1.1 Define Crypto

• Digital Money: Crypto is a form of money that exists only digitally, secured by computer codes (cryptography).
• Decentralized: It operates without any central authority like a bank or government, relying on a global network of computers.
• Scarcity: Most major cryptos (like Bitcoin) have a limited supply, acting as a hedge against inflation

Characteristics of Crypto

• Digital & Decentralized: Crypto exists only in digital form and operates on decentralized networks, meaning no single bank or government controls it.
• Cryptographic Security: Security is maintained by strong cryptography (codes), ensuring transactions are verified and tamper-proof.
• Limited Supply: Most cryptos have a capped maximum supply (e.g., Bitcoin’s 21 million), creating scarcity that may enhance its value.

How the Technology Works (Blockchain & Consensus)

• Public Ledger: Crypto operates on the Blockchain, a public ledger system that records all transactions.
• Blocks: Transactions are grouped into a Block and verified by the network.
• Chain: Once verified, the Block is permanently added to the existing chain, creating an immutable (unchangeable) record.
• Consensus Mechanisms: These systems ensure all participants agree on the integrity of the Blockchain:
  • Proof of Work (PoW): Requires miners to solve complex math puzzles using significant computational power. (Used by Bitcoin).
  • Proof of Stake (PoS): Requires users to “stake” (lock up) their crypto to validate transactions, consuming much less energy. (Used by Ethereum).

Keys and Wallets (Security)

• Public Key: Your public crypto address (safe to share to receive funds).
• Private Key: A secret key that authorizes transactions. If lost, you lose access to your funds forever.
• Hot Wallets: Connected to the internet (quick access, higher risk).
• Cold Wallets: Stored offline (highest security for long-term storage).

Types and Applications

Type	Core Function	Applications
Bitcoin (BTC)	Digital Gold: Store of value with limited supply.	Hedge against inflation.
Ethereum (ETH)	Programmable Blockchain: Introduced Smart Contracts.	Base for Decentralized Finance (DeFi) and decentralized apps (dApps).
Stablecoins	Stable Value: Pegged 1:1 to fiat currency (like USD).	Safe haven during volatility, daily transactions.
Tokens & NFTs	Digital Ownership: Represent assets, services, or unique items.	Creator Economy, Metaverse commerce, Web3 services.

Advantages vs. Disadvantages

Advantages (The Benefits)	Disadvantages (The Risks)
Decentralization: Greater financial autonomy and independence from central banks.	Volatility: Extreme price fluctuations expose investors to potential losses.
Transparency & Security: Immutable, verifiable public records (Blockchain).	Security Risks: Wallets/Exchanges can be vulnerable to hacking and scams.
Low Transaction Costs: Enables fast, cheaper cross-border payments.	Regulatory Uncertainty: Rules and frameworks are inconsistent and evolving globally.
Financial Inclusion: Accessible to anyone with an internet connection (the unbanked).	Complexity: The technology has a steep learning curve for new users.