Table of Contents

  1. Let’s Buy Some Crypto
  2. Biggest Cryptocurrencies
    1. Bitcoin
    2. Etherium
    3. Tether
  3. Where’s My Crypto Money?
  4. Public Key Encryption
  5. Who’s in Charge?
  6. Digital Wallets
  7. DeFi
  8. NFTs
  9. Risks of Crypto
    1. Fraud
    2. Bankruptcies
    3. Hacks
    4. Scams
      1. Ponzi Schemes
      2. Pig-Butchering
    5. Not FDIC Insured
  10. Regulation
  11. Bottom Line
    1. Crypto as a Bank Account
    2. Crypto as an Investment

Let’s Buy Some Crypto

1. Set up an account at a crypto exchange, e.g. Coinbase at

2. Buy cryptocurrencies such as Bitcoin, Ethereum, Tether, or any of the other 12,000 cryptocurrencies.

3. Install a wallet on your phone and get a crypto debit card

  • Now you’ve got a digital bank account.

4. If you like investing, you can trade in crypto products such as cryptocurrencies, futures, options, volatility products, leveraged tokens, NFTs.

Biggest Cryptocurrencies



  • Second largest market cap
  • Ethereum is the primary network used to build decentralized platforms for crypto borrowing, lending, trading, smart contracts, non-fungible tokens (NFTs), and decentralized apps (dApps).  The latter has led to the creation of decentralized finance (DeFi), i.e platforms that offer decentralized versions of traditional financial services.
  • Current price
  • Time series


Where’s My Crypto Money?

  • Your crypto money is like the money in your checking account but without a bank.  All your transactions are stored in a blockchain in the cloud, like Bitcoin’s blockchain. (Each cryptocurrency has its own blockchain.)
  • The Bitcoin blockchain is a digital, distributed, public ledger that contains the history of every Bitcoin transaction.
    • The blockchain consists of digital blocks linked in chronological order. Each block comprises the bitcoin transactions that occur during a given short time period. A block is added to the blockchain every ten minutes or so.
    • Anyone can download a copy of Bitcoin’s blockchain and look at its contents.
    • Transactions are linked to pseudonyms rather than to real people.
    • The blockchain is protected by public key encryption.
    • New bitcoins will be mined until 21 million are in circulation, predicted to be around 2040

Public Key Encryption

View Public Key Encryption

Who’s in Charge?

  • Crypto transactions are recorded in a blockchain, like a commercial bank keeping track of your deposits and withdrawals. 
  • So who’s in charge of the blockchain if there’s no bank?  Who, for example, keeps Bitcoin’s blockchain updated and secure?
  • Actually, there’s no single Bitcoin blockchain.  Rather, there are copies of Bitcoin’s blockchain on thousands of computers around the world, called nodes. The nodes compete to add blocks to the blockchain when Bitcoins are bought and sold. The competition, called “mining,” awards Bitcoins to the winner.
  • There are two methods for maintaining blockchains:
    • Proof of Work
    • Proof of Stake
  • Bitcoin uses Proof of Work.

Image Credit

  • A key difference between the two methods is that Proof-of-Work uses lots of electricity
  • Climate and Energy Implications of Crypto-Assets in the United States,
    • As of August 2022, published estimates of the total global electricity usage for crypto-assets are between 120 and 240 billion kilowatt-hours per year, a range that exceeds the total annual electricity usage of many individual countries, such as Argentina or Australia.
    • As of August 2022, Bitcoin is estimated to account for 60% to 77% of total global crypto-asset electricity usage.
    • The United States is estimated to host about a third of global crypto-asset operations, which currently consume about 0.9% to 1.7% of total U.S. electricity usage. This range of electricity usage is similar to all home computers or residential lighting in the United States.
    • The energy efficiency of mining equipment has been increasing, but electricity usage continues to rise. Other less energy-intensive crypto-asset ledger technologies exist, with different attributes and uses. Switching to alternative crypto-asset technologies such as Proof of Stake could dramatically reduce overall power usage to less than 1% of today’s levels.

A Bitcoin Mining Data Center in Bratsk, Russia

Image Credit

Digital Wallets

  • To communicate with the crypto world you need an app or a device and a long, super-secret master password, but one you can easily write on a piece of paper, e.g.:
    • output-tradeoff-lather-normalcy-ligature-kimono-breaker-bay-torrent-dryer-muggy-ulan-vinery-taxpayer-feeling
  • The master password is used to generate the public and private keys needed for public key encryption. It’s the key that opens your box of cryptos.
  • The big question is who stores your master password: you or a crypto exchange.
  • If an exchange, you would use what’s called a hot, custodial wallet, like an app on your computer or phone.
    • Hot means your wallet is connected to the Internet.
    • Custodial means your master password is on the exchange.
  • Alternatively, you store the master password in a cold, non-custodial wallet, like a hardware wallet. You connect to a non-custodial exchange to buy and sell crypto.


  • What is DeFi? Coinbase
    • DeFi, or “decentralized finance,” is an umbrella term for financial services on public blockchains, primarily Ethereum. With DeFi, you can do most of the things that banks support — earn interest, borrow, lend, buy insurance, trade derivatives, trade assets, and more — but it’s faster and doesn’t require paperwork or a third party. As with crypto generally, DeFi is global, peer-to-peer (meaning directly between two people, not routed through a centralized system), pseudonymous, and open to all. 
    • Users typically engage with DeFi via software called dapps (“decentralized apps”), most of which currently run on the Ethereum blockchain. Unlike a conventional bank, there is no application to fill out or account to open. 
    • Here are some of the ways people are engaging with DeFi today:
      • Lending: Lend out your crypto and earn interest and rewards every minute – not once per month.
      • Getting a loan: Obtain a loan instantly without filling in paperwork, including extremely short-term “flash loans” that traditional financial institutions don’t offer.
      • Trading: Make peer-to-peer trades of certain crypto assets — as if you could buy and sell stocks without any kind of brokerage.
      • Saving for the future: Put some of your crypto into savings account alternatives and earn better interest rates than you’d typically get from a bank. 
      • Buying derivatives: Make long or short bets on certain assets. Think of these as the crypto version of stock options or futures contracts. 
  • DeFi uses smart contracts.
    • A smart contract is a digital contract programmed into a blockchain, making it transparent, immutable, and with no need for an intermediary.
    • Steps in making a smart contract:
      • An agreement is reached between two or more parties, including the conditions in which the smart contract will be considered complete.
      • The contract is executed, i.e. the terms of the contract are programmed, encrypted, and stored in a blockchain, usually along with cryptocurrency from one of the parties.
      • When the contract is complete, the transaction is finalized on the blockchain.
    • Example:
      • Suppose you want to trade Ethereum for the stablecoin USDC.  You put your Ethereum into a dapp like Uniswap, which creates a smart contract that gets you the best exchange rate, makes the trade, and sends you your USDC.


  • A non-fungible token (NFT) is a unique digital identifier that certifies the authenticity and ownership of a linked piece of digital art, photography, music, code, text, or video. Recorded in a blockchain, it cannot be replicated, deleted, or replaced.

Risks of Crypto

  • Fraud
  • Bankruptcies
  • Hacks
  • Scams
    • Ponzi Schemes
    • Pig-Butchering
  • Not FDIC Insured


  • FTX: An Overview of the Exchange and Its Collapse Investopedia January 2023
    • FTX Exchange was a leading centralized cryptocurrency exchange, the world’s third-largest in July 2021, specializing in derivatives and leveraged products. Founded in 2018 by MIT graduate and former Jane Street Capital ETF trader Sam Bankman-Fried, FTX offered a range of trading products, including derivatives, options, volatility products, and leveraged tokens.
    • It also provided spot markets in more than 300 cryptocurrency trading pairs.
    • In early November 2022, the exchange and the companies in its orbit began a steep fall from grace.
    • FTX filed for Chapter 11 bankruptcy protection on Nov. 11, 2022, and Bankman-Fried resigned. According to its bankruptcy filing, FTX, which was once valued at $32 billion, had $8 billion of liabilities it couldn’t pay to as many as 1 million creditors.
    • The exchange’s collapse was the result of “a complete failure of corporate control,” according to John J. Ray III, the new, court-appointed chief executive of FTX. Ray, who has experience with massive business failures such as Enron, told a U.S. House of Representatives committee hearing on Dec. 13, 2022, that FTX appeared to be a case of “old-fashioned embezzlement,” and that investors and creditors are unlikely to get all their money back.
    • Bankman-Fried was indicted by the U.S. District Court in Manhattan on eight counts, including securities fraud and money laundering.
    • On Jan. 3, Bankman-Fried pleaded not guilty to all charges. His trial date was set for Oct. 2.
    • On Nov. 16, a class-action lawsuit was filed in a Florida federal court, alleging that Bankman-Fried created a fraudulent cryptocurrency scheme designed to take advantage of unsophisticated investors from across the U.S.
    • Genesis Global Capital, the Gemini crypto exchange, and BlockFi, a crypto lending platform with significant exposure to FTX, have all been affected by the FTX bankruptcy.
      • The lending unit of cryptocurrency investment bank Genesis suspended redemptions and new loans on Nov. 16. Following the news, Gemini, the crypto exchange founded by the Winklevoss twins, announced delays in withdrawals from its Earn product, in which Genesis is a lending partner.
      • BlockFi, a crypto lending platform with significant exposure to FTX, suspended withdrawals and, on Nov. 28, filed for bankruptcy.
  • Sam Bankman-Fried Faces More Criminal Charges From Federal Prosecutors WSJ Feb 2023


  • Crypto’s string of bankruptcies in 2022 Reuters January 2023
    • Genesis Global Capital, crypto lender
    • Core Scientific, crypto miner
    • Blockfi, crypto lender
    • FTX, crypto exchange
    • Celsius Network, crypto lender
    • Voyager Digital, crypto lender


  • The Largest Cryptocurrency Hacks So Far Investopedia Nov 2022
    • Ronin Network: $625 Million, March 2022
      • Attackers breached Ronin Network security by gaining access to private keys used to forge fake withdrawals. Ronin Network is a sidechain tied to blockchain game Axie Infinity.
    • Poly Network: $611 Million, August 2021
      • Attackers hacked smart contracts of the Poly Network, a cross-chain decentralized finance (DeFi) platform.
    • FTX: $600 Million, November 2022
      • On the day it filed for Chapter 11 bankruptcy, more than $600 million was stolen from its crypto wallets
    • Binance: $570 million, October 2022
      • A bug in a smart contract enabled the hack of a cross-chain bridge.
    • Coincheck: $534 Million, January 2018
      • Attackers hacked a hot wallet (a wallet connected to the Internet).
    • Mt. Gox: $473 Million, February 2014
      • The company’s hot wallet was hacked.
    • Wormhole: $325 Million, February 2022
      • A cross-chain bridge was hacked.
    • Bitmart: $196 Million, December 2021
      • Hackers stole a private key that opened two hot wallets
    • Nomad Bridge: $190 Million, August 2022
      • A hacker found a vulnerability in a smart contract.
    • Beanstalk: $182 Million, August 2022
      • A hacker took out a “flash loan” of $1 billion in crypto assets. With a supermajority stake in Beanstalk, the attacker approved the execution of code that transferred $182 million of cryptocurrency to his own wallet. The attacker then repaid the flash loan, netting an $80 million profit. All this took place in 13 seconds.
    • Wintermute: $162 Million, September 2022
      • An attacker hacked a hot wallet whose seed number that generated its private keys was only 32 bits long.


Ponzi Schemes
  • OneCoin
    •  OneCoin’s “blockchain” consisted of little more than a glorified Excel spreadsheet and a portal that displayed fake transactions.
  • BitConnect
    • BitConnect advertised it used proprietary technology to produce substantive returns to investors by tracking cryptocurrency exchange markets.
  • Crypto scam aimed at online acquaintances costs victims billions WaPo Feb 2023
    • In the last nine months of 2022 alone, victims lost more than $500 million on just one of the three blockchains targeted by scammers, according to a new analysis that digital asset intelligence company Inca Digital provided to The Washington Post
    • The scam strategy has a name — “pig-butchering,” referring to winning people’s trust with quick initial gains that scammers then use to lure bigger investments, fattening them up like pigs before the slaughter.
  • How pig-butchering works:
    • The scammer meets the mark on a dating app or another social media platform.
    • After developing a rapport and moving the conversation from a social networking app to another messaging service, the scammer mentions their success investing in crypto and offers to coach them in investing in cryptocurrency.
    • The scammer explains how to set up an account with an exchange such as Coinbase, suggesting they start with a deposit of $1,000 or $2,000.
    • The scammer then directs them to move their crypto to what looks like another investment platform, but which is actually a fake account controlled by the scammer.
    • The scammer continues to encourage the victim to invest in crypto, suggesting they withdraw funds to prove everything’s on the up-and-up.
    • When the mark has invested a sizable amount of money, the scammer steals the crypto and disappears.
    • By the time the victim realizes what has happened, there’s little they can do to get their money back, since the scammers often operate in China and Southeast Asia.

Not FDIC Insured

  • FDIC Deposit Insurance and Crypto Companies, FDIC
    • By federal law, the FDIC only insures deposits held in insured banks and savings associations
      (collectively, “insured banks”) and only in the unlikely event of an insured bank’s failure. The FDIC does not insure assets issued by non-bank entities, such as crypto companies.
    • FDIC deposit insurance does not apply to financial products such as stocks, bonds, money market mutual funds, other types of securities, commodities, or crypto assets.
    • FDIC insurance does not protect against the default, insolvency, or bankruptcy of any non-bank entity, including crypto custodians, exchanges, brokers, wallet providers, and neobanks.


  • Government Cracks Down on Crypto Industry With Flurry of Actions  NYT Feb 2023
    • Last month, the Securities and Exchange Commission levied fines and other penalties against crypto lending firms, while federal banking officials issued policy statements that appeared calculated to make it harder for crypto companies to participate in the mainstream finance system.
    • After FTX filed for bankruptcy in November, the S.E.C., the Justice Department and the Commodity Futures Trading Commission, another regulator, all brought cases against Mr. Bankman-Fried and two of his top lieutenants.
    • Last week, the S.E.C. announced a settlement with the Kraken crypto exchange that removed one of its popular investment products from the U.S. market, which could have broad ramifications for the industry. The agency also sent Paxos, a company that issues so-called stablecoins pegged to the U.S. dollar, a warning of a potential lawsuit over securities violations.
    • This week, the S.E.C. sued Terraform Labs, the company that developed the digital coins Luna and TerraUSD, which collapsed last spring and triggered a broader meltdown in cryptocurrency prices. On Friday, the agency announced that the former National Basketball Association star Paul Pierce had agreed to pay $1.4 million to settle charges that he marketed a cryptocurrency without the proper disclosures.
  • Crypto Investors Brace for More Crackdowns From Regulators WSJ Feb 2023
    • The walls are closing in around crypto. Regulators hadn’t taken action against many of the industry’s biggest players, but are now cutting off access to products and services central to the digital-currency business.
    • The SEC in January sued crypto lender Genesis Global Capital LLC and its partner Gemini Trust Company LLC, alleging that their program allowing users to earn interest on their crypto tokens violated securities laws. Gemini, which operates one of the largest U.S. crypto exchanges, has said it plans to fight the lawsuit. 
  • Other Recent Articles
    • A Trader Says Code Allowed Him to Withdraw Millions From a Crypto Exchange. Prosecutors Say He Crossed a Line  WSJ February 2023
    • Stablecoins Attract Scrutiny in SEC’s Drive to Control Crypto WSJ February 2023
    • The S.E.C. Signals a Crackdown on Another Crypto Practice  NYT February 2023
    • SEC Questions Binance.US’s Deal for Assets of Bankrupt Crypto Lender Voyager WSJ Feb 2023
    • U.S. Regulators Warn Banks of Heightened Liquidity Risks in Crypto-Related Deposits WSJ Feb 2023

Bottom Line

Crypto as a Bank Account

  • Money serves three functions in an economy:
    • medium of exchange
    • store of value
    • unit of account
  • So for a bank account you need a cryptocurrency whose price is stable, which rules out Bitcoin and other volatile digital currencies. You need to keep your funds in a stablecoin like Tether, USD Coin, or Binance USD, whose prices are pegged to the US dollar.
  • However, your funds are not insured by the FDIC, which is a concern. In May 2022 the stablecoin TerraUSD crashed and is now sells for :
  • You would also need to convert between cryptocurrency and dollars to pay bills, buy things, and make deposits. It would be like having a bank account in euros.
  • Joint Statement on Crypto-Asset Risks to Banking Organizations Federal Reserve January 2023

Crypto as an Investment

  • Stocks have a 90 year track record of growth.
  • Cryptos have been around less than 15 years.
    • A Deep Dive Into Crypto Valuation S&P Global, November 2022
      • Highlights
        • Cryptocurrencies (excluding selected stablecoins) exhibit high volatility relative to traditional financial assets (such as equities or bonds), with sharp drops in value but also high returns.
        • Cryptocurrencies (excluding selected stablecoins) show a notable historical return correlation among themselves, although they started at different times and independent of each other.
        • Cryptocurrencies have generally shown low return correlation with traditional financial assets.
        • Bitcoin does not store value as gold does, but this is an evolving ecosystem, and the future may prove differently.
        • Stablecoins are cryptocurrencies with a market value tied to an external indicator such as a fiat currency, but there are significant differences between their performance and design. Some may not live up to their promise (note the recent collapse of TerraUSD).
    • Crypto peaked a year ago — investors have lost more than $2 trillion since CNBC November 2022