Frequently Asked Questions

Questions about Bitcoin and crypto

What is Bitcoin?

Bitcoin is a decentralized digital asset, not controlled by a central entity (contrary to fiat currencies like the US dollar or the Euro), but by millions of nodes across the world. It enables to make transactions peer-to-peer, thereby bypassing intermediaries like banks, and recorded publicly on a global ledger called the blockchain. With a limited supply of 21 million units, Bitcoin’s scarcity makes it a reliable long-term store of value, regarded as such by millions of people, a number growing every day.

What are cryptos?

Cryptos, an abbreviation for cryptoassets, are digital assets that use cryptography for securing transactions, exchanging information, and controlling new unit creation. They often aim for decentralization (functioning without any central authority), but most cryptoassets are effectively centralized, which undermines their main value proposition. Bitcoin is by far the largest cryptoasset, being more valuable than all other cryptoassets combined, and by far the most decentralized. When properly designed, implemented, and adopted, cryptoassets enable peer-to-peer transactions, censorship resistance, and generally have lower fees than traditional financial systems. Additionally, their value proposition can extend beyond “just” being a superior form money, as they can facilitate the decentralized execution of any agreement expressible in code, can digitalize any real-world asset, or be used as a cybersecurity protocol.

What are smart contracts?

Smart contracts are self-executing agreements with terms directly written into code. They run on blockchain networks, ensuring transparency, security, and decentralization. Smart contracts automatically enforce terms and conditions, eliminating the need for intermediaries and reducing potential disputes or fraud.

Are cryptoassets valuable?

Cryptoassets can be valuable, depending on factors such as utility, scarcity, and market need. Some cryptoassets, like Bitcoin, are seen as a store of value or digital gold, while others enable various applications, such as smart contracts, tokenization, or decentralized finance. Regardless of their genuine economic value, their price may fluctuate significantly as they are tradable assets subject to market forces, investor sentiment, and regulatory developments.

What are the crypto risks?

Despite their publicity and growing success, cryptoassets still face risks. Small cryptoassets, in particular, face high price volatility, security vulnerabilities, and risks related to centralization, such as abuses and censorship. Risks of larger cryptoassets are much more modest: for example, the Bitcoin network is the most secure in existence, its price is comparatively more stable due to higher liquidity, and it is satisfactorily decentralized. Nevertheless, regulatory risks remain, which could slow down the adoption of cryptoassets, though not stop it. The book Understanding Crypto Fundamentals dives into all financial and non-financial risks specific to cryptoassets and suggests methods to mitigate them. It also explains which risks are typically considered material (e.g. 51%-attack, quantum computing, governmental risk) but are in fact harmless and negligible, and contrasts them with risks that are barely ever discussed but could be significant (e.g. rogue developer, risk of community disagreement, oracle risk).

Is Bitcoin bad for the environment?

Bitcoin mining consumes electricity, like electric cars or tumble dryers. Critics argue that this energy consumption contributes to environmental concerns, but they often overlook that the incentives inherent in the Bitcoin mining process encourage the use of stranded energy. Specifically, Bitcoin mining facilities are often situated next to renewable power plants to take advantage of excess energy produced when demand on the grid is low. Since excess energy cannot be effectively stored with current technologies, it would typically go unused. Bitcoin mining allows renewable energy producers to monetise this excess energy, not only securing the Bitcoin network but also incentivising more renewable power plants. If the electricity consumed for mining Bitcoin could be used for any other useful purposes, it would be in the producer’s financial interest to do so. Therefore, Bitcoin mining’s incentives ensures that no usable energy is wasted; rather, it incentivises the creation of more renewable power plants, making it a clear positive for the environment.

Additionally, Bitcoin miners can capture flared methane and other unwanted by-products of polluting processes. For example, oil drilling sometimes uncovers natural gas, which, without pipelines to redirect it, has typically been released into the atmosphere or burned (flaring). This stranded gas can now be used to generate cheap electricity for Bitcoin mining, reducing the CO2 output of oil drilling processes while providing extra revenue to miners. Bitcoin mining thereby further contributes positively to the environment.

Finally, the energy used to mine Bitcoin comes primarily from renewable sources. The Bitcoin Mining Council revealed in its H1 2023 report that 59% of Bitcoin mining uses renewable energy, a figure higher than for any country in the world and growing rapidly. Independent institutions and academic bodies researching the same topic confirm this finding. In comparison, the share of renewable energy used to power the energy grid is only about 31% in the US and below 22% worldwide. Securing the Bitcoin network is therefore a much greener endeavour than using most other technologies. Besides, Bitcoin mining efficiency and its sustainable electricity mix continuously evolve for the better. For instance, Bitcoin’s mining efficiency improved by a factor of 58 over the past 8 years. This phenomenal improvement means the cost of securing the Bitcoin network dropped by more than 98% over this period. Not only is the Bitcoin network secured in a much greener way than most technologies, but it is also becoming increasingly more efficient in doing so. All in all, Bitcoin mining may even be the most promising technology to address and solve environmental risk, since it provides economic incentives for the development of renewable infrastructure and usage of renewable energy.

Can anybody stop Bitcoin?

Stopping Bitcoin is extremely difficult due to its decentralized nature. With no central authority or single point of failure, Bitcoin operates across a global network of nodes and miners that secure and maintain the blockchain. Governments and other entities can impose regulations, restrict access to exchanges or attempt to block transactions, but they cannot fully stop Bitcoin without shutting down the entire internet or censoring access to information globally.

While regulations can slow down adoption or make it harder to use Bitcoin in certain regions, the network will continue to function as long as there are participants. Furthermore, Bitcoin’s open-source nature allows for continuous innovation and adaptation, enabling it to overcome challenges and evolve in response to regulatory pressures and technological advancements.

Finally, even if the internet could be fully halted globally and for decades, the Bitcoin blockchain would survive and could continue to work as soon as a single node resumes mining operations. Bitcoin may therefore be the most resilient technology ever invented.

Is Bitcoin a security?

Bitcoin is not considered a security. In most jurisdictions, including the United States and the European Union, Bitcoin is classified as a digital or virtual currency, a commodity, or a payment instrument, rather than a security. This classification stems from Bitcoin’s primary function as a store of value, medium of transactions, and unit of account, rather than as an investment vehicle tied to the performance of an underlying asset, company, or project.

Securities are typically financial instruments that represent ownership in a company, the right to share in profits, or the expectation of profits derived from the efforts of others. Bitcoin, being a decentralized digital asset, does not fit this definition. As a result, Bitcoin is not subject to the same regulatory requirements or oversight as traditional securities, such as stocks or bonds.

Is Ethereum a security?

In the US, an instrument is a security if it is “an investment of money in a common enterprise with an expectation of profits to be derived solely from the efforts of others” (a definition referred to as the Howey test). Since the “Merge” event of September 2022, Ethereum’s consensus mechanism changed from proof of work (PoW) to proof of stake (PoS). This change significantly alters Ethereum’s categorisation from a commodity to a security. Indeed, validating a block under PoS involves virtually no work by the staker, and benefits can therefore be considered “solely derived from the efforts of others.” Since staking Ether is also “an investment of money”, “in a common enterprise” and “with an expectation of profits”, it should fall into the security category under current applicable law in the US. However, the chairman of the SEC, Gary Gensler, has been exceptionally careful not to officially declare Ethereum a security, without justifying why. Speculation would be that officially classifying Ethereum a security would automatically also classify countless other cryptoassets as securities as well, therefore unregistered securities. It would provoke an avalanche of lawsuits and massively hinder digital innovation in the US, which is a course of actions that the corresponding authorities seem not ready to take.

Nevertheless, Ethereum could lose its security status in the future if it is no longer a “common enterprise” but rather a global platform used independently by users. In other words, the asset should be truly decentralized in practice to fall outside the security classification. As of 2024, the Ethereum Foundation led by Vitalik Buterin can effectively control the Ethereum network (e.g., reverse transactions by hard-forking its blockchain), meaning Ethereum cannot claim to be decentralized in practice. In addition, a proof-of-stake consensus mechanism provides incentives for more centralization over time, because rich nodes become continuously richer as they benefit from higher staking rewards.

What are complementary currencies?

Complementary currencies are alternative forms of money designed to coexist with and complement traditional or national currencies. Often created by local communities or non-profit organisations, these currencies typically address specific economic or social issues. Their goals include encouraging local trade, supporting small businesses, promoting sustainability and fostering social cohesion within a community.

Complementary currencies can come in various forms, such as paper notes, digital tokens or electronic credits, and they frequently use innovative exchange systems or mechanisms to facilitate transactions. Even before the rise of cryptocurrencies, complementary currencies were known to provide stabilizing effects on economies by acting counter-cyclically to the typical fluctuations of modern economies.

Chapter 2 of Understanding Crypto Fundamentals dives into the details of complementary currencies, exploring the scientific justification behind them and providing concrete examples from the past and present. The chapter also links this concept with the emergence of cryptoassets, specifically Bitcoin, and examines how economies can benefit from it.

Questions about the book

Where can I purchase the book?

Understanding Crypto Fundamentals is available on most online libraries. Here are a few links.

Questions about the author

How did you start writing the book?

Interestingly enough, in the middle of the night, in the dark. My son was born just over 2 years ago, and I quickly took over many night feedings to let his mom recover from the many challenges of motherhood. As a slow drinker, he gave me about 1 hour every time, from preparing a bottle to feeding him and putting him back to sleep, four times a night. Turning on any light would have prevented him from getting back to sleep, so instead, I turned on podcasts on my Sony headphones and listened to courses on Bitcoin, blockchain, and crypto while holding his bottle and him in my arms. As you can imagine, with 4 hours every night for months, I quickly exhausted all LinkedIn Learning audio resources, online classes, and dozens of audiobooks. I came to love that process, and after every session, I jotted down my notes before returning to sleep. Before I knew it, I had gathered close to a hundred pages of notes and insights. I then combined this knowledge with my expertise in financial risk management and portfolio allocation to start the book, writing one page daily for two years.

What inspired you to write this book?

While studying economics after the 2008 financial crisis, I became fascinated by a relatively unknown topic with exceptional potential for the Greater Good: complementary currencies. But before making a mark in the world, I first needed to understand the current financial system, so I engaged in a banking career. A couple of years later, I became the local expert on blockchain technology in one of Germany’s largest banks and realised that this concept could also benefit the world in ways we could barely imagine. While very early in its history, Bitcoin could become the missing piece that the world needed for a more resilient financial system, which could trigger a new era of prosperity and economic stability for all, especially the less fortunate member of society. Some significant developments in the industry in the early 2020s convinced me that there would never be anything more important to work on in my life than Bitcoin.

How did you decide on the book’s topic and target audience?

I wrote the book I wish I could find on the topic I believe is the most impactful for my generation. The rest was just a logical conclusion; I wrote about Bitcoin and cryptoassets because I am convinced they are a trigger for the fourth industrial revolution, the same way steam, electricity, and the Internet were triggers for the first, second, and third industrial revolutions, respectively. Regarding the audience, I am targeting the Millennial generation, typically broadly aware of cryptoassets, employed, and with an investment horizon of several decades. In addition, millennials increasingly realise the weaknesses of the current “fiat-based” system and look for a bright future for their children. This is the book I looked for and the book I believe they need to ensure their and their children’s future is brighter.

For any feedback or remaining questions, please feel free to reach out!