Cryptocurrencies are a form of digital money or assets based on Satoshi Nakomoto’s whitepaper:  “Bitcoin: A Peer-to-Peer Electronic Cash System“.

Cryptocurrencies are like other currencies: they can be used to purchase items locally and electronically. However, cryptocurrencies differ from conventional money in that it is decentralized and fully independent. No institution controls the different networks nor is it tied to a country like for example the US Dollar or the Euro. The entire network is maintained by individuals and organizations referred to as miners. This only applies to cryptocurrencies that use the Proof of Work consensus method, like Bitcoin. Other cryptocurrencies like Stratis rely on Proof of Stake or on a ‘tangle’ like IOTA.


Bitcoin is a complete reconstruction of the global monetary system built by private individuals and controllable by no government or corporation but by the objective laws of mathematics. Bitcoins are created and held electronically. No one controls the network. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems. Bitcoin miners process and verify Bitcoin transactions through a mathematical algorithm based on the cryptographic (hence the name cryptocurrency) hash algorithm SHA256.

Bitcoin Explained


Unlike FIAT currencies like the US dollar, the euro, the yen, the pound sterling or the South African rand, no central authority controls Bitcoin or its network of transactions. A community of Bitcoin miners make up the network, processing the transactions, by a method known as Proof of Work. If any changes are made to Bitcoin by a developer or developers using GitHub, a 51% majority of the miners hashing power must agree upon it. This insures that, in theory, no individual can alter the network, steal your Bitcoins or print (create) more. Anyone can participate in this network and no one can stop this process by shutting down ‘a single organisation’. There is no organisation. What governments could do, is close down large Bitcoin mining farms. By doing this, the network becomes slow and people will have to wait for hours until their transactions are verified. Then again, if this happens miners will move to other countries and the mining process will not be endangered. In fact anyone with a computer can mine Bitcoins. However, the difficulty of the Bitcoin network has become so high that nowadays a tremendously powerful computer is needed to keep it profitable, these computers are known as ASICS.

Open Source

The Bitcoin protocol is open source. This means everyone can contribute to and improve the Bitcoin source code. The Bitcoin protocol is viewable for all making it easier to identify weaknesses and provide suggestions for improvement. This way all ‘bright heads’ in the world can contribute to the source code and improve Bitcoin. Bitcoin can be seen as a democratic currency where the majority always decides what will happen next with the Bitcoin source code. One could say Bitcoin is under a continuous process of improvement.


To send, receive and create Bitcoin addresses you must have a Bitcoin wallet (read more about wallets here). A Bitcoin wallet is software that’s essentially your bank account for Bitcoins. Your wallet can hold as many Bitcoins and Bitcoin addresses you’d like, and you can own as many wallets you want.

Each Bitcoin transaction is recorded in a ledger called the blockchain, names of buyers and sellers are never revealed. The only thing that is revealed are their Bitcoin wallet addresses. Each wallet address is unique and can not be linked to anyone unless the creator of that specific Bitcoin address reveals himself.

13t1UV1MJ7vw49DDPsGaSym3WoapvoF8vz is an example of a unique Bitcoin address used for receiving and sending Bitcoins. You can follow all transactions on Bitcoin Block Explorer, which is an open source web tool that allows you to view information about blocksaddresses, and transactions on the Bitcoin blockchain. The source code is available on GitHub. All transactions ever made on the Bitcoin blockchain are available to the public and viewable on Block Explorer.


While Bitcoin can be anonymous, that doesn’t mean it always is. You are in charge of this. If you purchase your Bitcoins on a Bitcoin trading platform or exchange that has your private information, the Bitcoins you buy can be tied back to you. Nowadays, there are altcoins like Monero and ZenCash for example that are 100% anonymous and can not be tied back to you.


As stated above, each Bitcoin transaction is recorded in a ledger called the blockchain. Every single transaction can be monitored on Bitcoin Block Explorer. By using the block explorer, anyone can see how many Bitcoins are stored on a particular address, and they can see the deposits and withdrawals (all transactions) to that address, but they will be unable to identify who owns the address unless the owner reveals him/her self. Bitcoin transactions cannot be reversed. When you send Bitcoins to a Bitcoin address, you cannot reverse the transaction, so be sure you always double-check your transaction. Like transactions, the Bitcoin source code is also available to the public and open source.


Bitcoin is secure. Bitcoin uses SHA-256 encryption for both its Proof-of-Work (PoW) system and transaction verification. The security of the Bitcoin protocol lies in one of its fundamental characteristics, the transaction blockchain. Unless one single party controls 51% of all hash power, Bitcoin is unhackable. In order for someone to change a transaction or double spend a Bitcoin, they would have to obtain the majority control of the system (51% of all hash power) and modify EVERY SINGLE miner in this majority. Each miner owns a copy of all transactions from the entire history of the blockchain. When there is disagreement in the blockchain, the system overrides the minority with the data agreed upon by the majority.

Bitcoin was the first to solve the ‘double spending problem’. Double-spending is the result of successfully spending spending a dollar bill more than once. Bitcoin’s transactions on the blockchain are irreversible and final. Before Bitcoin was invented, everyone thought it was impossible to prevent digital documents from being used twice or copied. The founder(s) of Bitcoin was / were the first to solve this problem. Users protect themselves from double spending fraud by waiting for confirmations when receiving payments on the blockchain, the transactions become more irreversible as the number of confirmations rises. Nevertheless, there are currently still possibilities to double spend your Bitcoins. It will not be easy, but in theory, it is possible. These attacks are known as a Race attack, a Finney attack, a Vector76 attack and an Alternative history attack.

As stated above, Bitcoin is decentralized. Millions of miners around the world maintain and validate the Bitcoin network, 24 hours a day. By using a decentralized system – where a consensus among nodes following the same protocol and proof of work is reached –  there is no need for a central authority. This means Bitcoin has special properties not shared by centralized systems. For example, if you keep the private key of a Bitcoin wallet and the transaction has enough confirmations, then nobody can take the Bitcoin from you no matter for what reason, no matter how good the excuse, no matter what. Possession of Bitcoin is not enforced by business rules and policy, but cryptography and game theory.

However, to come back to what has been described above, there are concerns that a couple of huge mining pools should be able to reach 51% of the Bitcoin hashing power and perform a so called 51% attack on the network. Currently, most hash power is centralized in large mining farms in China due to the cold climate, cheap electricity and corrupt local government officials. If the Chinese government is of the opinion that they should have the power over Bitcoin – for a moment – they can literally privatize a few big Chinese mining farms and decide what to do next with the network. In the last few months, however, there has been a shift from mining farms to other countries, due to the fear of further regulation from the Chinese government.

Latest Bitcoin Blocks by Mining Pool (03/12/2017)

Latest Bitcoin Blocks by Mining Pool (03-12-2018)

There are currently alternative cryptocurrencies like Digibyte who have already solved this problem. DigiByte currently uses five individual mining algorithms that are equally weighted. Each algorithm has its own difficulty adjustment that is weighted against the other algorithms in a dynamic process known as MultiShield. This makes DigiByte 100% unhackable. To gain total control over a cryptocurrency with MultiShield one will need to gain control over 51% of all miners on all 5 algorithms.

MultiShield is the advanced version of the original DigiShield (asymmetric difficulty adjustment now widely implemented in many other blockchains). DigiByte pioneered both MultiShield and DigiShield.


People are already calling Bitcoin the ‘new-’ or ‘digital-’ gold. Similarly to gold, new Bitcoins are created via the process called ‘mining’. Mining has a two-fold purpose: it allows for the creation of new coins and facilitates the processing of transactions in the network. Now you are probably wondering ‘how does mining work’?

Mining is the process whereby transaction information is added and validated to a decentralized distributed ledger, in which transactions from the past are stored. This ledger with already executed transactions is called ‘the blockchain’. In fact, miners process and secure the network using specialized hardware that ‘mine’ for new Bitcoins. As ‘payment’ for their contribution, they are awarded new Bitcoins. Every time miners ‘find’ a new block, they receive a block reward. This is the reward in cryptocurrency (in this example Bitcoin) that a miner receives for the computing power he delivers to control nodes in the blockchain. Creating a new block with associated blockreward is the only valid way in which new cryptocurrencies can be released. The software behind most cryptocurrencies has been developed in such a way that the blockreward halves for a certain period each time, until the maximum supply is reached, which is often also determined in advance. If we do the math, if there is a halving event every four years, the last Bitcoin should be mined somewhere in the year 2140. In addition to the block reward, miners are rewarded with a transaction fee every time a full block of transactions takes place. So after the last Bitcoin is mined, miners will still ‘do the work’ to collect the fee.

Miners use different types of hardware for the mining process. The early mining adopters used their home-garden-and-kitchen CPUs to mine. The arrival of GPU mining made CPU mining – due to the increased hashrate – unwise in financial terms. In addition to GPU miners more and more miners now use ASICs. ASIC is the abbreviation of an ‘application-specific integrated circuit’. It is a microchip that is specially designed and manufactured for a very specific purpose. In this case, for mining. An ASIC is designed for one specific algorithm. Each cryptocurrency is built on a certain algorithm, some even on several. Bitcoin uses the SHA-256 algorithm. The more miners join the network, the more difficult it becomes to make a profit for each of them (because of the increasing hashrate and the continuing halving of the block reward). Because of that, miners have to remain highly competitive to keep receiving Bitcoins as a reward for validating the transactions.

Everyone can be a miner to help supporting the Bitcoin network. However, nowadays it takes a lot of computing power and access to extremely cheap energy to keep Bitcoin mining profitable. As a result, a few large ‘mining farms’ in China have emerged that hold a large part of the entire Bitcoin hashrate, see also what is described above under the header ‘secure’.

Why should I use it?

Bitcoins are attractive to a large number of people of an equally large number of reasons. Bitcoins can be anonymous, near instantaneous and offer a level of control over your money like no other traditional currency. It is a peer-to-peer currency that eliminates the need of trusted third parties controlling your money. Why are money and state not separated? It may not sound logical to you now, but neither did the separation of religion and state to people in the 18th century.

The collapse of Lehman Brothers, a sprawling global bank, in September 2008 led to the global financial crisis that almost brought down the world’s financial system. It took huge taxpayer-financed bail-outs to shore up the industry. At this point in history, Satoshi envisioned a payment system that was faster, cheaper and irreversible. No financial institution is needed, nor does it need a third party to mediate conflicts either.

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

There are no banks or governments that can control or take away your money. The only one who is in control is YOU. Also, many believe the current global financial system is sick. Central banks keep printing billions of ‘new’ money. Maybe, the real bubble is FIAT money like the US Dollar or the Euro, instead of Bitcoin. How can a dollar still have (almost) the same value while the Federal Reserve keeps printing billions of new dollars out of thin air? Instead of FIAT currencies, Bitcoins are deflationary in nature. We recommend you to watch the following video (2:20) to hear what Lloyd Blankflein, Goldman Sachs Group CEO has to say about Bitcoin. While many ‘traditional’ bankers are afraid of Bitcoin and even stamp is as a ‘fraud’, Blankflein is open to it. It is super ironic that Jamie Dimon says that Bitcoin is fraud, which it can not be.

Blankfein Not Comfortable With Bitcoin But Is Open to It

As Bitcoin goes mainstream, you will see more and more governments, central banks and others counteract Bitcoin. They know they are losing power and they will go through the five stages of grief; denial, anger, bargaining, depression and acceptance. Ignore this. Governments can give us a hard time, but they CAN NOT ban Bitcoin. It is simply impossible. In the end, people and the internet always win. Look at all the other industies. When the internet comes to your industry, it does not end well. A few examples;

  • Travel websites such as Expedia, Kayak, and Travelocity have eliminated the need for human travel agents.
  • Tax software such as TurboTax has eliminated tens of thousands of jobs for tax accountants.
  • Newspapers have seen their circulation numbers decline steadily, replaced by online media and blogs. Increasingly, computer software is actually writing news stories, especially local news and sporting event results.
  • Language translation is becoming more and more accurate, reducing the need for human translators. The same goes for dictation and proof-reading.
  • Secretaries, phone operators, and executive assistants are being replaced by enterprise software, automated telephone systems, and mobile apps.
  • Online bookstores such as Amazon have forced brick-and-mortar booksellers to close their doors permanently. Additionally, the ability to self-publish and to distribute e-books is negatively affecting publishers and printers.
  • Financial professionals such as stock brokers and advisors have lost some of their business to online trading websites like eTrade and robo-advisors like Betterment. Robinhood is a free online brokerage service that is subsequently stealing market share from traditional online brokers. Many banks are giving customers the ability to deposit checks via mobile apps or directly at ATMs, reducing the need for human bank tellers. Payment systems like Apple Pay and PayPal make even obtaining physical cash unnecessary.
  • Job recruiters have been displaced by websites like LinkedIn,, and Monster. Print classified ads have also been replaced by these sites, while sites like Craigslist have replaced other kinds of classifieds.
  • Uber, Lyft, and other car-sharing apps are giving traditional taxi and livery companies a run for their money.
  • Airbnb and HomeAway are doing the same for the hotel and motel industry.
  • We can go on forever..

Our Response to Jamie Dimon

Merchants are drawn to Bitcoin because of the low fees. Merchants typically pay 2-3% fees to credit card processors, whereas many types of transactions are free with Bitcoin. Transactions are free if several conditions are met. Any transaction that does not meet the requirements is charged 0.1mBTC (0.0001 BTC) per 1,000 bytes. Typical transactions are 500 bytes but do not meet the priority requirement and thus are charged a 0.1mBTC fee regardless how many coins are transferred. However, due to scalability issues, Bitcoin transaction fees were getting out of hand. Bitcoin had / has a serious problem which only becomes apparent over time. Bitcoin, ever invented to be rid of high transaction costs, was struggeling with transaction costst of over 35$ during the bull run of december 2017. Current BTC fees are below the dollar mark. Last updated March 2018). The higher fees have doubled almost 10 times in the past 24 months. The lower median fee is also increasing. It has doubled every three months since june 2016, which is rather worrisome. Although a lot of people don’t mind waiting hours for network confirmations, it’s still a disturbing development. A new Bitcoin block can only be generated every 10 minutes. These blocks are limited to one megabyte in size. While each block contains only an average of 2000 transactions, sometimes there are more than 100.000 transactions wainting for an opportinity to enter into a block to be considered official of confirmed. In contrast to Visa’s peak of 47.000 transactions per second, the Bitcoin network’s theoretical maximum capacity sits between 3.3 to 7 transactions per second.

Miners are free to choose which transactions they will include on the block.

And what criteria do they use to decide that? That’s what you thought. They choose the transactions that pay higher fees. Transactions are competing against each other to see who can get there first. That’s why the fees are so high. You can choose by yourself how much fee you want to offer, but most Bitcoin’s wallets already do this calculation automatically so your transaction will not wait forever to be processed.

In order to stay relevant as a world currency, the Bitcoin Core developers must handle this problem. For example they can enable a bigger block size or build a second layer on top of the blockchain like they did with the implementation of SegWit. Bitcoin is constantly under development, so this problem will probably be resolved in the future. However, agreement must be reached among the miners before a decision is actually implemented. In November 2017, the miners failed to reach concensus at the planned SegWit2x hard fork.

There is another solution to this problem and it is called ‘The Lightning Network’.

Lightning is a decentralized network using smart contract functionality in the blockchain to enable instant payments across a network of participants.

How the Lightning Network Works

The Lightning Network is dependent upon the underlying technology of the blockchain. By using real Bitcoin/blockchain transactions and using its native smart-contract scripting language, it is possible to create a secure network of participants which are able to transact at high volume and high speed.

Bidirectional Payment Channels. Two participants create a ledger entry on the blockchain which requires both participants to sign off on any spending of funds. Both parties create transactions which refund the ledger entry to their individual allocation, but do not broadcast them to the blockchain. They can update their individual allocations for the ledger entry by creating many transactions spending from the current ledger entry output. Only the most recent version is valid, which is enforced by blockchain-parsable smart-contract scripting. This entry can be closed out at any time by either party without any trust or custodianship by broadcasting the most recent version to the blockchain.

Lightning Network. By creating a network of these two-party ledger entries, it is possible to find a path across the network similar to routing packets on the internet. The nodes along the path are not trusted, as the payment is enforced using a script which enforces the atomicity (either the entire payment succeeds or fails) via decrementing time-locks.

Blockchain as Arbiter. As a result, it is possible to conduct transactions off-blockchain without limitations. Transactions can be made off-chain with confidence of on-blockchain enforceability. This is similar to how one makes many legal contracts with others, but one does not go to court every time a contract is made. By making the transactions and scripts parsable, the smart-contract can be enforced on-blockchain. Only in the event of non-cooperation is the court involved – but with the blockchain, the result is deterministic.

Transactions for the Future

Instant Payments. Lightning-fast blockchain payments without worrying about block confirmation times. Security is enforced by blockchain smart-contracts without creating a on-blockchain transaction for individual payments. Payment speed measured in milliseconds to seconds.

Scalability. Capable of millions to billions of transactions per second across the network. Capacity blows away legacy payment rails by many orders of magnitude. Attaching payment per action/click is now possible without custodians.

Low Cost. By transacting and settling off-blockchain, the Lightning Network allows for exceptionally low fees, which allows for emerging use cases such as instant micropayments.

Cross Blockchains. Cross-chain atomic swaps can occur off-chain instantly with heterogeneous blockchain consensus rules. So long as the chains can support the same cryptographic hash function, it is possible to make transactions across blockchains without trust in 3rd party custodians.

How to Obtain Bitcoins

There are several ways to obtain Bitcoins. The most common way is to purchase them on an exchange. You can also mine Bitcoins, however, it will not work without extremely expensive equipment. Becoming a Bitcoin miner and seeing positive ROI would mean a substantial investment and is now left to the big companies and wealthy investors.


As Ethereum is the second largest cryptocurrency in market capitalization, it is definitely worth mentioning. Ethereum is actually Bitcoin 2.0. Just like Bitcoin, Ethereum uses the Proof-of-Work (PoW) meganism. Ethereum is a worldwide network of interconnected computers (nodes) that enforce, execute and validate programs in a decentralized manner without requiring a server, memory, CPU power, or any other computing function, as it is all provided by thousands of Ethereum nodes scattered across the world. In short, Ethereum is a global computer.

This allows applications, known as DApps (decentralized Apps), through the use of smart contracts – simple javascript like code – to run exactly as they have been programmed, requiring no permission, having no intermediary, in a largely immutable manner, lacking any downtime, censorship, fraud, or third party interference.

Ether (ETH) is Ethereum’s digital currency. It turns money into pure code, opening many new opportunities. These opportunities include machine to machine payments, one click online commerce, decentralized autonomous organisations as well as completely new business models.

Some call Ethereum the fourth industrial revolution due to the ‘invention’ of smart contracts.

Ethereum introduced the ERC20 protocol, which is open source and allows other tokens to be created on top of it to execute their own smart contracts. This has become the engine behind most ICOs today.

With the growth in the cryptocurrency market and blockchain technology comes the opportunity for startups to crowdfund through cryptocurrency. In an ICO (Initial Coin Offering), a company uses blockchain technology to issue cryptocurrency and offer it for sale to investors in exchange for legal tender or other cryptocurrencies such as Bitcoin.

Ethereum Mining

The proof of work algorithm used is called Ethash (a modified version of Dagger-Hashimoto) involves finding a nonce input to the algorithm so that the result is below a certain threshold depending on the difficulty. The point in PoW algorithms is that there is no better strategy to find such a nonce than enumerating the possibilities while verification of a solution is trivial and cheap. If outputs have a uniform distribution, then we can guarantee that on average the time needed to find a nonce depends on the difficulty threshold, making it possible to control the time of finding a new block just by manipulating difficulty.

Ethash PoW is memory hard, making it basically ASIC resistant. This means that calculating the PoW requires choosing subsets of a fixed resource dependent on the nonce and block header. This resource (a few gigabyte size data) is called a DAG. The DAG is totally different every 30.000 blocks (a 100 hour window, called an epoch) and takes a while to generate. Since the DAG only depends on block height, it can be pregenerated but if its not, the client need to wait the end of this process to produce a block. Until clients actually precache dags ahead of time the network may experience a massive block delay on each epoch transition. Note that the DAG does not need to be generated for verifying the PoW essentially allowing for verification with both low CPU and small memory.

The successful PoW miner of the winning block receives:

  • A static block reward for the ‘winning’ block, consisting of exactly 3.0 Ether.
  • All of the gas expended within the block, that is, all the gas consumed by the execution of all the transactions in the block submitted by the winning miner is compensated for by the senders. The gascost incurred is credited to the miner’s account as part of the consensus protocol. Over time, it’s expected these will dwarf the static block reward.
  • An extra reward for including Uncles as part of the block, in the form of an extra 1/32 per Uncle included.


Altcoin is actually an abbreviation of ‘Bitcoin alternative’. It describes every single cryptocurrency except for Bitcoin. Referred to as Bitcoin alternatives because, at least to some extent, most altcoins hope to either replace or improve upon at least one Bitcoin component.

Nowadays, there are more than thousand altcoins, and more appear each day. Anyone with technical knowledge is free to create a new altcoin. You should actually look at it as startups. Most altcoins are little more than Bitcoin clones, changing only minor characteristics such as its transactions speed, distribution method, or hashing algorithm.

Many Bitcoin lovers argue that altcoins are completely unnecessary and will not succeed because they cannot rival the infrastructure Bitcoin boasts.  However, you should never underestimate altcoins. There are a few altcoins with very, very good tech behind it. Altcoins serve an important role. Decentralization is one of Bitcoin’s most prominent goals, and altcoins further decentralize the cryptocurrency community. Moreover, altcoins allow developers to experiment with unique features. While it is true that Bitcoin can copy these features if the developers or community desires, fully-functioning altcoins are much better “cryptocurrency laboratories” than Bitcoin’s testnet. Finally, altcoins give Bitcoin healthy competition. Altcoins give cryptocurrency users alternative options and forces Bitcoin’s developers to remain active and continue innovating. If users do not feel that Bitcoin satisfies their digital desires, they can adopt an altcoin. If enough users left Bitcoin for a particular altcoin, the Bitcoin developers would have to adopt the features the community desired or risk losing its place as the preeminent cryptocurrency.

Different types of altcoins

1. Coins or Cryptocurrencies

These are digital currencies like Bitcoin in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. They are operating independently of a central bank.

Soon every fiat currency may become a cryptocurrency, in that case operating with central banks. This is what Singapore has started with their Ubin project.

2. Utility tokens

The utility tokens are services or units of services that can be purchased. These tokens can be compared to API keys, used to access the service. A utility token gives you the right to consume a service.

They are a way to fund projects of shared infrastructure that couldn’t be funded before. To enable such ecosystems to be built some tokens can be “pre-mined” in addition to be sold in “crowd-sales” during tokens launches.

3. Tokenised securities:

Tokens are representing shares of a business. In addition, considering the SEC announcement any token that can not pass the Howey test should be considered as a security and fall under the 1934 Security Exchange Act.
The Howey test consists of the following:

  • Is it an investment of money or assets?
  • Is the investment of money or assets in a common enterprise?
  • Is there an expectation of profits from the investment?
  • Does any profit come from the efforts of a promoter or third party?

The final factor of the Howey Test concerns whether any profit that comes from the investment is largely or wholly outside of the investor’s control. If so, then the investment might be a security.

What are altcoins and ICOs

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