The Book of Crypto

Frontmatter

Chapter 1. The History of Money

Abstract

The future of money is unfolding at a dizzying pace, with the arrival of cryptocurrencies like Bitcoin and Ethereum and new concepts like decentralised finance representing the sort of financial innovation we can expect to see over the coming decades. But in order to understand this latest iteration of the future of money, it is instructive to gaze all the way back through recorded history to identify the ideas, trends, and developments that gave shape to today’s digital era. In this chapter, we explore some of the definitive practices that shaped trade, banking, commerce, and finance over the centuries, from the importance of bartering to some of the primitive forms of value and exchange over the years. We also take a look at major ancient civilisations like the Chinese, Greeks, and Romans to identify the impact that those societies had on the development of money, before exploring some of the religious and philosophical connections with finance. From the roots of the first forms of money to the release of the Bitcoin whitepaper, this chapter will provide a clear overview of every significant development in the history of money to this point in time.

Henri Arslanian

Chapter 2. Bitcoin

Abstract

The Bitcoin whitepaper was quietly released to the world in October 2008, when legacy Wall Street firms like Lehman Brothers were collapsing and the global economy tipped into a lengthy recession. This chapter explores the rise of Bitcoin, from Satoshi Nakamoto’s contention that a decentralised, peer-to-peer currency could democratise banking by removing intermediaries from the process and how cryptography was applied to their idea to how Bitcoin’s consensus mechanism (mining) functions. We also explore the gradual rise of the price of Bitcoin over the 2010s and provide several factors to explain increasing rates of retail adoption since the first coin was mined over a decade ago, before closing with a look at the arrival of institutional investors to the space, along with some of Bitcoin’s most pressing contemporary challenges.

Henri Arslanian

Chapter 3. Ethereum

Abstract

Whilst Bitcoin and Ethereum are often compared with one another, the reality is that the top two cryptocurrencies by market capitalisation are radically different. This chapter provides a broad layout of the Ethereum blockchain, from the history of the network to how Ethereum differs from Bitcoin in practice. We also explore the concept of “gas”, offering examples of how transactions are conducted on the Ethereum blockchain, before concluding with a look at Ethereum 2.0 and the issues that this network upgrade is attempting to resolve.

Henri Arslanian

Chapter 4. The Emergence of New Blockchains and Crypto-Assets

Abstract

Since the release of the Bitcoin whitepaper in late 2008, thousands and thousands of new coins and tokens have been added to the ranks of the broader cryptocurrency ecosystem. Whilst the majority of these assets remain marginal in today’s landscape, a number of projects have followed in the footsteps of Bitcoin and Ethereum to carve out and establish their own unique niches within the industry. In this chapter, we explore some of the most significant and impactful crypto assets in circulation today, touching upon everything from the Layer 1 blockchain protocols seeking to challenge Ethereum’s market share to the meme coins like Doge and Shiba Inu that skyrocketed in popularity in 2021.

Henri Arslanian

Chapter 5. The Technology Behind Bitcoin: Blockchain

Abstract

The technology that powers Bitcoin and other cryptocurrencies can often be difficult to grasp. For instance, how does blockchain technology actually work? What use cases can it be applied to? And what distinguishes a public blockchain from a private blockchain? In this chapter, we provide a clear layout of how blockchains function, from the use cases this technology can be put towards to which industrial sectors around the globe can most benefit from continued blockchain adoption.

Henri Arslanian

Chapter 6. Cryptocurrencies

Abstract

We’ve seen several instances over the years of people conflating the terms “Bitcoin” and “cryptocurrency”, using the terms interchangeably. Whilst this is understandable, the fact remains that today’s crypto landscape contains several unique categories of coins, each of which contains its own set of technological features and its own set of benefits and use cases. After laying out the distinguishing characteristics between fungible and non-fungible tokens (which we will explore in more depth in Chapter 13) and examining how payment tokens can be used, we explore some of the most prominent types of cryptocurrencies and how they differ from one another: decentralised cryptocurrencies, centralised cryptocurrencies, and privacy coins.

Henri Arslanian

Chapter 7. Stablecoins

Abstract

The past decade of crypto trading has made one thing abundantly clear: crypto markets are highly volatile, prone to wild price swings that traditional financial markets don’t typically feature. But what if there were a form of cryptocurrency that was pegged to an external reference, like the U.S. dollar? In this chapter, we provide a comprehensive overview of stablecoins, from the different shapes they can take (fiat collateralised, crypto collateralised, non-collateralised) to some of the biggest challenges in the space today (Tether’s history of legal and regulatory troubles). We also take time to explore Facebook’s Libra (or Meta’s Diem), and how the social media giant was poised to reshape the stablecoin industry until winding down the project in early 2022.

Henri Arslanian

Chapter 8. Central Bank Digital Currencies

Abstract

The topic of central bank digital currencies, or CBDCs, is being discussed more and more frequently amongst policymakers around the globe, particularly after the anticipated launch of China’s national digital currency (the e-CNY). But what is a CBDC to begin with? How do they function? And why are central banks around the world racing to launch their own CBDC pilots? In this chapter, we examine the growing momentum for CBDCs, from the historical roots of this idea to the recent events that have catalyzed central banks all over the world to seriously consider implementing their own national digital currencies.

Henri Arslanian

Chapter 9. Wholesale Central Bank Digital Currencies

Abstract

Similar to the previous chapter, this section will continue to explore CBDCs. It is important to remember that CBDCs can be divided into two broad categories: wholesale and retail. This chapter will focus on wholesale CBDCs, including the different types of models that we’re beginning to see (national, cross-border, multi) to some of the projects arriving in real-time around the globe attempting to apply wholesale CBDCs to interbank settlement and cross-border payment opportunities.

Henri Arslanian

Chapter 10. Retail Central Bank Digital Currencies

Abstract

This chapter picks up where the previous chapter left off, shifting focus to explore some of the distinguishing characteristics that differentiate retail CBDCs from wholesale CBDCs. After reviewing the key differences between token-based and account-based CBDCs, we proceed with a series of examples for the following approaches to retail CBDC: decentralised, direct, synthetic, two-tier, and platform.

Henri Arslanian

Chapter 11. Utility Tokens and Social Tokens

Abstract

If you’ve spent any time around the crypto ecosystem over the last several years, you’ve undoubtedly heard the terms “utility token” and “social token”. But what do these terms actually mean? In this chapter, we provide a broad overview of utility tokens, explaining in detail how utility tokens are used on popular blockchains like Ethereum, Solana, and Avalanche before examining how both the networks that launch such tokens and the token holders themselves benefit from this practice. The chapter concludes with a quick look at the unfolding world of social tokens, a phenomenon that allows online content creators, artists, musicians, and others a new opportunity to build fan engagement and exert greater ownership and creative control over their work.

Henri Arslanian

Chapter 12. Security Tokens

Abstract

As we just saw in the previous chapter’s focus on utility tokens and social tokens, cryptocurrencies can come in many different shades and stripes. In this chapter, we shift our attention to security, or investment, tokens, whose primary function is to serve as a financial investment for the token holder. Given that regulatory frameworks for the cryptocurrency industry are quickly beginning to take shape (a topic we will explore in greater detail later on in the book), it is highly instructive to explore this segment of the crypto ecosystem, from how the process of tokenisation works in practice to how new investment vehicles can be tokenised.

Henri Arslanian

Chapter 13. Non-Fungible Tokens

Abstract

2021 was a breakthrough year for non-fungible tokens, commonly known as NFTs. From Beeple’s $69 million jpeg and the unrelenting popularity of NBA Top Shot to the astronomical price points for collections like CryptoPunks and Bored Ape Yacht Club, we take a look at the most significant and impactful developments that have taken place in the NFT space since the arrival of the first CryptoKitty five years ago. This chapter will be very beneficial for anyone curious about the popularity of today’s NFT scene who is looking to understand where things go from here.

Henri Arslanian

Chapter 14. Bitcoin and Crypto Mining

Abstract

One of the most passionately debated topics within crypto circles centres around the Bitcoin network’s relationship with energy. In 2021, for instance, Bitcoin and the broader crypto ecosystem received negative attention from media outlets around the world over the alarming amounts of electricity required to mine new Bitcoins and transact on the network. In this chapter, we explore the practice of Bitcoin and crypto mining and how this activity has evolved over the years before taking a look at each side of crypto’s energy debate. For instance, while Bitcoin’s proof-of-work consensus algorithm indeed required incredible amounts of electricity to function, several factors, from coal-hungry China’s ban on crypto mining and the rise of next-generation proof-of-stake networks like Ethereum 2.0 and Solana, indicate that we could be seeing a shift towards cleaner crypto mining practices moving forward.

Henri Arslanian

Chapter 15. Crypto-Asset Creation and Distribution

Abstract

The way crypto-assets are created and distributed is wholly unique. From initial coin offerings to initial exchange offerings, this chapter explores some of the different avenues new projects in the industry can take to raise funding. We also examine the concept of forks and how blockchains can be split before taking a deep dive into two approaches that have recently captured the crypto community’s attention: airdrops, which provide new ways to engage with and reward dedicated communities, and yield farming, which allows individuals to earn interest on their crypto holdings.

Henri Arslanian

Chapter 16. Decentralised Finance (DeFi)

Abstract

In the summer of 2020, a little-known concept at the time known as “DeFi” proceeded to take the crypto world by storm. Two years later, DeFi (or decentralized finance) continues to be one of the most popular corners of the crypto space, with blockchains like Ethereum and Solana launching wildly popular decentralised exchanges, staking opportunities, and liquidity pools at a dizzying pace. In this chapter, we provide a clear framework of the evolving DeFi industry, from how decentralised borrowing and lending operates and the role of automated market makers and aggregators to some of the biggest benefits (and challenges) that the industry can deliver.

Henri Arslanian

Chapter 17. Crypto Regulations and Compliance

Abstract

As the crypto industry has evolved, questions over how crypto-assets should be taxed and regulated have dominated discussions amongst policymakers in capitals all over the globe. In this chapter, we take a comprehensive look at the differing approaches to crypto regulation, from positive to negative dispositions, to how crypto assets could conceivably be taxed moving forward. We also explore some of the compliance issues within the crypto industry and examine the ecosystem’s often complicated relationship with illicit activities and whether the narrative that crypto is inherently linked to crime is entirely fair.

Henri Arslanian

Chapter 18. Crypto Exchanges

Abstract

As crypto adoption has accelerated across the globe, the number of crypto exchanges around the world has steadily risen to service increased demand for exposure to digital assets from both retail and institutional investors. But not all crypto exchanges are alike. It is important to distinguish between centralised crypto exchanges (which can provide fiat on-ramps) and decentralised crypto exchanges (which do not require anything in the way of registration and identity checks from new users). After examining the differences between the two types of exchanges, we wade through some of the biggest regulatory and security challenges for centralised and decentralised crypto exchanges today, from counterparty and smart contract risk to compliance with KYC/AML checks.

Henri Arslanian

Chapter 19. Crypto Funds

Abstract

The rapid institutionalisation of the crypto industry has given rise to several dedicated crypto funds. In fact, it is estimated that there are hundreds of unique crypto funds in existence today, from those that exclusively invest in coins and tokens to those that offer passive exposure to some of the asset’s large-cap assets, like the Bitcoin and Ethereum ETFs that we’re beginning to see in certain jurisdictions. In this chapter, we explore some of the different forms that these funds can take (ETFs, venture capital funds, tokenized funds), and how these approaches tend to differ by the fund.

Henri Arslanian

Chapter 20. Crypto Ecosystem Enablers

Abstract

The rise of crypto assets like Bitcoin and Ethereum has transformed the crypto space into an appealing investment opportunity for deep-pocketed banks, hedge funds, and other traditional financial institutions exploring the potential of high-growth digital assets. In this chapter, we focus on some of the major stakeholders around the ecosystem, from investors and custodians to wallet providers and dedicated crypto banks, exploring the impact that each actor has on the broader landscape.

Henri Arslanian

Chapter 21. Future Trends to Watch

Abstract

The future of finance is far from settled; it’s just getting started. Heated discussions over Bitcoin, Ethereum, and NFTs have morphed into conversations over DAOs, the metaverse, and Web 3.0. In this final chapter, we examine some of the most exciting trends, concepts, and developments that have recently taken the broader crypto ecosystem by storm, each of which is poised to radically shape and define the decades to come. From the impact that the unfolding Web 3.0 movement can have on wresting control away from Big Tech and how DAOs can operate in practice to the impact that quantum computing can have on cryptocurrency, this chapter lays out every significant development to follow in the years to come.

Henri Arslanian

22. Correction to: The Book of Crypto

Henri Arslanian

Backmatter