This week’s article is intentionally simple. It may wind up being the first chapter in our book since it’s foundational and important. If you’re an advanced blockchain / crypto / NFT degen, you may find this a tad basic, but it may also be the right level for all the people who are asking you beginner questions. By all means, please send them our way. And don’t worry, we’ll be getting back to more in-depth topics in the coming weeks. Just you wait.
Blockchains vs Cryptocurrencies
By Elliot Koss, Founder @ Future Mints
Technical Level: 🛠️
In the new world of blockchain, there’s a ton of terminology with very specific technical definitions, and because so many people get them wrong it’s easy to be confused.
I’m often having to answer what is a blockchain, and far too often, my short answer results in a ‘oh wow, that finally makes sense. Why does everyone make it so complicated?’
The truth is that it’s because the tech is so new and most people either don’t understand it or they are trying to show off and confuse people. Neither helps. Too few people are trying to make the language simple, and this turns people off.
Basically everyone uses the internet today, but do they know how HTTP or HTTPS actually works? APIs? Can you explain how email works at the server level? Do you even care?
Today we’re going to talk about the difference between a blockchain and a cryptocurrency, mainly because they are different and it’s useful to understand how, but please don’t be THAT person who corrects people over the distinction. It’s not that big of a deal. If I do it, please just say, “Elliot, does this even matter?”
A blockchain is a way for information to be stored publicly. It’s encrypted, so private info stays private. And it’s stored in blocks. Each block has an encrypted piece of info that relates it to the previous block, so that every block is connected in a specific order. It’s like a chain necklace. One block connects to the one before and after.
That’s all it is. The word ‘ledger’ is commonly used, because the transactions are kept in a public accounting record, so it’s useful to associate ‘ledger’ and ‘blockchain’.
So how is blockchain and cryptocurrency different? There’s a subtle distinction that confuses people, and they wind up losing the thread of conversations, wondering what the hell they just heard.
A blockchain is where the data is stored. A cryptocurrency is the payment method for adding something to the blockchain. And they often have the same name which is where the confusion comes from.
For instance, the Bitcoin blockchain is where all the transaction records of the Bitcoin (BTC) cryptocurrency are stored. The first ‘Bitcoin’ in that sentence refers to the public ledger that tracks all Bitcoin transactions. The second ‘Bitcoin’ refers to the payment method.
It’s a little less confusing with Ethereum, but only barely. The Ethereum blockchain is where all the transaction records of the Ether (ETH) cryptocurrency are stored. And while the official name in the Ethereum white paper is Ether, it’s more commonly called ‘ETH’ (pronounced ‘eeeeeeeeeeee-th’ not ‘ehhhhhh-th’ like all the bad youtube explainers claim - confusion is everywhere).
As we’ve hopefully now drilled into your head, there is a difference between the blockchain and the cryptocurrency.
You’re now probably wondering, why does this matter?
If you’re a casual consumer, it doesn’t matter much. You will likely never think about the difference between a blockchain and a cryptocurrency. If this is you, then no need to read further.
If you’re a builder or aspiring to build in the blockchain space, you will want to have foundational knowledge of what you’re doing. And having clean mental models of the basics will help you learn exponentially more since it will progressively make sense as you continue down your journey.
For instance, as you begin to think about cross-chain transactions (ie converting one cryptocurrency for another just like you would convert US Dollars to Euros), understanding the distinction between the blockchain and cryptocurrency will become increasingly important since you’ll need to keep track of transactions.
If you’re moving money from BTC to ETH, you’re going to have to bridge the cryptocurrencies between one blockchain and another. This will create a transaction in both blockchains - one in Bitcoin where you pay BTC to an exchange and a separate one in Ethereum where the exchange pays you ETH. That’s a simple example.
Now imagine that we’re a few years in the future and Ethereum is living up to its promise. The NFL has switched all of its tickets to be NFTs on Ethereum, and TicketMaster has the perfect seats that you want to buy with Bitcoin. And let’s say that you’re the product manager who’s responsible for building out this experience. You are going to care about accepting any form of payment (in this case, Bitcoin), converting it to Ethereum, using that Ethereum to purchase the NFT tickets, and then making sure that the NFTs land in the correct wallet.
You can see from that example above that it’s important for each transaction to be recorded in the correct blockchain in the correct sequence of actions.
As blockchain technology iterates and grows, we’re going to see a lot of scenarios that we’ve taken for granted in our existing banking system transition to the new, open technology that blockchain is enabling. To take something that was centralized and make it decentralized requires breaking out each step explicitly. If you’re a builder, this is going to be essential infrastructure that enables you to build cooler things, and if you’re a user, hopefully you never have to bother with any of this.
News of the Week
Arbitrum’s airdrop has officially been announced! The long-awaited token will grant holders the ability to vote on changes to the leading Ethereum layer 2 network. You can check your wallet’s eligibility, and claim the airdrop next Thursday on arbitrum.foundation.
A report from new FTX management revealed that a total of $3.2 billion was paid to Bankman-Fried and other key employees. FTX filed for bankruptcy protection in November - and shortly after, new CEO John J. Ray III described the firm's downfall as a "complete failure of corporate controls and ... a complete absence of trustworthy financial information."
Meta’s head of commerce and financial technologies Stephane Kasriel announced on Twitter that the company will wind down its NFT and digital collectibles features. Facebook and Instagram begun supporting NFTs over the past year or so, but are now focusing on “other ways of supporting creators, people, and businesses.”