The History Of Money

Cowrie Shells originated as a form of currency in 13th century China and were used until the 20th century. Durable, convenient, recognizable, and divisible, these shells were accepted as payment around the globe, including Asia, Africa, Oceania, and parts of Europe and North America.

Fiat money is a form of currency offered by a government without any physical backing or intrinsic value, making the money susceptible to inflation and heavy regulatory control.

Fungibility is a property of an asset, meaning it is mutually interchangeable. Fungible assets (like dollar bills) are indistinguishable, and can thus be easily exchanged for an identical asset. Non-fungible assets are individualistic items that cannot be interchanged with other identical assets.

Gresham’s Law states that “bad money,” or money whose value is inflated, circulating in an economy will force “good money,” or money whose value is deflated, out of circulation. This is essentially due to the fact that participants in the economy will tend to favor spending “bad money” while holding onto the “good money,” effectively removing it from circulation.

The Stones of the Island of Yap are huge circular stones that were used as the currency for the Micronesian Island around 1500 BC. The people of Yap implemented the first decentralized ledger; every citizen possessed a complete list of transactions, and over 50% consensus was needed for every transaction or dispute of ownership.

The Aureus, or the Roman aureus, was a gold coin minted by the Roman government from about the first century BC to the fourth century AD. The aureus is notable for its consistently high purity (supposedly at or above 99%), and resulting staunch retention of value, especially when compared to the progressive debasement and inflation of the contemporary silver denarius.

The Stones of the Island of Yap are huge circular stones that were used as the currency for the Micronesian Island around 1500 BC. The people of Yap implemented the first decentralized ledger; every citizen possessed a complete list of transactions, and over 50% consensus was needed for every transaction or dispute of ownership.

Blockchain Terminology

A Blockchain is a decentralized ledger created and stored by a network of nodes, and secured using cryptography. This ledger consists of bundles of relevant information, usually transactions and smart contracts in the case of cryptocurrencies, that are called blocks, and the creation of each successive block requires information from the previous block, thus forming a “chain” of blocks. Further, the use of cryptography ensures that this ledger remains append-only, meaning it can only be added to, never retroactively changed.

The Block Header of a block in a blockchain is the section containing various pieces of metadata pertaining to the block. The specific information included varies depending on the protocol, but often the block header will include the date and time of the block’s creation and merkle roots for the transactions and various other sets of data within the block.

The Coinbase Transaction is the first transaction in any block in the Bitcoin blockchain and it records the payment of the mining reward and transaction fees to the miner who mined the block.

dApps, or decentralized applications, are programs that are written and deployed as smart contracts stored on the blockchain of a specific protocol, like Ethereum. As a result, the app inherits the decentralized and immutable nature of the blockchain itself, and so is not subject to the authority of any one person or group.

Gas Fees are payments made by users to compensate for the computational effort necessary to execute transactions on the Ethereum blockchain. Ethereum miners, who validate and process transactions on the network, are rewarded with the gas fee in return for their services.

Hashing is the process of applying what is called a cryptographic hash function (e.g., SHA-256 or Keccak-256) to an input. Given any input, this function outputs a string of numbers and letters, of fixed length, that is referred to as a ‘hash’. The function is deterministic, meaning the same input will always yield the exact same output, and it is called cryptographic because the output changes completely unpredictably with the input, meaning an input cannot be reverse-engineered using its output.

A Merkle Tree is a data structure that allows many individual pieces of information to be compressed, through a process of repeated combining and hashing, into a single hash called the Merkle root. In cryptocurrencies, this structure provides the ability to validate the entire transaction history contained in a block using the Merkle root and a few intermediate “branches” of the tree, as opposed to the much more laborious task of checking every single transaction (or leaf) individually.

Mining is the computationally intensive process of repeatedly guessing nonces, hashing, and checking to see if the current guess completes the next block in the chain. Mining is used as the consensus mechanism in Proof of Work networks like Bitcoin and Ethereum, meaning this is the process by which transactions and other information are verified and added to the blockchain.

A Network is a group of connected computers sharing information via a common communication protocol. This group of computers is essential for verifying and storing transactions in a blockchain.

A Node is a computer that connects to other computers through a particular protocol, creating a network. In a blockchain, nodes provide decentralization by individually confirming the validity of transactions.

A Nonce, or a “number only used once,” in a blockchain is the number that miners attach to and hash together with the rest of the block contents, checking the resulting hash to see if it meets the existing requirements of the blockchain. Specifically, miners actively seek a nonce that results in the block hash being less than or equal to the target hash.

A Protocol is a set of rules establishing how a blockchain functions and in what way users can interact. These guidelines are the basis for how a blockchain stores data, allowing various elements to be both stored and accessed.

A Smart Contract is a script of code deployed on a blockchain, making it immutable with all the security the network can provide. The contract outlines particular conditions for how users can interact with the protocol, allowing tasks to be completed without any central authority. Decentralized applications (dapps) are able to achieve a completely trustless and autonomous environment through calling functions from smart contracts.

The Target Hash, in the Bitcoin network, is the current hash value against which the hash of each prospective block must be compared. In order for a block to be successfully mined, the block’s hash must be equal to or less than the target hash, thus providing measurable difficulty in mining.

Blockchain Applications

An automated market maker (AMM) is a decentralized application that enables users to exchange digital assets by distributing fees to users who provide liquidity. Users can deposit token pairs into smart contract-run pools, which are used to provide liquidity for trades. Liquidity providers receive a percentage of fees paid for exchanging their specific pair. Yields and token prices are algorithmically determined through liquidity demand and arbitrage activities.

A decentralized autonomous organization (DAO) is a dapp fully governed by stakeholders. There is no central decisive authority, thus the community votes on the direction of the project. Since there is no individual power controlling the protocol, DAOs are difficult to be regulated or influenced by outside forces.

A Decentralized Exchange (DEX) is a marketplace that allows for peer-to-peer cryptocurrency transactions. DEX platforms are non-custodial and operate without a central authority, meaning that users are responsible for their own private keys used in transactions. DEXs rely on smart contracts to execute transactions without an intermediary.

A metaverse is an open virtual world with many of the same features as actual life. The virtual world is an online realm, where users can interact, play games, buy land, conduct business, and essentially anything else your imagination can fathom. Many metaverses are integrated with a blockchain, allowing users to use cryptocurrencies in the game and store objects on-chain.

Valuing Networks

Metcalfe’s Law says that the value of a network is proportional to the number of nodes squared. Therefore a network’s value grows quadratically as more nodes are added to the network.

Network Effects refers to the unique manner in which networks gain value and utility as they gain participants, often depending on the nature of the relationship between those participants. Many cryptocurrency networks are peer-to-peer, and as a result, they are generally theorized to obey Metcalfe’s Law.

Reed’s Law states that the utility of large group-forming networks, especially social networks, can scale exponentially with the size of the network. This law bases value on the number of subgroups that can be formed within the network, rather than the number of connections between two nodes, as found with Metcalfe’s Law.

Sarnoff’s Law states that the value of a network is proportional to the number of viewers. This law has been used to value network effect technologies and businesses, such as television broadcasting networks, with value varying linearly.

Everything Tokens

A CBDC (central bank digital currency) is a virtual form of a country’s currency that utilizes payment technologies such as blockchain. Unlike a traditional cryptocurrency, a CBDC is centralized, allowing a country’s central bank to monitor and modify economic conditions in real-time.

A Cryptocurrency is a digital currency that functions much like a physical currency, except it resides on, and derives its authenticity from a blockchain. The fundamental advantage provided by a digital currency is the greatly improved ability to transfer and store it. The challenges include ensuring authenticity of the currency and the security of the network as a whole, both generally achieved through the use of cryptography.

Governance Tokens are cryptocurrencies that represent voting power and allow token holders to shape the future of an ecosystem. Token holders can influence decisions on new features, fund distribution, governance structures, and more.

Minting is the process by which digital art or collectibles become part of a blockchain in the form of an NFT with unique metadata. Most NFTs are minted on the Ethereum blockchain.

An NFT, or non-fungible token, is a unique digital asset that acts as a certificate of authenticity for artwork and other collectibles. Because an NFT has unique attributes and is not mutually interchangeable, it is able to identify a collectible item with its one-of-a-kind signature.

An NFT Exchange is a virtual, peer-to-peer marketplace where users can trade, sell, buy, and display NFTs. There is no central NFT Exchange, but rather several competing marketplaces with differing messages, features, and levels of accessibility. The most popular marketplaces include OpenSea, Nifty Gateway, and Rarible.

A stablecoin is a price-stable cryptocurrency whose value is pegged to another stable asset, such as the U.S. dollar or gold. Stablecoins were designed to manage the volatile price swings often seen with other cryptocurrencies.

A Token in any setting, in an arcade or retail store, on a privately owned website, or on a blockchain, can be any representational unit, generally, one carrying with it the promise or guarantee of redeemable value. For cryptocurrencies, tokens are all stored on blockchains and most often exchanged between users as the denominational unit of the cryptocurrency or distributed by the protocol and redeemed by users in exchange for services rendered.

Token Burning is the act of deliberately removing a small amount of a currency from the circulating supply, thus reducing inflation and encouraging the increase in per-unit value of the supply remaining in circulation. Cryptocurrency tokens are generally burnt by being sent to an unusable address.

A cryptocurrency Wallet is a secure digital wallet that holds a user’s private keys, which prove ownership and allow a user to access their cryptocurrency holdings. The wallet does not actually store any crypto, but protects the private keys that allow users to make transactions.

Consensus Mechanisms

Proof of Authority is a consensus mechanism in which validators stake their reputations instead of coins. This model is mainly used for private blockchains and relies on a small number of pre-approved validators who are responsible for verifying blocks and transactions. This method consumes less energy and has greater processing speed because it does not require mining. PoA is used by the Axie Infinity blockchain, Ronin, as well as companies like Walmart and GE Aviation who use it to track supply chains.

Proof of History is not a consensus protocol, but rather a method to create a historical record that proves an event occurred at a specific time. Each event is encrypted and has a unique hash and count as a function of real-time, which serves as a sort of cryptographic timestamp which can be used to reliably order the events. Each node maintains its own clock, eliminating the need for validators to communicate and agree on time. Because of this, PoH networks are able to achieve greater speed and capacity than traditional blockchains.

Proof of Stake is a newer consensus mechanism used by Cardano, Ethereum 2.0, Atmos, and other cryptocurrencies. In this system, a network of “validators” contributes, or “stakes,” their own crypto for a chance to be selected to validate a new transaction and update the blockchain. The network selects one node based on the amount of cryptocurrency it has staked in the pool and the amount of time it has been there. As payment for staking tokens, users will be paid a yield (usually around 7%) based on their stake. Proof of stake uses much less energy than the proof of work system because it does not require the energy necessary for mining.

Proof of Work is the original blockchain consensus mechanism and is used by Bitcoin, Ethereum, and many other protocols. Under Proof of Work, miners in the network expend a significant amount of computational effort racing to be the first to attach the correct nonce to the next prospective block in the blockchain, thereby winning the block reward. This nonce then serves as proof that the miner performed a certain amount of work, and the block is then added to the chain, awaiting confirmation by the addition of the next few blocks that follow.

Types of Blockchains

A First Generation Blockchain is the most basic introduction of blockchain technology, facilitating a peer-to-peer distributed ledger, running a Proof of Work consensus mechanism, and relying on cryptography for security. The blockchain is built to only handle anonymous and secure transactions in the native currency. Examples of 1st gen blockchains include Bitcoin, Dogecoin, and Litecoin.

A Second Generation Blockchain is the gen 1 distributed, peer-to-peer, cryptographic ledger with the added capability of storing and executing smart contracts. Smart contracts are immutable scripts stored on the blockchain and can be created or interacted with by any user. Smart contract functionality allows users to create tokens, NFTs, and decentralized applications. Examples include Ethereum, Stellar, and the Bitcoin Omni protocol.

A Third Generation Blockchain is a new progression of a public blockchain network with increased scalability and efficiency. Gen 3 blockchains often have more advanced smart contract capabilities and consensus mechanisms. Most 3rd generation blockchains use Proof of Stake to achieve high throughput and low fees while maintaining widespread decentralization. Examples include Cardano, Solana, and Polkadot.

A Sidechain is a separate blockchain that is attached to a main blockchain through the use of a two-way peg. This allows assets to be moved freely across the two blockchains at a predetermined rate. Sidechains can lessen the burden on the main chain, allowing for faster transactions.

What do Digital Assets Fix?

The Byzantine General’s Problem is a proposed scenario in which multiple generals are working together to conquer a castle, but there is no trustworthy way to accurately communicate and achieve consensus on whether to attack or retreat. Blockchains have solved this problem with consensus algorithms, allowing nodes to collectively accept or deny changes to the network.

The Cantillon Effect refers to the dynamics involved when an economy experiences an influx of money. Specifically, because money entering an economy typically finds a localized entry point, some participants have access to the money before market prices react, while other participants only gain access to the money after the influx has caused market prices to rise.

The Tragedy of the Commons is a concept in economics and group psychology that describes a likely outcome whenever a community allows its members to regulate access to a shared resource based on individual judgment alone. The result of this arrangement is that the shared resource is depleted or abused to the short-term benefit of a few individuals, at long-term cost to the entire community.


Cryptopunks is an NFT project created in 2017 that consists of 10,000 algorithmically generated 24×24 pixel portraits. One of the first NFT projects, CryptoPunks are some of the most expensive and sought-after NFTs. Each Punk is unique, and some possess rare traits that make them more valuable. The project has amassed over $1.04 billion in lifetime sales.

A whitepaper is a detailed document that describes a particular technical solution to a problem. The paper will outline a problem, describe technological advancements, set a roadmap, and often include more details. Most blockchain projects will distribute a whitepaper at the inception of a project in order to publicize an idea and receive community feedback.

A 51% attack is when a malicious actor is able to provide over 50% of the hash power on a network. Since every action on a blockchain needs consensus approval, having a majority of the decisive power will allow a user to verify or deny any transaction indeterminate of its veracity. A 51% attack is one of the only known vulnerabilities of a blockchain, but once a network achieves scale, it is essentially impossible to gain the majority of power.

Crypto Community Vernacular

FUD: Fear, uncertainty and doubt. Intentionally evoked by those who seek to undermine public confidence in a particular project or digital asset markets at large.

GM: Good morning, common abbreviated greeting used by crypto enthusiasts.

GN: Good night.

HFSP: Have fun staying poor. A common jab sent at those who do not believe in the future success of investments in digital assets, to their possible future detriment.

NGMI: Not gonna make it . Similar to HFSP, it invokes the idea that those who do not invest in digital assets will not make it to some future level of wealth or achievement that believers will.

WAGMI: We’re all gonna make it, a rallying cry within the crypto community – suggesting that everyone who is currently investing in digital assets is destined to “make it” in the future.