LECTURE SUMMARY

Learning tips

Here is the list of some tips that will help you learn
blockchain faster and easier:
General
Find a quiet and peaceful place
Create 2-4 hours of dedicated time
Take the lectures in the provided order
Try pausing, slowing down, or replaying the
videos
After a lecture
Make sure to check the additional resources
Try recalling the most important information
in the lecture
Read the lecture summary
Questions & Answers
Post your questions in the discussion area
Try to answer others’ questions
Last words
Promise yourself you will finish this course
Trust yourself in achieving your goal

See you in the next lecture!

 LECTURE SUMMARY

Bitcoin vs Blockchain

Bitcoin is a currency that is similar to the traditional money

we use today. However, it is digital, it does not belong to
any authority such as a central bank of a country, is
available 7/24 and it is fast, cheap and safe to make a
bitcoin transaction.
Blockchain is the technology that bitcoin and other
cryptocurrencies rely on. It safely stores every transaction
made within the network in a public ledger. These
transactions cannot be altered or controlled by an
authority since the network is decentralized and
maintained by multiple computers connected to the
network.

See you in the next lecture!

 LECTURE SUMMARY

What is a
cryptocurrency?

A cryptocurrency is a digital asset that is encrypted for

security using cryptography. It is decentralized, trustless,
peer-to-peer, secure and has no borders.
DigiCash, Hashcash and B-money were the first examples
of cryptocurrencies but they failed as they never got the
technology right and couldn’t build up enough support.
Bitcoin is the most popular example of cryptocurrency,
created by Satoshi Nakamoto in 2009.

See you in the next lecture!

 LECTURE SUMMARY

Cryptocurrency vs coin
vs altcoin vs token

The term cryptocurrency covers all of the digital assets

using cryptography, which include coins, altcoins and
tokens.
Coins act similar to a normal currency you know such as
USD and bitcoin is the most important example.
Any coin that is not a bitcoin is also called an altcoin which
refers to ‘alternative coin’.
There are two types of altcoins: Bitcoin-forked blockchains
such as Litecoin and native blockchains such as Ethereum.
‘Fork’ refers to copying of the original source code of a
software package in order to develop a new software
program that is different and independent from the
original.
A token is another type of cryptocurrency that is built on
top of an existing blockchain for a specific purpose and has
functionalities other than simply acting as a currency. An
example to a token is Storj.
There are two types of tokens: usage token and work
token.
Usage token is used for accessing the service
provided by the project that is issuing the tokens.
Work token gives individuals the ability to work for
the project and contribute to maintain the system.

See you in the next lecture!

 LECTURE SUMMARY

History of money

Money has evolved throughout human history from barter

to objects such as shells, from metal coins to paper notes,
from gold standard to free-floating currencies, and from
electronic money to bitcoin.
Fractional reserve banking is a very risky mechanism that
allows the banks to give out loans while holding reserves
equal to only a fraction of its liabilities.
Bitcoin has brought us a decentralized, trustless, cheaper,
faster and safer payment method and is the most advanced
version of money that has been invented so far.
Bitcoin carries all the characteristics of money by being
portable, divisible, durable, legitimate, hard-to-create and
having limited supply.

See you in the next lecture!

 LECTURE SUMMARY

What is blockchain?

Blockchain is a technology that was actually developed in

1991 by two people called Stuart Haber and Scott Stornetta
but the idea got improved and the word blockhain got
widely adopted only after Bitcoin was invented in 2009.
Blockchain stands for the technology Bitcoin is built upon
while the term ‘Bitcoin’ represents both the Bitcoin
blockchain and the bitcoin cryptocurrency.
Blockchain can be defined as a decentralized, trustless,
irreversible, chronological and real-time public ledger that
is formed by a digital chain of blocks which contain
encrypted information.
Blockchain can have many uses such as making payment,
monitoring supply chain, lending money, voting,
forecasting, betting, tracking health records, etc.
Blockchain can replace many centralized authorities such
as banks and governments in the future.

See you in the next lecture!

 LECTURE SUMMARY

How does
blockchain work?

A network of computers, known as nodes, runs and

maintains the blockchain.
These nodes validate the originality and correctness of
transactions. If they decide that a transaction is authentic
and valid, they encrypt it and store it inside a block they
create.
Nodes have to solve a mathematical problem in order to
create a new block.
Every block has a limited size and cannot take more than a
certain number of transactions.
Every new block on the blockchain is chained to the
previous block by containing the summary of contents of
the previous block.
In case someone attacks and alters an older block, the
chain between the blocks protects the whole chain by
automatically making the following blocks invalid.
If an attacker intends to alter an older block, he/she will
have to run extremely difficult computations to recreate all
of the blocks that come after that block in order to fool the
network that the new blockchain he/she created is the
genuine one. This requires an insane amount of computing
power and is almost impossible unless the attacker(s) hold
more than half of the computing power of the network.
Also, the older the block that is attacked, the more difficult
the task will be to accomplish.
The transactions that await confirmation before they are
stored inside a block temporarily live in a memory pool.

As one of the nodes solves the mathematical problem

before others, it creates the new block, adds it to the
blockchain with a reference to the previous block that
comes before it, and broadcasts the solution to every other
node on the network. At this moment, not only the new
block is confirmed and added to the end of the blockchain
but also all transactions included in that block become
confirmed as well.
After a new block is created, every node in the network
checks whether the new block is correct and if the answer
is yes, they update their copy of the distributed ledger in
order to stay up-to-date with the rest of the network and
stay operational. On the other hand, if the block is
incorrect, they don’t update their ledger and continue
working on the legitimate blockchain.
Nodes are highly critical for the continuous operation of
the blockchain and to keep it secure and decentralized.
The blockchain protocol rewards these nodes with
cryptocurrencies or fees, or with both, in return for their
activity of validating transactions and creating blocks.
Rewards are not free. The processes of transaction
validation and block creation, which are also called mining,
require the nodes to use computing power that also
requires electricity.

See you in the next lecture!

 LECTURE SUMMARY

What is Bitcoin?

Bitcoin is the first successful decentralized cryptocurrency

that allows people to make payments and transfer money
fast, cheap and secure without having to rely on
intermediaries such as banks.
Bitcoin bears all three requirements for being considered
as a currency: unit of account, medium of exchange and
store of value.
Bitcoin was invented in 2009 by a visionary person or group
that use the cover name Satoshi Nakamoto, with the
objective of giving the power back to the hands of the
people.
Bitcoin transactions cannot be altered after they are
confirmed.
Bitcoin transactions usually take 10-20 minutes to be
confirmed and cost $1.5 but these can change dramatically
when network is busy.
Bitcoin transactions are not completely anonymous in
contrast with the public belief. In fact, founder of Silk Road
has been arrested in 2013 due to this reason.
1/100,000,000 of a bitcoin is called a Satoshi.
On 22 May 2010, Laszlo Hanyecz paid 10,000 bitcoins for 2
large pizzas.

See you in the next lecture!

 LECTURE SUMMARY

How does Bitcoin work?

To create a Bitcoin block, miners need to solve a

mathematical problem which works as a function that has
inputs and outputs.
The output of this function must have a prefix with specific
numbers of zeros, which is determined by the Bitcoin’s
protocol.
Bitcoin’s protocol adjusts the difficulty of the mathematical
problem by changing the required number of zeros every
2,016 blocks (approximately every 2 weeks) so that solving
the problem and creating the block would always take 10
minutes in average.
By mining alone, it’s highly possible that your life time will
not be sufficient to create a block because of the difficulty
of the Bitcoin’s mathematical problem.
Nonce is an integer which stands for ‘number used once’.
Every miner uses it as an input for solving the
mathematical problem alongside the block contents, and
continuously increments it at each attempt so that he/she
can quickly try another solution after each fail.
Every Bitcoin block includes a reference to the previous
block in the form of a SHA-256 cryptographic hash of the
previous block’s header. This is to ensure the security of
the system.
By solving the mathematical problem, miners are proving
that they have in fact used computing power and
consumed the required energy to complete the job, which
is called ‘Proof of Work’.
Block reward is halved in every 210,000 blocks
(approximately every 4 years). Currently, it is 12.5 bitcoins
per block.
The total supply limit for bitcoin is set as 21 million
bitcoins; and due to the halving every 4 years, it is expected
for the mining reward to decrease to zero by 2140.
Afterwards, miners will still maintain the blockchain but
just by collecting fees instead of both block rewards and
fees.

See you in the next lecture!

 LECTURE SUMMARY

What is hashing and

hash function?

Hashing is the transformation of any length of characters

into a value or key that has a fixed length representing the
original string.
Hashing can be used in databases, encryption algorithms
and blockchain.
Hashing algorithms are called hash functions.
Value returned by a hash function has many names such as
hash value, hash code, digest, or simply hash.
Bitcoin uses SHA-256 hashing algorithm while Ethereum
uses KECCAK hashing algorithm.
Characteristics of cryptographic hash functions are as in the
following:
Output is always of a specified length determined by
the algorithm.
Output is usually, but not necessarily, shorter than
the input.
Output changes dramatically even if the input is
changed only slightly.
Two distinct inputs cannot map into the same
output, or at least the probability should be
extremely low (This concept is called collision
resistance).
It is almost impossible to reverse the function to
find the input data from the hash value.
This impossibility level of reversal varies according
to the strength of the encryption used.
The output does not give any information about
what the input can be and looks random.
For a hash function to be efficient, hash value of an
input should be returned very fast.

See you in the next lecture!

 LECTURE SUMMARY

What is inside a
Bitcoin block?

Contents of a Bitcoin block are as below:

Magic number: Specific number that states the
block is a Bitcoin block
Block size: Space required to store the block
Transaction counter: Number of transactions inside
the block
Transactions: List of all transactions stored in the
block. Each transaction consists of:
Transaction hash: Hash of the remainder of
the transaction
Version: Identifies the version of Bitcoin
protocol
List of inputs: Sources of the transaction +
sender’s signature
 List of outputs: Amount of transaction +
receiver’s public key
Lock time: Period of time required for the
transaction to be processed
Size: Space required to store the transaction
Block header: An element of the block that contains
the following information:
Version: Identifies the version of Bitcoin
protocol
Hash of previous block: Hash of the previous
block’s header
Merkle root: The final hash that is found by
continuously hashing pairs of transaction
hashes
Timestamp: The moment in time that the
block is created
Difficulty target: Difficulty of the
mathematical problem used in mining
Nonce: An integer used as input for the
mathematical problem used in mining

See you in the next lecture!

 LECTURE SUMMARY

What is a
cryptocurrency wallet?

A cryptocurrency wallet is a software application that

interacts with blockchain and enables users to transfer
cryptocurrencies and monitor their balance.
Wallets are a must-use for everyone that wants to send or
receive bitcoin, Ether, or any other cryptocurrency.
Wallets store public and private keys of the user which are
then used to prove whether a user is the legit owner of an
account or whether a transaction made by the user is
authentic.
Wallets do not store our cryptocurrencies inside.
On Bitcoin blockchain, your cryptocurrencies are not even
stored anywhere. Instead, the blockchain stores the list of
all transactions and the account balance can be calculated
by checking the ins and outs of an address.
Ethereum blockchain stores account balances and it is
possible to read them directly via a wallet.
By using the wallet of an exchange or another provider,
you are sharing your private key with that provider, which
is equal to giving them your password to your funds.
You must never share your private key with others, and
you must choose your wallet carefully in order to keep your
funds safe.

See you in the next lecture!

 LECTURE SUMMARY

Hot wallet
(software wallet)

Hot wallets have only one sub-category that is divided into

three.
Software wallet
Desktop: Exodus, Electrum, Copay, Jaxx
Mobile: Mycelium, Copay, Jaxx
Web: Binance, KuCoin, Coinbase

See you in the next lecture!

 LECTURE SUMMARY

Cold storage (hardware

wallet & paper wallet)

Cold storage is divided into two sub-categories.

Hardware wallet: Ledger, Trezor, KeepKey
Paper wallet
Advantages of hardware wallets:
Your transactions are signed offline and your keys
are stored offline, so you don’t have to share your
private key with a third party.
The device asks you for your pin code every time
you plug it into a computer, so no one else can
access your device unless you share the pin code.
In order to approve a transaction, the device
requires you to click on a hardware button, so a
hacker would never be able to take over your funds
without having physical access to your device first.
If you have a portfolio over $1,000, you better get a
hardware wallet such as a Ledger Nano S as soon as
possible.
Not a single wallet is capable of storing every
cryptocurrency.

See you in the next lecture!

 LECTURE SUMMARY

What is Ledger Nano S

and how to use it?

Ledger Nano S is a hardware wallet that provides cold

storage option for your cryptocurrencies.
It supports most of the popular cryptocurrencies including
Bitcoin, Bitcoin Cash, Ether, Litecoin, Dogecoin, Stellar,
Ripple, Dash, Neo, Zcash and any ERC-20 token.
ERC-20 is a token standard developed to provide
interoperability between Ethereum tokens and allow these
tokens to be stored under a single wallet. Golem, Augur,
Ethos, Civic and Storj are examples of ERC-20 tokens.
Ledger Nano S can be used with several external wallets
such as MyEtherWallet, Electrum, Copay, etc.
It is wise to buy a hardware wallet if you have a
cryptocurrency portfolio worth over $1,000.
Ledger wallets not only keep your keys offline but also
protect your funds with pin code and hardware buttons.
While a Ledger Nano S is one of the safest options available
to store cryptocurrencies, it is still vulnerable against few
attacks by third parties and users need to be on the alert to
protect themselves.
Some of the best practices of using a Ledger Nano S are:
Buying the device from the official store
Double-checking the URL of third party software
wallets/exchanges
Double-checking the transaction details on both the
software and hardware wallet

See you in the next lecture!

 LECTURE SUMMARY

What are public key

and private key?

In cryptography, the encryption scheme that makes use of

public and private key pairs to ensure security and
authenticity of messages is known as asymmetric
cryptography, or public key cryptography.
In contrast with symmetric cryptography that uses a single
key for both encryption and decryption, asymmetric
cryptography utilizes two mathematically related but not
identical keys which have unique functions.
Messages encrypted with a public key can only be
decrypted by the holder of the private key corresponding
to that public key.
Receiver of a message can verify whether the message is
actually coming from a specific sender, with the condition
that the sender’s public key is known to the receiver.
Public and private key pair relies on cryptographic
algorithms that are based on complicated mathematical
problems.
The algorithm behind public key cryptography should be
easy enough for computers to quickly generate a public key
from the private key but on the other hand, it should also
be extremely difficult to reverse the algorithm to derive the
private key from the public key.

See you in the next lecture!

 LECTURE SUMMARY

How are public key,

private key and address
used in Bitcoin?

Public key cryptography is widely adopted by blockchain

systems in which they are used to check whether the
sender of a transaction is genuine, to ensure that a
transaction isn’t compromised, and to create new accounts
with new key pairs.
Bitcoin’s protocol makes use of a cryptographic algorithm
called Elliptic Curve Digital Signature Algorithm (ECDSA) to
generate a new asymmetric key pair.
Public key is not the same as address. In fact, after a new
key pair is generated, the public key is run through another
hash function in order to create the address for the
account.
The reason behind the use of addresses is to add a second
layer of protection to accounts.
A user can obtain multiple bitcoin accounts and make
transaction from one to another.
Bitcoin protocol accepts the longest chain as the legitimate
blockchain. In other words, no matter how many parallel
chains are created by evil miners, the majority of the
network will eventually create the longest chain and take
control.
In Bitcoin, it is common to wait for 6 blocks before
confirming a transaction.
Never tell your private keys to others and backup them at a
safe location other than your home, and preferably use a
hardware wallet or an encrypted USB drive for that.

See you in the next lecture!

 LECTURE SUMMARY

What is digital signature and

how is it used in blockchain?

A digital signature algorithm is a concept of asymmetric

cryptography which is utilized by wallets in order to let the
owner of an account to authorize a specific action, or to
prove that he/she has authorized one before.
There are two functions in a digital signature:
Sign (Message, Private Key) --> Signature
Verify (Message, Public Key, Signature) --> Boolean
(True or False)
In Bitcoin, signatures are used for the actions of sending
and receiving funds. Sender signs the transaction using the
message and his/her private key; then miners verify the
transaction using the message, sender’s public key and
signature. If everything checks out, transaction becomes
confirmed and gets stored in one of the next blocks.

See you in the next lecture!

 LECTURE SUMMARY

What is MyEtherWallet?

MEW is a free, open-source, client-side interface for

generating Ethereum accounts and for interacting with the
Ethereum blockchain easily and securely.
MEW has a very user-friendly website that you can use to
quickly generate a new key pair and an address, and to
send, receive or store Ether and Ethereum tokens.
The whole process of creating and accessing accounts on
MEW is actually done on your computer and MEW does
not store your keys or password on its servers.
MEW provides its users with a lot of methods to create
accounts or access them. These options include:
View with Address Only
MetaMask / Mist
Ledger Wallet
TREZOR
Digital Bitbox
Keystore / JSON File
Mnemonic Phrase
Private Key
Parity Phrase

See you in the next lecture!

 LECTURE SUMMARY

What is
cryptocurrency mining?

With most blockchains, new cryptocurrencies can only be

created by putting in effort and completing an action called
mining, for which the rules are determined by the source
code of the blockchain.
Mining is the process of verifying transactions and
recording them in blocks on the public ledger, or
blockchain, by using hardware devices and consuming
electricity in exchange for rewards. It is a service carried
out by miners that make use of computing power in order
to keep the ledger safe, consistent, unchangeable and
distributed. As this mechanism requires work to be done by
the miners in order to achieve consensus and maintain the
system, it is also known as Proof of Work (PoW) within the
blockchain community.
This process has been called ‘mining’ by blockchain
enthusiasts because creation of new bitcoin actually
resembles gold mining.
Devices used for mining are called ‘mining hardware’, and
people that who own and use them are called ‘miners’, or
‘nodes’.
Miners validate transactions through the use of
cryptography. They solve a mathematical problem, add a
new block to the blockchain and then distribute this
information to other nodes in the system.
If a block mined by one of the miners is fraudulent, the rest
of the network will reject it, and they will continue
maintaining their own chain. This results in two chains at
the same time but as few more blocks are created, the
majority of the network is expected to achieve a longer
chain, which is considered as legit by many blockchain
protocols such as Bitcoin’s.
The more miners on the network, the more resilient it is
against attacks. However, it also means less chance for the
miners to create a block and win the reward.
With a cryptocurrency, there should always be a balance
between the number of miners, the time required to create
a block, the amount of block reward and the price of the
cryptocurrency.
In return for creating a block, miners are awarded with
both block reward and the sum of all fees paid for the
transactions stored in that block.
The higher the transaction fee, the quicker the transaction
will be.
The transaction that pays the block reward to the miner is
called ‘coinbase transaction’
Coinbase transaction is stored inside the block created by
the miner among other transactions.
Coinbase transaction cannot be spent until the block that it
was stored in is 100 blocks deep in the blockchain and
unless that block is considered valid.

See you in the next lecture!

 LECTURE SUMMARY

Bitcoin mining

In Bitcoin’s case, to create a block on the Bitcoin

blockchain, miners need to run a mathematical algorithm
that uses block’s content and a number called nonce as
inputs, and gives a hash that starts with a specific number
of zeros, for example 19 zeros, as the output.
Each miner tries to solve the mathematical problem
quadrillion times and after each failure, they increment the
nonce and try again with the new combination, until one
among them eventually solves the problem.
The mathematical problem is unique for every miner and
thus it requires a different solution for each of them. This
happens because every miner uses a different address for
coinbase transaction.
The reward of creating a new Bitcoin block is 12.5 bitcoins
as the block reward, plus the sum of all the fees collected
from the transactions stored in that block.
Block reward is set to get halved in every 210,000 blocks
(approximately every 4 years).
The next halving is supposed to happen in 2020 and after
that the block reward will stay at 6.25 bitcoins for another
4 years.
By the year 2140, all bitcoins will be mined and there won’t
be block rewards anymore but miners will still be
incentivized because they will still be collecting fees from
the transactions.
Average time to mine a Bitcoin block is 10 minutes and
Bitcoin’s protocol automatically adjusts the difficulty of the
mathematical problem in approximately every two weeks
to maintain this interval.
To mine cryptocurrencies, you need to make thorough
research for the hardware, calculate potential revenue
minus electricity costs, take into account the initial
investment costs and volatility in cryptocurrency prices.

See you in the next lecture!

 LECTURE SUMMARY

What is hash rate?

What is hash power?

Hash rate is a measure of how many times a mining device

can run a Proof of Work algorithm in a certain period of
time.
Hash power is similar to hash rate and can be used to
define how much hash rate a device or a group of devices
has.
Hash rate, hash function and Proof of Work algorithm are
different terms.
The more hash rate a mining device has, the more probable
it is to find the next block and get the block reward.
Comparing the hash rate of mining devices that mine
different cryptocurrencies is not logical.
SHA-256, Ethash, Scrypt and CryptoNite are examples of
different Proof of Work algorithms.
Hashes get prefixes to easily tell how much hash rate a
device has, if it has a lot.
1 kilohash = 1,000 hashes = 103 hashes
1 megahash = 1,000,000 hashes = 106 hashes
1 gigahash = 1,000,000,000 hashes = 109 hashes
1 terahash = 1,000,000,000,000 hashes = 1012
hashes
1 petahash = 1,000,000,000,000,000 hashes = 1015
hashes

See you in the next lecture!

 LECTURE SUMMARY

What is an ASIC?

ASIC (Application Specific Integrated Circuit) chips are

designed to solve mathematical problems of
cryptocurrencies faster than GPUs. These chips cannot do
other computations.
Th/s, or sometimes Gh/s or Mh/s, is the hash rate and a
higher hash rate means that the device can try more
nonces each second. Hence, the higher it is, the more
powerful.
kW tells us how much energy the device consumes. Hence,
the lower it is, the better.
Bitmain is the largest producer of ASIC mining devices.

See you in the next lecture!

 LECTURE SUMMARY

Methods of
cryptocurrency mining

There are three ways to mine cryptocurrencies:

Individual mining
Joining a mining pool
Cloud mining
Individual mining is the term used for mining by yourself.
Individual mining is rare because of the high investment
costs and low chances of mining a block.
Cloud mining stands for renting someone else’s mining
hardware and let them do the mining for you. In other
words, cloud miners don’t invest in the hardware in a lump
but instead they hire it from other miners, paying monthly
rents to the owner of the hardware.
By using cloud mining, the miner is relieved from physically
hassling with the mining device which includes controlling
the noise and the ventilation of the device, paying for
electricity, and selling the equipment that loses its
profitability. However, this method is less profitable and
has the risk of fraud.
A mining pool stands for the pooling of resources by miners
via sharing computing power over a network and splitting
the block reward in proportion to the amount of
contribution.

See you in the next lecture!

 LECTURE SUMMARY

What is a mining pool and

how to select the best?

As it can take a thousand years for an individual miner to

find a block, miners usually prefer to work together in
pools, to which each miner dedicates their computing
power and this combined power is used to mine
cryptocurrencies.
There are four things to consider when joining a pool:
Pool size
Fee
Minimum payout
Reward method
By joining a pool, one can get his/her share from the
reward from mining a block that is distributed among
contributors in proportionate to the amount of computing
power they provide.
A share is a solution that doesn’t actually solve the
required mathematical problem and generate an actual
block but is still considered good enough to be rewarded.
The most important reward methods are:
Proportional: Every time a block is created by the
pool, the reward is distributed among miners in
proportion to how much share they have.
Score-based: Reward is distributed among miners
proportionally, but the reward paid per miner
increases according to the time that miner had
spent online before that block was found. Also,
when a miner stops mining, his/her score quickly
diminishes.
Pay-per-share (PPS): Each share is worth a fixed
amount regardless of whether a block is found by
the mining pool or not, and the amount to be paid
per share is determined by the mining pool in
advance. However, since the mining pools cannot
estimate the amount to be paid in advance with this
reward method, they tend to take higher fees.
Full-pay-per-share (FPPS): Similar to PPS, in this
rewarding method, each share is worth a fixed
amount but in addition to the standard block
reward, transaction fees are also distributed to
miners. As it pays more than PPS, it is a better
choice for miners.
Shared-maximum-pay-per-share (SMPPS): Similar
to PPS, in this rewarding method, each share is
worth a fixed amount but the rewards are
distributed to the extent the pool has funds to cover
it. So, if the pool does not have the funds, the
remaining amounts that can’t be paid are recorded
to be paid at a later time when the pool has the
necessary funds. It is a bit better than traditional
PPS rewarding method because the fee taken by the
pool is usually lower.
Pay-per-last-N-shares (PPLNS): Similar to
proportional distribution but instead of looking at
the number of shares in the last round, it looks at a
number of last N shares, regardless of them being in
the last round or not. This rewarding method pays
more if the miner has recently earned a lot of
shares, so in other words, it favors the loyal miners.

See you in the next lecture!

 LECTURE SUMMARY

Mining pool comparison

It is important to choose moderately sized mining pools

with low fees, generous reward methods and low or no
minimum payout levels. A good example to these pools is
KanoPool.
BTC.com and AntPool are owned by the same Chinese
company called Bitmain which is also the producer of the
most popular ASIC miner called AntMiner, so the
centralization poses a great risk for the future of the
industry.
 Mining pool comparison table
MINING POOL COMPARISON BTC.com AntPool SlushPool KanoPool
Hash power #1 #2 #3 #14
Founded in 2016 2014 2010 2014
N/A (servers are
distributed among
Country of origin China China Czech Republic US, Singapore,
Germany, Japan,
Netherlands)
0.001 BTC
(additional fee for
Minimum payout 0.001 BTC 0.05 BTC None
withdrawal below
0.01 BTC)
PPLNS (does not
FPPS (shares tx Score based PPLNS (shares tx
Reward method share tx fee) & PPS
fee) (shares tx fee) fee)
(shares tx fee)
PPLNS: 0%
Fee 4% PPS: 4% block + 2% 2% 0.9%
tx

See you in the next lecture!

 LECTURE SUMMARY

What you need to mine

a cryptocurrency:
Bitcoin example

Mining checklist:
Stable internet connection
Hardware (ASIC or GPU depending on the
cryptocurrency)
Setup location (Air-conditioned and soundproof)
Software (CGminer, BFGminer, Bitminter…)
Pool (Kanopool, BTC.com, AntPool, SlushPool…) or
other mining methods
Account from a wallet (Hardware, software, paper)

See you in the next lecture!

 LECTURE SUMMARY

Is bitcoin mining
profitable?

Factors that affect the profitability of mining are:

Investment (hardware) cost
Electricity cost
Mining pool fee
Rent or air-conditioning cost
Cryptocurrency price
Exchange rate
You can use profitability calculators to input these values
and check whether mining is still profitable.

See you in the next lecture!

 LECTURE SUMMARY

What is a cryptocurrency
exchange?

Cryptocurrency exchanges are divided into three sub-

categories:
Regular exchange (also called as trading platform)
Centralized exchange: Binance, Bittrex,
Poloniex, Bitfinex
Decentralized exchange: IDEX, EtherDelta
Broker: Coinbase, Shapeshift
Direct trading platform: LocalBitcoins
On traditional cryptocurrency exchanges, buyers offer a
price to buy an asset while sellers offer another price to sell
it, and the platform matches these orders and charges a
fee for the transaction.
Centralized exchanges are run by an individual or a group
of people. They usually are fast and user-friendly, and they
often offer a high variety of cryptocurrencies for trading.
Also, fiat money can be used to buy cryptocurrencies on
some of those exchanges. On the other hand, centralized
exchanges are vulnerable against hacks.
Decentralized exchanges do not have an authority in
charge. These exchanges are safer against hacks but they
usually have low liquidity, less cryptocurrency pairs to
trade, and poor customer service. They also tend to be less
user-friendly.
Brokers set the price to be applied on cryptocurrency
conversions and allow you to trade at that price only.
These exchanges are really easy and quick to use but the
price is less optimal because brokers include their
commission in the price.
Direct trading platforms are exchanges on which trading is
done between peers without using a complicated platform.
It requires both the other peer and the platform to be
trusted.

See you in the next lecture!

 LECTURE SUMMARY

Market order vs Limit order

Bid vs Ask

By issuing a market order, the trader does not have to

specify a price to buy or sell a cryptocurrency but instead
the exchange matches his/her order with an opposite order
at the best price available. The advantage of going for a
market order is speed but most of the exchanges charge
more fee from market orders than they do from limit
orders.
By issuing a limit order, the trader can specify any order
price to buy or sell a cryptocurrency when the price comes
there. This method is often preferred when the trader has
a certain strategy, has time to wait and does want to pay
less commission.
By issuing a conditional order, the trader can set a specific
order which will execute only after his/her condition is
met. This type of order is not provided by most of the
exchanges but it is especially preferred by skilled traders.
Stop-loss is to sell a cryptocurrency whenever the price
gets below a certain level in order to prevent further losses
in the asset.
Bid price refers to the highest price an investor is willing to
pay to buy an asset.
Ask price refers to the lowest price an asset holder is
accepting to sell the asset.
In case you confuse these terms with each other, a trick to
remember is to think of the resemblance of ‘bid’ with ‘buy’
since both start with the letter ‘B’.

See you in the next lecture!

 LECTURE SUMMARY

Maker vs Taker

The trader that uses the limit order and waits for his/her
order to be matched with an opposite order on an
exchange is called ‘maker’. The term comes from ‘market
maker’ who provides liquidity to a market, or in other
words, it comes from those that ‘make liquidity’.
The trader that uses the market order and leaves it to the
exchange to find the best available price is called ‘taker’.
The term comes from ‘taking the current price, right at that
moment’.
Exchanges usually get less commission from makers and
more commission from takers.
It is possible for a trader to issue a maker order for a trade
and then a taker order for the next one, or vice versa.

See you in the next lecture!

 LECTURE SUMMARY

The best cryptocurrency

exchange

Factors to look for in an exchange:

Decentralization
Popularity
Liquidity
Number of accepted countries
Number of tradeable cryptocurrencies
Transaction speed
Trading fees
User interface
Location
Availability of fiat money
Availability of margin trading
 It is important for an exchange to be secure and liquid,
while having a wide range of trading pairs at low fees.
Decentralized exchanges are the safest option out there
but unfortunately they lack the required liquidity.
Margin trading refers to trading of cryptocurrencies by
borrowing money that allows the trader to buy or sell more
than he/she would normally be able to. It is extremely risky
for novice traders.

Exchange comparison table

EXCHANGE COMPARISON Binance KuCoin Bitfinex Bittrex Poloniex Bitstamp Coinbase Pro Kraken IDEX EtherDelta Coinbase
Decentralization Centralized Centralized Centralized Centralized Centralized Centralized Centralized Centralized Decentralized Decentralized Centralized
High (The
Very high (The Moderate (The
most popular
most popular most popular
Popularity Moderate Very high High High High High High Not popular centralized
centralized decentralized
broker
exchange) exchange)
exchange)
Low (still
highest among
Liquidity Very high Low Very high Moderate Moderate High High High Low Moderate
decentralized
exchanges)
Number of accepted
High High High High High High High High High High Low
countries
Number of tradeable
High High High High High High High High Moderate Moderate Low
cryptocurrencies
Transaction speed Fast Fast Fast Fast Fast Fast Fast Fast Fast Fast Fast

Low (0.1%) -
Moderate
If you hold
(0.16% for Very high
Low (0.1%) - If KCS, KuCoin’s
makers, 0.26% (1.49-3.99%) -
you trade own token, Moderate
Low (0.1% for for takers - Low (0.1% for Varies
using BNB, fees are Moderate (0.15% for Moderate Moderate
Trading fees makers, 0.2% fees drop makers, 0.2% High (0.3%) according to
Binance’s own discounted by (0.25%) makers, 0.25% (0.25%) (0.25%)
for takers) down to 0% for takers) country and
token, fees are 1% for every for takers)
with high payment
0.05% 1000 KCS, up
trading method
to a total of
volume)
30% discount

User interface Good Good Good Moderate Good Good Good Good Not good Not good Very good
US (Owned by
Location Hong Kong South Korea Hong Kong US US Luxembourg US Panama US US
Coinbase)
Fiat money Allowed Not allowed Allowed Allowed Allowed Allowed Allowed Allowed Not allowed Not allowed Allowed

Margin trading Allowed Allowed Allowed Not allowed Allowed Not allowed Allowed Allowed Allowed Not allowed Not allowed

See you in the next lecture!