Chain CEO Adam Ludwin: Who’s ready to take advantage of blockchain technology?

Rage Review : Before the emergence of blockchain, enterprises and institutions could transfer assets in two ways: one is to authorize a single organization to record all asset data in the ecosystem; the other is to let each participant maintain their own database, which is an "expensive and error-prone" process. This change brings both opportunities and threats to existing enterprises: "The opportunity is to seize the initiative and become a leader in deploying and operating the network; the threat is that when the market structure changes, everyone has a share of everything in the market, and the companies that seize the best market position face more risks."

Translation: Nicole

From its inception to the present, the essential characteristic of Bitcoin has always been its decentralization.

But over the past year, as banks and other financial institutions have begun to take advantage of the efficiency, cost-efficiency and security offered by the bitcoin blockchain, many have wondered how existing businesses can integrate blockchain technology into traditional centralized systems.

One of the companies guiding enterprises to integrate blockchain technology into their work is Chain, a San Francisco startup that has raised $44 million from Visa, Citibank, Nasdaq, Capital One Financial, Khosla Ventures, and RRE Ventures, among others. Last year, the company partnered with Nasdaq to launch its first private blockchain product, Linq, which uses blockchain to manage shares of private companies. Chain CEO Ludwin recently appeared at the Federal Reserve, where bankers from 90 countries, including Janet Yellen and officials from the World Bank and the International Monetary Fund, were present.

In the latest episode of Unchained, my blog exploring the blockchain and fintech space (available on iTunes, Stitcher, and TuneIn Radio), Chain CEO Adam Ludwin breaks down what makes blockchain different from previous database systems, the surprising consensus among businesses on the endless opportunities blockchain technology offers, and speculates on how blockchain will change the face of financial services. He also reveals why he’s convinced central banks will one day issue digital currencies.

Compared to databases that work well in individual organizations, he finds blockchains more suitable for transferring assets between organizations. He said: "Blockchain and databases are similar in that it is a system for digitally recording data and can record data truthfully and cannot be tampered with. The most fundamental difference between the two is that blockchain can be viewed as a network."

Ludwin said that before the advent of blockchain, there were two ways for organizations to transfer assets: one was to authorize a single organization to record all asset data in the ecosystem; the other was to let each participant maintain its own database and then coordinate and verify whether the information in the copied ledgers was consistent, which was an "expensive and error-prone" process.

Blockchain offers a third option: a shared infrastructure that requires no coordination.

Adam Ludwin

Chain helps its partners in the financial blockchain market by letting them launch networks that require the participation of some institutions, each of which has its own responsibilities. He admitted that this change has both opportunities and threats for existing companies: "The opportunity is to seize the initiative and become a leader in deploying and operating networks; the threat is that when the market structure changes, everyone in the market has a share, such as who captures what value in the value chain."

But looking at the shortlist of companies poised for disruption, Ludwin said: “The truth is, if we just offer opportunities to get into a better market position, they’ll take it. The fact is that the companies that get the best market position face more risk.”

He said executives at these leading companies all believe their companies will become software and Internet companies in the future.

In addition, he said many of these companies are “challenger companies — mostly companies with their name. But maybe they’re looking at a market that they’re not in, and they want to be in that market. Maybe they’re number two or number three, but they want to be number one. Or maybe they’re big in one area, but they want to be in another. So in almost every case, the impetus for launching a network is strategic, and they’re generally projects that are intended to be challengers.”

Ludwin, a former venture capitalist who has invested in a number of fintech companies such as Venmo, Braintree and OnDeck, said what separates blockchain from fintech is that it changes the way banks operate internally.

“Most fintech right now is web-driven user interface innovation connected to the same 40-year-old financial infrastructure,” he said. “Yes, we have online banking, but we still have the same core banking infrastructure and the same players.”

After he first read the white paper in 2010 or 2011, he discovered that there was no form of digital cash on the Internet until the emergence of Bitcoin, which was a new opportunity to digitize assets.

That’s why he’s convinced that central banks will one day issue digital currencies. “Fundamentally, this is a medium that is consistent with the trajectory of the world,” he said. “The Internet, digital commerce, digital payments, cross-border flows of assets, increasingly complex financial instruments and derivatives, all of these are driven by technology, software, but the intermediate medium for us to issue legal tender is still paper documents.”