempering of the blocks. Changing this hash invalidates the entire chain. Data stored in a block can be anything of value and not just crypto-related. 

Blocks can hold a company’s share, an election vote, or any digital certificate.

Types of Blockchains

The cliche “all cryptos have blockchains but not all blockchains have cryptos” couldn’t be further from the truth. Hundreds, perhaps thousands of chains are out there, each adapted to particular use cases.

Blockchains vary, depending on:

  • The contents stored in a block.
  • Activities are carried out by the blockchain’s participants.
  • Configuration of the blockchain’s network.
  • The desired purpose.

From these traits, blockchains can be categorized into:

  • Public blockchains
  • Private blockchains
  • Permissioned blockchains

Public Blockchain

A public chain allows participants to play a part in its network activities. Public blockchains are permissionless, and anyone can become an authorized node. Participants can view the ledger, engage in activities like mining, or transact with their peers.

Public blockchains are decentralized, self-governed, non-restrictive, and democratized. A public chain isn’t dependent on anyone and will continue running provided users connect to it. These blockchains are impervious to manipulation since they’re independent of a central authority.

The network of public chains might be slower as more nodes join it. Nearly all native coins run on public blockchains. These coins include:

  • Bitcoin
  • Litecoin
  • DigiByte
  • Dogecoin
  • Ether
  • RavenCoin

Private Blockchain

Private blockchains, also known as enterprise chains, run in a restrictive environment and offer entry to only verified participants. The chain owner controls the participants, execution of the consensus protocols, and maintenance of the ledger.

In a private blockchain, the operator can override entries or deny rights to specific nodes, but unlike in public chains, transactions in private blockchains are not transparent. Third parties can’t access information stored in them. Private blockchains tend to be small and execute transactions more quickly than their public counterparts.

Examples of private blockchains include Hyperledger and Corda.

Hyperledger primarily provides a framework to businesses for particular use cases, and as such, it lacks a native asset that users can mine.

The Corda blockchain is mainly utilized in the financial sector to manage legal contracts. Similar to Hyperledger, Corda doesn’t have any native currency. However, Corda has collaborated with eXchange inFinite (XinFin) to run the XDC token.

Permissioned Blockchain

Permissioned chains are a blend of public and private blockchains. Anyone can join these networks, provided they pass the required verifications. Users of these chains can only perform designated actions in the network. Ripple comes to mind here since it offers permission-based roles to users.

Bottomline

Cryptocurrencies don’t run on the same blockchain. Each coin has its blockchain, which can be identical to another chain. However, tokens like BAT can run on the same blockchain.

Sources

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