LESSON 1.

6:
LESSON OBJECTIVES:
At the end of the lesson, the students should be able to:
1. explain the meaning of virtual currency;
2. differentiate fiat money and e-money;
3. discuss what a virtual currency exchange is;
4. elaborate on blockchain technology;
5. distinguish between centralized and decentralized relevant to cryptocurrencies; and
6. elucidate on the top six 5-star cryptocurrencies.

Cryptocurrency or virtual/digital currency has shown how the world has become more globally
connected than ever. It has given people a chance to grow their money and build their wealth. Wall
Street seemed so hesitant about "digital gold," a name they use to refer to cryptocurrency, to invoke a
margin of safety Cryptocurrencies or what they call "altcoins"-are up-and-coming coins that can be
bought for cheap price. That is because it pays to get in early. But as any experienced crypto investor
knows, cryptocurrencies are a digital "popularity contest" where winners keep winning and losers bite
the dust. For example, $1,000 invested in Ethereum's initial coin offering (ICO) (when the Ethereum
Foundation launched the Ethereum Mainnet on July 30, 2015) would be worth $3.3 million today
(investorplace.com 2021). Ethereum's ICO participants received Ether, which is used as "gas" or "fuel" to
compensate for computations performed on the network.

Under BSP Circular No. 944's Definition of Terms, virtual currency is "any type of digital unit that is
used as a medium of exchange or a form of digitally stored value generated by agreement within the
community of virtual currency users." Basically, it is a digital currency that is generally used for online
transactions. Since community users create this currency online, it is not issued or backed by central
banks or government authorities. Virtual currencies can also be exchanged to and from fiat/cash
through different channels, mostly through virtual currency exchanges. Cryptocurrency is digital money-
it is virtual and has no physical form, unlike our currency bank notes and coins. It is not even the money
in your e-wallet or online banking account, which are tied to real physical coins or bills. Because
cryptocurrency is purely digital, this means that you can store it online and even in small, specially
designed hardware. And since it does not require bank or any middleman, you can easily send your
digital money to anyone, anytime and anywhere. Virtual currencies have no physical coinage. The
appeal of virtual currency is it offers the promise of lower transaction fees than traditional online
payment mechanisms, and virtual currencies are operated by a decentralized authority, unlike
government-issued currencies.

Fiat currency/fiat money or cash, on the other hand, is the real currency. Coins and paper money
(bills) issued and printed by the central bank of a country are fiat currency, fully-backed by the
government of a country and is acceptable as payment for public and private debts.

E-money is a digital representation of fiat currency stored in digital wallets or e-wallets. Any amount
of currency stored in an electronic wallet (such as GCash, PayMaya, Coins PH, GrabPay, and the like) is e-
money, which can also be accepted as a "card payment" or can be withdrawn right away as cash.
 Virtual currency, which is stored digitally, would still need to be converted first Philippine peso then
transferred to a destination wallet or be withdrawn as cash through different mediums that are
accepted in the country. In general, conversion is done through a virtual currency exchange. Virtual
currency exchanges are licensed to convert cryptocurrency to Philippine peso and vice versa. In the
Philippines, cryptocurrencies are regulated by the Bangko Sentral ng Pilipinas (BSP). In fact, 17 virtual
currency exchanges are registered with the BSP and authorized to operate in the Philippines. Atomtrans
Tech; Betur, Inc (Coins.ph); B Express (Bexpro); BloomSolutions; and Virtual Currency Philippines, Inc.
are some of the licensed virtual currency exchanges in the Philippines (bitpinas.com 2021). With the
country being the third largest recipient of remittances globally, many firms are applying for a license to
become a virtual currency exchange in the Philippines. Such an exchange can deal with crypto to flat and
fiat to crypto transactions. The BSP reported that there are a number of companies applying to have a
license to operate in the country as a virtual currency exchange.

Over the years, cryptocurrency has been viewed either as the money of tomorrow or a risky and
rather volatile asset. However, with reputable companies buying Bitcoin in large quantities, the general
public's interest in cryptocurrency has skyrocketed in recent years. A lot have started to think that
maybe they are a worthwhile and viable investment.

Cryptocurrencies work through blockchain technology. Blockchain is a special kind of database, and
it differs from traditional databases when it comes to storing data. It is a "distributed ledger" built on a
data structure known as "blocks." Traditional databases are centralized, meaning only select people can
access them.

Blockchain, on the other hand, allows all participants to view the records and all the changes that
happen in the database. To better understand how cryptocurrencies work, let us assume you buy a
laptop from a shop using cryptocurrency. Your transaction data will be stored in a block, which is
technically a list of other transactions made by other people. The block where your transaction is listed
will then be chained to previous blocks. With this setup, you can think of blockchain as a global ledger
that records all the transactions of the people who are using the same cryptocurrency. This ledger also
makes sure that all the transactions that go to it, from past to present and to future, are all valid
(moneymax.ph 2021). When you purchase a cryptocurrency, you buy a fixed number of slots in a
blockchain. When you trade away your cryptocurrency, you sell your slot in the blockchain.
Cryptocurrencies use electronic coins as their form of exchange. However, these electronic coins are
nothing more than slots in the blockchain. A transaction is considered valid only when the majority of
users in the network determine it is valid, therefore creating a complex system for exchange that is
essentially impossible to hack.

Cryptocurrencies use cryptography, the process of protecting information by using codes.

Cryptography is used for the security of cryptocurrencies. It is also used to control transactions and
increase the supply. With this feature, cryptocurrencies have become self-governing and self-regulating.
Digital money is free from the shackles and rules of traditional banks. This allows practically everyone to
complete digital transactions without a third-party financial institution facilitating the process. It
provides routine escrow mechanisms that could easily be implemented to protect buyers. By principle,
the cryptocurrency model is a financial system designed by the people, for the people.
 However, having no intrinsic value, there are also significant risks associated with cryptocurrencies.
Their worth comes from their users. The more users a coin has, the more useful it becomes, and the
higher its price goes. Cryptocurrencies only serve to transfer wealth from one party to another. But
when a coin falls out of favor, there is nothing to stop it from going to zero and that is the risk. Investing
in cryptocurrency requires strong belief that others will eventually buy it from you for even more.
Today, people invest in crypto for one reason alone: to make money. So far, cryptocurrencies have
delivered on that promise. Mom-and-pop store investors have profited handsomely as Bitcoin and other
currencies have rocketed in value. The rush to collect cryptocurrencies continues well into 2022. If you
are new to the crypto space, you might have heard of only Bitcoin. But there are hundreds of altcoins (or
alternative cryptocurrencies) other than Bitcoin. Each altcoin comes up with its own unique technology
and vision to change the world. But the risks in 2021 are growing with some new competitors recently
popping up.

"China has already developed a Central Bank-backed crypto, and in the US it was discussed as part
of the C-19 stimulus," writes Laura Gonzalez, Ph.D., associate professor of finance at California State
University, Long Beach. "There is ample evidence of speculation as well, and the value of the current
cryptos will be affected by the upcoming central-bank backed digital currencies." In other words,
unregulated cryptocurrencies will one day compete against state-sponsored ones, too. Here is the
takeaway: if you have an extremely conservative portfolio and need to add "risk-on" assets, choosing a
basket of top-rated cryptocurrencies could be right for you. It is a cheap way to gain massive
macroeconomic risk exposure. But do not get fooled by thinking of crypto as "digital gold." If 2022 sees a
surprise economic slowdown, no amount of hope will keep crypto afloat. If you are willing to take those
risks, then you might want to start your search with the top cryptocurrencies you need to know
(investorplace.com 2021).

Before we discuss the top six 5-star cryptocurrencies, let us first learn the difference between
centralized and decentralized relative to digital currencies.

The concept of decentralization is pivotal to the blockchain and cryptocurrencies that run on it.
Unlike traditional third-party payment processors like PayPal or Mastercard, cryptocurrencies can self-
verify every transaction made by the people who use them. Whether they are using digital coins to
make purchases, accepting crypto as payment for goods and services, or trading altcoins, every
transaction performed using a decentralized blockchain currency is performed with trust and security.
Decentralized cryptocoin markets run through a blockchain relying on a peer-to-peer protocol. So
trading altcoins is done through dozens or even hundreds of independent nodes and masternodes.
Transactions occur only when the nodes come to a consensus based on the exchange's verification rules.
When it comes to cryptocurrency exchange websites, however, centralization remains a core concept.
Just like PayPal, centralized exchanges are run by companies that manage and earn revenue from
transactions on the platform (medium.com 2021). To clarify, cryptos used decentralization in their
trading platforms, although there are certain crypto platforms that are centralized. Cryptocurrency
exchanges that convert cryptos into fiat money are centralized.
The top six 5-star rated digital currencies today as ranked by Louis Navellier, renowned growth investor,
champion for individual investor, and portfolio and dividend grader are the following (investorplace.com
2021):

Ethereum or Ether (ETH) was first described in a 2013 whitepaper by Vitalik Buterin. Buterin, along
with other co-founders, secured funding for the project in an online public crowd sale in the summer of
2014 and officially launched the blockchain on July 30, 2015. The Ethereum network, moreover, is
formed by each and every one of the computers that work verifying operations in the blockchain, also
called miners. These miners receive Ether as a reward for executing the operations of the platform.
Ether, as cryptocurrency, can be bought in different places. The most popular is the website Coinbase,
through which you can quickly and easily create an Ethereum wallet and start trading with Ether.

While Ether is a relative newcomer, it has risen up the ranks, thanks to its superior technology and
its ability to create "smart contracts." It is the cryptocurrency of the Ethereum blockchain, a
technologically advanced version of Bitcoin, that stands to grow even faster. That makes it more like
Google Wallet or Apple Pay-a system that can approve or delay transactions based on real-world events.
Online buyers and sellers, for instance, could set up trades that only follow through when the postal
service independently verifies the delivery of goods. The amount of Ethereum held on decentralized
exchanges and platforms is now almost twice as much as what is available on centralized exchanges like
Binance, Coinbase, or FTX. Since the start of 2020, the amount of Ether on centralized exchanges has
fallen by 30% while locked Ether on DeFi protocols is up 75% over the same period. Ether/Ethereum is
the second (to Bitcoin) largest cryptocurrency based on a market capitalization of approximately US$
200 billion and one Ether costs around US$ 2,494 (approximately P117,218). The cost per transaction is
US$ 10 and it registered a 470% return in 2020.

Bitcoin (BTC) is the most widely adopted cryptocurrency. Many investors and experts consider
Bitcoin to be the first and original cryptocurrency. Bitcoin has decentralized digital currencies and
created a disruption in the financial world. Although it is not the most technologically advanced, it
continues to lead the pack. Many call Bitcoin the gold cryptocurrency. It was released in 2009 by the
pseudonymous Satoshi Nakamoto (we really do not know who he is or, could be, who they are) and
quickly became the standard for virtual currencies.

According to the pseudonymous Nakamoto (irs.gov 2021)..

What is needed is an electronic payment system based on cryptographic proof instead of trust,
allowing any two willing parties to transact directly with each other without the need for a trusted third
party. Transactions that are computationally impractical to reverse would protect sellers from fraud...
The system is secure as long as honest nodes collectively control more CPU power than any cooperating
group of attacker nodes.

Bitcoin has the largest market capitalization of approximately US$ 920 billion. A single coin
currently costs over US$ 38,900 (that is equivalent to more than PHP 1.8 million)! The cost per
transaction is US$ 15 and it posted a 309% return in 2020
 0'>Ripple (XRP), better known as XRP, is the "odd duckling" of the cryptocurrency world, but XRP is
the largest currency to have 10x potential for 2021. Compared to Bitcoin and other cryptocurrencies,
XRP transactions are much faster and cheaper. These include the ability to negotiate with large banks
and execute trades quickly. And its low price-per-coin makes it a tempting target for gamblers/punters.
XRP is the fourth largest in terms of market capitalization of over US$ 24 billion, is priced at US$ 0.8779
per coin, and the transaction cost is very nominal. It registered a 2020 return of 16%.

XRP is a centralized cryptocurrency founded in 2012, mined, managed, and administered by Ripple
Labs used by the Ripple payment network (instead of a broad-based community). This does not just
have the potential to help everyday consumers; financial institutions themselves are also keen to get in
on the action. An impressive list of banks and payment providers use its network, including American
Express, Bank of America Merrill Lynch, HSBC, Barclays, Royal Bank of Scotland, Santander, Unicredit,
and MoneyGram (currency.com 2021). Visa (NYSE:V) also uses the XRP network together with other
centralized payments processors. Built for enterprise use, XRP aims to be a fast, cost-efficient
cryptocurrency for cross-border payments. Ripple has its sights set on the international transfer market.
Banks charge astronomical fees. XRP is designed to tackle this by allowing large sums of money to be
sent securely and quickly at little cost. This goal was achieved because, as we had stated, several banks
and payment providers are now using its network. It is a centralized cryptocurrency that is geared
toward getting rid of the high costs of inter-bank transfers. The currency is used by financial institutions
as an alternative to the Society for Worldwide Interbank Financial Telecommunications (SWIFT)
network, giving it a real-world application. SWIFT is a vast messaging network used by banks and other
financial institutions to quickly, accurately, and securely send and receive information, such as money
transfer instructions. The SWIFT payment standard prescribes the rules and regulations that all
participants in the international payment network must abide with to ensure that there is a common
standard of messaging and communication between the banks and other financial institutions.

Stellar (XLM) is a well-placed contender to XRP's crown. It offers low-cost, cross- border
transactions. It was developed by the Stellar Development Foundation. 2021 was to become Stellar's
year. After lagging Bitcoin in 2020, Stellar surprised analysts and investors alike by rocketing 200% in the
first week of January. The coin has continued to outperform expectations since. Stellar is the fifth
biggest in the top six 5-star cryptos in terms of market capitalization with an approximate market
capitalization of US$ 7.7 billion. Each coin costs US$ 0.3349 and the transaction cost is nominal. It
showed a 2020 return of 189%.

Established in 2014, much of its success comes from XRP's misfortunes. Much like XRP, Stellar was
designed to facilitate cross-border transactions. As regulatory issues mount for rival XRP, Stellar has
quickly moved to fill the void. But some of it has also come down to luck. In January, the Office of the
Comptroller of the Currency (OCC) allowed banks to start using independent node verification networks.
The same week, the Ukrainian government announced a partnership with Stellar Development to create
a national digital currency. All of these grant perfect investment conditions for Stellar, a top
cryptocurrency for 2021.

Cardano (ADA) is one of the largest third-generation cryptocurrencies, and it is packed with plenty
more upside potential in 2021. Third-generation cryptocurrency may also be called Blockchain 3.0. ADA,
which runs on the Cardano network, was established in 2017. It is one of the most technologically
exciting cryptocurrencies to date. And its use of smart contracts means that it can keep track of
transactions like Bitcoin while handling payments like Ethereum. In short, it is a third-generation coin
that improves on its predecessors. Its proof of stake system means it can operate more efficiently than
the standard proof of work system.

The main difference between the two systems is that proof of work (POW) requires burning an
external resource (mining hardware), while proof of stake (POS) does not. Proof of work criticizes that if
price/Bitcoin rewards/fees drop, then fewer people have incentives to mine. This, in turn, reduces the
security of the system. Proof of stake states criticizes that since it is free to stake/add new blocks to the
Blockchain, you could use it to stake several similar coins at the same time.

ADA is the fourth largest of the top six 5-star cryptos based on market capitalization, It has an
approximate market capitalization of US$ 27 billion, each coin costs US$ 1.56, and the transaction cost is
7 cents. It registered a 2020 return of 441%. ADA still has plenty of work to do in the year ahead. After
all, having a superior technological product means nothing if people will not adopt it.

Three key areas make it a top cryptocurrency for 2021. First, ADA has momentum. The currency took
just three years to hit a $10 billion market cap- one-third the time it took Bitcoin to do the same.
Second, it sits at just US$ 1.56 per coin, making it a tempting target for punters to run up. Finally, it has
the at ity to handle transactions and smart contracts. This makes it a natural enhancement for other
cryptocurrencies like Bitcoin.

Dogecoin (/dou(d)3kon/ DOHZH-koyn or DOHJ-koyn, code: DOGE, symbol: D) is an internet meme

turned cryptocurrency, teaching the world about making money. In 2013, IBM (NYSE:IBM) software
engineer Billy Markus and Jackson Palmer decided to create a payment system as a joke, making fun of
the wild speculation in cryptocurrencies at the time. Dogecoin was originally created, at least in part, as
a lighthearted joke for crypto enthusiasts, and took its name from a once-popular meme. A meme is an
idea, behavior, style, or usage that spreads from person to person within a culture. Memes (discrete
units of knowledge, gossip, jokes, and so on) are to culture what genes are to life.

Despite this unusual origin story, it has exploded in popularity in 2021 and is a cryptocurrency
featuring a likeness of the Shiba Inu dog from the "Doge" despite its satirical nature, some consider it a
legitimate investment prospect. DOGE internet meme as its logo and namesake. It was introduced on
December 6, 2013, and quickly developed its own online community.

DOGE has become the fifth largest cryptocurrency by market capitalization of US $ 41 billion costing
3 cents per transaction with each coin costing US$ 0.3175. It registered a 2020 return of 118%.

Today, Dogecoin is no joke, having exploded in value and gained more than 5,000% in 2021. And like
most memes, Dogecoin saw its 15 minutes of fame. In 2017, DOGE briefly rocketed 85,000% as the
internet found its new amusement; it subsequently lost 98% of its value. But in the world of
cryptocurrencies and memes alike, second acts do exist. In December 2020, Tesla (NASDAQ:TSLA) CEO
Elon Musk sent Dogecoin back up 200% in a week simply by tweeting about it, calling Dogecoin his
favorite cryptocurrency (forbes.com 2021).

As 2021 rolls around, this newfound popularity could send the coin up to speculative heights.
Dogecoin does have its merits: its faster block time makes it better at processing payments than Bitcoin
can. But in an asset class where popularity trounces usability any day of the week, Dogecoin could
quickly return 1,000%.

Below is a table showing basic details relative to the top six 5-star cryptocurrencies we discussed:

Cryptocurrency Year Market Cost per coin Transaction 2020 Return

established capitalization US$ cost US$
US$
Ether (ETH) 2015 200 billion 2,494 10 470%
Bitcoin (BTC) 2009 920 billion 38,900 15 309%
0’>Ripple (XRP) 2012 24 billion .88 nominal 16%
Stellar (XLM) 2014 11 billion 0.3349 nominal 189%
Cardano (ADA) 2017 27 billion 1.56 0.07 441%
Dogecoin (DOGE) 2013 41 billion .317 0.03 118%

The cryptocurrency market has grown unprecedentedly big. There are currently more than 7,800
cryptocurrencies in circulation today. They range in aspects such as type, use, and value. Many of them
are not popular on a large-scale and most popular cryptocurrencies account for more than 80% in the
industry (currency.com 2021).

LESSON SUMMARY
1. Cryptocurrency or virtual/digital currency is any type of digital unit that is used as a medium of
exchange or a form of digitally stored value generated by agreement within the community of
virtual currency users. It is referred to as "digital gold." It is also called "altcoins." Cryptocurrency
is digital money-it is virtual and has no physical form.
2. Flat currency or cash, on the other hand, is the real currency. Coins and paper money (bills)
issued and printed by the central bank of a country are fiat currency, fully-backed by the
government of a country and is acceptable as payment for public and private debts.
3. E-money is a digital representation of fiat currency stored in digital wallets or e-wallets. Any
amount of currency stored in an electronic wallet (such as GCash, PayMaya, Coins PH, GrabPay,
and the like) is e-money, which can also be accepted as a "card payment" or can be withdrawn
right away as cash.
4. Virtual currency, which is stored digitally, would still need to be converted first to Philippine
peso, then transferred to a destination wallet or be withdrawn as cash through different
mediums that are accepted in the country. In general, conversion is done through a virtual
currency exchange. In the Philippines, cryptocurrencies are regulated by the Bangko Sentral ng
Pilipinas (BSP).
5. Cryptocurrencies work through blockchain technology. Blockchain is a special kind of database,
a "distributed ledger" or a "global ledger" built on a data structure known as "blocks."
Blockchain allows all participants to view the records and all the changes that happen in the
 database. Your transaction data will be stored in a block, which is technically a list of other
transactions made by other people. The block where your transaction is listed will then be
chained to previous blocks. Cryptocurrencies use electronic coins as their form of exchange,
which are nothing more than slots in the blockchain.
6. Cryptocurrencies use cryptography, the process of protecting information by using codes, for
security. It is also used to control transactions and increase the supply. With this feature,
cryptocurrencies have become self-governing and self-regulating. It provides routine escrow
mechanisms that could easily be implemented to protect buyers.
7. However, having no intrinsic value, there are also significant risks associated with
cryptocurrencies. Their worth comes from their users. The more users a coin has, the more
useful it becomes, and the higher its price goes. Cryptocurrencies only serve to transfer wealth
from one party to another. But when a coin falls out of favor, there is nothing to stop it from
going to zero and that is the risk.
8. China has already developed a Central Bank-backed crypto, and in the US it was discussed as
part of the C-19 stimulus. In other words, unregulated cryptocurrencies will one day compete
against state-sponsored ones, too.
9. Decentralized cryptocoin markets run through a blockchain relying on a peer- to-peer protocol.
So trading altcoins is done through dozens or even hundreds of independent nodes and
masternodes. Transactions occur only when the nodes come to a consensus based on the
exchange's verification rules.
10. When it comes to cryptocurrency exchange websites, however, centralization remains a core
concept. Centralized exchanges are run by companies that manage and earn revenue from
transactions on the platform.

KEY TAKEAWAYS

1. Cryptocurrency, virtual/digital currency, "digital gold", or "altcoins" are any type of digital
unit that is used as a medium of exchange or a form of digitally stored value generated by
agreement within the community of virtual currency users.
2. Fiat currency/fiat money or cash is the real currency, coins and paper money (bills) issued
and printed by the central bank of a country.
3. E-money is a digital representation of fiat currency stored in digital wallets or e-wallets.
4. Virtual currency, which is stored digitally, would still need to be converted first to Philippine
peso, then transferred to a destination wallet or be withdrawn as cash through different
mediums that are accepted in the country done through a virtual currency exchange.
5. Cryptocurrencies work through blockchain technology. Blockchain is a special kind of
database, a "distributed ledger" or a "global ledger" built on a data structure known as
"blocks."
6. Cryptocurrencies use electronic coins as their form of exchange, which are nothing more
than slots in the blockchain.
7. Cryptocurrencies use cryptography, the process of protecting information by using codes,
for security.
8. The more users a coin has, the more useful it becomes, and the higher its price goes. But
when a coin falls out of favor, there is nothing to stop it from going to zero.
9. China has already developed a Central Bank-backed crypto.
10. The cryptocoin market is decentralized, but cryptocurrency exchange websites, are
centralized.