CRYPTOcurrency
Distributed ledgers · permissionless money · contested asset class
"A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution." — Satoshi Nakamoto, 2008
Sixteen pages on what cryptocurrency is, how it works, who owns it, what it does (and does not do), and where the regulators stand.
Illustrative placeholder datacenter image · proof-of-work mining used ~150 TWh/yr in 2024 (~Argentina)
The 2008 Whitepaper
Oct 31, 2008. Anonymous "Satoshi Nakamoto" posts a 9-page paper to a cryptography mailing list. "Bitcoin: A Peer-to-Peer Electronic Cash System."
Problem stated
Internet commerce relies on financial institutions as trusted third parties. Banks reverse transactions, charge fees, exclude users. Double-spending is the digital-cash hard problem — without a central server to track who has what, how do you stop the same coin being spent twice?
Solution
A timestamp server distributed across nodes. Transactions hashed into blocks; blocks chained by including the previous hash. Proof-of-work makes rewriting history exponentially expensive.
First block (Genesis) mined Jan 3, 2009. Coinbase contained a Times headline: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
What is a Blockchain?
A blockchain is an append-only, cryptographically-linked, replicated ledger.
Thousands of nodes. No single authority. Anyone can run a node.
Changing block N requires re-mining N, N+1, N+2 ... faster than the rest of the network.
All transactions readable. Pseudonymous, not anonymous. Chain analysis is a multibillion-dollar industry.
Bitcoin · The Original
Specs
Price History
Four major cycles. Drawdowns of 70-85% have followed each peak. Bitcoin remains the highest-Sharpe asset of the 21st century — and the most volatile.
Ethereum · The World Computer
Vitalik Buterin proposes Ethereum (Nov 2013) at age 19. Mainnet launches July 30, 2015. Where Bitcoin is digital gold, Ethereum is a programmable platform — a decentralized state machine that runs smart contracts.
Key Concepts
~32 ETH staked = a validator. ~1M validators secure the chain in 2026. Issuance is dynamic; ETH became net-deflationary post-Merge.
Proof of Work vs. Proof of Stake
| Property | Proof of Work | Proof of Stake |
|---|---|---|
| Sybil resistance via | Computation (hashes) | Capital (staked tokens) |
| Energy use | High (Bitcoin ~150 TWh/yr) | Low (ETH ~0.01 TWh/yr post-Merge) |
| Hardware | ASICs (specialized) | Commodity laptop |
| Attack cost | 51% of hashrate | 33% of stake (slashed if caught) |
| Issuance | Block subsidy + fees | Validator rewards + tips/MEV |
| Used by | BTC, LTC, DOGE, BCH | ETH, SOL, ADA, AVAX, DOT |
Other consensus mechanisms
DPoS (delegated) PoH (Solana — proof of history) PoA (private chains) DAG-based (IOTA, Hashgraph)
Wallets & Keys
A wallet is not where coins are stored. Coins live on the chain. A wallet is software that holds the private keys that authorize spending the UTXOs/balances assigned to derived addresses.
Hot wallet
Connected to internet. Browser extensions (MetaMask, Rabby), mobile apps (Trust, Phantom). Convenient. Vulnerable to phishing, malware.
Cold wallet
Air-gapped. Hardware (Ledger, Trezor, Coldcard) or paper. Signs transactions offline. Best for long-term holdings.
Custodial
Exchange holds keys for you. Coinbase, Kraken, Binance. Easy. Not your keys, not your coins. Mt. Gox (2014) and FTX (2022) showed why.
Seed phrase
BIP-39: 12 or 24 words, a deterministic encoding of a 128- or 256-bit master key. From this, all addresses derive (BIP-32 hierarchical wallet).
witness lazy salute jacket fabric narrow inquiry crystal champion idea swift forest
Anyone who reads those words can drain your wallet. Store them on metal. Never on a computer. Never in a photo.
Exchanges
CEX · Centralized
Operate like brokers. KYC required. Custody assets. Match orders off-chain.
| Exchange | Volume rank | Founded | Notes |
|---|---|---|---|
| Binance | #1 globally | 2017 | $4.3B settlement w/ DOJ Nov 2023; Zhao stepped down |
| Coinbase | #1 in U.S. | 2012 | NASDAQ-listed Apr 2021. The crypto blue-chip CEX. |
| Kraken | top 5 | 2011 | Most security-respected. Proof-of-reserves leader. |
| OKX | top 5 | 2017 | Hong Kong / Seychelles. Strong derivatives. |
| FTX | defunct | 2019–2022 | $8B customer-fund hole. SBF convicted 7 counts of fraud Nov 2023. |
DEX · Decentralized
Smart contracts. No KYC, no custody. Uniswap (AMM, ~$2T cumulative volume), Curve (stablecoin pools), dYdX (perps), Jupiter (Solana aggregator).
AMM (automated market maker) replaces order books with liquidity pools. Constant product formula: x · y = k.
Stablecoins
Crypto assets pegged to fiat. The bridge between crypto-native and traditional finance. Annual stablecoin volumes (~$10T+ in 2024) exceed Visa.
| Coin | Issuer | Backing | Cap (~2026) |
|---|---|---|---|
| USDT (Tether) | Tether Ltd | Reserves attested quarterly · mostly T-bills | $110B |
| USDC | Circle | Bank deposits + T-bills · monthly attestation | $45B |
| DAI | MakerDAO | Crypto + RWA over-collateralized | $5B |
| FDUSD | First Digital | Hong Kong-regulated, T-bill backed | $3B |
Algorithmic stablecoins are not stablecoins. UST (Terra/Luna) collapsed May 2022, wiping ~$45B of value over four days. The market's lesson: collateral matters.
Why stablecoins matter
Crypto trading pair denominator (vs. BTC/ETH) Cross-border payments — sub-second settlement, sub-1¢ fees Onshore for those without dollars (Argentina, Turkey, Nigeria) DeFi base layer
DeFi · Money Lego
Decentralized Finance: smart-contract-based replicas of traditional financial primitives. Permissionless, transparent, composable.
Aave, Compound, Spark. Deposit collateral; borrow against it. Interest rates set by utilization curves.
Uniswap, Curve, Balancer. Provide liquidity → earn fees. Impermanent loss is real.
dYdX, GMX, Synthetix. On-chain perpetual futures and synthetic exposure.
Lido, Rocket Pool. Stake ETH; receive stETH that's tradeable and composable.
Ondo, Maple. Tokenized T-bills, private credit. The institutional bridge.
Yearn, Convex. Rotate capital across pools to optimize APR.
Total Value Locked peaked at $180B (Nov 2021), bottomed at $36B (Oct 2023), recovered to ~$95B in 2026. Concentration: ~50% of TVL on Ethereum.
Layer 2 · Scaling
Ethereum mainnet handles ~15 tx/sec. Visa handles ~24,000. Layer 2 networks bundle transactions off-chain, post compressed proofs back to L1.
| L2 | Type | TPS (target) | Notes |
|---|---|---|---|
| Arbitrum | Optimistic rollup | ~40,000 | Largest L2 by TVL |
| Optimism / Base | Optimistic rollup (OP Stack) | ~2,000 | Coinbase-backed Base on OP Stack |
| zkSync Era | ZK rollup | ~2,000 | STARK-based proofs |
| StarkNet | ZK rollup | ~1,000 | Cairo language, validity proofs |
| Lightning | BTC payment channel | millions (theoretical) | Off-chain BTC payments |
EIP-4844 (Mar 2024) added "blobs" — cheap data slots specifically for L2 calldata. L2 fees dropped 10×.
Case · Mt. Gox 2014
Founded 2010. By 2013, Mt. Gox processed ~70% of all Bitcoin transactions. Feb 2014: withdrawals halt. Site goes offline. 850,000 BTC missing (~$450M then; ~$57B at 2026 prices).
Cause: years of slow-leak theft. CEO Mark Karpelès' code lacked basic accounting. Hot wallet keys stolen iteratively. Trustees recovered ~200,000 BTC in cold storage.
Aftermath
Bankruptcy proceedings still being settled in 2024–2026. Creditors voted for in-kind BTC distribution. The case set the template: never trust an exchange's "audit" demand proof of reserves withdraw to self-custody.
Case · FTX 2022
Sam Bankman-Fried, Stanford physics, Jane Street, MIT. Builds FTX in 2019. Raises at $32B valuation. Buys SuperBowl ad with Larry David. Endorsed by Tom Brady, Steph Curry. Sponsors Miami Heat arena.
Nov 2, 2022: CoinDesk publishes Alameda's balance sheet. ~$5B of $14.6B "assets" are FTT — FTX's own token. Binance announces it will dump its FTT. Run begins.
Nov 8: withdrawals halted. Nov 11: bankruptcy. Customer funds had been routed to Alameda Research, used for venture investments, real estate, political donations. $8B hole.
SBF convicted Nov 2, 2023 on all 7 counts. Sentenced to 25 years. Customer recovery via bankruptcy estate ultimately exceeded 100% in nominal dollars (driven by BTC/ETH appreciation).
"I fucked up." — SBF, on Twitter, two days before bankruptcy
Regulation
U.S.
Jurisdictional ambiguity. SEC claims most tokens are securities (Howey test); CFTC claims BTC and ETH are commodities. Spot Bitcoin ETFs approved Jan 10, 2024 (BlackRock IBIT, Fidelity FBTC). Spot ETH ETFs approved July 2024.
EU
MiCA (Markets in Crypto-Assets), in force from Dec 2024. Comprehensive: licensing for issuers, stablecoin reserves, market-abuse rules.
Asia
Singapore · MAS payment-services license · cautious-but-open. Hong Kong · 2023 retail framework · trying to retake Asia hub status. Japan · oldest framework (post-Mt.Gox 2017). China · domestic ban since 2021; CBDC piloted instead.
El Salvador
First country to make BTC legal tender (Sep 2021). National wallet (Chivo). Citizens still mostly use USD. Symbolic more than transactional.
How People Lose Money
Self-inflicted
Lost seed phrase. Estimated ~3–4M BTC permanently lost.Phishing — fake wallet popups asking for seed.Approve scams — signing infinite-allowance approvals on dapps.Buying tops, selling bottoms.Leverage. 100× perps annihilate accounts on 1% moves.
External
Exchange bankruptcy (FTX, Celsius, BlockFi)Smart-contract exploit (Ronin $625M, Poly Network $611M)Rug pulls — devs drain liquidity, vanishPump-and-dumps — usually orchestrated on TelegramAlgorithmic stablecoin depeg (UST/Luna)Bridge hacks — cross-chain bridges have lost billions
The Defensive Playbook
Self-custody for >$10k Hardware wallet, two locations Verify URLs Never sign blind — read the prompt Diversify — BTC + ETH + stablecoin yield is most of the alpha Position size you can lose
Recommended Reading & Watching
Books
Nakamoto — Bitcoin Whitepaper (2008). 9 pages. Required.
Antonopoulos — Mastering Bitcoin · Antonopoulos & Wood — Mastering Ethereum
Saifedean Ammous — The Bitcoin Standard · Lewis — Going Infinite (FTX/SBF)
Popper — Digital Gold (Bitcoin's early history) · Faux — Number Go Up (the 2022 collapse)
YouTube
CNBC — crypto coverage and FTX documentary
Bloomberg — crypto markets segments
Bankless — deep on-chain interviews
Andreas Antonopoulos — timeless Bitcoin lectures
Stanford GSB — crypto seminars (Vitalik 2018)
On-chain tools
etherscan.io · defillama.com · dune.com · glassnode.com · l2beat.com