Bitcoin gets its own section because frankly, it’s the most famous cryptocurrency out there.  Sure, Ethereum, Cardano and lots of others are worthy projects, but every time bitcoin goes up in price, the alternative cryptocurrencies (commonly called ‘altcoins’) go up too. Every time bitcoin goes down, the altcoins follow. Bitcoin is currently a significant influence on the value of all digital assets.

People who only believe in Bitcoin are referred to as ‘Bitcoin maximalists’ and those that think Bitcoin is outdated in favour of alternatives are known as, ‘Altcoin Maximalists’. In this section we concentrate on Bitcoin.

Simple Question, What Is Bitcoin?

Bitcoin is a digital asset or cryptocurrency which operates without the need of a central bank or government. It uses a peer-to-peer network and software that utilises cryptography when generating coins and validating transactions on its network.

A public ledger records all bitcoin transactions which are stored as blocks and these are also “chained” together for security. Copies of the ledger are held on servers all around the world – not in any central location.

Bitcoin was the first blockchain cryptocurrency. It has since become a currency for investors and not is really used very much as a currency to buy things.  It’s mostly used to transfer money, trade on exchanges and is regularly compared to gold as a store of value.

A Brief History of the Bitcoin Cryptocurrency

Bitcoin was created in 2009 at the end of an economic recession. Its creator, Satoshi Nakamoto, designed it to be an electronic peer-to-peer cash system which could not be controlled by any one organisation or government.

When the whitepaper explaining the concept was published in 2008 to a cryptographic bulletin board on the internet. The curious readers encouraged it’s further development and when Satoshi Nakamoto created the Genesis block (first block on the blockchain) on January 3rd 2009, the first Bitcoins were generated (mined).

Satoshi Nakamoto is notoriously anonymous.  Nobody knows who he is – or who they are. Mr. Nakamoto could be a group of people!

It’s believed however that the author of the whitepaper is British, or was educated in Britain, or was at least taught English using British spellings, double spaces after full stops etc. Even though written in the correct English syntax ( 🙂 ) I’ve personally tried to understand the whitepaper and found it a little too technical. I’m told it’s very clear to those interested in mathematics and cryptography.

How Bitcoin Works

Bitcoins are created as a reward from a complex mathematical process called ‘Mining’. Lots of computer systems are working at this although there will never be any more that 21 million bitcoin mined. At the moment, there are around 19 million coins and it will take approximately 120 years to mine the rest.

The term Blockchain refers to the viewable ledger that stores all bitcoin transactions. All of them are traceable – every single one.  The idea that criminals use bitcoin to be able to hide their naughty deeds is ludicrous since each bitcoin transaction is recorded on a public ledger – many, many criminals have been caught because they failed to remember this, and because the tools to interrogate the blockchain ledger are becoming more and more sophisticated.

When Bitcoin was originally released, Satoshi Nakamoto ensured that specific parameters were set and that these couldn’t be changed without mass consensus (i.e. by bitcoin miners on the network – at least 51% of them).  Those parameters determine how many bitcoins could be mined, how they could be created, transferred and stored. Since there will only ever be a finite amount, bitcoins are regarded as a scarce resource.  Although regularly compared to gold, bitcoins are, in fact, even scarcer since gold as gold veins are discovered regularly (which may explain why the gold price has stayed at roughly the same over the last 10 years).

Bitcoins are stored in wallets which, to me, are rather like an email account. Bitcoin wallets have a Public Key and a Private Key.  The public key of your bitcoin wallet is like an email address (tonys_bitcoin_wallet@internet-crypto.com) and the Private Key would be like the email account password.  You would be ok with letting people know your address (or Public Key) but you would never let anyone see your email account password (Private Key). If you wanted someone to send you some bitcoin, you would provide your public key rather than the private key. This is perhaps an oversimplification but hopefully, it should make it easier to understand.

Secure storage of your cryptocurrency is very important, especially when you consider that there are no cryptocurrency banks! Although this is considered a positive thing by most cryptocurrency advocates, it can be concerning when you realise that only you can be responsible for securing your cryptocurrency fortune.  If you lose your wallet or forget the keys, or send the currency to the wrong address, you will lose your currency.

It’s estimated that of the 19,000,000 bitcoin out there, at least 3,500,000 have already been lost forever (that’s over 100 Billion dollars worth!).  Mind you, for the first few years, bitcoin didn’t have much of a value and there was little concern for security and custody of the coins.

Bitcoins are created by miners as a reward each time they solve a complex mathematical equation.  Strictly speaking, the ‘equation’ is actually complex computers guessing the answer to a mathematics problem – they do this at huge speeds in the hope that they can beat other miners to get the answer. If they get the answer right, they are rewarded with a specific amount of Bitcoin which they can then trade or hold in their wallets. Meanwhile a block is created and consensus from other mining operations is achieved (i.e. the block is validated) and the block is written to the blockchain.  This mechanism of consensus is known as ‘Proof of Work’.

You could become a bitcoin miner yourself but the bitcoin mining computer systems (also known as ‘nodes’) are very powerful and expensive to run. They use huge amounts of electricity – some bitcoin mining operations use as much electricity as a city!

Currently, around 450 new bitcoins are rewarded each day to many mining operations spread all over the world. And because around 144 blocks are created on the bitcoin blockchain (each day).  This equates to 3.125 Bitcoins per block.

It hasn’t always been 3.125 bitcoin per block.  Satoshi Nakamoto built into the code a ‘condition’ that for every 210,000 blocks created on the blockchain, the value of bitcoins rewarded should be cut in half.  It takes approximately 4 years to create that many blocks and the next one is due in 2028.  The rewards for creating a block will then be cut from 3.125 to 1.5625.  Eventually, the reward will go to 0 (it’s estimated that this will take around 120 years).

Bitcoin, Cryptocurrency to the Moon

Bitcoin halving’s have happened three times so far and every time they do, the currency becomes more scarce – when this happens, price goes up considerably.  Notably, the price never returns to the previous cycle highs, it just goes higher.  Some say that in the next few years, certainly within our lifetime, bitcoin will reach over $1,000,000.

Because most cryptocurrency enthusiasts view bitcoin as a store of value, you wouldn’t use it as a currency to, for instance, buy a coffee. Bitcoin is more valuable than your fiat currency. This is because it increases in value over time in comparison to fiat assets. We should use fiat money to to pay for things as this is an inflationary asset, it de-values over time. Fiat cash is for spending, bitcoin is for saving.

The reason Bitcoin is so volatile (it can have price swings of 20% – 80% up or down!) is because the market is still immature.  A lot of investors expect to buy cryptocurrency and get-rich-quick. Although there are an estimated 100,000 wallets with more than a million dollars worth of bitcoin in them, most people behave very poorly when they invest in cryptocurrencies.  They buy when everyone else is buying (when the price is near the top) and sell when the price starts to drop rapidly. This adds to bitcoins volatility.

As the market matures, such volatility is expected to get better in the next few years as more people become familiar with the technology and the currency but until then, we will continue to hear terrible stories of people who invested poorly and have lost all their money.

Interesting facts about the Bitcoin Cryptocurrency

There are lots of interesting facts about Bitcoin as it has increased in value over the years;

• • HODL is a term that was started by a bitcoin investor who posted on a bulletin board that he would hold onto his bitcoin for dear life!  He mistyped the word hold and the term has stuck.  If you hold bitcoin (in fact any cryptocurrency) for the long term, you are known as a hoddler.
  • Headline: 2019 “Bitcoin will soon be worth zero” – New York Post (Value at the time: $7,995).  When you consider that bitcoin subsequently went down by almost $4000 dollars, The New York Post may be forgiven for it’s doom-and-gloom headline.  At the time of writing this article, we are at the start of a bear market and the press are writing similar types of headlines.  Bitcoin has crashed almost 60% and in now valued at a poultry $30,000 (down from a recent high of $69,000).
  • In 2009, Satoshi Nakamoto generated the first bitcoin block (Genesis Block) in the blockchain and to mark the historic event, he recorded in the block, a headline from the London Times, “The Times 03 Jan 2009, Chancellor on Brink of Second Bailout for Banks.”
  • In 2009, if you mined a Bitcoin cryptocurrency block it could have been done on any old cheap computer and you would have been rewarded with 50 Bitcoins.  In 2013 it became a little more competitive as the price of bitcoin increased – rewards were cut to 25 Bitcoin.  In 2017 the rewards for creating a block dropped to 12.5 and today they stand at 6.25.  In 2009 bitcoin was worth a fraction of a cent.  In 2013 it was worth about $1000, In 2017 it shot up to just under $20,000.  Last halving, Bitcoin rose to over $65,000.
  • On May 22nd of 2010, Laszlo Hanyecz paid 10,000 BTC for two Papa John’s pizzas, which cost about $41. If those pizzas were bought today, they would cost more than $300 million. May 22nd is now known by cryptocurrency fans as ‘Bitcoin Pizza Day’.
  • You can buy fractions of a bitcoin.  A Satoshi is a 100,000,000th of a bitcoin.
  • In 2020 The average cost of a home was $250,000 or 400 Bitcoin. In 2024 the average cost of a home is $460,000 or just under 5 Bitcoin.
  • The only known Bitcoin bug: On 15 August 2010, the vulnerability was spotted after it was exploited by creating billions of bitcoin in two separate accounts. Within hours, the transactions were spotted and the bug was fixed and the blockchain was updated with a new version of the software. It was the only major exploit in the history of bitcoin.
  • Bitcoins don’t actually exist (either digitally or physically).  Only their transaction information exists on the Bitcoin blockchain.  When coins are minted (as a reward for the creation of a block), the Bitcoin software and consensus mechanism rewards the miner by creating and recording a transaction that deposits bitcoin in the miners bitcoin wallet address.  No actual bitcoins are sent, a transaction is simply recorded on the blockchain.
  • Bitcoins don’t have serial numbers or denominations etc. since the only reason that they exist is to form part of a financial transaction. You will never be able to list all the bitcoins in your wallet.  You can however trace every financial transaction to and from any wallet as all transactions have been recorded to and from every wallet since the very first bitcoin was minted.

In section seven we will look at the considerations you need to address before you begin the process of investing in cryptocurrencies: Investment in Cryptocurrencies – Basic Awareness.

This article is copyright 2024 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help keep the site funded:

[crypto-donation-box]

Thank you.

Knowing the difference between Cryptocurrency Coins, Tokens and Layers will help you identify specific areas when targeting your investments.  It’s also really useful when listening/watching media about crypto.  We also need to know how they came into being and what is meant by mining a coin.

First though, lets looks the question most beginners ask about coins and tokens, “What is the difference between a Coin and a Token?“

Typically, a cryptocurrency Coin is a currency that uses its own blockchain (e.g. Bitcoin (BTC), Litecoin (LTC) & Ethereum (ETH)). For the most part that’s basically all they are about.  The coin is exchanged for goods and services just like any other currency but these times, there are instances where we need more functionality from our currency. 

Cryptocurrency Tokens are normally created on someone else’s blockchain.  An example of a token is the Basic Attention Token (BAT) which utilises the ecosystem on the Ethereum blockchain.  There are many more Tokens than there are Coins since it is much more difficult to develop a proprietary blockchain network than it is to simply use one that already exists.  Tokens are most commonly associated with the ability to include smart contracts.  These add considerable power to financial transactions and services on the blockchain and help secure transactions from interference and malicious third parties.  So, we should also define them more clearly.

Smart Contract (definition from IBM.com): “Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They are normally used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss.”

Smart contracts are a tremendous innovation and are one of the main reasons why cryptocurrencies are destined to require less interaction with banks.  such contracts enable trustless transactions between people.  I don’t need to trust someone when I exchange Bitcoin for Ethereum, I rely on the smart contract to handle the transaction competently and honestly.  It’s really that simple!

Blockchain Layers are a little more difficult to define.  Essentially, the two main layers are rather unimaginatively called: Layer 1 and Layer 2:  

Layer 1  

This is the ‘root’ or ‘base’ layer – it manages the key elements of the blockchain such as its immutability, security (e.g. validity and consensus protocols) and all the necessary parameters that keep the blockchain running. 

Layer 1 blockchains can validate and finalize transactions without the need for another network. They can have more complicated features too, such as smart contracts which enable decentralised autonomous applications to run on them.

Examples of Layer 1 Coins are:

Polkadot	Elrond	Solana	Binance Smart Chain	Ethereum

Layer 2 

These are the overlapping applications and protocols that sit on top of the Layer 1 infrastructure. They are typically used to improve scalability and speed by separating out some of the key work elements of the base layer.

The Lightning network is a Layer 2 solution that sits on the Bitcoin Layer 1 blockchain.  It has greatly improved Bitcoin’s speed and operability.

Tokens can eventually become coins when they migrate to their own blockchain (e.g. Binance Smart Chain Coin and Tron). Some of the most commonly talked about Layer 2 tokens are:

Polygon (Matic) Offers fast transactions and applications on Ethereum	Arbitrum Uses Ethereum’s main chain to verify transactions	Loopring Verifies transactions with privacy	Immutable X Specializes in NFT trading at low fees	xDai Chain A decentralised sidechain and stablecoin

There is also a Layer 3 on some blockchains.  Layer 3 is commonly known as the application layer of the blockchain.  It would contain the DEFI (Decentralised Finance) Applications and the Gaming and Metaverse ecosystems.  A good example of a Layer 3 would be Uniswap, a decentralised exchange enabling users to buy and sell (by swapping) a very large range of different cryptocurrencies.

I should also mention Layer 0.  This is the layer that everything sits on.  A good example of a Layer 0 is of course, the internet.  Most of the news you will hear about blockchain ‘Layers’ will concern Layer 1 and Layer 2.  Layer 3’s can come and go without affecting the base blockchain but if there was a problem with the Layer 1 or 2 of a blockchain it would have serious consequences for users trying to access currency or data information.  Changes to Layer 1’s and 2’s are taken very seriously with security being a key concern and as a result they can take years to implement.

Mining & Consensus Mechanisms

Mining is the process that is used to create and validate new coins and transactions on the blockchain. In the case of Bitcoin, anyone can become a Miner provided they can afford the huge costs of powerful computers needed – and provided it is legal in that country (e.g. Bitcoin mining is illegal in China). The Bitcoin miner will solve a complex mathematical problem in order to verify and validate a new block on the bitcoin network.  They can also validate individual bitcoin transactions. If they do this effectively, miners are paid in bitcoins (BTC).      

There has been a lot of bad press lately about the environmental cost of mining bitcoin.  Some of the mining installations use more power than some small towns and cities and the carbon footprint of such installations is considered very high.  If you dig a little deeper though, you will see that mining companies are desperate to find the lowest cost of power for their mining operations and invariably, this is in the form of renewable energy – especially off-peak energy that would normally go to waste such as a hydroelectric power station or by using ‘stranded’ natural gas that would otherwise have been flared. The president of El Salvador wants to set up a mining facility that utilises the power from a volcano!

Bitcoin mining is becoming greener each year and many of the doom and gloom environmental reports have been debunked (see the CNBC report, the article from CATO or the report by Forbes Magazine ).

Consensus Mechanisms

There are protocols that are used in the recording and validation of crypto currencies that are mined and these are known as ‘consensus mechanisms’.  Consensus is not done in the same way for all blockchains, some utilise complicated calculations such as bitcoin and some use nominated validators.  Consensus must be self-regulating and incorruptible as it involves adding/deleting/updating transactions and the responsibility for maintaining the ledger on the blockchain. There are many types of consensus mechanisms.  The two most talked about are ‘Proof of Work’ and ‘Proof of Stake’.

Proof of Work  

Investopedia states that, “Proof of work describes the process that allows the bitcoin network to remain robust by making the process of mining, or recording transactions, difficult.” This means that a complicated calculation needs to be solved by the miner before the block is recorded on the blockchain and the miner is paid.

Current mining difficulty levels are so high that only large computer installations are able to solve them. Complexity is built in to ensure difficulty. Only the most powerful computer systems are able to solve the proof of work algorithm and this increases in difficulty the more powerful the computers become.

The very first bitcoins were mined without much competition on small desktop computers about as powerful as our mobile phones (maybe even less powerful!). As more and more computer nodes came onto the network to earn bitcoins, the more complex the calculation needed to become and  the ‘hashrate’ (which is determined by the complexity of the computer calculation needed to confirm a new block on the blockchain) increased. It is said that the higher the hashrate, the more secure the network is from attack. 

Proof of Stake

This is a little more complicated in that they work by selecting validators to append records in the blockchain.  Validators are approved subject to their value status of holdings in the associated cryptocurrency.

Validators are not rewarded with coins but are allowed to charge fees for validating transactions.  The charges are usually quite small but there are a lot of them.

Ethereum’s developers have been trying to combat the present limitations in scalability of Ethereum because as Ethereum-powered decentralized finance (or DeFi) protocols have surged in popularity, the blockchain has struggled to keep up, causing fees to spike.

Their solution has been to build an entirely new blockchain (called ETH2) which should be finished sometime in 2022 (though it keeps getting delayed). The upgraded version of Ethereum will employ a faster and less resource intensive consensus mechanism, proof of stake. Cryptocurrencies including Cardano, Tezos, and Atmos all use proof-of-stake consensus mechanisms which are supposed to maximize speed and efficiency while, at the same time, lowering fees.

This has so far had limited success, Cardano, a very much respected cryptocurrency, is suffering problems with scalability and performance that seems to be holding up it’s adoption.

The first example of Proof of Work was Bitcoin and the first example of Proof or Stake was Peercoin (2012) although the most commonly recognised Proof of Stake cryptocurrency is Ethereum.

There are other consensus mechanisms and it may be that new ones will become the norm in a few years time.  Current consensus mechanisms are either too energy intensive or suffer poor performance.

In section five we go into a little more detail about the types of digital asset and how they are grouped: Cryptocurrency Use Cases looks at Store of Value, Play to Earn, NFT’s, Decentralised Finance and others.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help keep the site funded:

[crypto-donation-box]

Thank you.

For some people, Bitcoin is the only cryptocurrency worthy of consideration – such people are known as bitcoin maximalists.  They would use this as a store of value (i.e. to save) because they believe that its scarcity and immutability are worth the investment.  However, blockchain technologies have many uses.  These are not always obvious and some aren’t able to easily demonstrate financial viability.  They are however, definitely worth looking into.  This is a completely new technology and use cases are being defined (pre-development) all the time. 

It’s worth your time to look for new and interesting blockchain ideas and concepts.

Use cases for Cryptocurrencies broadly fall into the following categories:

• • Store of Value
  • Stablecoins
  • Layer 1 Ecosystems
  • Decentralised Finance
  • Non Fungible Tokens (NFTs) 
  • Storage
  • Metaverse
  • Games

This is a scary list for people new to crypto – it’s a scary list for those who have been involved in crypto for years!  They are difficult to keep up with since most are new technologies and still evolving.

Lets look at them in a little more detail:

Store of Value

Besides being a highly efficient form of payment, some cryptocurrencies are an excellent store of value.  Such currencies are designed to be like Gold in that they are (or will be) more scarce over time. There are exceptions, but generally, the more scarce a cryptocurrency, the more valuable it will become. Bitcoin is the leading example of a Store of value cryptocurrency.

Bitcoin has, on average, increased in value by 200% each year since 2009. The reason we pay more for a bottle of milk now than we did 20 years ago is because the value of our fiat currency is less. There is more of it (especially after the COVID pandemic). Commodities that we purchase with fiat currency are just as valuable as they were in the past, but the pound/euro/dollar/yen isn’t, commodities will increase in cost over time if you use an inflationary currency to purchase them.

Depressingly, there are many people studiously saving their fiat currency in their bank savings account which is paying them less than 1% interest.  Since inflation is currently around 8%, they are effectively losing 7% of the value of their savings.

Over the past 10 years, holding Bitcoin has been a proven way to secure the value of your investment with little risk.  What puts people off is bad press and volatility.  Such volatility elevates investment risk to unacceptable levels in the eyes of the average investor.

Stablecoins

This type of coin is designed solely to maintain a stable market price.  Tether is a good example of a stablecoin – it is ‘tethered’ to the US Dollar so it’s value will not change no matter what happens – if inflation devalues the dollar, Tether coins will be devalued along with it.

In recent times it has grown in popularity because it is used as an on-ramp or off ramp trading mechanism for crypto investments.  For instance, I might use my fiat currency to buy USDT (Tether Coin) because it is the only stable pair to buy the crypto token that I want to purchase (see the section on Buying and Trading Crypto).  I would then trade my USDT stablecoins for the cryptocurrency of my choice on the relevant Central Exchange. Stablecoins are obviously more resistant to market volatility than other crypto currencies since they are tagged to fiat currencies (usually US Dollar). Being tethered in this way helps them avoid wild price swings.

Layer 1 Ecosystems

A layer 1 network is another name for a base blockchain. Bitcoin is a Layer 1 protocol as is Polkadot, Elrond, Solana, BNB and Ethereum. They are called layer 1 because they processes and finalizes their own network transactions. They also have their own native token/coin, used to pay for transaction fees (known as gas fees).

A layer 1 blockchain is very difficult to set up.  It involves some very complex programming to ensure it is secure, that is, coins or tokens cannot be ‘double counted’ and that they can be easily transferred between wallets and services reliably.  There are currently around 10,000 cryptocurrency coins and tokens but only a very small proportion are Layer 1.  Most tokens use a Layer 1 blockchain to manage their transactions and smart contracts.  It is much easier and very much cheaper for them to do this.

Layer 1 Coins are considered to be a stable investment because of this.  If their network proves to be secure and easy to use, other projects will want to build on it.  This is the main reason that Ethereum is so popular. It was the first Layer 1 protocol to use smart contracts and makes it very easy to develop applications and services on it’s ecosystem.  Unfortunately for Ethereum, it was one of the first blockchain protocols of this type and suffers from a programming language that, in my opinion is really clunky, difficult and expensive (high gas fees) to use.

DEFI (DEcentralised FInance)

This makes borrowing and lending very much simpler and accessible.  Decentralised finance applications utilise a complex but very logical set of actions called a ‘smart contract’ to enable quick and easy transactions to be completed without the need for banks and other financial institutions.  Low fees, low interest rates and improved accessibility to funds are also greatly improved.

Because cryptocurrencies are cross border, the decentralised borrowing and lending processes can be conducted globally. Remember, there is no one person (or persons) determining your eligibility, this is done logically and without prejudice no matter your skin colour or location or status!

There are new projects setting up that will allow investors to share in the profits as a group for Liquidity Farming and Node production fees.  These services are quite complicated to explain in terms of basic awareness.  Essentially, Node as a Service (NaaS) and DEFI as a Service (DaaS) projects enable investors to group together to own nodes on a network that generate fees from validating transactions and minting new coins. They can also take part in liquidity farming which is a service whereby users invest their crypto in a liquidity pool that is used for buying and selling coins/tokens. in effect, they are lending their money to a pool and gaining interest (sometimes as much as 20%!).

Non Fungible Tokens – NFT’s/Tokenisation

NFT’s have been making the headlines in the press for many reasons lately.  Most of these are for the huge prices being paid for them…..

An NFT a Non Fungible Token (non-fungible means it is unique) is the digital representation of a real-world asset (for instance a painting or a building) or a wholly digital asset (e.g. a photo from a digital camera or a cartoon image). It can be a document, artwork, real estate or commodities,  it can even be the digital representation of a website domain name (like ‘tonyfawl.crypto’).

The concept can even be developed even further.  You could for instance, be an artist that paints a picture that is tokenized (in terms of ownership) to 1,000 tokens.  Those tokens can then be bought and sold as NFT cryptocurrency tokens as part shares in the picture.  

Check this out!

This NFT is part of a picture called Merge.  The Merge image was made by a guy called Pak and was recently sold for a whopping 91.8 million dollars!  Yes, I don’t know why either – it’s not even in colour! It’s strangely upsetting, like watching everyone around me is laughing at a joke that I don’t understand.

Worse still, to make it affordable to the masses, it was sold in little pieces:  

“The NFT Marketplace Nifty Gateway launched Merge which is unique in that buyers are not buying actual NFTs. instead, they are paying for “bulk” tokens that will be combined into dynamic, unique NFT collectibles after the token sale.  Pak’s prominent image and mysterious format clearly appealed to NFT collectors, as a total of 28,984 buyers spent a total of $91.8 million during the two-day token sale. According to final statistics provided to Decrypt (website) by the Gemini-owned marketplace, a total of 266,444 tokens were purchased, with some buyers accumulating (up to) 8,695 tokens. Existing Pak NFT collectors were given early access to the sale and could purchase tokens for $299 each, while the public sale began at $400 per token, with $25 increments every six hours. The final tokens were sold for $575 each.“ (from an article on ultcube.com). 

NFTs are increasing in popularity and although most are completely worthless, all of us are able to create and own them without fear that they can be copied – i.e. that it’s authenticity is not in question. You can copy one of these as much as you like but you will never be able to prove that you own the copyright to the counterfeit because true ownership is recorded on the blockchain).

Other famous NFT’s include:

Cryptopunk #8507 Sold for $23.7 Million	Bored Ape Yacht Club #8817 Sold for $3.4 Million

The two NFT’s above were sold at a high price because they have elements of the picture that are unique to other similar NFT’s.  For instance, the Cryptopunk NFT, #8507 has a clean face and a bandanna – no other cryptopunk has a clean face, they either have a pipe, beard or mask etc. which makes them unique (scarcity adds value – a lot in this case).

The most important thing to remember about NFT tokens is that  they can be transferable and traded very easily – in the same way as currency.  As such, the value of the ‘currency’ can go up and down too.

Shroomz #8923 Available for $17.63	Mr Nutbush: Axie 2805857 I bought it for: $988 It’s currently worth $95

Sometimes however, NFT’s can be very useful!  

This website CryptoNET.org.uk is housed on a cloud server in the United States.  The domain, cryptonet.org.uk costs around £20 per year for me to ‘rent’ – I don’t own it, if I don’t pay the rental fee when it’s due, I loose the domain name.  I pay this fee to a managing agent that secures it for me – they do nothing else other than act as a custodian.

I also have two domains that are NFT’s one is called tonyfawl.crypto which points to this website.  It costs a little more that $20 but it is a one-off fee.  I don’t need to pay it each year, once I have bought the NFT it is mine until I sell it.  

Even more useful, I have another NFT domain called tonyfawl.wallet which is set up so that if anyone wanted to send me some crypto, they could just enter the ‘To’ address as ‘tonyfawl.wallet’ rather than the long and complex crypto address (e.g. 0x706E4aF664183dcD4aF66A515E35ce93E3174aF6688). In my case, this address can accept crypto donations for Bitcoin (BTC), Ethereum (ETH), Avalanche (AVAX), Cardano (ADA), Polkadot (DOT) etc.  Amazingly, as long as I have my NFT wallet domain configured to accept those currencies, I can accept donations from anyone and the currency will be deposited directly into my personal crypto wallet.

I purchased both NFT’s from Unstoppable Domains which has certainly made life a little easier. You need a special extension in your chrome browser to access .crypto domains in your web browser – the facility isn’t ‘built in’ just yet.  But it’s a nice idea – I really hope the facility it is adopted into mainstream browsing.

Another useful aspect of Non Fungible Tokens is {normal asset} tokenization.  This is an easy way to allow global buyers access to products or objects such as houses, painting, statues, documents etc. It’s immutable method of authenticity gives sellers the opportunity to add more liquidity to an otherwise illiquid asset.

A great deal of money was made by people buying and trading NFT’s in 2021.  Alas, the losses from people FOMO’ing in to purchase junk hasn’t yet been calculated – I’d bet it’s considerably more – but who is to say, one mans junk is another mans gold!

Storage

There are some significant problems with the current centralised storage platforms and data centres.  They are very expensive and suffer outages and security concerns.  A decentralised storage option is becoming increasingly more attractive.  

Data can be stored on the blockchain and any of us could rent some spare file space on their hard disk with a service such as Filecoin to earn a passive income. People could then offer to rent your storage space and pay you in the platform’s native currency (in this case Filecoin). 

Metaverse

The metaverse is a virtual world.  You can shop, socialise, take part in leisure, training and even gaming activities.  Paying for these in a native metaverse token. There are some amazing marketing opportunities inside these virtual worlds such as office space, tourism etc. companies like Facebook…. Erm, now called Meta (the Facebook application is still called Facebook, but the company is now called Meta), is already gearing up to take advantage of these opportunities.  

JP Morgan, a prominent US bank produced a paper (Opportunities in the Metaverse).  They stated that, “The elements of a new digital age are converging at scale. The metaverse is the driving force bringing these elements together in a unified, immersive experience.” and they quoted that $54 Billion had been spent on virtual products in the last year alone – that’s almost double the amount that the world spends on music!  

Games (including Play to Earn)

More is spent on Games than the whole of the movie industry. As gaming lines become more blurry (i.e. the increased popularity of, for instance, edutainment), the number of tokens on the gaming blockchains will increase.  For instance, ‘play to earn’ gaming is increasingly popular and Axie Infinity, one of the first, is generating millions of dollars revenue for its users and developers. This game, though currently suffering a bit of a slump, was a lifeline for many players in poorer countries during the pandemic lockdown. They would play to earn money to feed their families and some of the better players became quite wealthy. 

Some experts would go as far as saying that Gaming will be the mechanism that will promote mass adoption of blockchain technology throughout the world.  I’m not sure sure myself but I personally have noticed a steady increase in the adoption of NFT gaming with other projects to bolster their use case and incentivise investment. 

For instance, a blockchain finance protocol (also known as a DEFI protocol) project called THOR Financial has introduced a play to earn game in their ecosystem to help increase the way investors spend their tokens.  This will make the tokens (THOR tokens)  a little more scarce which should have the effect of increasing the price over time.  Such mechanisms may prove popular although game competition is already fierce.  This example for instance has a development team of 6 highly skilled game software programmers and graphics artists, they have even engaged an orchestra to play the music soundtrack.  But, they have a very big hurdle to get over; it takes hundreds of similarly skilled people in other game companies (such as Activision-Blizzard that makes World of Warcraft), to make a good computer game and the Gods of Asgard will cost 10 to 20 times more to play.

I’m not expecting Play to Earn games to take over the world just yet.  The most popular game for instance, Axie Infinity, is actually quite boring except for the earn feature.w

The world is awash with all sorts of Cryptocurrency and Blockchain projects.  Some of a lot of fun, some just plain silly and some others have use cases that will make them invaluable.

Before you dismiss NFT’s and Metaverse as being unworthy, consider that  MacDonald’s have recently spent a lot of money recently to purchase space in the Sandbox Metaverse – presumably to sell virtual Big Mac’s to virtual people who will pay with virtual money.

In section six we look at the most important currency in all of all crypto: Bitcoin – What is it and How Does it work?. We provide a basic history and explanation of the technology and use case.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful resources and links. To find out what we do, take a look at the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that all information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

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Thank you.

What is Cryptocurrency?

Cryptocurrency is often abbreviated to Crypto. The dictionary definition according to the Oxford English Dictionary is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and to verify the transfer of funds.”

I would add, “, recorded on a distributed public ledger called a blockchain and operating independently of a central bank” (at least at the moment).

Some people consider ‘cryptocurrency’ an out-of-date term.  It is a throwback to the Cryptopunk era of the 90’s and early 00’s in which some very clever people toyed with the idea of using cryptography and automation software to replace corrupt, greedy and incompetent financial and government organisations.  A better term for cryptocurrency today would be Digital Asset.

To many of us, such definitions don’t help us understand crypto very much. John Oliver once defined crypto as ‘Everything you don’t understand about money combined with everything you don’t understand about computers.’  If you are new to crypto, even basic news and information seem to be surrounded by hype, rumour, misinformation and very little fact.  It’s difficult to get an accurate understanding of what crypto is and what it will mean to us in the future.

New terms such as Moonboys, DeFi, Metaverse, Hodlers pervade the digital asset media and if, like me, you are a little older than the age groups that these terms seem to be aimed at, you are fighting a seemingly overwhelming feeling of aggravated isolation.

Cryptocurrency is very new in terms of adoption. 99% of people in the world haven’t embraced it and most, even now, are cynical of its viability and use. ‘Why crypto? Normal money does everything it needs to do – the only problem is that we just don’t seem to have enough of it!’  To the average person, crypto is another fad, it has no use-case or worse, it’s a scam!

Even those of us who have bought Cryptocurrency have invested in it rather than use it to buy things. We buy things with Fiat currency (pound, euro or dollar etc.) which is a promissory note backed by the government (Fiat is a Latin word that means ‘let it be done’ but it’s also quoted as meaning ‘backed by force’).

And yet, in the last 15 years the cryptocurrency movement has begun to challenge how we use currency and is practically showing us how money can be used to enhance our freedoms and lifestyle for the future. The benefits to humanity are reassuring to some and frightening to others.  This is the most disruptive technology since the internet and as you’ll see, it will change our lives.  

What is the Blockchain?

Cryptocurrency is based on a new type of technology called blockchain. The ‘blockchain’ is immutable (cannot be changed).  Typically the cryptocurrency is decentralised on a disparate, increasingly complex network of computer systems or ‘nodes’.

A Cryptocurrency blockchain is used to store records of transactions – in the open for all to see.  These transaction blocks are duplicated around the world in the process of validating and confirming transactions i.e. to prove that the transactions aren’t fraudulent or double counted.   Such activity is automatic and independent.

Information stored in a block can be simple transaction data (e.g. details of the transfer of funds from one person/account to another). However, a blockchain can contain any digital information, graphics, video, sounds – in fact data of any sort.  The key thing to remember is that the data in each block is similar in structure to the previous one although the actual data is most certainly different. Once that block is written to the blockchain it can’t be changed (it’s safe, it can’t be edited, deleted or counterfeited – it’s immutable).

This makes most cryptocurrency relatively immune to government and institutional interference or manipulation.

Many believe that blockchain technology heralds a new industrial revolution. This time, It’s seen to be more beneficial to people like you and me as opposed to people in power or leaders of financial/government/corporate organisations.  They can benefit too, but it’s more likely to disrupt them than us!  This industrial revolution will empower from without!

In other industrial and technological revolutions, new machines and technology automated tasks and jobs on the periphery of an organisation.  In essence, major change has protected those at the centre who are empowered to implement change around them.  For example, in the first industrial revolution, mill owners installed machinery to increase the productivity of their mills.  The owners enjoyed huge profits through productivity gains because machines could work longer and at less cost.  Unfortunately, those on the periphery (the workforce) became redundant.

Such innovations made certain people very rich and others poor. One of the latest technological ‘revolutions’ has seen the leaders of ‘Big Tech’ becoming the richest people in the world! Companies like Amazon, Google, and Facebook are certainly more well known from the wealth of their leadership than the benevolence and care they provide to their workforce. Not ironically, one of the more respected Big Tech leaders, Jack Dorsey (the founder of Twitter) recently felt the need to leave the social media platform to pursue loftier ambitions on the blockchain.

Many of us are increasingly disaffected by the corporate ambitions of high tech companies and feel increasingly insecure and exploited each time we use their services. Unfortunately, in many cases there are no options. Google for instance, collects as much information as they can about us and then use this to help advertisers sell things – We may not want them to do this but we don’t seem to have any choice (duckduckgo and Brave browser aren’t good enough to replace Google yet) – the disadvantages are outweighed by the advantages in search accuracy and speed.

Some of us feel that we have lost the right to the information we uploaded to sites like Facebook, Twitter, Instagram etc. and that these websites seem free and able to do what they like with our personal data – usually to their advantage rather than ours.

Blockchain provides a solution. It does this by protecting our ‘profiles’ on the internet, our personal information, our money and our property by utilising innovative programmes and services that automate from the centre and not the periphery! The use of personal data uploaded to the blockchain will be more obvious than it is today and we will have more control of how that data can be used. For example, our cryptocurrency cannot be invested by a bank. 

Change from the centre is a fundamental aspect of blockchain technology and the reason why it will change the world. Blockchain products are normally decentralised and therefore difficult to control by a corporate or government entity.  As an example, a financial transaction on a decentralised network is handled by a smart contract which completely cuts out the middle man/men.  The corporate executives, directors, manipulators and custodians aren’t required! You won’t need to trust the leaders of organisations to do the ‘right thing’ – transaction security is enforced by blockchain smart contracts.

Although in the very early stages of adoption one thing is guaranteed, the sooner we learn what cryptocurrency and blockchain is and how it can be used, the sooner we will benefit from the freedoms (financial or otherwise) that this technology has to offer.

In the next section, we’ll look more closely at Why Cryptocurrency will Succeed.

This article is copyright 2022 by Tony Fawl, CryptoNET.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful recourses and links. To find out what we do, checkout the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that al information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

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Thank you.

This is a crypto bibliography of links and resources used to help me put together this website and blog posts.  I add to it quite often so it’s always good to check back for new stuff once in a while. We have a wide range of links to checkout. All are regularly checked.

Book: The Bitcoin Standard (by Dr. Saifedean Ammous) is the essential resource for a clear understanding of the rise of the Internet’s decentralised, apolitical, free-market alternative to central banks.  It is the de facto learning resource for all those interested in rise and rise of Bitcoin. 

Website & Report: The excellent Messari.io website is truly an excellent one stop shop for news and info about crypto and the digital assets industry. The 2022 Massari Report is a ‘must read’ (it’s usually published each December – it’s also quite entertaining and well written (not too stuffy)). There are usually also some excellent predictions for crypto growth which are carefully reasoned.

TV Documentary: Cryptopia: Bitcoin, Blockchains and the Future of the Internet. Five years after his first documentary, award-winning producer/director Torsten Hoffmann revisits Bitcoin and sets out to explore the evolution of the blockchain industry and its new promise. It’s available on Prime (Amazon), Vimeo and YouTube (linked) but beware, the youtube video has adverts every few seconds and is almost unwatchable because of it.

Youtube Channel: Crypto Zombie.  Not a bitcoin maximalist but pretty close,  Researches and analyses crypto news from many different sources and consolidates them into an entertaining and interesting 15-20 minute segment 4-5 times per week.  I find myself checking this YouTube channel more than any other for new content.

YouTube Channel: This is a ‘Learn to Trade Crypto’ channel. MoneyZG is dedicated to useful finance information and education. Trading tutorials, how-to videos, useful financial content and information focusing on Cryptocurrency. He used to be a broker on the London Stock Exchange but now bow down to the YouTube gods. 

PDF Report: Central Bank Digital Currency: opportunities, challenges and design A report by the Bank of England on the opportunities for the populace that uses a CBDC.  A must read! 

PDF Report: Central bank digital currencies for cross-border payments A report by the World Bank Group and International Monetary Fund (July 2021. A well balanced explanation of how CBDCs could benefit cross border money transfers and a little of how they could be difficult to implement. (Downloadable from Bis.org – co-author)

Report: Central Bank digital currencies: features, options, pros and cons by Santiago Fernández de Lis and Olga Go

PDF: Bitcoin Whitepaper: The Original crypto whitepaper – A thing of beauty! This is the original whitepaper as it appeared in 2009.

Book: Bitcoin Billionaires by Ben Mezrich. This is the true story of the Winklevoss Twins after their Facebook stock settlement with Mark Zuckerberg and how they became the first Bitcoin billionaires.  This is actually a fun read!

Website: Unstoppable Domains: This is an Internet Domain registration website.  Unstoppable Domains utilises the benefits of Blockchain technology to allow you to register a domain as an NFT.  It’s then yours for life!  The .wallet domain allows you to register your public keys with the domain so that payments can be received by sending them to the .wallet address.  This is better than the rather convoluted crypto addresses which can be as long as 40 characters (e.g. if you wanted to send  me a bitcoin tip, you could simply send to tonyfawl.wallet – try it and see  🙂 )  

Exchange: Binance.com: The big daddy of Central Cryptocurrency Exchanges with $2Billion volume, 1.400.000 transactions per second and nearly 700 cryptocurrencies that can be traded.  The interface may be a little complicated, but this is a reliable exchange.

Exchange: Crypto.com: The new kid on the block and determines to take over as the best. Crypto.com has become popular not least because of the excellent credit/debit card service which allows you to load up your debit card with crypto and spend it as normal.

Hardware Wallet: Ledger Nano X: Secure, buy, exchange, grow your crypto and manage your NFTs with our new Bluetooth-enabled hardware wallet. All your digital assets – secured in one place. For security reasons, I personally would only buy this directly from the manufacturer.

Software Wallet: Metamask: Available as a browser extension and as a mobile app, MetaMask equips you with a key vault, secure login, token wallet, and token exchange—everything you need to manage your digital assets.

Website: The oft quoted Coinmarketcap is a well known resource in the cryptocurrency community for providing statistical information on just about all the crypto currencies that there are!  They also have lots of other resources raging from a Portfolio Tracker and Watchlist to the most popular NFT collections. 

Check back regularly for the latest cool links and resources.

This page is part of the How to Crypto Web Series, an awareness course for beginners interested in blockchain projects and cryptocurrency investment. Please checkout the Bibliography and Glossary of Terms pages for other useful recourses and links. To find out what we do, checkout the About Us page.

Disclaimer: CryptoNET.org.uk is not a registered investment, legal or tax advisor or a broker or dealer.  All investment/financial opinions expressed by CryptoNET.org.uk are from the personal experiences of the owner of the website and are intended as educational and entertainment material. Best efforts are made to ensure that al information is accurate and up to date but we would still recommend that you do your own research before making investment decisions. 

If you have found this page useful, please consider a small donation to help fund the site:

[crypto-donation-box]

Thank you.