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The Rule Breakers Guide to Cryptocurrencies: What Is Blockchain?

By Motley Fool Staff - Oct 30, 2017 at 6:29PM

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Answer that question and you’re halfway to defining what a cryptocurrency is, which is topic No. 2 of this segment.

On this week's Rule Breakers podcast, Motley Fool co-founder David Gardner takes on a topic that he's never hit before, but that plenty of his listeners want to hear about from him: cryptocurrencies. To answer their questions about bitcoin, Ethereum, blockchain technology, and more, he's enlisted the help of Fool analyst Aaron Bush.

In this segment, they cover the most fundamental questions underlying this new medium of exchange. What is blockchain, how does the technology work, and why does it work so well as a cryptocurrency platform?

A full transcript follows the video.

This video was recorded on Oct. 18, 2017.

David Gardner: Aaron, it strikes me the best way to start our conversation about blockchain is maybe by you defining blockchain. Raise your hands, Fools everywhere, if you already know what this is. And I'm going to say that only about 30% of us are raising our hand right now. Aaron, what's blockchain?

Aaron Bush: I think the easiest way to explain what a blockchain is, is it's like a database, or it's like an accounting ledger you can submit entries to. You can't take an entry away. You can't just remove something. So if you want to make any changes, you have to submit another entry.

What's special about it is that it's distributed. So instead of being hosted on a localized server by some company or a government, it's hosted by many computers around the world, and those computers are the miners, or often the users of whatever the underlying currency or tool is.

Gardner: Data. It's the underlying data in the database. Right?

Bush: Yeah, for the most part. And so what the blockchain is -- another way to explain it, being distributed, global, and decentralized -- it's a way to track the ownership of digital assets in whatever form that may take. It's a way to perfectly track it.

Gardner: And it has an infinite memory. Everything done in that database is captured and held. So, in particular for ownership, property rights, it's really helpful, because you know from the dawn of the data, the first datum that shows up who started, who owns it. That's profound, and we're going to get into that in a sec.

So, blockchain. You've just done a good job laying out what blockchain is. Cryptocurrency is a form of blockchain. There are many cryptocurrencies. Could you briefly define cryptocurrency itself?

Bush: I would say that cryptocurrencies are a new asset class that enable decentralized applications through using blockchains. That's a bit of a wordy definition, and I think it's important to maybe break that down just a little bit more.

It is a new asset class, so it isn't exactly a currency because there's more utility to it. It isn't an equity because there is no cash flow. So it's something new entirely, and it enables decentralized applications because of how the computing is built and hosted all around the world. The code, the centralized code, you could say, creates the rules, but there doesn't need to be an organizer or an intermediary to let the entire network exist. It's self-run by all the different nodes around the world, and that is a breakthrough.

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