Cryptocurrencies and the Blockchain

Cryptocurrencies and
the Blockchain
Understanding the Technology
Matthew Thompson
Coinigy, Inc.

J. Orlin Grabbe
Economist
“Cryptology represents the
future of privacy [and] by
implication [it] also represents
the future of money, and the
future of banking and finance.”
Peter Thiel
Co-Founder of PayPal
“I do think Bitcoin is the first
[encrypted money] that has
the potential to do
something like change the
world.”
John McAfee
Founder of McAfee
“You can’t stop things like
Bitcoin. It will be everywhere
and the world will have to
readjust. World governments
will have to readjust.”
Larry Summer
Former U.S. Treasury Secretary
“I am reasonably confident…
that the blockchain will change a
great deal of financial practice
and exchange.”

Table of Contents
Presentation Slides
page
03
Overview
 05 – Misconceptions
 06 – Key Terms
 09 – Timeline
Blockchain
o 14 – Description
o Features
o Benefits
o Pros & Cons
o Visualization
o 18 – Blocks
o Proof-of-Work (PoW)
o Proof-of-Stake (PoS)
o Transactions
o 21 – Distinctions
o Premine vs. Mining
o Public vs. Private
o Forks
Cryptocurrency
 24 – Features
 25 – Bitcoin
 Bitcoin’s Fork
 29 – Popular Cryptocurrencies
 31 – Initial Coin Offerings (ICOs)
 33 – Trading
 35 – Acceptance and Use
 Heists
 Legality
 Acceptance by Companies
Use Cases
o 41 – Ripple
o 42 – Storj
o 43 – ICONOMI
o 44 – Bancor
o 45 – Golem
o 46 – Gnosis
o 47 – Community Partnerships
Glossary References About the Author

Common Misconceptions
page
05
A company owns Bitcoin
Due to its decentralized nature,
no company, government, or
institution of any kind wholly
owns Bitcoin -- its network is
completely controlled by its
users.
You can’t own a fraction
of a Bitcoin
Bitcoins and many other
cryptocurrencies are divisible
down to 8 decimal points. This
means that you can own down
to 0.00000001 of a coin.
Bitcoin is anonymous
While not completely untrue, a
ledger of all transactions that
have ever taken place can be
viewed by anyone.
Bitcoin is only used
for illegal activity
Though Bitcoin has become the
method of choice for online illicit
transactions, hundreds of
thousands of legitimate merchants
accept it as a form of payment
including major companies..

General Overview
Key Definitions
page
06
01
Blockchain
The first implementation of a
blockchain to create a
decentralized, P2P payment
system. As a cryptocurrency, it
uses a network of nodes to relay
transactions. Bitcoin is not
issued, administered, or wholly
owned by any government body
or institution. It is denoted by
BTC, XBT, and .
02
Bitcoin
The pseudonym for the
anonymous developer or group
of developers that initially
released Bitcoin as open source
code in 2009. The identity of
Nakamoto has never been
verified and he/she/they is/are no
longer involved in the community,
though some attempts and
guesses have been as to their
identity.
03
Satoshi Nakamoto
The smallest possible unit of a
Bitcoin, representing 0.00000001
BTC, or 10-8 of a coin. Other units
include a millibitcoin (.001 BTC)
and a microbitcoin (.000001
BTC) also known as a bit.
04
Satoshi (Units)
A distributed ledger made up of
blocks – i.e. records – that
records transactions between two
entities in a verifiable manner.
Further, each block is
timestamped in order to link it to
the previous one to create a
chain, where any change
requires altering all following
blocks as well as network
majority consensus.
General Overview
Key Definitions

General Overview
Key Definitions cont.
page
07
A broad term used to describe
digital currencies in which
cryptography is used to generate
new units as well as verify funds
being transferred across the
network. Other names include
coin, digital currency, digital
asset, or electronic money.
‘Altcoin’ refers to any
cryptocurrency besides Bitcoin.
05
Cryptocurrency
Mining involves the verification of
transactions on the network as
well as finding new blocks.
Blocks of new coins are
‘discovered’ when a given miner
solves the current block’s
cryptographic problem, with the
first miner to ‘solve’ it receiving
the lot of coins.
06
Mining
The verification of a blockchain
transaction by the network,
indicated by the discovery of a
new block by a miner on the
network, When a transaction
receives a confirmation, it cannot
be reversed unless a network
majority agrees to wipe the
transaction from the ledger.
07
Confirmation
Used to transfer funds on the
network, an address appears as
a string of alphanumeric
characters (e.g. a Bitcoin address
example is
1A1zP1eP5QGefi2DMPTfTL5SL
mv7DivfNa). This is also known
as a public key – how a given
wallet appears on the network of
transactions.
08
Address
General Overview

General Overview
page
08
A collection of miners who have
pooled their mining power – i.e.
hashing power – together in
order have a better chance of
discovering blocks of new coins.
09
Pool
10
Difficulty
With a wallet, the private key is
the ‘password’ to gain access to
the funds stored at a given
address (public key). Unlike a
public key, which can be shared
with anyone you’re transacting
with, a private key should never
be shared as it is what’s needed
to take control of an address and
its funds.
11
Private Key
Consensus is what makes a
decentralized network tick. With
cryptocurrencies, no changes
can be made to the code without
network majority consensus. It is
also used to maintain the ledger
and the transactions included in
it.
12
Consensus
A network’s difficulty adjusts itself
based on the current hashing
power being provided by miners.
Difficulty adjustments allow the
network to have a steady stream
of new blocks being discovered,
referred to as the block time. The
block time – the time between
blocks – is determined when the
network is created, though it can
be changed at a different time.

Bitcoin publicly released
January 3rd 2009
In early 2009, the first implementation
of a blockchain – Bitcoin – was
released as open-source code by
Satoshi Nakamoto. While Bitcoin
wasn’t the first digital currency, it was
the first to include blockchain
technology paired with a proof-of-work
system and inflation control.
General Overview
A Brief Timeline
page
09
Blockchains first
described
Early 1990s
At a very primitive level, the idea of a
blockchain was first conceptualized in
1991 by Stuart Haber and W. Scott
Stornetta. This idea was later
extended and improved upon in 1992.
General Overview
A Brief Timeline

Litecoin released
October 7th 2011
First real-world Bitcoin
transaction
May 22nd 2010
General Overview
A Brief Timeline cont.
page
010
April 2010
First Bitcoin exchange
launches
BitcoinMarket.com, now defunct,
starts operating as the first Bitcoin
exchange, with Bitcoin trading at
$0.003 per coin. Today, there are well
over 100 cryptocurrency exchanges
with daily trading volumes in the
billions of dollars.
Just a month after the first Bitcoin
exchange launched, the first real-
world transaction took place. It
involved Laszlo Hanyecz buying two
pizzas for 10,000 Bitcoins.
Litecoin, Bitcoin’s first real
‘competitor’, aimed to improve upon
several key features of Bitcoin. Today,
Litecoin is one of the top 5 largest
cryptocurrencies by market
capitalization and 24 hour trading
volume.
General Overview

Overstock begins
accepting Bitcoin
January 2014
While a large number of merchants
already accepted Bitcoin as a
payment method, Overstock became
the first major retailer to accept the
currency in the United States. Later in
the year, Overstock would expand this
support to the customers from
anywhere in the world.
Bitcoin reaches first all time
high of $1,000+
November 2013
Following a quick rise, Bitcoin topped
out at $1,242 per coin on November
29th. With this, Bitcoin entered the
spotlight for the first time as major
news outlets covered the historic
event, drawing both support and
criticism.
General Overview
page
011
2012
Bitcoin competitor
Ripple launches
Another popular cryptocurrency,
Ripple is a payment protocol that acts
as a real-time gross settlement
system, currency exchange, token
system, and remittance network.
General Overview

Bitcoin reaches all time high
of over $3,000
May/June 2017
Following Bitcoin’s meteoric rise to
over $1,000 in late 2013, Bitcoin’s
price slowly fell to the $200 range in
early 2015. Showing it’s continued
growth in use and popularity, the
digital currency saw its price rise to
over $3,000 per coin in mid 2017.
General Overview
page
012
July 30th 2015
Ethereum released
Currently the most popular blockchain
project after Bitcoin, the Ethereum
platform allows for distributed
computing, tokenization, and smart
contracts as well as distributed
autonomous organizations (DAO).

Blockchain
Features
page
014
Blocks contain valid transactions being sent on a
network, with blocks being connected to the previous
block through cryptography and timestamps to form
a chain
Once in a block, a transaction cannot be changed or
removed unless by changing all following blocks and
network majority consensus
Transactions are peer-to-peer and relayed by nodes
on the network

Blockchain
Benefits
page
015
Blockchains help solve the double spending problem
of digital assets by making it easy to verify that a unit
is only being spent once
Typically speaking, transactions can be near-instant
and are far cheaper than with traditional systems
Peer-to-peer means there are no middlemen and a
node, wallet, or similar cannot be frozen by a third
party

Blockchain
Pros & Cons
page
016
conspros
Cheap transactions
Near-instant
Easy-to-verify transactions
Decentralized; no institution or government is
in control of the network
A robust, trustless, and secure medium of
exchange
Require large amounts of energy
Higher initial costs
Completely redefines how traditional systems
work, so a full transition will be difficult
Generally harder to understand than the
current norm
Regulatory status is vague and constantly
changing

Blockchain
Visualized
page
017
Block #450,000:
- 2156 transactions
- 2017-01-25
- 22:11:29 UTC
Cryptographic
Hash:
0000000000000000
014083723ed311a4
61c648068af8cef8a
19dcd620c07a20b
Block #450,003
- 2064 transactions
- 2017-01-25
- 22:44:59 UTC
Cryptographic
Hash:
0000000000000000
0072e602f438ae44
bfac1899d7c8f97fa
ccab191b6ca7c22
W
Block #450,002
- 1427 transactions
- 2017-01-25
- 22:39:17 UTC
Cryptographic
Hash:
0000000000000000
017fd226fff84c38c5
eccac41910c02069
2751ffd5b3361d
Each block in the chain is
linked to the previous block
through timestamps and its
hash. The hash also acts as a
unique identifier for the block.
Block #450,001
- 1732 transactions
- 2017-01-25
- 22:12:23 UTC
Cryptographic
Hash:
0000000000000000
011cf0c4c2ecb031
2aac4b321884ee25
e46a61913466e443
Other information for a block
includes total transaction fees
(if any), transaction volume,
size of the block, and who it
was initially relayed by.

Blockchain and Cryptocurrencies
Explained
page
018
02
Difficulty adjusts accordingly
in order to hit the network’s
intended block time as best
as possible.
03 Block time is the time in
between two adjacent blocks.
01
Proof-of-Work (PoW) is a
common method of finding
blocks. It involves using
computing power to solve
complex problems.
Different blockchains utilize different methods for finding blocks. The
most common way – Proof-of-Work (PoW) – uses computing power to
solve complex problems. This is referred to as mining. With this, there
are different algorithms used to mine on different PoW chains, some
being more efficient and/or more secure than others.
In a PoW chain, each block has its own corresponding problem and is
relayed by the first person or group to solve it. Because blocks have
to be solved before being found, some blocks take longer than others,
but generally speaking block times average out to whatever the
network’s specified intended time is.
The network’s difficulty will adjust to the relative computing power
searching for blocks on the network. The more miners and thus hash
power there is, the higher the difficulty. Without difficulty adjustments,
more miners means blocks would be found faster while less miners
mean that blocks would be found much slower. In the case of
cryptocurrencies, this acts as inflation control to ensure a steady
supply of new coins with each block.
Finding Blocks - PoW

Explained cont.
page
019
02
Forged or minted refers to
how blocks are found in a
PoS network, as opposed to
being mined in a PoW
mechanism.
03
A hybrid system is a network
that utilizes both PoW and
PoS mechanisms in order to
secure the network.
01
Proof-of-Stake (PoS), like
PoW, is another form of
securing a blockchain. It
involves proving ownership of
funds on the network.
While PoW uses computing power to solve cryptographic problems to
solve blocks, a Proof-of-Stake (PoS) system uses proof of ownership
of funds in order to secure the network. By staking units (i.e. holding
them at an address) on the network, new blocks are said to be forged
or minted, similar to how blocks in a PoW scheme are mined.
The probability of a particular address receiving the next block is
based in particular on the size of its stake (i.e. the number of units
being held). The two most popular methods of this are randomized
(where randomization techniques are used to find the lowest hash
value) and coin age (where the length of the time the lot of coins has
been at address is taken into account).
PoS offers its share of advantages and disadvantages when
compared to PoW. With this, some networks end up utilizing a hybrid
system of PoW/PoS. In this scheme Pow and PoS can be used
simultaneously to secure the network and to find blocks, or the
network can transition from one scheme to the other. This transition
point is typically predetermined and usually is based on block height.
Finding Blocks - PoS

Explained cont.
page
020
02
Block height refers to a block’s
number in the chain. The first,
or genesis, block has a height
of 1, the following block has a
height of 2, and so on.
03
01
The transaction fee is the small
fee paid when sending a
transaction. It is technically
optional, but incentivizes a miner
to include a transaction in a block.
.
Transactions in a Block
In order for a transaction to be verified on the network, it must first be
accepted and included in a block. Miners/minters can accept
transactions as they please, and especially in the case of
cryptocurrencies, typically first accepting transactions that have the
highest fee compared to the size of the transaction. Because of this, a
transaction with a minimal or no fee included typically take much
longer to be included in a block by a miner and therefore get
confirmed as a transaction.
With cryptocurrencies, the fees paid on transactions are paid back to
miners to act as incentive for them to accept transactions. Once the
block reward (i.e. new units being created with each block) runs out at
the predetermined date or block height, the collective batch of fees for
all transactions in a given block provides the continued incentive to
keep mining.
The reward is the generation of
new units with each block that
a miner can claim for solving
the block.

Distinctions
page
021
Public vs. Private
 Public blockchains can be accessed by
anyone simply by connecting to the
network. Anyone can send transactions
and store information on the chain as
they please.
 Private, or permissioned, blockchains
allow for the ability to restrict who can
access it and therefore participate in the
consensus process. These are typically
utilized by corporations and by definition
lack the transparency seen in public
chains.
Premine vs. Mining
 A premine occurs when some or all of
a particular cryptocurrency or token
are created and disbursed in some
way at the beginning of the respective
network. While mining involves
creation of new units over taken, a
premine means that mining is not
necessarily needed.
 A network can utilize both a premine
and mining, where the remaining
tokens are mined following the
premine’s creation and distribution.
.

Forks
page
022
Block #450,003
- 2064 transactions
- 2017-01-25
- 22:44:59 UTC
Cryptographic
Hash:
0000000000000000
0072e602f438ae44
bfac1899d7c8f97fa
ccab191b6ca7c22
W
A Network Forks
Forks occur when two or more different versions of a ledger split
from a single ledger (i.e. the chain splits into two). This happens
when two versions of an asset are incompatible, and can happen
through software updates of the code.
A hard fork occurs when a network agrees on major changes to
the software, causing incompatibility between the old version and
the new version. At a specified time or block height, the update
will take effect and all users must upgrade their software in order
to continue to remain on the same network as everyone else.
This differs from a soft fork in which changes are made but the
new updates are compatible with older versions. Users are not
required to update their software unlike a hard fork.
Extensive code review is performed in order to ensure an
accidental fork does not occur. When an accidental fork occurs,
the community must quickly decide which chain is the ‘correct’
one. Two different forks means two different networks.
Block #450,004
- 2064 transactions
- 2017-01-25
- 22:44:59 UTC
Cryptographic
Hash:
0000000000000000
0072e602f438ae44
bfac1899d7c8f97fa
ccab191b6ca7c22
Block #450,004
- 2064 transactions
- 2017-01-25
- 22:44:59 UTC
Cryptographic
Hash:
0000000000000000
0072e602f438ae44
bfac1899d7c8f97fa
ccab191b6ca7c22

Cryptocurrency
Features
page
024
Utilizes blockchain technology to confirm
transactions and keep a ledger of all that
have taken place
The entire network produces new units at
a publicly-known rate outlined at creation
through mining, minting, or a premine
Bitcoin was the first cryptocurrency, of
which many others are based on

Cryptocurrency
Bitcoin
page
025
01
Bitcoin was the first
digital currency of its kind
Bitcoin was first released in early 2009 by
Satoshi Nakamoto. Today, it is the most
popular cryptocurrency by volume and
market capitalization.
04
Bitcoin’s total future
supply will be 21 million
Being a deflationary currency, Bitcoin’s total
supply will be 21 milllion BTC in existence
come 2140.
02
Many others are based on
Bitcoin
There are over 750 cryptocurrencies in
existence and a large number of these are
based on Bitcoin’s own code with minor
improvements.
05
The block reward halves
Initially, 50 coins were created and released
with each new block. Every 210.000 blocks,
the reward for finding a block halves with
the current amount being 12.5 BTC per
block.
03
Bitcoin’s block time is 10
minutes
Bitcoin’s network aims to have a new block
found every 10 minutes, with the difficulty
readjusting every 2016 blocks.
06
Bitcoins are held in
wallets
Bitcoins can be stored in a wallet, where
keys to the address are held to claim
ownership, on one’s computer or through
an online wallet service/exchange.

Cryptocurrency
Bitcoin
page
026
Bitcoin’s Network Forks
Generally speaking, Bitcoin has first mover advantage in that it was the first of its
kind and thus is the most popular cryptocurrency which is reflected in its market
capitalization. That being, Bitcoin also suffers from first mover disadvantage
where it simply did not come equipped with the capability to adequately scale
and support the meteoric rise in its userbase. With this growth, many users
began noticing significantly higher confirmation times for transactions and
general network slowness.
When these problems became apparent, factions in the Bitcoin community
formed on how to solve this issue of scalability and usability. Many of the
ensuing debates revolved around the hard cap size of a block being set to 1 MB,
which allowed for only 6-7 transactions per second. With standstills between
these two sides lasting for months as consensus could not be reached, on
August 1st, the first Bitcoin Cash block was mined. This officially marked the split
off and fork from the Bitcoin network, thereby creating two separate networks
and blockchains – Bitcoin Core (keeping the original BTC ticker) and Bitcoin Cash
(BCC or BCH).
These resulting chains taking on opposing solutions both offer pros and cons
over the other. It will be some time before the true effect of this split is seen on
Bitcoin, and it has yet to be seen which (if any) chain as well as scaling solution
will endure in the long run.

Cryptocurrency
Bitcoin Transactions
page
027

Cryptocurrency
Bitcoin Price
page
028

Cryptocurrency
Other Popular Currencies
page
029
Ethereum
While not intended as a currency
in itself, the Ethereum platform
allows for distributed computing,
tokenization, and smart contracts.
Ripple
In a sense redefining
cryptocurrencies on its own, Ripple
acts as a real-time gross
settlement system, currency
exchange, token system, and
remittance network
Litecoin
Bitcoin’s first real competitor,
Litecoin is based on Bitcoin’s code
with major changes including a
different hashing algorithm for
mining, shorter block time, and
larger total supply.
Monero
A currency aimed at providing truly
anonymous transactions, Monero
differs from many other privacy-
centric coins by not being based
on Bitcoin’s code.
Peercoin
While it has declined in
popularity over the years,
Peercoin was one of the first
real hybrid currencies featuring
a network with a simultaneous
PoW/PoS scheme.
BitShares
With more traditional financial
services in a decentralized
manner, BitShares supports user-
issued assets, price-stable
cryptocurrencies, and controls for
a corporate environment, among
other features.
There are over 750
cryptocurrencies in
existence, some based
on Bitcoin and others
utilizing their own new
codebase.

Cryptocurrency
All Altcoins
page
030
Combined Market Capitalization (Price per Unit x Supply) of All Cryptocurrencies,
Excluding Bitcoin
Source: coinmarketcap.com;
highcharts.com

Cryptocurrency
Initial Coin Offering (ICO)
page
031
02
Tokens are sold during ICOs in
return for cryptocurrencies like
Bitcoin or Ethereum. Tokens are
what a given project will utilize to
make their technology function in
a decentralized network.
03
01
Initial Coin Offering (ICO) is a
method by which
cryptocurrency startups raise
funds through the sale of
cryptocurrency or tokens.
Initial Coin Offerings are crowdsales reimagined. For better or for
worse, ICOs allow a cryptocurrency startup or project to raise funds in
a relatively unregulated away, thereby going around the strictly-
controlled process typically seen with venture capital or banks.
A typical ICO happens in which a cryptocurrency – namely Bitcoin – is
accepted by the startup in return for the tokens that the project will be
using on their decentralized network. Some of these projects start
their own network, while many others run on top of existing networks
like Ethereum and use tokens native to those networks. Much like a
traditional IPO of a stock for a company, investors hope to buy into the
project’s sale at a rate set before the sale starts in order to cash out
the tokens for a higher rate than they were bought for at a later date.
ICOs have caught flak due to their unregulated nature, and investors
remain cautious due to potential scams that pop up from time-to-time.
In July of 2017, the SEC declared that certain ICOs should have been
considered security sales and thus needed to follow United States
federal security laws and regulation. While no charges were pursued,
it changed the outlook of the ICO landscape.
Initial Coin Offerings Explained
A premine is typically used by
tokens. This means that once
an ICO is over, all coins are
available and some or all are
disbursed to ICO investors.

Cryptocurrency
ICO Success
page
032
Many ICOs have been extremely successful, with a few accounting for some of the
largest crowdsales in history. Some examples of these include:
Raised over $150 million worth of Ether (Ethereum’s native coin)
within three hours
Status Raised just over $100 million in under a day, a sale so popular it
significantly slowed the Ethereum network
Sold just 5% of its tokens for over $12 million, giving it a total
market capitalization of $300 million

Cryptocurrency
Trading Highs
page
033
If you had invested $100 in Bitcoin 7 years ago just after its
launch, you would be sitting on over $70 million today.
Bitcoin
Dash started 2017 off just over $10 and now
resides at over $160.
Dash
Litecoin came into 2017 boasting a price of around
$4.00. In July of this year, it hit over $50.
Litecoin
Overview
With over 150 exchanges involved in the space, cryptocurrency
trading has grown immensely. Daily trading volumes have
reached the billions of dollars, and when compared to traditional
markets, digital currencies have shown to be far more volatile.
Though there is significant risk in investing in emerging
technologies, the potential return one might expect is also much
higher than investing in stocks, bonds, or other securities would
carry.
Further, the popularity of quantitative/algorithmic trading, day
trading, technical analysis, and other methods of trading has
grown as well. Dozens of cryptocurrency trading funds exist
today, and a handful of Bitcoin ETFs have been proposed to the
SEC to expose more investors to digital currencies.

Cryptocurrency
Trading Lows
page
034
After Bitcoin first reached over $1,000, it sunk down to the
$200 range within the next year and a half.
Bitcoin
In mid 2017, a flash crash on one exchange caused the
price to go from $319 to $0.10 temporarily. It had gone
up 2,500% year to date leading up to this.
Ethereum
In mid-late 2016, Steemit fell from a high of over $4.00 to
under $0.10. It currently trades at around $1.30,
Steem
Prices Fall Fast
With extreme volatility comes large decreases in value as well.
While some cryptocurrencies and the market in general have
seen huge gains, others have not been so lucky. A coin losing
20% or more of its value in a single day, or even an hour, is far
from uncommon. With this, extreme caution and know-how is
advised when taking up trading. Before trading, one must
understand these huge swings and never put up more money
than one is willing to lose.
Pump and dumps are extremely prevalent in the digital currency
trading environment as well. When these happen, a given coin
is hyped up and bought heavily (the ‘pump’) to create artificial
demand and drive the price up. After a large increase in price, it
is subsequently quickly sold off (the ‘dump’) dragging the price
back down to where it originally was or even lower. Such
organized pumps are illegal in traditional equity-trading market,
but with little-to-no regulation and not nearly as much liquidity in
the digital asset space, they are commonplace.

Cryptocurrency
Heists
page
035
The Issue of Stolen Funds
The rise in popularity and price of
digital assets has been met with a rise
in attackers attempting to steal peoples’
funds. Whether it be non-standard
security procedures, vulnerabilities, or
inside jobs, numerous cryptocurrency
services have seen their holdings
stolen. The magnitude of some of the
largest of these can be seen to the
right.
In the case of Silk Road, a dark net
marketplace for illicit drug transactions,
it had its funds seized by United States
federal law enforcement once it was
taken down.
The DAO, an Ethereum project, caused
such controversy in the community that
the network split into two forks – one in
which the hack never happened and
one where the ‘stolen’ funds remained
as such.
Silk Road
Seizure
Mt. Gox
Exchange
The DAO
Hack
Sheep
Marketplace
Hack
Ethereum’s
Parity Wallet
Vulnerability
Bitfinex
Hack
$75+ million
$400+ million
$125+ million
$30+ million
$50+ million
$70+ million

Cryptocurrency
Legality
page
036
Cryptocurrencies as a form of currency and investing are still relatively unregulated in many countries. While a
small number of countries have outright banned the use of them, many countries fail to provide any notion of the
extent of their legality. Even most that have stated their acceptance of cryptocurrencies do so by stating they have
no intention of trying regulate them whatsoever. Of course, little-to-no regulation can be see as a good thing for
these currencies as it continues the idea of a truly decentralized, consensus-driven network.
The regulation that is in place is usually quite vague and doesn’t offer much to go. Few countries or territories
have truly created comprehensive legislation regarding cryptocurrencies with some being more strict than others.
With public policy organizations such as Coin Center beginning to push the space into the political landscape, we
may start seeing more sweeping legislation provide a better view of where government policy lies.
The Legal Stance of Digital Currencies

ILLEGAL: Bolivia and
Ecuador have banned
the use of Bitcoin and
other digital currencies
LEGAL: US Treasury
classifies Bitcoin as a
‘convertible decentralized
virtual currency.’ Bitcoin is
taxed as property by the
IRS.
LEGAL: Cryptocurrencies are either
unregulated or explicitly legal to some
extent in all European countries.
Cryptocurrency
Worldwide Legality Overview
LEGAL: As of 2017, Japan officially
recognizes digital currencies as money
and a legitimate form of payment.
LEGAL: Australia’s Reserve Bank has
stated they will treat Bitcoin ‘just like
money.’
ILLEGAL: Citizens can be
jailed for the use of digital
currencies in Bangladesh.

Cryptocurrency
Acceptance and Use
page
038
Cryptocurrencies – namely Bitcoin – have become accepted a wide array of retail sites and locations. As of 2015,
the number of merchants directly accepting Bitcoin surpassed 100,000. These range from large, multi-national
corporations to smaller non-profit organizations and everything in between. Even for companies that don’t
directly accept it, numerous solutions for paying with Bitcoin and other cryptocurrencies at any location have
popped up.
Beyond the given benefits of transacting with digital currencies on a day-to-day business, merchants accepting
such payment methods typically incur less fees (0-2%) compared to traditional methods (2-3%) such as credit card
processors.
Outside of merchants, the consumer use of cryptocurrencies has exploded as well. In 2017, the University of
Cambridge’s Centre of Alternative Finance, following a global benchmark study, estimated there to be 2.9 to 5.8
million unique users of digital assets using a combined 5.8 to 11.5 million ‘active’ wallets.
The Use of Digital Currencies

Cryptocurrency
Major Company Acceptance
page
039

Use Cases
Ripple’s Protocol
page
041
Interledger Protocol
Ripple’s Interledger Protocol (ILP) allows for financial
institutions to perform transactions across currencies (fiat or
crypto). Regardless of the underlying system of a given
currency, the ILP enables banks to deal with any payment in a
quick and efficient manner while keeping costs low.
Working hand-in-hand with the Interledger Protocol, Ripple
Connect links the books of financial institutions to facilitate
real-time settlements and cross-border payments. Ripple
Connect also allows institutions to send information relating
to payments before they are even initiated.

Use Cases
Storj
page
042
Decentralized Cloud Storage
While there are other similar projects, Storj is a popular initiative
aiming to create a decentralized cloud storage network. This
network is distributed, blockchain-based, and end-to-end
encrypted.
It works by any user with idle storage space on their computer
being able to rent it out to a network. In turn, someone looking to
store anything in the cloud can pay this storage provider to store
their information. This creates a cloud storage solution that
potentially is cheaper, harder to take down, and encrypted.

Use Cases
ICONOMI
page
043
Digital Assets Management Platform
ICONOMI is a digital asset management platform and aims
to provide an easy way to dive into the decentralized asset
economy. Its ICNX token represents a diversified set of digital
assets that enables users to buy a single currency instead a
full on portfolio.
Further, its Digital Assets Arrays enables managers to
arrange and collect fees on a set of assets to the community.
Users can pick and choose which to buy and sell as they
please.

Use Cases
Bancor
page
044
Smart Token Standard
For tokens built on a smart contract blockchain, Bancor and
its accompanying protocol allows for built-in price discovery
and liquidity (market making). From their website:
“These ‘smart tokens’ hold one or more other tokens in
reserve and enable any party to instantly purchase or
liquidate the smart token in exchange for any of its reserve
tokens, directly through the smart token’s contract, at a
continuously price, according to a formula which balances
buy and sell volumes.”

Use Cases
Golem
page
045
Worldwide Supercomputer
Golem aims to create a decentralized supercomputer
utilizing the collective power of users around the world with
idle machines. It can be accessed by anyone to compute just
about any program one can imagine.
In turn, users that rent out their computing power are
compensated for their resources. This results in the creation
of an inexpensive and decentralized sharing economy.

Use Cases
Gnosis
page
046
Crowd Sourced Wisdom
Gnosis is a prediction market platform. Utilizing a
decentralized model, users can buy ‘shares’ in a particular
event’s outcome and forecast out through consensus.
After predictions are made, oracles confirm the outcome of
the event. These oracles can be human, hardware, or
software agents that will then submit it to the blockchain.
Those that were correct in their prediction will receive
compensation for their shares.

Use Cases
Partnerships
page
047
Enterprise Ethereum Alliance
A wide array of companies have banded together for
Ethereum. Their aim is educate others on the potential
resources and power of the technology to solve industry
issues as well as create standard models for open source
technology and their use. Some of these companies
include:
Ripple Network
Ripple’s corporate entity has partnered with dozens of
financial institutions who are testing their technology or
have it in production already. Some of these multi-billion
dollar organizations include:

Glossary
page
048
o Address: Used to transfer funds on the network, an address appears as a string of alphanumeric characters (e.g. a Bitcoin address example
is 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa). This is also known as a public key – how a given wallet appears on the network of
transactions.
o Bitcoin (BTC): The first implementation of a blockchain to create a decentralized, P2P payment system. As a cryptocurrency, it uses a
network of nodes to relay transactions. Bitcoin is not issued, administered, or wholly owned by any government body or institution.
o Block Height: A block’s number in the chain. The first, or genesis, block has a height of 1, the following block has a height of 2, and so on.
o Block Time: The time in between two adjacent blocks
o Blockchain: A distributed ledger made up of blocks – i.e. records – that records transactions between two entities in a verifiable manner.
Further, each block is timestamped in order to link it to the previous one to create a chain, where any change requires altering all following
blocks as well as network majority consensus.
o Confirmation: The verification of a blockchain transaction by the network, indicated by the discovery of a new block by a miner on the
network, When a transaction receives a confirmation, it cannot be reverse unless a network majority agrees to wipe the transaction from the
ledger.
o Consensus: A majority agreement or opinion, and what makes a decentralized blockchain network tick. With cryptocurrencies, no changes
can be made to the code without network majority consensus. It is also used to maintain the ledger and the transactions included in it.
o Cryptocurrency: A broad term used to describe digital currencies in which cryptography is used to generate new units as well as verify funds
being transferred across the network. Other names include coin, digital currency, digital asset, or electronic money. ‘Altcoin’ refers to any
cryptocurrency besides Bitcoin.

Glossary
page
049
o Difficulty: A network’s difficulty adjusts itself based on the current hashing power being provided by miners. Difficulty adjustments allow the
network to have a steady stream of new blocks being discovered referred to as the block time. The block time – the time between blocks – is
determined when the network is created, though it can be changed at a different time.
o Forging: See minting.
o Hybrid: A network that utilizes both PoW and PoS mechanisms in order to secure the network.
o Initial Coin Offering (ICO): A method by which cryptocurrency startups raise funds through the sale of cryptocurrency or tokens.
o Mining: Mining involves the verification of transactions on the network as well as finding new blocks. Blocks of new coins are ‘discovered’
when a given miner solves the current block’s cryptographic problem, with the first miner to ‘solve’ it receiving the lot of units.
o Minting: The method by which blocks are found and new units are distributed in PoS, as opposed to being mined in a PoW mechanism. PoS
is a system based on ownership of existing coin.
o Pool: A collection of miners who have pooled their mining power – i.e. hashing power – together in order have a better chance of discovering
blocks of new coins.
o Proof-of-Stake (PoS): A method of securing a blockchain. It involves proving ownership of funds on the network to generate new units and
confirm transactions.
o Proof-of-Work (PoW): A common method of finding blocks and confirming transactions in a blockchain system. It involves using computing
power to solve complex problems.
o Public Key: See Address.

Glossary
page
050
o Reward: The generation of new units with each block that a miner can claim for solving the block.
o Satoshi (Unit): The smallest possible unit of a Bitcoin, representing 0.00000001 BTC, or 10-8 of a coin. Other units include a millibitcoin (.001
BTC) and a microbitcoin (.000001 BTC) also known as a bit.
o Satoshi Nakamoto: The pseudonym for the anonymous developer or group of developers that initially released Bitcoin as open source code
in 2009. The identity of Nakamoto has never been verified and he/she/they is/are no longer involved in the community, though some attempts
and guesses have been as to their identity.
o Tokens: Tokens are digital assets built on top of the network of another cryptocurrency and rely on its network to be transacted.
o Transaction Fee: The small fee paid when sending a transaction. It is technically optional, but incentivizes a miner to accept and include it in
a block

References and Further Reading
page
051
o Bitcoin’s Original Whitepaper by Satoshi Nakamoto
o https://bitcoin.org/bitcoin.pdf
o Global Cryptocurrency Benchmarking Study by Dr. Garrick Hileman and Michael Rauchs; Centre for Alternative Finance - University of Cambridge
o https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2017-global-cryptocurrency-benchmarking-study.pdf
o The Crypto-Currency: Bitcoin and its mysterious inventor by Joshua Davis; The New Yorker
o http://www.newyorker.com/magazine/2011/10/10/the-crypto-currency
o Bitcoin: A Primer for Policymakers by Jerry Brito and Andrea Castillo; Mercatus Center - George Mason University
o https://www.mercatus.org/system/files/Brito_BitcoinPrimer.pdf
o Bitcoin and Beyond: The Possibilities and Pitfalls of Virtual Currencies by David Andolfatto; Dialogue with the Fed
o https://www.stlouisfed.org/~/media/Files/PDFs/DWTF/Bitcoin-3-31-14.pdf
o Leaderless Bitcoin Struggles to Make Its Most Crucial Decision by Mike Orcutt; MIT Technology Review
o https://www.technologyreview.com/s/537486/leaderless-bitcoin-struggles-to-make-its-most-crucial-decision/
o SEC Bulletin on Initial Coin Offerings and Other Cryptocurrency Related Matters
o https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings
o Global Cryptocurrency Market Capitalizations and Trading Volumes
o https://coinmarketcap.com/
o Bitcoin Network Statistics
o https://blockchain.info/charts
o Overview of Bitcoin, Cryptocurrencies, and Blockchains
o https://en.wikipedia.org/wiki/Bitcoin
o https://en.wikipedia.org/wiki/Cryptocurrency
o https://en.wikipedia.org/wiki/Blockchain

About the Author
page
052
Coinigy is a digital asset intelligence platform. With over 45
cryptocurrency exchanges integrated for a combined
2,500+ markets in one place, users can connect their
various accounts for charting, portfolio balance tracking,
and trading. With this, Coinigy offers over 75 indicators for
technical analysis, trading alert tools, and its proprietary
ArbMatrix app for spotting potential arbitrage opportunities,
among dozens of other features for any kind of trader.
Coinigy also offers historical data on all of its integrated
markets and exchanges reaching back to when each
market was launched. This data is available in raw or
minute, hour, and/or daily OHLCV format.
My name is Matthew Thompson and I am a junior
undergraduate student at Penn State University studying
Management Information Systems (MIS) with a concentration
in finance. In the blockchain space, I work in business and
trading community development at Coinigy, a cryptocurrency
trading platform. I got my start as a trader in late 2013
following Bitcoin’s rise to over $1,000 for the first time. My
previous work in the industry involves a similar position to my
current one at the decentralized cloud storage company Storj.
I am always ready to talk cryptocurrency, blockchains, or
venture capital, so feel free to reach out!

Cryptocurrencies and the Blockchain

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Cryptocurrencies and the Blockchain