Understanding Crypto

Understanding Crypto is an international sensation! People around the world are tuning in to learn about the new and exciting world of crypto and web3. In this episode, James Burtt and Paul Abercrombie explain proof of work and proof of stake, the differences between them, and what they mean for your business.

Consensus Mechanisms

“Proof of work and proof of stake are both consensus mechanisms,” Paul tells listeners, “so effectively various parts of the network agreeing to something and then validating or verifying that something has actually happened and then compensating the person that's done all of that work for doing the work.” Proof of work, what Bitcoin and most cryptocurrencies run on, is the original consensus mechanism and arguably the more secure. Distributed nodes around the world make up the network, so to hack Bitcoin, you’d need to control 51% of the computing power of the network. This is effectively impossible. [Listen from 3:13]

Proof of Work

Proof of work is mining. Nodes compete against each other to complete calculations on the blockchain to mint that block in exchange for block rewards, which is given in the blockchain native currency. Consensus comes in when nodes submit their calculations to the rest of the network and the network agrees. Every node stores a copy of the distributed ledger (blockchain), so once the transaction is verified by the network, it is recorded on the blockchain. This is immutable proof that the transaction happened. “When a transaction happens on the blockchain it's been encrypted, …and there's calculations going on to make sure that that is actually taking place or that that transaction is secure and it's being encrypted in the way that it should do, which is the crypto part of cryptocurrency,” Paul says. It has to be encrypted to keep the digital trust; and the other nodes need to witness and verify that it actually happened. [Listen from 4:21]

Lottery and Limitations

“Mining Bitcoin is a bit like a lottery ticket,” Paul remarks. A new block is minted on the blockchain every 10 minutes, so the more mining power you have, the better your chances of winning the opportunity to mint blocks and earn block rewards. It used to be fairly easy to mine Bitcoin using only your PC and Bitcoin software. Nowadays, the barrier to entry is higher. “Now you have these wholesale aircraft hangars that are full of GPU mining machines mainly mining Bitcoin,” Paul says. The main arguments against mining and proof of work are security and that it’s not friendly to the environment. The need for speed means there is some tradeoff with security, but overall proof of work is secure because it is decentralised. However, the argument that mining is environmentally unfriendly has merit, since it uses lots of electricity which contributes to carbon emissions. In the Far East, electricity is cheap but is generated using coal; many mining operations have moved away from these areas to places like Texas where electricity is still cheap but generated in a cleaner fashion. “It still requires an immense amount of power for a large-scale mining operation,” Paul points out. [Listen from 11:02]

Proof of Stake

Proof of stake is an alternative consensus mechanism that combats the limitations of proof of work. It requires distributed nodes and software similar to proof of work, but it uses a validator instead of a mining machine. A validator is like a referee, Paul says; he or she checks to verify that a transaction happened. There’s a higher barrier to entry in proof of stake, as the network needs less nodes so they want people who are trustworthy. In order to get your validator licence, you need to stake a significant amount of the blockchain’s native currency. Not many people can afford to do this. You can use any device as a data validator: all you need to do is download the software and link it to your wallet with the required amount of crypto. You’ll be paid interest or yield on your part of the staking pool. If you contravene the terms - for example, if you don’t provide the computer power you said you would - your stake can be slashed or taken away from you. [Listen from 16:39]

Final Thoughts

Bitcoin became successful because it was the first digital currency to use a consensus mechanism and reward people for providing their computing power. Some people became millionaires by mining Bitcoin. The environmental concerns however, led to newer cryptos adopting a proof of stake consensus mechanism. This is not without its own limitations: you can lose your stake if you don’t act as agreed. Also, the argument can be made that proof of stake is less secure even though it is more environmentally friendly. James and Paul’s mining farm will be doing both proof of work and proof of stake. [Listen from 23:50]

Key Takeaways

• Proof of work and proof of stake are both consensus mechanisms; you are rewarded for providing your computing power.
• Proof of work is costly to enter now and consumes a lot of electricity, but it’s what made Bitcoin successful.
• Proof of stake is friendlier to the environment, but requires a significant investment. You can lose your stake if you contravene terms.

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram 

Why would anyone pay good money for a picture of an ape or a lion? In this episode of Understanding Crypto, James Burtt and Paul Abercrombie make sense of generative art. They break down NFTs, why there’s so much hype around them, and how they can be a viable business decision.

Two Main Markets

Two types of people buy NFTs. The smaller “real-world” market are people who belong to a community such as the one James and Paul lead. These community members buy NFTs for the utility attached to them. The wider market consists of people who buy NFTs because of generative art. “There’s a whole raft of people that are out there that will invest because it’s a new generative art project,” Paul says. They take a speculative approach to buying NFTs: they buy projects on OpenSea that interest them, betting that the value would increase and they would profit on resale. Paul and James acknowledge that they would be missing out on a whole market if they ignore this large segment of the NFT market when they launch their own NFT project. [Listen from 2:25]

Layers, Traits and Rarity

What gives generative art NFTs its value? James points out that many of these projects are making huge sums of money. “There's nothing backing it or underpinning the value other than the piece of art,” he says. Rarity is built into generative art projects through layers and traits. “So you can't argue that to some extent if the project’s right and the hype is created around the project and you know it's a notable project in the right way, that the rarity is going to add to the value of certain NFTs,” Paul comments. He explains how layers and traits work together in generative art. A graphic designer would draw the character - most commonly an animal - as a layer, and the background as a separate layer. Traits such as skin color, clothes and accessories would be built on top and randomly overlaid onto the character and background.  The smart contract generates the art based on a rarity table. “Now based on a rarity table, which is a calculation which is how many traits you have and how many NFTs or pieces of art you want at the other end, that will determine how many traits you need to do. And the more traits that you create, the more rare that each individual NFT becomes,” Paul explains. Each NFT has metadata attached to it, and prospective buyers can look up the rarity score on OpenSea or Rarible.com. The rarity is trackable and tradeable as it’s recorded on the blockchain. “There's a whole group of people that are just trading NFTs based on that information, and then using it like old school collector cards,” Paul remarks. [Listen from 5:47]

Real-World Use Case

While Paul and James are building an NFT project for a specific audience with a particular set of utility, their strategy is to make the art interesting and beautiful to attract the “digital art punters”. When people buy and display the NFTs as their profile pictures, “that just adds to the community feel and the community vibe; it gives everybody a sense of ownership,” Paul says. It all adds up to more value for everyone, he points out. He describes the process of creating their NFT project, from graphic design to minting. James remarks, “You've got a real-world use case for massive value and utility within the NFT.” They are creating a mine farm, and the NFT is an easy way to give their community a stake in the project. “So I've got the community of people that we want to lead into the world of crypto,” Paul says, “we've got a basement full of space - that because we know about crypto mining and proof of work, proof of stake and can see the value that that generates - the two worlds can get put together.” Buying an NFT allows anyone to “be part of the community about learning all things crypto, and benefit from the crypto assets that are generated by the mining farm or the crypto farm that is set up with the proceeds of the NFT sale,” James adds.  [Listen from 14:51]

Built to Last

“What the NFT does,” Paul says, “it just unifies a community… [Community members] all have a common interest and common cause united around that particular NFT.” People would want to stay and grow with the community as they’re being rewarded in crypto assets generated by the mining farm. “That underpins the value of the community and provides longevity of the community,” he continues. “There's a real business with 200,000 square foot of real estate with 53 tenants with close to just high six-figure income turnover a year in terms of rental income from the property company that's here. So that crypto farm is not going to go anywhere - it's not disappearing, it’s here for the next 25 years if the equipment lasts - so that community is going to be underpinned by that, which means the community is going to survive and stay there and thrive.” [Listen from 26:51]

Part 2

Paul and James debate how rarity is calculated in generative art projects and promise listeners that they’ll come back and explain in a follow-up episode. [Listen from 30:16]

Key Takeaways

• Many people buy NFTs just for the generative art.
• You can trade NFTs just like you would baseball cards.
• Could buying an NFT that’s cool art that has utility attached as well, be a win-win for you? 

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram 

Welcome to episode 12 of Understanding Crypto, the podcast where James Burtt and Paul Abercrombie demystify the world of Web 3.0 and cryptocurrency, as well as what it means for you and your business. In this episode James and Paul explain creator coins and social tokens, including the basics, and how to properly utilize them within your communities. 

Rare Use Case

Social Tokens and DAOs are the hot topics being discussed in the crypto realm at the moment, however proper use case adoption, and successful use cases have yet to be seen. A survey was done in a room of 40 and of those 40 people only two said they use DAOs. The rarity of DAO usage can be attributed to two factors: it's used by community administrators, or a layperson heavily involved in the world of Web 3.0. [Listen from 3:03]

Creator Coins and DAOs

A creator coin is an individual, group business or entity issuing their own cryptocurrency. They are designed to be specifically used between creator and community, to be used for payment of services between the creator and their community, or to unlock access or benefits. They act almost like a membership card, and a community is built from holders of the same creator coins. The DAO aspect comes into play when creators begin to merge all the technologies together. "The creation of a social token with the creator, or the creator coin giving access to voting rights within the DAO that makes certain decisions within the community," Paul adds. "When you start to overlay all of this stuff, you really start to supercharge an offering and a stack of tools that you can use if you're a creator to really help you drive your community forward," he remarks. [Listen from 5:22]

You shouldn't launch a social token or a coin to create a community. Rather, you should build your community and fanbase so that when you create your coin or token, you further ignite your community. It drives engagement and gives people a sense of belonging and identity. People crave tribes, and as that tribe grows, so does the value in your community. Creator coins however, cannot be used as investment mechanisms. The value of a coin depends on the popularity of a community so there is high risk, and constant fluctuation. Creator coins can increase in value if the community is buoyant, but they are not financial instruments. [Listen from 8:55]

Incentivize and Strategize

Getting people within your community to create something for the community is a good way of incentivizing the community. Creators can do this by positioning coin rewards and what this will inevitably do, is drive the value of the community, thus driving the value of the coin. It's a cyclical reward as these individuals give value to the community, whilst also getting paid for the value they bring, and ultimately driving up the value of the entire initiative. Paul and James' coins aren't released to them all at once, but rather they are vested over time, and what that does is that it keeps them in the game for a long time. It keeps them incentivized to grow their community. "You want to incentivize people to stay in the community… give them a utility map of usage for that coin that allows them to stay in the community because the more people that hold the coin the stronger the coin is going to become," James says. [Listen from 12:02]

Minting your own tokens serves no purpose if there is no liquidity pool, and no ecosystem to make it work. It's a full-time job, and the buyers have less protection. You end up going down the road of having a cryptocurrency, and you're going to be treated differently by the regulators. Also, if you take full control and do it on the open exchange and not via a third party, it's going to be very hard to drive traffic because you have no community around your coins. "If you've already got a community it's a good way to monetize and to galvanize the community into all walking forward for a particular benefit or purpose, but you do so with the responsibility of creating an economy that other people have brought into," James says. [Listen from 18:14]

Community and Confidence

You have to have a purpose for doing creator coins. What are you trying to do, what utility are you trying to drive, and what value are you trying to bring to people? Paul and James stress these points, while expressing their own excitement at what they can do with their own creator coin. They've been building their community for more than 18 months. One of the downsides of creator coins however, is that a creator can simply stop what they're doing and the value of the coin will plummet because people will sell their coins. In this case, there has to be confidence between creator and community. [Listen from 23:07]

Key Takeaways

• The value of a coin depends on the popularity of a community.
• You should build your community and build your fanbase so that when you create your coin or token, you further ignite your community.
• You have to have a purpose for doing creator coins.

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram 

In this episode of Understanding Crypto you will learn about rug pull. A rug pull is a type of crypto scam that occurs when a team pumps their project’s token before disappearing with the funds, leaving their investors with a valueless asset. You will hear how to spot a rug pull in cryptocurrency and why it happens. You will also hear how to avoid a rug pull. The people behind these rug pulls are untraceable so it’s really vital to learn how to avoid rug pulls. There are a few things that you can do to spot a rug pull or a red flag and you will hear those in this episode.

In the show you will learn: 

• What is a rug pull
• How to spot a rug pull in crypto
• Why rug pulls happen
• How to avoid a rug pull

Understanding Crypto is the podcast created to help you work out what is happening in the world of Web 3.0 and the impact this digital revolution could make to your brand, business and life.

In this show your hosts Paul Abercrombie and James Burtt will be discussing, distilling and massively simplifying subjects such as how blockchain works, what is metaverse real estate all about, what are you actually buying when you purchase an NFT, how do DOA's work, which direction is Bitcoin heading in, how to use a digital wallet, what steps you need to take to onramp from fiat currency into digital assets and lots, lots more.

Plus, via specific episodes of the podcast, Paul and James will actually pull back the iron curtain to share what on-chain projects they are involved with and document - in real time - the processes they grow and go through in order to make Web 3.0 as valuable for real-world realtime businesses and brands as possible.

Episode 10 - Our Journey 

Welcome to episode 10 of Understanding Crypto, the podcast where James Burtt and Paul Abercrombie demystify the world of Web 3.0 and cryptocurrency, as well as what it means for you and your business. In this episode James and Paul explain where they are at in their crypto journey and the lessons they learned along the way. You will learn what community really means in Web 3.0, as well as how your mission informs what Web 3.0 tools you need. 

An Accidental Discovery

Paul tells listeners, “We started this podcast because we ended up accidentally going into the world of Web 3.0…” They have a large community on Clubhouse - “Europe’s biggest community of entrepreneurs on any social audio platform, and we've also got access to some of the best guests who could add value to that community,” Paul remarks. They kept asking their audience what they wanted to learn more about, what would be helpful in their businesses. The overwhelming response was that the community wanted more access to the content, so they could replay at their convenience. Crypto and Web 3.0 were also hot topics in the community. Soon it became clearer to James and Paul that crypto was “the new revolution” and that they could use Web 3.0 tools to deliver what their audience needed. “As a business owner,” James says, “you have got to …at least educate yourself on what's coming down the line… We've now got a very well thought out and planned out roadmap of what we're going to do next.” [Listen from 2:12]

Community in Web 3.0

Community in Web 3.0 is all about ownership. It’s about breaking down the big data silos created in Web 2.0 that make us the product, Paul comments. Content creators and business owners in Web 2.0 build ‘communities’ of their buyers - really just stores of buyer data - so that they can sell to them again and again. “To crack the nut of Web 3.0 and blockchain, the biggest learning curve I had was really, truly grasping the concept of what community truly means in the crypto world… and what it basically means is people having a shared interest and common or shared ownership,” Paul tells listeners. NFTs, DAOs, DeFi and other tools don’t make sense until you pair them with community. They all fit together holistically to make up the Web 3.0 world. [Listen from 6:00]

Unlearning and Relearning

This podcast - just like business and life - is an odyssey in unlearning and relearning, James and Paul agree. As they go further in their crypto journey, they have revised some previously held concepts as they see more pieces of the puzzle. Paul describes unlearning and relearning like this: “You can sometimes then go back over and look at the same information with fresh eyes, because you've got a deeper understanding of how a particular part of it works, and like you say, you have to unlearn and relearn simultaneously. And the unlearning is just as important as the new learning…” [Listen from 12:12]

One important lesson Paul and James learned was that not all businesses should be a blockchain. While blockchain can potentially innovate and improve many industries, it won’t change every industry. The key thing is your mission, Paul advises. He comments, “Instead of building a business to be in Web 3.0, let's look at the actual mission of what we want to try and do, and how can the tools that we have available help us achieve that.” He describes how their business uses blockchain and Web 3.0 tools to deliver their mission. “We're in normal business using blockchain technology to advance and evolve and disrupt the way that things would usually be done,” he points out. Bridging these two worlds together future-proofs your business. [Listen from 14:03]

Community Ownership

Many community members view their emotional investment into the community as ownership. The persons who created the community also believe that they own it because of the time, effort and financial investment they put in. Both views are valid, and both members and founders believe that they should have a say in how the community grows and what direction it takes. Tokenizing part of a business can give community members a voice. Paul says, “People buy a token; a token equals a vote on the decisions, and that gives them an element of ownership… and it allows people to benefit from the upside should the value of the community grow.” They reiterate that your mission and goals should determine what Web 3.0 tools you use, and how you use them. What’s good for one business or use case may not necessarily suit another. For example, not every business who mints NFTs needs to add rarity to their tokens, as rarity does not help them deliver their mission. For some businesses, NFTs and governance tokens are used to raise capital to fund their roadmap, while giving community members ownership in the business just as if they were buying stocks and shares. [Listen from 20:42]

James and Paul minted their own tokens to fund their roadmap “of delivering the world's best tangible, actual usable content for small business owners.” “We want to transform and revolutionize the way business education is delivered,” James adds. They are strategically embracing appropriate Web 3.0 tools to make it happen. What’s your Why, they ask listeners. [Listen from 30:38]

Key Takeaways

• Not all businesses should be blockchain.
• Community in Web 3.0 is about shared ownership.
• Your vision and mission will determine if and what Web 3.0 tools you need.

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram 

James Burtt and Paul Abercrombie are peeling back the curtain on DAOs in this week’s episode of Understanding Crypto. They explain what DAOs are, how they work, as well as the pros and cons. You can also learn how to add a DAO to your business if it’s right for you.

What’s a DAO and how does it work?

A DAO - Decentralised Autonomous Organisation - is “an organisation represented by rules encoded as a computer program that is transparent, controlled by the organisation members and not influenced by a central government,” says Wikipedia. It’s a similar idea to a traditional co-op or social club, Paul explains, where community members get together to achieve a shared goal. There’s no hierarchy or centralised leadership in a DAO, as it’s a member-owned society designed to be a safe space for people to collaborate while remaining anonymous. It’s also a safe space for people to commit funds to, as the business entity exists within a smart contract on the blockchain. Members are given rights to the business through governance tokens or NFTs. Usually, the more tokens you own, the more voting rights you have. [Listen from 00:46]

A DAO can have its own crypto wallet and address, which makes it very much like a bank account. This forgoes the lengthy bureaucratic process of opening a traditional bank account, Paul tells listeners. “The DAO can be responsible for a wallet address which is the treasury, and whatever the collective cause is, people can contribute their funds. So whether that's buying the tokens and the money from the sale of those tokens or the cryptocurrency from the sale of those tokens that's generated, goes into the shared treasury or the shared wallet and then the community can vote on how that money is spent or used,” he comments. As such, a DAO facilitates a community’s ability to fund their project quickly and effectively. Recently people created a DAO to purchase a copy of the US constitution. They were able to raise $20 million in a fortnight. Another famous example of a DAO is Friends with Benefits. People are coming together from all over the world, pooling their assets to deliver on a greater promise, through DAOs. [Listen from 7:28]

Tearing down barriers

Many crypto projects and businesses have some DAO elements built into them. For example, a group of software engineers from around the world may work together, but would be unable to open a bank account to receive payment because they cannot prove beneficial ownership. A DAO tears down these cross border payment barriers, as payment can be made in crypto to the DAO wallet. [Listen from 12:32]

A normal business hierarchy is like a pyramid, where the leader makes decisions that filter down through the business. A DAO has a flat structure by contrast. “You have a flat level of hierarchy where no one person is in charge; the collective vote is in charge, the collective vote of the community decides on the direction,” Paul remarks. “When a vote goes over a certain level it triggers the decision [based on the rules and structure put into the smart contract].” [Listen from 13:57]

Pros and cons of DAOs

“Not every business can operate as a DAO,” Paul advises. In a traditional business the founders would expect to be financially rewarded for building the business. There’s no clear way to do this in a DAO as it by nature is decentralised and no one person has sole governance. The money raised from token sales is locked in a liquidity pool and the community votes on how it can be used. If the smart contract is not set up in the right way, you can find that you have little control over the organisation’s direction, even though you founded the DAO and put in hours of work to make it successful. [Listen from 15:40]

On the other hand, Paul points out, charities and not for profit organisations can adopt the DAO structure with few issues. In fact, using a DAO would help them circumvent lots of bureaucracy and mobilise quickly. “Blockchain has removed a lot of friction and the concept of the DAO and the structure of how they work, I think will be a big one for 2022, and you'll see more of these popping up,” Paul predicts. [Listen from 19:08]

Paul mentions several key points to consider about DAOs including:

• A hybrid structure - some DAO elements and some elements of a traditional business - can marry the best of decentralisation and hierarchy.
•  Nobody really knows how DAOs sit legally.
• “The concept of having a business built on the blockchain and having a voting structure that’s set out in a smart contract that can't be changed because it's in the code of the contract, in certain use cases is quite powerful.”
• DAOs, while awesome in theory, will only work in practice if the smart contract that controls it is efficient, and operates with clear parameters.
• Layer two blockchains such as Polygon and Aragon make DAO creation cheap and easy.
• Legal and logistical hurdles to DAOs will be progressively overcome as Web 3.0 becomes mainstream.

[Listen from 20:58]

Key Takeaways

• A DAO is a community-owned safe space for members to collaborate on a shared goal.
• A hybrid structure - part DAO, part traditional business - can be a viable option for modern for-profit businesses.
• DAOs will become more mainstream as legal and logistical kinks are ironed out.

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram 

Episode 4: Layers of Blockchain 

Wikipedia: Decentralised Autonomous Organisation

Friends With Benefits DAO

Understanding Crypto is now an international iTunes top-rated Investing podcast! 

James Burtt and Paul Abercrombie explore and define mining in this week’s show. They break down the process, the challenges, and the new trends. You will understand why mining Bitcoin is so difficult as well as the pros and cons of proof of stake.

Defining Mining

Mining is the process used by Bitcoin and several other cryptocurrencies to generate new coins and to verify new transactions, James explains. “It involves vast, decentralized networks of computers around the world that verify and secure blockchains – the virtual ledgers that document cryptocurrency transactions. In return for contributing their processing power, computers on the network are rewarded with new coins,” he cites. “It’s a virtuous circle: the miners maintain and secure the blockchain, the blockchain awards the coins, the coins provide an incentive for the miners to maintain the blockchain.” He briefly lists the three main ways of obtaining Bitcoin and other cryptocurrencies, and describes how to virtually mine Bitcoin. [Listen from 1:50]

How Do You Mine?

Previously, the necessities for mining were basic; practically anyone with a decent home computer could participate. However, you now need specialized computers to successfully mine Bitcoin, as the blockchain has grown to the point where the computational power required to maintain it has drastically increased. “Bitcoin was designed to work as a decentralized currency… that was not connected to a major financial institution, Federal reserve, or bank in any way,” Paul shares. In order for it to work, computer power was necessary; if a sole server was set up to operate Bitcoin, it would betray the ethos of its design. Bitcoin’s code was written and downloaded on computers, which worked in the background to form the networks that verified the transactions. People would volunteer their computer power onto the Bitcoin network, and their computers would race to solve the complex calculation which made up the block; the winner would be rewarded with Bitcoin in return. [Listen from 2:31]

The Downsides

The cost to compete with specialized companies to mine Bitcoin is almost impossible to match, Paul claims. Most miners are now using GPU machines, which are plugged into the internet connection and operate on other cryptocurrency networks or blockchains. These machines receive the rewards in the native currency of that blockchain. The smart thing to do would be to swap that currency out for alternative crypto assets like Bitcoin or Ethereum, he adds. Mining Bitcoin also uses huge amounts of electricity, which is something to be considered. Large data centers used as mining centers are popping up, consuming huge volumes of electricity and other resources. Due to this concern, there has been a new trend called proof of stake, where you effectively lock your crypto assets into the network and then that provides the consensus mechanism. This new method is not without its pros and cons, which Paul describes. [Listen from 7:00]

Proof of Stake

Ethereum has launched a completely new blockchain, according to Paul. The original Ethereum is Ethereum Classic, and Ethereum 2 works on proof of stake. This has been talked about since 2016, which goes to show how long this shift to proof of stake will take, if it’s taken roughly 6 years for a currency as large as Etheruem to switch. Paul assures miners that while there is a concern that proof of stake will kill mining Ethereum, other currencies still exist. Additionally, the development of decentralized file storage allows your files to live on the blockchain. This frees you from being beholden to Big Tech, he affirms, and reduces costs.  [Listen from 12:30]

Key Takeaways

• Mining is a virtuous cycle of being rewarded for the security and maintenance of a blockchain, which acts as an incentive to secure and maintain.
• The development of decentralized file storage reduces costs and allows your files to live on the blockchain.

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram

What is mining?

Understanding Crypto is now an international iTunes top-rated Investing podcast! 

James Burtt and Paul Abercrombie are giving listeners a simple primer on crypto coins and tokens in this week’s show. They describe Bitcoin, altcoins and stablecoins and explain how exchanges work. You will understand why the crypto market is volatile and learn tips on how to protect your crypto investment. 

Altcoins

You can listen to episode x for a detailed exploration of Bitcoin. Altcoin means alternative to Bitcoin and there are about 4000 altcoins in existence. “The reason they're called cryptocurrencies is because there's cryptography which encrypts them and makes them work in the background,” Paul explains. However, with the exception of Bitcoin, altcoins are not truly currency. Instead, they represent innovative Blockchain projects. “Each one of them … was originally a fundraising exercise or way of people sharing governance or sharing rewards or sharing an interest in a new piece of innovation or technology,” Paul continues. “There are many projects … and the way that they would represent themselves is with a cryptocurrency that they create themselves…” Some altcoins such as Ethereum have been very successful, and many others are not. You can go to an exchange and trade altcoins, similar to the stock market. Similarly, investing in altcoins comes with the same caveats as investing in the stock market. [Listen from 2:31]

Exchanges and Liquidity Pools

There must be demand and supply for a market to exist. Exchanges make trading possible, simple and immediate by holding liquidity pools. When you want to buy or sell your crypto, an exchange provides instant settlement since the funds already exist in the liquidity pool. Altcoin prices fluctuate quickly because of this. If you create an altcoin and want to list it on an exchange, you must decide which crypto to pair it with. Investors would then stake their assets into the liquidity pool to back your altcoin so it holds its value. Paul explains the mathematical process which dictates how crypto prices increase and decrease based on trading activity. “In many cases there's not a huge market cap on some of these coins so it doesn't take a lot to move that coin in either direction, which is why you see lots of volatility” he remarks. He dispels the common misconception that volatility is because the crypto market is unstable. “It's volatile because of mathematics, because of the way the liquidity pools work,” he emphasizes. If a major holder decides to sell their coins it would affect the price in the same way a major shareholder selling their shares in a company would affect the share price. [Listen from 6:15]

Stablecoins

Stablecoins are an iteration of altcoins cleverly designed to overcome the issue of volatility. Paul gives an example of how volatility affects the value of assets. If you sold your house as a token, that transaction must occur in the Web 3.0 Blockchain world with a cryptocurrency, which risks you being caught out by the volatility if you do it at the wrong time. This may cause your assets to massively depreciate because of a conversion. “A stable coin is designed to be tethered against an actual physical asset,” he adds. USDC, or US Digital Currency, is tethered against the US dollar; this means that one USDC roughly equals $1 US. Its volatility is also decreased because the US dollar fluctuates less in currency value. “[USDC] can be [tethered to] other assets as well.” Paul describes how stablecoins are linked to a much larger pool of assets, and how they are used to store value for various purposes. [Listen from 11:28]

Function of an Altcoin

Paul breaks down the three ways altcoins are used. Mining based altcoins are cryptocurrencies that are mined as a reward for donating your computing power as a service; security tokens are linked to a particular business and are the equivalent of stocks and shares; and utility tokens grant their holder utility, in the form of access to information, events, or a network. All 4000 altcoins typically serve one or two of these functions. “Ethereum is a mining based token; people can earn Ethereum by putting their technology to work on the Ethereum network, but just because you have Ethereum doesn’t mean you have any security or ownership of the Ethereum project,” Paul advises. James and Paul explore why the NFT market has gotten as popular as it is.  [Listen from 20:47]

Creating Your Own Currency

Minting an NFT is easier than creating your own currency, and then underpinning and holding that value. The concept of tokenomics is an integral part of creating your own currency, and it involves investing a certain amount of coins over time so they are released over time, which stops the value from crashing. “Effectively, you have to create a structure, and all the good coins have done this,” Paul says. “They’ve created a structure so that nobody can do a ‘rug pull’ and effectively take all the value back out of the liquidity pool before disappearing into the sunset.” [Listen from 25:45]

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram 

Paul Abercrombie and James Burtt can’t decide if scammers stealing your crypto is more painful than losing it yourself. They’ve had both happen - within days of each other! - and now are sharing the £500 lessons they learned so you don’t make the same mistakes. This episode of Understanding Crypto will teach you how to recognise and avoid common scams and how to protect your digital assets.

How to Get Scammed

Paul and James recently minted their own social token on the Polygon network and are in the process of building out corresponding assets including a Discord server. They chose Polygon, an Ethereum side chain, for its faster processing and lower gas fees. Paul says he needed to make some adjustments to the project on Polygon, and this usually requires you to connect your wallet. Since he was using a new computer, the Polygon wallet URL wasn’t saved in his browsing history so he searched Google to find the web address. “Without looking and paying too much due diligence,” he relates ruefully, “ I just clicked on the first link that came up on Google and the page popped up and it looked exactly like Polygon.” He connected his wallet and saw an error message which he dismissed as inconsequential. I’ll just check it again tomorrow, he told himself. The next morning he logged in and realised that all the ETH in his wallet was gone! £150 worth! 

Further investigation revealed that his crypto was moved to another wallet. He also realised where he went wrong: the ‘Polygon’ site he connected his wallet to was fake. “The actual web address for Polygon’s wallet is wallet.polygon.technology. …The one that I had clicked on - which turns out was actually a Google ad that had popped up at the top of Google - …was wallet but instead of two Ls it was W-A-I-L-E-T…” [Listen from 2:29]

How to Scam Yourself

Realising that they had been scammed sent Paul into risk management mode. He kept thinking about the million social tokens sitting in the wallet and how to protect them. The best recourse, he thought, was to move them to a new, clean wallet. They also had about £350 worth of wrapped Ethereum on the Polygon network that he wanted to secure. He created a new account in MetaMask and sent the crypto there. Then, to protect himself - or so he thought - he deleted the original MetaMask Chrome extension and reinstalled it. He entered his seed phrase to get into the original account, but the new account had disappeared! Instead of creating a sub-account, he had created an entirely new main account, which needs its own seed phrase to access. Since he didn’t have that seed phrase, he can never access that new account and neither can anyone else. “So basically I then scammed myself by sending the remaining £350 of value that we had sitting there … from the account - where it was probably perfectly safe - to a new account that I've created, which we haven't got the passcode for,” Paul tells listeners wryly. [Listen from 9:52]

£500 Lessons

Paul and James know that some of you may enter into the world of crypto because of this podcast, so they feel duty-bound to educate you about the pitfalls and scams you can fall prey to if you’re not careful (and even if you are!). Here’s what they want you to learn from their painful experience: 

1. There are numerous scam sites that look exactly like the real thing, so pay close attention to the URL you’re visiting. 
2. Don’t click on an ad if you do a Google search for a crypto wallet. Use the verified search results instead.
3. Bookmark the correct URL address of the crypto sites you transact with.
4. Although you can look up where your stolen crypto went on the blockchain, all you would see is the thief’s wallet address, not their name or any other information that can identify them. Furthermore, scammers ritually swap wallet addresses within days, so it’s virtually impossible to track them down.
5. There’s no central authority you can report your lost or stolen crypto to. Once it’s gone, it’s gone for good.
6. Once you create a new main account on your wallet, make sure to safely store the seed phrase so you can always access your cryptocurrency.
7. Anyone can get scammed!
8. Smarter, more secure wallet solutions are sure to come out in the future. 

[Listen from 13:25]

Decentralisation has its Downsides

This podcast has extolled the benefits of decentralisation for good reason. Like everything else, however, decentralisation has its downsides. That there’s no helpline to call when you have crypto issues is a big one, Paul and James agree. Throughout history there have been cycles where centralisation and decentralisation have been favoured, but the ideal scenario is most likely a balance of the two. Paul says he is all for decentralisation, but wallet providers need to be better onboarding to help their clients protect their digital assets. [Listen from 20:37]

Key Takeaways

• Be on the lookout for scams. 
• Store your access keys securely.

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram 

Episode 3 - What is a Digital Wallet

In this episode of Understanding Crypto, James Burtt and Paul Abercrombie talk about how cryptocurrency is fueling the decentralised economy in the new world. Crypto is an attractive alternative to traditional investments because it is decentralised. James and Paul discuss one way crypto can protect your wealth; they also share real-life examples of what is happening all over the world as cryptocurrency continues to expand and become more accessible to people from all walks of life.

How Did We Get Here?

“What a world we live in!” Paul exclaims. “People are having their boats taken off of them, their planes stopped on airfields, their assets frozen and their houses taken off of them.” These government sanctions could be for the right reasons, but may equally be for wrong ones, both hosts point out. The current issue of Russian oligarchs’ assets being frozen, seems to suggest that democratic governments are resorting to ‘backdoor’ tactics to fight dictatorial leaders. The Canadian government also froze hundreds of protestors’ assets “because it didn't line up with what they perceive to be the right thing to do.” These sanctions appear hypocritical and have serious moral and legal implications. “It was acceptable for [Russian oligarchs] to bring their money into the country to buy the asset,” Paul comments. Millions of pounds were put into the economy by their trade. How can the government now look askance at these same people? Is there proof that they’re directly connected to Putin, or is it all just propaganda? How did we reach the point where we seize people’s assets because we don’t agree with how their wealth was generated in the past, or because they have links to someone we disagree with? Paul and James applaud Prime Minister Boris Johnson’s response that sanctions against individuals would only be put in place when evidence proves that they should be. [Listen from 2:00]

Beautiful, Decentralised Crypto

Current events are opening up an interesting debate about decentralisation and crypto in general, Paul says. Nations states have tried to ban their citizens from using crypto in the past through regulations and legislation. However, he continues, “You can't actually ban an individual from transacting with crypto because it's a decentralised asset. That’s the beauty of it… It's very hard in a practical term to actually ban a user from using crypto because the argument is… that crypto could be used to circumvent the sanctions, that it could be used to move value around the world.” Some people are calling for banning Russian crypto transactions. The only way that can happen is to limit their access to exchanges, but there’s no way to stop private peer-to-peer transactions. In any case, Paul and James argue, this goes against the very principle of a global decentralised network: it’s not really decentralised if someone can switch off another person’s access. “It doesn’t sit right with me to say that a nation state should be banned from transferring crypto assets,” Paul remarks. [Listen from 15:25]

Is This a Democracy or Not?

The Canadian government recently froze the assets of hundreds of their own citizens.  The reason these Canadian citizens were seen as threats? They were truckers protesting COVID regulations. Their protest action effectively halted Canada’s supply chain, and this infuriated the government. Prime Minister Trudeau’s response was to invoke the Emergency Act for the first time in history. This gave the government and law enforcement sweeping powers to go after these citizens’ finances. Paul points out the painful irony: “So basically we live in a democratic world until they don’t want us to… If we can't stop you on a legal basis with cops on the streets, we will take your assets.” [Listen from 19:22]

Protecting Your Crypto Assets

It’s no wonder more and more people are seeing cryptocurrency as a safe and viable way to store and protect their wealth, James and Paul argue. Storing your crypto in a hardware wallet is the safest course of action because no one can take it away from you unless they steal your hard drive. You can take that hard drive anywhere in the world and have access to your crypto assets. “It's theoretically impossible for them [governments] to prevent or freeze or take crypto digital assets away from somebody if they're stored and looked after in the right way,” Paul comments. Two things worry the hosts, however:

1. That governments will make quick regulation changes for crypto to prevent us from having this freedom and power;
2. That they will revive and aggressively promote the narrative that crypto is being used by warlords and underworld criminals.

Crypto and Bitcoin have made significant strides, and there’s still a long way to go towards mainstream adoption. False narratives and repressive sanctions would hurt us all in the long run. [Listen from 22:15]

Key Takeaways:

• Decentralisation has its pitfalls, but it’s better than what we have now.
• Nobody can really ban you from having or using crypto.
• Are you really free if the government can arbitrarily freeze your assets?

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram