With everything happening in the news Cryptocurrency has been tossed around

left right and centre, from the highs of bitcoin to Facebook's new cryptocurrency Libra
being developed, everyone has heard about crypto. But what is crypto? How is it
traded? What is block chain? Is Crypto a viable investment opportunity?

In this brief book I will be covering the basics, from the history of cryptocurrency,
what blockchain is and developments in the crypto world.

Contents

History of Bitcoin…………………………………………………………….….. 1

Biggest heist in the world………………………………………………….….... 3

Bitcoins Block Chain……………………………………………………….….... 5

History of Ethereum…………………………………………………...…….….. 7

What is the Lightening Network…………………………………..……………. 9

Regulation of Crypto currency………………………………………………..... 11

What is Libra………………………………………………………………..…… 14

How to trade crypto……………………………………………………….…….. 16

History of Bitcoin
 Let us begin with the history of Cryptocurrency and Satoshi Nakamoto “unknown”
inventor of Bitcoin, a peer to peer electronic cash system developed in 2009. Nakamoto
developed a type of digital currency which doesn't require a centralised bank or
administrator to monitor the transaction. The existence of Satoshi Nakamoto is
questioned on whether or not he is a real person or a conceptual group of individuals
under the Nakamoto alias but we shall refer to Nakamoto as an individual. The Bitcoin
network came into existence on the 3rd January 2009 when Nakamoto mined the first
block of the chain, known as the Genesis block (kind of biblical if you ask me), with a
time stamp referencing the fractional-reserve banking.

As Bitcoin operates a peer-to-peer network the first receiver of Bitcoin holds

significant weight in its history, that accolade goes to Hal Finney a true cypherpunk
(activist advocating for global use of cryptography and privacy enhancing
technologies) who created the first reusable proof of work system. Hal Finney received
ten Bitcoins (total current value $105,200) from Nakamoto. Prior to Nakamoto’s
disappearance it is rumoured from Blockchain analysts who have estimated that
Nakamoto had mined about one million bitcoins (total current value $10.5 Billion).

Bitcoin is similar to Gold. Like gold, Bitcoin cannot simply be created arbitrarily.
Gold must be mined out of the ground, and Bitcoin must be mined via digital means.
Linked with this process is the stipulation set forth by Nakamoto that, like gold, there is a
limited and finite supply. In fact, there are only 21 million Bitcoins that can be mined in
total. Once miners have unlocked this many Bitcoins, the planet's supply will essentially
be tapped out, unless Bitcoin's protocol is changed to allow for a larger supply. All
confirmed Bitcoin transactions are recorded in the blockchain. The blockchain is
described as a shared public ledger on which the entire Bitcoin network relies.

Since its inception, Bitcoin has fueled the growth of an entire industry of
cryptocurrencies such as Litecoin, Ripple and Ethereum. Many of these currencies are
forks of the Bitcoin protocol while others have developed into full Turing-complete smart
contracts platforms. Bitcoin’s narrative has evolved throughout its lifetime and has been
subject to polarizing debates and contentious network protocol decisions. Despite the
wild west like atmosphere within the broader cryptocurrency industry and often
polarizing nature of the communities, Bitcoin has emphatically remained resilient. With a
decade of experience under its belt, the legacy cryptocurrency has shown a penchant
for conservative change that has led to remarkable stability, decentralization, and
transparency in spite of the criticisms it has faced over the course of its existence.

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 Moving on from the inception of Bitcoin the practical usage of a decentralised
currency has caused a couple red flags when it comes to transactions. The first known
commercial transaction occurred in 2010 with Papa John’s Pizza for two pizzas for the
price of ₿10,000 (total current value $105,200,000) now in hindsight that is the most
expensive pizza in the history of mankind. Other than purchasing pizza Bitcoin was
widely used by individuals on the Black Market for “extra curricular items”. This posed
difficulties for law enforcement across the world on tracing these transactions to the
origin of funds.

Throughout 2012 and 2013 Bitcoin has influenced the creation of various
monetary “coin holders” from Coinbase to Mt Gox. An intermediary solution for the
handling of Cryptos away from a centralised entity. However 2013 posed difficulties for
Bitcoin such as China baning financial institutions from using Bitcoin and the FBI seizing
26,000 Bitcoins (total current value over $250 million).

The biggest Heist in the world

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 As mentioned earlier Mt. Gox a bitcoin exchange based in Japan which at the
time in 2014 was the largest Bitcoin exchange in the world became bankrupt within 2
months after achieving that accolade. Over 740,000 Bitcoins were stolen from Mt. GOX
via hackers making this the most profitable theft case in the world (current value $7.7
billion). Although it remains an ongoing investigation and the facts remain unclear at
this time, it is presumed that most of the bitcoins that were stolen from Mt. Gox were
taken from its online (or hot) wallets, including all of the currency being held in cold
storage, due to a “leak” in the hot wallet. An online cryptocurrency wallet is a web-based
wallet used to store secure digital codes, known as private keys that show ownership of
a public digital code, known as a public key, that can be used to access the currency
addresses and it is this information that is stored in a wallet.

Prior to September 2011, the Mt. Gox private key was unencrypted and it would
appear that it was stolen via a copied wallet. dat file, either by hacking or perhaps
through an insider.

650,000 bitcoins remain unaccounted for as a result of the Mt. Gox hack. A
number of online theories have been developed as to where the missing coins are.
Some have suggested that Mt. Gox never had the amount of coins that it claimed, and
that Karpelés had manipulated the numbers to make it appear that Mt. Gox held more
bitcoin than it in fact held. In respect of how the hacker was able to access the bitcoins
that Mt. Gox held in cold storage, the theories range from suggestions that the storage
may have been compromised by an individual with onsite access to suggestions that
the cold storage coins were gradually deposited into the Mt. Gox exchange system
when a hot wallet ran low, and that a lack of accountability among staff simply meant
that there was no awareness that the wallets were being drained by hackers.

In July 2017, a Russian national named Alexander Vinnik was arrested by US

authorities in Greece and charged with playing a key role in the laundering of bitcoins
stolen from Mt. Gox. In additional Vinnick was charged by Greek authorities for
laundering of approximately $4 billion in bitcoin. Vinnick is alleged to be associated with
BTC-e, a well established bitcoin exchange, which was raided by the FBI as part of the
investigation. The BTC-e site has been shut down and the domain has been seized by
the FBI, the first time the US government has seized a foreign exchange on foreign soil.
Investigations by Wizsec, a group of bitcoin security specialists, had identified Vinnik as
the owner of the wallets into which the stolen bitcoins had been transferred, many of
which were sold on BTC-e.

Now the question is can this happen again? YES, YES it can, there are many
Bitcoin exchanges operating at present, from Binance to Coinbase; with smaller firms

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opening they are going to be the targets of the best hackers, who wish to exploit any
security gaps.

Bitcoins Blockchain

Beginning with what is a blockchain? The block chain is a shared public ledger
on which the entire Bitcoin/crypto network relies. All confirmed transactions are included
in the block chain. It allows Bitcoin wallets to calculate their spendable balance so that

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new transactions can be verified thereby ensuring they're actually owned by the
spender. The integrity and the chronological order of the block chain are enforced with
cryptography.

Each block stores the root hash of the previous block, thus cryptographically
linking all of the blocks, hence the name blockchain. The ledger of blocks is entirely
public, transparent, and digitally timestamped. The root hash of the current block header
represents the state of the entire Bitcoin blockchain, from the Genesis block up to the
current block.

Transactions within a block cannot be modified without modifying all of the

transactions within that block as well as all of the following blocks due to the
cryptographic linkage of the Merkle roots between blocks. This gives Bitcoin its
immutability property.

Full node clients store the entire blockchain locally and propagate transactions
across the network. Further, they assist new nodes in catching up to the state of the
Bitcoin blockchain and provide the necessary data for SPV nodes to function correctly.
SPV nodes are light clients called (Simple Payment Verification) nodes and do not store
the entire blockchain. Rather, they rely on full nodes to provide them with an accurate
picture of the blockchain. An experimental version of a new light client protocol called
Neutrino was recently proposed and is being developed by Lightning Labs.

A Bitcoin block contains 5 fields:

Magic Number – Always has a value of 0xD9B4BEF9

Blocksize – Size of block
Blockheader – Contains 6 parts
Transaction Counter – Positive integer
Transactions – List of transactions

The Blockheader contains 6 parts:

BlockVersion – Version of the block that changes with upgrades hash
PrevBlock – 256-bit hash of previous block header hash
MerkleRoot – 256-bit hash based on all transactions in the block
Time – Current timestamp (UTC)
Bits – Current target that changes when the difficulty is adjusted
Nonce – 32-bit number starting at 0 that plays a vital role in mining.

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 Naturally, in a decentralized P2P network of pseudonymous users, the inherent
problem arises of how to ensure that the state of the blockchain is accurate.
Overcoming this issue means ensuring, with extremely high probability, that the
transactions included in mined blocks are not double spent. This is one of the major
achievements of Bitcoin as it solved the double spend problem using a computationally
intensive proof-of-work model called Nakamoto Consensus.

History of Ethereum

Bitcoin is the legacy, original cryptocurrency that launched an entire industry of

innovation predicated on blockchain technology and its accompanying field of technical
and economic mechanics. Primarily envisioned as a store of value and medium of value
exchange outside of the jurisdiction of governments or third parties, Bitcoin’s application

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focuses on providing individual economic freedom through creating a novel financial
technology.

However, the application of blockchain technology, cryptography, distributed

computing, and economics in a system such as Bitcoin’s only was the tip of the iceberg
to a future industry of vast potential. Ethereum opened the door to the potential of
utilizing blockchain technology for a wide variety of applications.

Pegged as a distributed world computer, Ethereum is an open-source, public

blockchain and decentralized computing platform featuring turing-complete smart
contract functionality. Proposed in late 2013, by a then 19 year old Vitalik Buterin, as a
platform that could hypothetically leverage the blockchain to store and execute
computer programs across an international network of distributed nodes, Ethereum has
become the most well-known and established cryptocurrency outside of Bitcoin.

“What Ethereum intends to provide is a blockchain with a built-in fully fledged

Turing-complete programming language that can be used to create “contracts” that can
be used to encode arbitrary state transition functions, allowing users to create any of the
systems described above, as well as many others that we have not yet imagined, simply
by writing up the logic in a few lines of code”

The systems that he “describes above” in the quote refer to common applications
(dapps) built on top of the Ethereum blockchain today such as on-chain digital assets
(ERC-20 tokens), non-fungible assets, decentralized exchanges, on-chain identity and
reputation systems, peer-to-peer gambling, decentralized autonomous organizations
(DAOs), and most notably, smart contracts.

Smart contracts are the primary feature of Ethereum and are basically self-
executing programs that facilitate the exchange of anything of value on the network,
immutably stored on the blockchain. They execute when specific conditions are met and
are outside the influence of third parties or censorship and have no downtime, as long
as the Ethereum network is functioning.

Ethereum mining is in many ways similar to Bitcoin mining. However, there is a

primary difference where the Ethereum blockchain not only stores the transaction list of
the blockchain, but also the most recent state of the network.

Ethereum also employs the use of Patricia Trees rather than Merkle Trees as
part of its blockchain state regulation. Patricia Trees are a modified form of Merkle

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Trees that enables Ethereum to efficiently store and adjust the state of the blockchain in
each block.

Some other notable features of the Ethereum blockchain and mining include:

12 second block time

Ethash Mining Algorithm (Uses DAG)
Static Block Reward of 3 ETH
Miners compensated for gas expended in block.
Extra reward for including Uncles as blocks.

Ethereum seems invariably placed, alongside Bitcoin, as the center of the

cryptocurrency world. With standards being proposed and implemented on the
Ethereum network, a vast and dedicated community of developers and various other
contributors behind it, and a vocal, talented leader in Vitalik Buterin leading the way, the
Ethereum future looks bright.

Ethereum remains at the bleeding edge of innovation in the industry with

developments such as its planned transition to sharding seen as some of the most
daunting tasks out there, not just in the blockchain field either, but the larger technical
community as well.

What is the Lightening Network

Bitcoin is a revolutionary technology, but its 7 transactions-per-second

throughput at the current 1MB block size became a bottleneck in 2017 as mainstream
adoption seemed to begin knocking at the door, e.g. Goldman Sachs’ forthcoming
cryptocurrency trading desk. The consistent roulette of surges and adoption

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developments had new users flocking to BTC in droves, which seriously slowed the as-
yet unscaled legacy Bitcoin network.

Simply put, then, Bitcoin needs a lot more capacity than 7 txs a second. VISA
handles 4,000 per second, and for Bitcoin to eventually win out, it’ll need to surpass that
marker. And that’s where the Lightning Network comes in.

Lightning Network is the proposed second-layer, off-chain solution for Bitcoin’s

scalability. It is the scaling solution being spearheaded by teams within the Bitcoin Core
development team, as well as by the company Blockstream. Blockstream itself bills LN
as a “micropayment system that supports high volumes of tiny payments.”

Such a system could be considerably alleviating if current network congestion is

any indication.

So let’s get into some of the details. The idea behind Lightning Network is that
small txs don’t have to be stored on the main blockchain. Take these payments off-
chain, thus alleviating the burden put upon the main BTC blockchain.

BTCPay server has become a popular open-source cryptocurrency payment

processor, focusing primarily on Bitcoin. It is a non-custodial invoicing system that
conforms to the invoice API of BitPay and effectively allows users to become their own
Bitcoin and LN payment processors, either through a self-hosted server or third-party
server.

Applications can be built on top of it, and several have already created in-store
point-of-sale systems using BTCPay server. The primary advantages of using BTCPay
server include direct control of funds, use of the LN (can even process payments for
other users), lower fees, and universally compatible invoices.

An interesting application of BTCPay server was announced earlier this month by

IndieSquare. They developed a Unity SDK that uses the BTCPay server for game
developers to create in-game stores and in-app purchases via the LN. Developers can
subsequently retain complete control over the payment processing for game stores or
purchases while utilizing an invoicing UI for multiple games.

IndieSquare even provides a guide to add an in-game shop UI for game project
asset “Survival Shooter” that uses the LN and BTCPay server. BTCPay server is
tailored towards developers, but its proliferation should help to reduce concerns around
censorship by payment processors stemming from compliance issues.

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 Bitcoin has an ample design space for building on top of it and creating user-
friendly applications that should help foster greater adoption of the technology. The LN
has come a long way since its inception. Recent developments show a trend towards
much more viable applications and self-sovereign technical implementations — such as
BTCPay Server — that grant users the privacy, decentralization, and security without
sacrificing too much on the UI/UX front.

The recent growth of the network over the last week is significant, symbolizing
that people are interested in using the LN despite bearish sentiment in the broader
market. Such trends typically go unnoticed by mainstream media but prove to be crucial
gauges of adoption as the underlying technology continues to evolve.

Lightning Labs notes that it has been six years since the last Bitcoin
improvement proposal emphasizing mobile platforms. Neutrino offers an enhancement
to several of the problems facing most Bitcoin light clients and their shortcomings in
security, privacy, and usability. With increasingly common advancements refining the
LN experience, the LN is poised to continue on its trajectory to a scalable payment
network solution for Bitcoin.

Regulation of Crypto currency

The legal status of Crypto currencies varies substantially from country to country
and is still undefined. Whereas the majority of countries do not make the usage of
bitcoin and other cryptos illegal, its status as money (or a commodity) varies. The list of
countries below explains how countries view not only cryptocurrencies but in addition
Cryptocurrency exchanges with future regulation

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Country Cryptocurrencies Cryptocurrency exchanges Future regulation

Australia Legal, treated as Legal, must register with Australia has established
a pattern of proactive
property AUSTRAC cryptocurrency
regulation. Beyond
cryptocurrency
exchanges, ICOs are
also being scrutinized

Canada Not legal tender Legal, regulation varies by More regulation on crypto
exchanges is on the way.
province In response to its mutual
evaluation by FATF,
Canadian authorities
issued draft amendments
to the Proceeds of Crime
(Money Laundering) and
Terrorist Financing Act in
June 2018.

China Not legal tender Illegal In January 2018, a

leaked PBOC memo
suggested that Bitcoin
mining operations would
soon be banned in China
– the memo cited the
miners’ consumption of
energy resources and
their tendency to stoke
financial speculation

India Not legal tender Effectively illegal – In 2018, reports

suggested that a
regulations being government committee
considered was drafting new
legislation which
introduced greater
cryptocurrency
protections for “the
common man”.

Japan Legal, treated as Legal, must register with the Japan remains a friendly
environment for
property Financial Services Agency cryptocurrencies, but

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 growing AML concerns
are drawing the FSA’s
attention to further
regulatory steps.

EU Legal, member- Regulations vary by The EU is actively

exploring further
states may not member-state cryptocurrency
introduce their own regulations. In February
2018, European Central
cryptocurrencies Bank president, Mario
Draghi, stated authorities
were working with the
Single Supervisory
Mechanism to develop a
way of identifying the
financial risks that
cryptocurrencies pose.

UK Not legal tender Legal, registration In 2018, Bank of England

Governor, Mark Carney,
requirements with FCA revealed that targeted
cryptocurrency
regulations for the UK
are on the horizon. With
a parliamentary inquiry
ongoing, the FCA is
working with the BOE
and the UK Treasury to
develop a strategy for
dealing with
cryptocurrency risk

United States Not considered legal Legal, regulation varies The US Treasury has
emphasized an urgent
tender by state need for crypto
regulations to combat
global and domestic
criminal activities and, in
January 2018, Treasury
Secretary, Steve
Mnuchin, announced a
new FSOC working
group to explore the
increasingly crowded
cryptocurrency

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 marketplace.

Singapore Not legal tender Legal, no registration in March it was reported

that the financial
required authority was working on
more robust
cryptocurrency
regulations specifically to
protect investors.

What is Libra

ANYONE WHO has watched the price of bitcoin bucking and rearing in recent
years—or seen Facebook attacked for its handling of private data—might have been
surprised to learn that the social-media giant is releasing its own digital currency. But
such is Libra. Facebook will launch its currency some time in the first half of next year. If
all goes according to plan, Libra will be bought, sold, held, sent and received within the
firm’s apps, Messenger and WhatsApp, and also rival ones. A tap on a smartphone will
make money change hands almost instantaneously, even if the sender and receiver are
on different sides of the planet.

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 Libra is, in effect, an attempt to undercut existing payment services by re-
inventing and improving bitcoin ten years after its launch. Whereas bitcoin transactions
may take minutes to confirm and can cost several dollars, Libra should move within
seconds for negligible fees. Whereas bitcoin’s price is extremely volatile, Libra’s swings
should be minimal as it will be backed by a basket of currencies. And whereas a
transaction using bitcoin needs more than 1,000 kWh of computing energy, Libra
transactions should consume no more energy than credit-card ones.

Libra will be created only when users buy coins with real money. These inflows
will form the reserve that will back the currency. Local regulators will be able to keep
tabs on Libra, which will not yield interest. The providers of “wallets”, the software-cum-
services that allow users to send and receive the currency, will have to comply with
national rules, for instance those against money laundering.

To assuage those worried about letting Facebook into their financial affairs, the
firm will decentralise decision-making about Libra. Its institutional heart is an association
made up of a broad range of organisations, such as financial firms and non-profit
groups. Their main task is to oversee the blockchain, a database that tracks who owns
which Libra coin. On the currency’s launch, this association is supposed to have 100
members, each of which can operate one of the blockchain nodes.

The currency will be offered to 2.4bn Facebook users, but to function effectively
Libra also needs to be accepted by many businesses. The association will run
“incentive programmes”, essentially subsidies to get people to use and hold the new
currency. They will be financed by the fees its members have to pay for a seat at the
table: $10m each for a total of $1bn. Facebook will not be the only provider of wallets.
But the association will have to ensure that Calibra, the separate subsidiary that
Facebook has created to offer Libra payments, should not have an unfair advantage
over other firms. Facebook itself is likely to develop a suite of financial services, much
as WeChat and Alibaba, two Chinese internet giants, have done in China.

Much can go wrong. The working prototype has yet to be tested. Facebook must
prove that it truly is willing to give up control. Concerns about fair competition between
Libra and other crypto-projects will persist. And any success could also bring problems.
Were every Western depositor to move a tenth of their bank savings into Libras, its
reserve fund would be worth over $2trn—nearly twice Apple’s market cap. If all
Facebook’s users adopt Libra to shop and transfer money, it could become one of the
world’s biggest financial entities, reducing governments’ economic sovereignty. As a
result governments, particularly those that print money to finance their budgets, might
be tempted to block it. Facebook’s impact on democracy has not been wholly positive. It

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is not clear whether Libra’s impact on the financial system should be feared or
welcomed.

How to trade Crypto

This is the most commonly asked question I receive when it comes to cryptos,
individuals are looking to get involved in the potential profits. After having read the list of
regulations in various countries in the previous chapters I hope you are able to
comprehend the risks involved when trading Crypto currencies.

Trading as CFD’s

One of the most common methods of trading cryptos for retail clients is and
always will be Contracts for Difference. You will not physically own the crypto however
you will be trading on whether or not the value of the particular crypto will go up or
down. The bottom line interest as a trader will be sustaining the trade when it goes
against you dependant on how long you trade this asset. For example:

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 ● You have £5000 you want to invest into Bitcoin and the current price of
bitcoin is $10,000
● Because you want to “buy” Bitcoin as a CFD you are able to access the
market price with a maximum leverage of 1:20, this allows you to
purchase ₿1.00 for $500.
● You will profit $1 for every Dollar Bitcoin goes up and you will lose $1 for
every Dollar Bitcoin goes down.
● So if bitcoin goes up to $11450 your profit is $1450
● But if bitcoin falls to $4000 you will lose up to $6000

Now the key benefit of trading Bitcoin as a CFD will be your ability to trade against the
strength of Bitcoin whereas if you purchase Bitcoin via a Crypto wallet your vested
interest is having the asset go up and not lose value.

Investing via a Crypto exchange

You will need to most importantly locate a regulated Crypto exchange based
upon your region and in addition to that a suitable Crypto wallet. Once you have
decided on both providers the transaction is simple enough, you put in your card details
and purchase X amount of particular crypto currency to be deposited into your chosen
crypto wallet. Simple

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