Cryptocurrency Mechanics and Decentralized Finance – Part 2� �Blockchain, Crypto Mechanics & Intro to Decentralized Finance

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Cryptocurrency Mechanics and DeFi – Part 2�

Michael A. Ramalho, Ph.D.�IEEE Florida West Coast Section Blockchain Local Group Founding Chair�mar42@cornell.edu

Sponsored by FWCS Blockchain Local Group�Co-sponsored by IEEE FWCS:�CS, PES/IAS, SigProc/Comm, LM, WIE

Seminole Electric Cooperative, Inc.

October 15, 2025

OBJECTIVES (Part 1 – focus on crypto mechanics & technology):

• What makes Bitcoin/Ethereum so special?
• What are blockchains, distributed ledgers – and what are they used for?
• Bitcoin Deep Dive: Bitcoin blockchain and mining by example.
• Introduction to Ethereum: Solves power consumption problem.
• Software/Cryptographic advances that enabled Cryptocurrency.
• Hash Functions, Consensus Algorithms, Digital Encryption/Signatures, and�Cryptographically Secure Pseudo Random Number Generators (CSPRNGs).

OBJECTIVES (Part 2 – focus on Ethereum, and crypto applications):

• Finish Bitcoin: ”Halving” (21M BTC). Crypto Attacks. Maintenance (Soft/Hard Forks).
• Ethereum Deep Dive: CSPRNG, Blockchain Virtual Machines, Smart Contracts.
• De-Fi, Role of Stablecoins, CBDCs, Layer 2 Blockchains, Specialty Crypto,�Crypto Policy/Governance, Crypto Investment Thesis, How to “own” crypto.

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© 2025 FWCS IEEE SP/COMM. All rights reserved.

DISCLAIMER:

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Primarily a technical talk on blockchain mechanics, operation, and theory.

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• Talk is ...�
• NOT INTENDED to render any guidance on crypto value now or in the future.�
• NOT INTENDED to render any guidance on issues relating to how blockchains�or crypto are governed or regulated now or in the future.�
• NOT INTENDED to render any guidance on issues relating to how blockchains or�crypto can be exploited for any purpose now or in the future.�

Technical Analysis and Appraisal - Use at your own risk.

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© 2025 FWCS IEEE SP/COMM. All rights reserved.

Part 2 - TALK OUTLINE

• Quick Review Part 1: Principals of Public Permissionless Blockchains
• Bitcoin’s “Nakamoto Consensus” (aka Proof-of-Work)
• Bitcoin Miscellany: 21M BTC Limit, “Halving”, Internals, “Bitcoin Untruths”
• Ethereum: Design mods allowing for PoW->PoS and virtual machines.
• Layer 1 Cryptocurrency: Money or Currency or Commodity or ???
• Scaling and Smart Contract Execution: Sharding and Layer 2 Crypto.
• Crypto Blockchain Governance, Crypto Policy, and Regulation
• What are DAOs? What are Stablecoins? US Legislation (Genius/Clarity Act).
• Investment Opportunities in Crypto Beyond Direct/Proxy Ownership
• Staking Crypto and “Cryptocurrency Treasury” Companies.

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© 2025 FWCS IEEE SP/COMM. All rights reserved.

What are Blockchains?

Blockchains are software-defined data structures in which:�

• “Blocks of data” are created via a standardized structure (header and payload) in which:
• “Validated transactions” (and optionally other state) are recorded in a given block.
• Each newly-formed block is “connected/tied/referenced” to the immediately preceding block (via a cryptographic identifier) – forming a “chain”.�
• “Consensus Mechanisms” are used to:
• Validate transactions within the block’s “payload”.
• Validate all summary information in the block’s “header”.
• Determine the “active chain” (when multiple possibilities exist).
• Protect against malicious blockchain participants.

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• An irreversible set of blocks is created in an ever-increasing chain.

Cryptocurrency Mechanics and DeFi – Part 2�

Newest Block

..... Older Blocks .....

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Input_Data

“One-Way” Hash Function (SHA-256)

Output_Hash (256 bits for SHA-256)

Arbitrary Length Input

Advanced Encryption Standard (AES)

Deterministic value, but appears random relative to similar looking inputs.

Fixed-length Output (256 bits for SHA-256)

Blocks are Chained Together with Cryptographic Hash Functions

Cryptocurrency Mechanics and DeFi – Part 2�

Bitcoin: Cryptographic Hashes Also Tie All the Blocks Together

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Cryptocurrency Mechanics and DeFi – Part 2�

• The “payload hash” (the Merkle Root) is an element in the present block’s header.
• The “header hash” of the previous block’s header is an element in the present block header.
• The “header hash” of the present block’s header is an element in the subsequent block header.
• This hash ensures immutability of all headers and all payloads prior to it.
• The header hash is the cryptographic mechanism tying together the blocks in “history order”.
• All header hashes a lots of “leading zeros” (due to “Proof-of-Work” mining discussed last week).

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Public-Key�Cryptography�Basic Concept

• Bitcoin uses Public-Key Cryptography.
• People send you Bitcoin to your “Bitcoin address” on the blockchain.
• You send Bitcoin to others at their “Bitcoin address” on the blockchain.
• Your Bitcoin address is essentially your Public Key for transactions.
• Given 2²⁵⁶ address space, you can have many addresses.
• Your Bitcoin address is pseudonymous ...
• Generally, people don’t know it unless you tell them.
• Exception: If you use a US-based crypto exchange - a lawful government request can obtain your addresses.
• Once exposed, everyone can then know that it belongs to you. But you can begin to use a new address!
• If you directly own crypto, you MUST own (or have a custodian maintain) a software wallet or a hardware wallet.
• If you don’t “own your keys”, you don’t “own crypto” – your crypto brokerage does (or ETF custodian)!

Blockchain: Direct Participation is Facilitated by Public Key Cryptography

Cryptocurrency Mechanics and DeFi – Part 2�

Public Permissionless Blockchain Consensus Algorithms

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Cryptocurrency Mechanics and DeFi – Part 2�

Last week we learned that the inventors of blockchain (Drs. Haber & Stornetta in 1990)�realized that the inventor of Bitcoin’s Proof of Work (Satoshi Nakamoto in 2008)�and later the inventors of Proof of Stake (in 2012)* had “solved” their problem�of a single point of proof of the “linked hash blocks” information in blockchain by:

• Making the ledger/blocks and associated data public to everyone.
• Devising a scheme where only “one chain of blocks” could be “valid”.
• Scheme would exact an overwhelming cost to those wanting to change past data in�older blocks – so much so that it is practically impossible to change past data.
• “Overwhelming cost” can take many forms:
• Effort: Bitcoin uses “Proof-of-Work” (this is Nakamoto’s innovation – next slide).
• Economic: “Proof-of-Stake” schemes cause bad actors to loose their “staked” funds�(later in this talk).

* - Sunny King and Scott Nadal in their whitepaper “PPCoin: Peer-to-Peer Crypto-Currency with Proof-of-Stake”

Bitcoin’s “Proof of Work” Consensus Algorithm Resolves Conflicts!

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B₁

“Nakamoto Consensus” - A Natural Fit for Open Permissionless Systems (any node can join at any time).

A

B₂

C

3/4 miners work here – next block�expected in ~13.3 min ((4/3)*10)

• Rule: Miners always build on “the longest chain”.
• Miners mint a new block when they “solve the hash problem”. Expected time for next block is 10 minutes.
• Given network delays or coincidence – two miners may successfully solve “the hash problem” at same time.
• Depending on network propagation and/or miner choice, miners may decide to mine off of “Fork B₁” or “Fork B₂”.
• Example Above: Block C will exist before Block X. The longest chain will then be A, B₂, C.
• Genius of proof of work! Conflict Resolution: Eventually one fork becomes longest (due to math/statistics!).
• Any transaction on Fork B₁ NOT ALREADY RECORDED on Fork B₂ will be introduced into a block on Fork B₂.
• Block B₁: “Orphan Block” in Bitcoin (no block reward) / “Uncle block” in Ethereum 1.0 (with a smaller block reward).

Cryptocurrency Mechanics and DeFi – Part 2�

Bitcoin’s Consensus Exploited To Fix August 15, 2010 Overflow Error*

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B₁

A

Cryptocurrency Mechanics and DeFi – Part 2�

* - https://en.bitcoin.it/wiki/Value_overflow_incident

74638

74637

Overflow error (Created 184B BTC to 2 Addresses & 0.01 BTC Block Award)

Community decided: “Bad Chain”

74691

NEW�74638

Result: It is as if the Bad Chain blocks never existed!

• This is the very mechanism of a “51% Attack” - changing history via clients representing > 50% hashpower.
• Why wasn’t this called “A Successful Attack on Bitcoin”? Bitcoin consensus was designed to be immutable!
• Grok (and other AI) parroted back the line that “this was a community change”, therefore not an attack.

Transaction�4a5e1e4baab89f3a32518a88c31bc87f618f76673e2cc77ab2127b7afdeda33b

“Good Chain”

Bitcoin Crypto Supply: The Math

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Original Bitcoin Money Supply Design (it has not changed!)

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1. 50 BTC Block Award for every block during first 4 years (recall, blocks produced every 10 min).
2. Then after 4 years – reduce award by half (i.e., 25 BTC per each new block).
3. Continue to half block award similarly every 4 years.

• 210,240 Bitcoin blocks are produced every 4 years (4*365*24*6).
• Bitcoin’s “Reward Epoch” is 210,000 blocks (only approximately every 4 years).
• Thus, reward for first Bitcoin Reward Epoch is 10,500,000 BTC (50*210,000).

= 1

Total BTC Limit = 21,000,000 BTC

Cryptocurrency Mechanics and DeFi – Part 2�

Bitcoin Internal Data Representation: What are Satoshis?

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1 BTC = 10⁸ Satoshis = 0b101111101011110000100000000

21 M BTC = (21*10⁶)*10⁸ Sats = 0b111011101011111000001011010000001110100000000000000

1 USD = 10² Cents, where a US Cent is the smallest unit of account

49 binary places. Java’s only data type is IEEE 64-bit floating point has 52 bit mantissa (no loss of precision).

33^rd position (33*4 = 132 years)

50 BTC = 50*10⁸ Sats = 0b100101010000001011111001000000000

25 BTC = 28*10⁸ Sats = 0b010010101000000101111100100000000

[A divide-by-2 operation in fixed point is equivalent to a shift right – until you lose precision]

Largest number that can be represented in a UNsigned, 32-bit integer (uint32) is the decimal equivalent�of 0xFFFFFFFFFFFFFFFF = 184.47*10¹⁷ Sats = 184.47*10⁹ BTC = 184.47 Billion BTC

Largest number that can be represented in a Signed, 32-bit integer (int32) is the decimal equivalent�of 0x7FFFFFFFFFFFFFFF = 92.234*10¹⁷ Sats = 92.234*10⁹ BTC = 92.234 Billion BTC�[NOTE: A math result of uint32 numbers larger this will cause overflow error if cast into int32.]

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21 M BTC maximum allows ~4x overhead for “normal operations” (supply limit overhead/safety margin).

Cryptocurrency Mechanics and DeFi – Part 2�

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Question: Why 21 Million BTC Cap? ..... Bitcoin’s Answer: Designed-in BTC scarcity.�(and has a safety/overhead margin of ~4x)

Don’t people know that Bitcoin Governance can vote to change the code in the future?

Bitcoin Crypto Supply: In Code

2024-04-19

2023-04-29

Cryptocurrency Mechanics and DeFi – Part 2�

Blockchain Block Explorers: Bitcoin Example (https://www.blockchain.com/explorer/blocks/btc/918349)

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Coinbase Transaction

Miner Name

0x00000000000000000000b41746bf85c75721dadb8fd9cb9758edc46836bbf57b

Block Award

Total Transaction Fees

Individual Transactions

0x3f0dd381d012af8bff5570d554fe528860219093222d340ea4289837b34c742a

Cryptocurrency Mechanics and DeFi – Part 2�

Answer to PoW Power Wastefulness: Proof of Stake (and derivatives)

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Public Permissionless Blockchain Nodes (validators) are not fully autonomous! Major departure from Bitcoin design.

“THE MERGE” - Ethereum's Transition from Ethereum 1.0 (PoW) to Ethereum 2.0 (PoS)

• Years in planning! Occurred on September 15, 2022.
• 99.9+% reduction in energy costs-- AND -- More Scalability (primarily via “chain sharding”).
• Ethereum 1.0 (PoW) was becoming “increasingly centralized” (5 mining pools - 64.5% of all ETH mined).
• PoS is characterized as “a more secure network” owing to more decentralization ...

... BUT THIS IS DEBATABLE ... BECAUSE ...

• Need to “trust” a lot more code (compared to Bitcoin), and ...
• Validators must “obey” centralized commands AND are becoming (increasingly) permissioned (e.g., joint signatures).

Cryptocurrency Mechanics and DeFi – Part 2�

Ethereum “Merge” from PoW to PoS – Quick Look at Block Components

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Ethereum�Pre-Merge�(similar to Bitcoin components)

Fundamentally Straightforward��A lot of testing to ensure�the merge went smoothly

Ethereum PROVED that�(energy-wasting) PoW�blockchains can�transition to PoS!

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[ ... by changing�consensus algorithm]

Additional “post-merge” fields (mostly) due to ”virtual machine” state required by smart contract functionality�(next slide).

Cryptocurrency Mechanics and DeFi – Part 2�

Ethereum Virtual Machines ⋍ {~Bitcoin Transaction Train + Smart Contracts}

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• Ethereum == {platform for facilitating contracts, via its currency} vs Bitcoin == {alternative to fiat money}

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• Smart Contract Definition (Nick Szabo, 1994).

A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives of�smart-contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries.

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• Thus a "smart contract" is simply a program that runs on a blockchain virtual machine. It is a collection of code (its functions) and data (its state) that resides at specific blockchain addresses.

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• Need to keep both “transactions” (like Bitcoin) PLUS “world state” on the blockchain.

Smart Contract Execution isn’t free ... It costs “gas”.

Cryptocurrency Mechanics and DeFi – Part 2�

Ethereum Virtual Machines (EVMs) – A Deeper Look

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Gas fees are paid in Ethereum's native currency, ether (ETH).�Gas prices are specified in gwei (1 gwei = 0.000000001 ETH).

Image Credit: https://ethereum.org/en/developers/docs/gas/

Smart Contact is interpreted code – executed upon an ”event”.

• All opcodes/functions cost gas�(usually different amounts).�
• Using external storage uses a lot of�gas – as it must be instantiated on the blockchain (p/o “world state” noted previously).�
• Modifying external storage�on subsequent invocations is also costly, as it updates state in new blockchain block.�
• If the amount of gas passed to�execute code is insufficient, all�gas available is consumed – but external state “reverts” to state prior (by not updating world state).�

Point 1: Only use external storage when absolutely required.

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Point 2: Pass Enough Gas!

Cryptocurrency Mechanics and DeFi – Part 2�

Ethereum Smart Contracts (Solidity)

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The first time this smart contract is called, the “constructor” instantiates the state needed on the blockchain (part of�“world state”). There is a cost (in gas) to instantiate state that will forever be on the blockchain – so don’t ever instantiate�local/temporary state on the blockchain!

Smart Contract execution can trigger other “events” and “errors”.

Cryptocurrency Mechanics and DeFi – Part 2�

Consensus Mechanism Summary: PoW vs PoS

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”Proof-of-Work” Properties (“The Genius of Satoshi Nakamoto’s Bitcoin” – “Nakamoto Consensus”):

• Consensus (conflict resolution) due to mathematical properties of cryptographic hashes!
• For as long as Hash_SHA-256 isn’t broken – NO CHEATING IS POSSIBLE!
• Result: PoW mechanics are very, very secure in an open/permissionless system.
• Downside: Incredible waste of electrical power and computes.
• However: Any node can mine Bitcoin – there is no “central authority” to enroll.
• Aside: Anyone can copy Bitcoin and generate their own crypto altcoin: “Seminole Coin”�(remember Dogecoin was started as a satirical take on Bitcoin in just a few days).

“Proof-of-Stake” Properties:

• Virtually no power wasted in choosing next validator.
• Consensus can be open-source random number generation and secret/hash enrollment.
• Or other probability-based mechanism (e.g., Ava Labs metastable sampling mechanism).
• Next validator probability can be a function of virtually anything!
• Increased scalability relative to Bitcoin (more on scaling later).
• However: As a validator node, you need to “enroll” to the “central authority” of the blockchain.
• More complexity also admits more threat vectors (e.g., DoS attacks are more successful)!�Result 1: Relative to PoW/Bitcoin – “Minting costs” are virtually nothing!
• Result 2: Validators are not fully autonomous! Moving toward “permissioned” blockchain operation!
• Result 3: Trust in the Blockchain Governance is paramount!

Cryptocurrency Mechanics and DeFi – Part 2�

Part 2 - TALK OUTLINE

• Quick Review Part 1: Principals of Public Permissionless Blockchains
• Bitcoin’s “Nakamoto Consensus” (aka Proof-of-Work)
• Bitcoin Miscellany: 21M BTC Limit, “Halving”, Internals, “Bitcoin Untruths”
• Ethereum: Design mods allowing for PoW->PoS and virtual machines.
• Layer 1 Cryptocurrency: Money or Currency or Commodity or ???
• Scaling and Smart Contract Execution: Sharding and Layer 2 Crypto.
• Crypto Blockchain Governance, Crypto Policy, and Regulation
• What are DAOs? What are Stablecoins? US Legislation (Genius/Clarity Act).
• Investment Opportunities in Crypto Beyond Direct/Proxy Ownership
• Staking Crypto and “Cryptocurrency Treasury” Companies.

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© 2025 FWCS IEEE SP/COMM. All rights reserved.

Is Bitcoin a (Crypto)Currency? ... Things to ponder ...

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Q: Are we surprised that “money” can have the form of entries on a blockchain (virtual currency)?

A: No. In the history of money – money took many physical forms.

Most Cryptocurrencies are governed by the organization members and are NOT influenced or controlled�by a central government (called Decentralized Autonomous Organizations, or DAOs).

Q: Has non-traditional “private money” ever been tried before.�A: The private Swiss ‘Ducat’ is described in Hayek’s book.

But: The Swiss Ducat announced the intension to modify the SUPPLY�of the Ducat in order that it’s “purchasing power” value is a constant.�Typically performed by the government authority (aka Central Bank).

But: Organization responsible has historically been under the governance of some recognized legal authority!

Cryptocurrency Mechanics and DeFi – Part 2�

Is Bitcoin a (Crypto)Currency? No, But it certainly is “Money”

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https://www.investopedia.com/terms/m/money.asp

The first types of money were commodities (their value changed over time)!��Their physical properties made them desirable as a medium of exchange.��In contemporary markets, money can include government-issued legal�tender or fiat money, money substitutes, fiduciary media (e.g., checks),�or “cryptocurrencies”.

Money is a liquid asset (asset easily turned into cash) used to facilitate transactions of value. Four tests:

1. A medium of exchange.
2. A store of wealth.
3. A measure of value.
4. A standard of deferred payment (sometimes).

• Crypto is regulated as a security, commodity, property, or legal tender depending on jurisdiction and sometimes even on crypto-specific characteristics.
• Likewise, the exchanges/brokerages that deal in cryptocurrency have to deal with uncertain regulatory environment (security, commodity, futures contract, etc.).

IMHO – Bitcoin should have been called “Crypto-Money”

Cryptocurrency Mechanics and DeFi – Part 2�

Scaling Public Permissionless Blockchains ...

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Cryptocurrency Mechanics and DeFi – Part 2�

• Bitcoin:
• By design – One block produced every 10 minutes.
• Independent of the number of miners or network hashrate!
• Payload ~1.5 Mb, ~4000 trans/block => ~7 trans/sec. No where good enough!
• Ethereum:
• Originally like Bitcoin, but moved to PoS and incorporated virtual machines.
• Initially addressed scaling via sharding; then moved to a “rollup architecture” where both scaling and smart contract execution occurs on “Layer 2 Networks” (e.g., Polygon).
• Major motivator for Ethereum tokenization protocol ERC-20 (Binance eqiv: BEP-20).
• ERC-20 allows other crypto, RWA tokens or DeFi apps to use Ethereum blockchain.
• Layer 2 Blockchains (essentially an aggregation layer for Layer 1 blockchains):
• Executes smart contracts and sends only the aggregate results to Layer 1.
• Security/Identity issues paramount: “Zero-knowledge proofs” gaining traction.*
• What is value of Layer 1 blockchain if smart contract execution is now on Layer 2?
• Layer 2 blockchains are not designed to be as secure/immutable as Layer 1!
• Bitcoin becoming Ossified: “A form of money” to “A store of value” (like gold).

* - Many crypto hacks target Layer 1 to Layer 2 interface.

Blockchain Governance and Challenges in Crypto Regulation

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A Decentralized Autonomous Organization (a DAO) is a organization - represented by rules encoded as a computer program (smart contract) or in blockchain governance structure - that is:

• transparent,
• controlled by the organization members, and
• NOT influenced/controlled by a central government.

[Member-directed communities without centralized leadership used for ANY purpose.]

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Bitcoin’s Original Goal: To eliminate the need of a mutually acceptable trusted third party. Just trust the code.

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But the blockchain code can be changed by the blockchain’s DAO governance!

PROBLEMS/CONCERNS/ISSUES:

• Crypto blockchain governance is typically outside the control/regulation of any particular legal jurisdiction.
• Participation in many cryptocurrency blockchains still have no identification or KYC requirements.
• In most cases, blockchain addresses are at best pseudo-anonymous.*
• Thus, crypto is ripe for nefarious activities such as money laundering and terrorism financing.
• AML (anti-money laundering) and CFT (counter-terrorism financing) are huge concerns.
• Different countries regulate crypto differently (security, commodity, property, futures contracts, ... ).
• Many exchanges are within regulatory governance in geographies in which they do business.
• But lack of regulation that is consistent across various jurisdictions complicates matters!

Cryptocurrency Mechanics and DeFi – Part 2�

* - For US exchanges and US users, law enforcement can request your addresses.

Supply Policy for other Cryptocurrencies and Stablecoins ...

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Cryptocurrency Mechanics and DeFi – Part 2�

Very different today - Stablecoins have come a LONG WAY since 2022!

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US Stablecoin Legislation – GENIUS and CLARITY Acts

Cryptocurrency Mechanics and DeFi – Part 2�

GENUS ACT (signed into law July 18, 2025):

• U.S. law that creates rules for stablecoins.
• Requires stablecoins to hold sufficient reserves (cash and Treasury bonds).
• Establishes licensing requirements, and creates protections for consumers.
• Strengthens regulatory oversight (Treasury, Federal Reserve, and FDIC).
• Anti-money laundering (AML) and anti-terrorism initiatives as well as know-your-customer (KYC) rules.
• Prohibition for exchanges to offer interest/yield on stablecoin.
• Focus on speed, low cost, 24/7/365 settlement – Africa and Latin America have fast stablecoin adoption!
• IRONY: Many stablecoins are tokenized on un-regulated Layer 1 blockchains!

CLARITY (Digital Asset Market Clarity) Act (proposed, passed house, bipartisan):

• Proposed U.S. law that aims to create a clear regulatory framework for digital assets like crypto.
• Divides digital assets into categories ("digital commodities" vs securities) and assigns specific�regulators (the CFTC and SEC).
• Requires developers to provide accurate and transparent information to consumers.
• Defines a “mature blockchain” – but falls short on requiring the blockchain to be under the control of�any governmental or “standard development organization” (SDO) authority.

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Why Stake Your Crypto?

Cryptocurrency Mechanics and DeFi – Part 2�

Proof-of-Stake (PoS) crypto staking generalizations:

• Chance that validator being chosen is proportional to the amount�of the crypto is “staked” at its validator. Thus a strategy for the�validator is to attract as much crypto as it can.
• The entities providing the staked crypto promise to lock it at the validator (i.e., “stake it”) for a�pre-determined amount of time (the lockup period).
• In return, the validator (or validator pool or staking platform for a given crypto) pays interest�(in the native crypto) to the entity providing the staked crypto.
• There are significant potential downsides:
• Attacks on the crypto blockchain can impact your stake.
• If the value of the crypto goes down during the lockup period, the real return could be negative!
• No or limited liquidity during the lockup period. Gain/Loss tax accounting on every interest event.
• Slashing. If your validator misbehaves – your stake is at risk to be partially confiscated.
• Ways to stake crypto:
• Hard: Run your own validator (e.g., Ethereum validators require a min of 32 ETH*).
• Easy: Choose to stake your crypto in a pool at a crypto exchange of your choosing (Binance, Coinbase, Kraken, Crypto.com, etc.).

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Pure Proof of Stake (PPoS): Algorand

* - Ethereum supply today is ~120M ETH.

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Miscellany: What are CBDCs and Cryptocurrency Treasure Companies?

Cryptocurrency Mechanics and DeFi – Part 2�

• Central bank digital currencies (CBDCs) are government-backed digital currencies that use blockchain or distributed ledger technology. They are digital forms of a country's fiat currency issued and regulated by its central bank, and are fixed in value by the government.
• They use PERMISSIONED blockchains and are not typically viewable by public.
• It is a completely traceable form of the equivalent fiat (paper currency is a bearer instrument).
• Out of scope for this talk.

• Cryptocurrency Treasure Companies are large companies managing cryptocurrency holdings on their balance sheets for various reasons. Examples include:
• Strategy (MSTR, formerly MicroStrategy): The largest corporate holder of Bitcoin, having hundreds of thousands of coins since 2020 as its primary treasury reserve asset (Michael Sailor, founder).
• BitMine (BMNR): An American firm that transitioned from Bitcoin mining to an Ethereum treasury strategy (Tom Lee, Chairman).
• “The Ether Machine” (ETHM): Activate Ethereum’s full potential by delivering secure, transparent, and yield-generating exposure to ETH at institutional scale. Business plan is to return “staking returns”�(Andrew Keys & David Merlin, founders).

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Summary: Observations and Closing Prognostications

Bitcoin:

• The original crypto that solved a medium-of-exchange (money) problem.�[Aside: A “store of wealth”, a “measure of value”, and to some a “property”, but not a currency.]
• No fraudulent transaction has persisted on the Bitcoin blockchain.
• An amazing conglomeration of cryptographic technologies, timestamp-servers, and transaction pooling.�Proof of Work consensus mechanism is genius - allowing for Public, Permissionless Blockchain!

My Past Prognostications (1 & 3 have not occurred yet):

• Transition from energy-consuming PoW to another “probabilistic validator selection” mechanism.
• Stay a crypto-money. Consensus: Bitcoin will not add virtual machine capability (limited DeFi enablement).
• A slow expansion of money supply to make it more like a global currency (not discussed today).

Ethereum/DeFi/Web 3:

• Built upon Bitcoin’s Foundation – and successfully transitioned to energy-efficient Proof of Stake.
• Added EVMs, smart contracts, tokenization standards and enabled Layer 2 execution and improved scaling.

My Prognostications:

• We are in still the early stages of Decentralized Finance and Web3 adoption.
• Embedded interests will resist (like Web1 & Web2) – but Web3 will become more commonplace over time.
• Web1 Redux: The embedded interests that will be the primary beneficiaries of this new technology!

Cryptocurrency Mechanics and DeFi – Part 2�

YOU MADE IT ...

• History of Blockchain and Cryptocurrency Basics
• What are blockchains, distributed ledgers, what problem do they solve.
• Bitcoin deep dive (header elements), 21M BTC limit, Attacks.
• Main Consensus Algorithms: Proof-of-Work and Proof-of-Stake.
• Ethereum: Solves power problem via PoS. Adds Virtual Machines and application state.
• Software/Cryptographic advances that enabled Cryptocurrency
• Hash Functions, Digital Ledger Technology, Consensus Algorithms,�Digital Encryption/Signatures, and Cryptographic Random Number Generators.
• Decentralized Finance Basics
• Smart Contracts, Layer 2 Blockchains solve scaling and improve smart contract execution.
• Answers to Common Crypto Questions
• Ways to “Own Crypto”, Stablecoins, CBDCs, Crypto Supply, Blockchain Governance,�Crypto Legislation, Staking Crypto, Crypto Treasury Companies, Closing Prognostications.

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© 2025 FWCS IEEE SP/COMM. All rights reserved.

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Cryptocurrency Mechanics and DeFi – Part 2�

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ASIDE: Bitcoin introduced Blockchain to the World in October 2008 - Right?

Cryptocurrency Mechanics and DeFi – Part 1�

Bitcoin needed better technology�than New York Times!

Cryptocurrency Mechanics and Decentralized Finance – Part 2� �Blockchain, Crypto Mechanics & Intro to Decentralized Finance

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Cryptocurrency Mechanics and DeFi – Part 2�

Michael A. Ramalho, Ph.D.�IEEE Florida West Coast Section Blockchain Local Group Founding Chair�mar42@cornell.edu

Sponsored by FWCS Blockchain Local Group�Co-sponsored by IEEE FWCS:�CS, PES/IAS, SigProc/Comm

Seminole Electric Cooperative, Inc.

October 15, 2025