The explosion of interest in bitcoin in 2017 has caught investors’ attention, even though many initial offerings of digital currencies have been “complete scams.”
WTF are ICOs and should I invest in crypto?
Chain CEO Adam Ludwin explains on the latest Too Embarrassed to Ask.
Dan Kitwood / Getty
So, how do you tell the good currencies from the bad? And what’s the broader purpose of blockchain, the technology that makes bitcoin and other cryptocurrencies possible?
“To me, blockchain is two very different things,” Chain CEO Adam Ludwin said on the latest episode of Too Embarrassed to Ask. “On the one hand — it’s a very simple technical answer — it’s a new type of data structure, just a way to store data. That’s one extreme, and that’s true. At the other extreme, in a much more conceptual sense, it is a new internet counterculture. It’s both of those things.”
Ludwin’s company helps financial institutions track existing assets using blockchain and connect to emerging cryptocurrency networks, including bitcoin. The key difference between those crypto networks and traditional financial institutions is that there is no central authority, like a bank or a government, storing and guarding everyone’s money — hence the countercultural appeal.
“The best way to understand cryptocurrency is that it’s a new asset class,” he said. “Every other asset class doesn’t exist for its own self, it’s serving other forms of organization. Think of equities as an asset class, they support companies; think of government bonds, they support government borrowing; think of real estate, [it supports] property owners.”
“Cryptocurrencies are no different,” he added. “They’re enabling some higher form of organization, and what that is is basically decentralized software. Cryptocurrencies enable decentralized applications.”
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On the new podcast, Ludwin explained that bitcoin is different from other blockchain assets because it is actually three things, simultaneously:
- People who ‘mine’ bitcoin are providing the computing power to process financial transactions on behalf of the entire network: “They don’t do it out of the goodness of their heart, they’re getting paid,” he said.
- Transferring bitcoins (or fractions of them) to others means incurring fees, which also take the form of fractions of bitcoins: “It’s like the postage stamp that you would put on the envelope,” Ludwin said. By contrast, the blockchain payments product Stellar is designed to only address transfer fees: “What’s in the envelope isn’t that [the postage] — it can be, but usually it’s not.”
- And, of course, there’s one last thing bitcoin is that makes it valuable: “It’s the thing you’re sending on the network!” Ludwin said. “It’s the store of value that you’re sending.”
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This article originally appeared on Recode.net.
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