Cryptocurrency & Blockchain
Bitcoin, Ethereum, altcoins, DeFi, and blockchain applications
What is Bitcoin and how does it work?
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network without a central authority. Transactions are verified by network nodes through cryptography and recorded on a public distributed ledger called a blockchain. It was introduced in a 2008 whitepaper by the pseudonymous Satoshi Nakamoto. [Source: Bitcoin.org]
What is a blockchain and how does it store data?
A blockchain is a distributed ledger that stores data in cryptographically linked blocks, where each block contains a hash of the previous one, making historical records tamper-evident. Nodes across the network maintain identical copies, so no single party controls the data. Consensus mechanisms validate new entries before they are appended. [Source: NIST]
What is Ethereum and how is it different from Bitcoin?
Ethereum is a programmable blockchain platform that supports smart contracts and decentralized applications, whereas Bitcoin is primarily designed as a peer-to-peer payment system. Ethereum uses Ether (ETH) as its native currency, transitioned to proof-of-stake consensus in 2022, and hosts the majority of DeFi and NFT activity. [Source: Ethereum Foundation]
What are smart contracts and what are they used for?
Smart contracts are self-executing programs stored on a blockchain that automatically enforce the terms of an agreement when predefined conditions are met, eliminating the need for intermediaries. They are used in decentralized finance, supply chain management, digital identity, and tokenization of real-world assets. [Source: NIST]
What is decentralized finance (DeFi)?
Decentralized finance (DeFi) refers to financial services—including lending, borrowing, trading, and earning yield—built on public blockchains using smart contracts instead of banks or brokers. Users interact directly through non-custodial wallets, retaining control of their assets. Total value locked in DeFi protocols has reached hundreds of billions of dollars globally. [Source: Bank for International Settlements]
How is Bitcoin mined?
Bitcoin mining is the process by which specialized computers compete to solve complex mathematical puzzles under a proof-of-work protocol. The winning miner adds the next block of verified transactions to the blockchain and receives a block reward—currently 3.125 BTC after the April 2024 halving—plus transaction fees. [Source: Bitcoin.org]
What is proof of stake and how does it differ from proof of work?
Proof of stake (PoS) is a blockchain consensus mechanism where validators are chosen to create new blocks based on the amount of cryptocurrency they lock up as collateral, rather than expending computational energy as in proof of work. Ethereum's 2022 Merge to PoS reduced its energy consumption by approximately 99.95%. [Source: Ethereum Foundation]
How much energy does Bitcoin mining consume?
Bitcoin mining consumed an estimated 120–150 terawatt-hours of electricity annually as of recent U.S. Energy Information Administration assessments, comparable to the annual electricity use of a country like Poland. Mining farms increasingly draw scrutiny for grid impacts, prompting EIA mandatory surveys of commercial cryptocurrency miners in the United States. [Source: U.S. Energy Information Administration]
What is a Bitcoin halving and why does it matter?
A Bitcoin halving is a programmed event that cuts the block reward paid to miners in half approximately every 210,000 blocks (roughly four years). The most recent halving occurred in April 2024, reducing rewards from 6.25 BTC to 3.125 BTC. Halvings enforce Bitcoin's hard-capped supply of 21 million coins. [Source: Bitcoin.org]
What is a cryptocurrency wallet and how does it work?
A cryptocurrency wallet stores the private and public cryptographic keys that allow users to send, receive, and manage digital assets on a blockchain. The wallet itself does not hold coins—those exist on-chain—but controls access to them. Wallets may be hardware-based, software-based, or custodial (held by an exchange). [Source: CFTC]
How do cryptocurrency exchanges work?
Cryptocurrency exchanges are platforms where users buy, sell, and trade digital assets. Centralized exchanges (CEXs) act as custodians, matching orders through internal order books and holding user funds, while decentralized exchanges (DEXs) use smart contracts and liquidity pools to execute trades without an intermediary. Both types are subject to growing regulatory oversight. [Source: SEC]
Are cryptocurrency exchanges regulated in the United States?
In the U.S., cryptocurrency exchanges that trade assets classified as securities must register with the SEC, while those trading commodity-based crypto derivatives fall under CFTC jurisdiction. The Financial Crimes Enforcement Network (FinCEN) requires exchanges to register as money services businesses and comply with Bank Secrecy Act anti-money-laundering rules. [Source: FinCEN]
How are cryptocurrencies taxed in the United States?
The IRS treats cryptocurrency as property, meaning capital gains tax applies when you sell, exchange, or spend it. Short-term gains (assets held under one year) are taxed as ordinary income; long-term gains qualify for preferential rates. Receiving crypto as wages, mining rewards, or staking income is treated as ordinary income at fair market value. [Source: IRS]
What is a stablecoin and how does it maintain its peg?
A stablecoin is a cryptocurrency designed to maintain a stable value relative to a reference asset, typically the U.S. dollar. Fiat-backed stablecoins hold reserves of cash or equivalents; algorithmic stablecoins use on-chain mechanisms to control supply. The Financial Stability Board identified stablecoins as potential systemic risks if widely adopted as payment instruments. [Source: Financial Stability Board]
What is a central bank digital currency (CBDC)?
A central bank digital currency (CBDC) is a digital form of a country's fiat currency issued and backed directly by the central bank. Unlike cryptocurrencies, CBDCs are centralized and a direct liability of the issuing authority. Over 130 countries are exploring CBDCs, and the Bahamas' Sand Dollar was among the first fully launched retail CBDCs. [Source: Bank for International Settlements]
What is an NFT (non-fungible token)?
A non-fungible token (NFT) is a unique cryptographic token on a blockchain that represents ownership of a distinct digital or physical asset, such as artwork, music, or collectibles. Unlike fungible cryptocurrencies, each NFT has a unique identifier that cannot be replicated. Most NFTs are minted on Ethereum using the ERC-721 or ERC-1155 token standards. [Source: CFTC]
What is a decentralized autonomous organization (DAO)?
A decentralized autonomous organization (DAO) is an entity governed by rules encoded in smart contracts on a blockchain, where token holders vote on proposals without a traditional management hierarchy. DAOs coordinate funding, protocol changes, and treasury management. Regulators are still debating the legal status of DAOs, with some U.S. states passing specific DAO legislation. [Source: CFTC]
What are altcoins?
Altcoins are all cryptocurrencies other than Bitcoin, including Ethereum, Solana, Cardano, XRP, and thousands of others. They may offer different consensus mechanisms, faster transaction speeds, lower fees, or niche functionality. The SEC has argued that many altcoins qualify as unregistered securities under the Howey Test, triggering significant legal disputes with exchanges. [Source: SEC]
What is cryptocurrency custody and why does it matter?
Cryptocurrency custody refers to safeguarding the private keys that control digital assets, either by the owner (self-custody) or a regulated third party (custodial service). The SEC requires registered investment advisers to hold client crypto assets with a qualified custodian, and institutional custody failures—such as the FTX collapse—have highlighted systemic risks. [Source: SEC]
What is blockchain interoperability and why is it important?
Blockchain interoperability is the ability of separate blockchain networks to communicate, share data, and transfer assets without centralized intermediaries. Cross-chain bridges and messaging protocols enable users to move tokens between, say, Ethereum and Solana. NIST identifies interoperability as a critical gap that limits enterprise blockchain adoption and introduces bridge-specific security vulnerabilities. [Source: NIST]