Wef getting started_cryptocurrency_2021

Cryptocurrencies:
A Guide to Getting Started
Global Future Council on
Cryptocurrencies
C O M M U N I T Y P A P E R
J U N E 2 0 2 1

Contents
Cover: Unsplash/EfeKurnaz
Inside: Unsplash/CallumWale; Unsplash/KrzysztofKowalik; Unsplash/NaomiHutchinson;
Unsplash/JosueAs; Unsplash/RalphRavi; Unsplash/ChristianLue;
© 2021 World Economic Forum. All rights
reserved. No part of this publication may
be reproduced or transmitted in any form
or by any means, including photocopying
and recording, or by any information
storage and retrieval system.
3 Executive summary
4 1 Getting started
5 1.1 Buying cryptocurrency
6 1.2 Making transactions
7 2 Exploring the blockchain
8 2.1 Block explorer
8 2.2 Pseudonymity vs anonymity
8 2.3 Privacy
9 2.4 Running a node
9 2.5 Consensus mechanisms and mining
11 2.6 Energy consumption
12 3 Programmability
13 3.1 Ethereum
13 3.2 Languages and reference implementations
14 4 Governance
16 5 Throughput and scalability
18 6 Compliance and regulatory considerations
20 7 Conclusion
21 Contributors
22 Endnotes
Cryptocurrencies: A Guide to Getting Started 2

Executive summary
As cryptocurrencies transform how we trade,
transact and interact online, it has become
more important than ever for technology leaders
to have experience with these innovations.
Cryptocurrencies: A Guide to Getting Started
June 2021
Since the creation of bitcoin in 2008,
cryptocurrencies have been the subject of
uncertainty, scepticism, hype and disillusionment.
While still early as a technology category,
cryptocurrencies are now maturing and
have demonstrable utility.1
As of this writing,
cryptocurrencies in aggregate are valued at over
$2 trillion in market capitalization.2
Cryptocurrency-
based lending applications and decentralized
trading venues currently command $65 billion in
on-boarded assets.3
Just in the first quarter of
2021, over $1 billion worth of digital collectibles
and digital art traded hands, underpinned by
cryptocurrency networks.4
This is not to mention
the areas that are still in exploratory phases:
community governance, file storage, and cross-
border payments, among others.
As cryptocurrency matures, there has been
increased interest from technology leaders
in understanding this industry. While there is
no shortage of content that exists explaining
cryptocurrency technology and the promise that it
holds, there is little reliable, practical guidance on
where and how technology professionals can get
started with getting hands-on with cryptocurrency.
This guide serves as a manual for corporate
leaders, including, but not limited to, chief
executive officers, innovation officers, chief
information officers, product managers and other
technology professionals. You should come away
with an understanding of how to transact and
trade cryptocurrencies, view and participate in
the underlying blockchain systems, get started
programming decentralized applications, engage
in blockchain governance systems, reason about
both privacy and scalability trade-offs among
different cryptocurrencies, and research and
consider relevant jurisdictional guidelines and
regulations. The best way to be equipped to speak
to, engage with and apply cryptocurrency to your
life and your workplace is not to read about it, but
rather to start working with it directly. The contents
of this manual are your guide for doing so.
Note about scope: This guide speaks strictly
to cryptocurrency – digital assets and digital
infrastructure such as Bitcoin and Ethereum – that
are open sourced and public. It does not address
private or permissioned blockchains, or their related
digital assets.

Getting started
1

1.1
Many institutions
choose to rely
on third parties,
either exchanges
or dedicated
custodians, in
order to hold their
cryptocurrency
assets.
Buying cryptocurrency
As you start your journey, you may be interested
in acquiring cryptocurrency. We will walk through
a few basic steps to follow in order to do this after
considering the legality of cryptocurrency in
your jurisdiction:
Custody cryptocurrency
To own cryptocurrency, you are required to have a
“wallet”. A cryptocurrency wallet is how coins and
tokens are held or custodied.
There are a couple of options for “custody” of your
assets:

– Third-party service: You may choose to hold
your cryptocurrency with a third party, such as
an exchange, which will provide the wallet for
you. In this case, you should be aware that you
are trusting the security of that exchange with
your assets. If the exchange gets hacked, you
may have little or no recourse. Generally, to set
up a wallet with an exchange, you will need to
set up an account using information, including
your name, passport or ID number.

– Self-hosted: You may choose to self-host your
wallet. If you go this route, you will bypass
these identification requirements of third-party
providers. You will also be taking the security of
your assets into your own hands. Be aware that
if you lose the necessary materials to access
your wallet, you will have no recourse.
The type of cryptocurrency wallet that you will
want will depend on the specific needs and
features desired. Some cryptocurrency wallets only
support specific cryptocurrencies or have limited
functionality. This can sometimes mean a trade-off
between security and usability. Major differences
related to the custody of cryptocurrency include
who has access to the private keys of the wallet,
how often sensitive data is exposed to the internet,
and the type of software or hardware that can be
used in setup and maintenance.
Many institutions choose to rely on third parties,
either exchanges or dedicated custodians, in
order to hold their cryptocurrency assets. This
gives them comfort that the ultimate responsibility
around the security of their assets lies with a third
party. However, this entails deep due diligence to
understand the reliability, reputation and recourse
provided by that exchange or custodian. Other
institutions, particularly those with the requisite
security know-how in-house, choose to self-host.
Custodying cryptocurrency is really about the
secure custody of a private key, or a string of
data akin to a password. Private keys may be
represented as a binary code, QR code, mnemonic
phrase or other formats. Private keys may be
stored in software applications such as mobile
apps or desktop applications (typically considered
“hot” wallets as they are regularly connected to the
internet) or on a specialized, separate hardware
device not connected to the internet (also referred
to as “cold” storage). There is also the possibility to
use a multi-signature wallet, which requires multiple
private keys to approve a transaction before assets
are transferred (an m of n setup). In theory, this can
increase the security of funds. There are pros and
cons to each type of wallet with differing security,
recovery methods and usability.5
Determine a method to acquire cryptocurrency
Once you have a wallet established, or a way to
custody your assets, you will need to acquire your
cryptocurrency. There are several methods and
platforms to consider:

– Purchasing cryptocurrency as an individual:
The most common route is to buy it via a
centralized exchange.6
These exchanges serve
as on- and off-ramps and charge fees (ranging
from roughly 0.05-5.00%) on each transaction.
Different jurisdictions have different exchanges
providing liquidity.

– Purchasing cryptocurrency as an institution:
You can use a centralized exchange, but often
better liquidity and lower fees will be found
via an over-the-counter trading desk. You can
search for the competitors in these markets
based on your jurisdiction.

– Alternative methods: Buying cryptocurrency
is not the only way to own cryptocurrency.
Other ways to acquire cryptocurrency include
participation in the network (mining and staking),
earning it (payment for work), airdrops (coins
and tokens are randomly distributed to wallets),
faucets (a way to collect small quantities of
crypto for free), and more.
Taxation
Each country taxes digital assets, including
cryptocurrency, differently. Keep track of all
cryptocurrency transactions to simplify your
reconciliation process (when was the transfer made,
in what amount, for what goods or services, etc.).
Keep in mind that converting one cryptocurrency
to another cryptocurrency (e.g. bitcoin to ether)
may be considered taxable in some jurisdictions.
Spending cryptocurrency to purchase small-value
objects such as a coffee may also be taxable as it
constitutes a sale of the cryptocurrency.

1.2 Making transactions
To make a transaction, you will need a few pieces
of information. You will need access to your
cryptocurrency. This involves having the information
needed to access your funds via the third-party
custodian, or having the private key to access the
funds in your self-hosted wallet. You will also need the
wallet address (or public key) of your counterparty.
This might take the form of a string or QR code.
Once you enter the amount you are sending and
the address of your counterparty, the system will
sign your transaction with your private key (either
done by you personally, or by the third party if you
chose to use one), broadcast this to the network
and show a unique code that represents the
transaction called the transaction hash.

Exploring the blockchain
2

2.1
2.2
2.3
There are,
however, a handful
of privacy coins
that enable
private blockchain
transactions.
Block explorer
A block explorer – a website that tracks all the
information inside the blockchain and shows it in
intelligible form – is a useful tool for any blockchain
user. It acts as a “search engine” for a particular
blockchain, allowing users to verify transactions, or
check the status of the network.
Most blockchains are transparent, meaning all
details of each transaction are publicly broadcasted
and recorded and allow for associated metadata
to be queried via a block explorer. Traders can
verify that transactions have gone through and
finalized, agencies can audit and verify reported
data, and law enforcement can trace the movement
of funds. Individuals can also use block explorers
to better understand the degree to which and how
blockchains are being used.
Pseudonymity vs anonymity
Most blockchains enable pseudonymity, but not
anonymity, meaning they do not guarantee that a
user will be unidentifiable.
Pseudonymity means that identities on the
blockchain are not directly linked to real-world
identifiers such as names, addresses, or
identification numbers. When looking at a block
explorer, you will not see names of individuals or
institutions, but rather strings of data representing
those holders’ public key addresses. With enough
effort, however, most of those addresses can
be linked back to identifiers. This can be done
via examination of on-chain activity, transaction
histories and trails, and analysis of other data such
as timestamps and IP addresses associated with
transactions.
Privacy
As discussed earlier, most blockchains store
data in a way that is publicly accessible at any
time. There are, however, a handful of privacy
coins that enable private blockchain transactions.
Two of the best-known projects focusing on this
use case are Monero (XMR) and Zcash (ZEC), a
fork of the Bitcoin protocol that leverages Zero
Knowledge Proofs (ZKPs) to maintain privacy. The
basic idea behind ZKPs consists in allowing one
party (a prover) to prove to another one (a verifier)
the possession of a certain information without
revealing that information.
Zcash incorporates transparent “t” and private “z”
addresses for sending, receiving, and storing ZEC,
thus offering four transaction types from which
the user can choose. For example, a transaction
facilitated between two “z” addresses is fully
shielded. This implies only the fees paid and the
occurrence of the transaction appear on the public
blockchain, while the addresses, transaction amount
and the encrypted memo field are not publicly visible.
For auditing and regulatory compliance, Zcash users
can use view keys to selectively share address and
transaction information.
Monero, on the other hand, only offers fully private
transactions. The Monero protocol maintains the
privacy of its senders through ring signatures,
which do not require a trusted party to perform
a setup process. Ring signatures leverage
private spend and view keys, as well as public
addresses, to facilitate transactions while making it
computationally impossible to determine whose key
was used to sign. Additionally, stealth addresses
guarantee the wallet address of the recipient
is never publicly linked to any transaction. The
public can nonetheless confirm the legitimacy
of the transactions without de-anonymizing the
participants through ring confidential transactions.
Such privacy coins may face certain liquidity
challenges because the current regulatory view on
this feature is mixed, thus complicating their listings
on exchanges.7

2.4
2.5
Full nodes for
any blockchain
will place high
demands on
memory, storage
and bandwidth.
Running a node
Blockchains are decentralized, distributed
databases. These databases are implemented in
software and run on a network of nodes. Because
cryptocurrency blockchains are permissionless and
the code for popular nodes is open source, anyone
can participate in the network by running a node.
Reasons for running a node may include:

– Providing a service to the blockchain network:
Nodes receive transactions, check them against
the rules of the protocol and relay them on to
other nodes. A diverse and resilient set of nodes is
integral to the health and security of the network.

– Benefits to the host: Running a node enables the
individual or institution to interact directly with
the blockchain database without relying on third
parties. This may be of particular importance to
those who place special value on privacy and
security or developers building wallets, block
explorers and working on chain analytics.
Running a full node entails downloading, validating,
and hosting a full copy of the blockchain database
of transactions, going back to the first transaction
on the network. Archive nodes take this one step
further, maintaining a full memory of the state of
the blockchain for any given point in time. Light
nodes, meanwhile, just store block headers, or
abridged versions of the transactions in the chain.
Light nodes are therefore reliant on full nodes for
most data, but that data can be verified against the
information contained in the block headers.
There are costs to running nodes. Full nodes for any
blockchain will place high demands on memory,
storage and bandwidth. All of this can become
costly. Nodes generally need to be running for a
minimum of six hours per day – and may take days
to sync the entire history of the blockchain for the first
time. The Bitcoin blockchain demands a minimum
of 350 gigabytes of free disk space, 2 gigabytes of
memory, and a broadband internet connection with
an upload speed of at least 400 kilobits per second.
Light nodes make fewer demands on memory and
disk space (and can even be run on mobile phones)
but are more reliant on network bandwidth.
To judge whether running a full or a light node may
be of interest and in order to explore the first steps
in doing so, consult the following resources:

– Bitcoin

– Minimum requirements of a Bitcoin node

– Bitcoin core

– Ethereum

– Benefits of an Ethereum node

– Light client

– How to set up an Ethereum node
There are also third-party providers who offer node
hosting services. This may be a more suitable path
if you are with an institution, such as a financial
institution, that does not have particular sensitivities
around self-hosting and will not be developing
applications, or tools that need to directly interact
with the blockchain.
Consensus mechanisms and mining
Consensus mechanisms are a critical function
that secure permissionless blockchain ledgers
and enable the characteristics of immutability and
censorship resistance.
Proof of Work (PoW), the mechanism for Bitcoin,
is perhaps the best known. PoW mining is the
process of computers competing for a reward
by executing a cryptographic mining algorithm to
meet an output of a predetermined difficulty level.
Bitcoin miners hash four inputs using the SHA-
256 cryptographic hash function: the transactions
of a block; the hash of the previous block; the
time stamp; and the nonce (a random number).
If the output of this cryptographic function meets
a certain difficulty level (i.e. a certain number of
leading zero bits), the block is accepted by other
nodes on the network and the miner is rewarded.
The culmination of mining results in the appending
of new blocks to the blockchain. The newly
appended blocks must adhere to the consensus
rules of the Bitcoin network or will otherwise be
rejected by nodes. The costliness of PoW mining
means those who mine bitcoin, but act against the
consensus rules of the network, lose significant
sums of capital.
A deeper dive

– Difficulty: Because all miners are competing
to append blocks to the Bitcoin network, the
difficulty rises as more miners join and drops
as miners fall. The difficulty adjusts every 2016
blocks (or every two weeks) and this process
keeps miners finding blocks at a rate of roughly
one per 10 minutes.

– Reward: When a block is successfully
appended, a miner can send the first transaction
to their own address (known as the coinbase
transaction), which compensates the miner with
a “block reward”. This block reward consists

The key inputs to
successful mining
are low power
cost and access
to competitive
equipment.
of newly issued bitcoin and all transaction fees
from the mined block. The amount of newly
issued bitcoin halves every 210,000 blocks,
approximately every four years. The block
subsidy originally started at 50 bitcoin (BTC) and
currently is at 6.25 BTC mined approximately
every 10 minutes, or about 900 bitcoin mined
every 24 hours (as of April 2021). This algorithm
ensures bitcoin is a scarce asset. When
bitcoin first launched, for the first four years,
approximately 7,200 bitcoin were mined daily.

– Hashrate: The speed of solving the
cryptographic hash function is the hashrate;
the total amount is the network hashrate. If
one miner controls around 10% of the Bitcoin
network hashrate, they can expect to mine
roughly one in ten blocks, and more as their
share of the network hashrate increases.
Attacking the network
To attack the network, a malicious entity would
need to capture 51% of the hash power, allowing
the entity to build a longer chain and double
spend bitcoin, which they had previously used
in a transaction. This would require convincing
over 50% of miners to either sell or rent their hash
power or someone with more hash power than the
current total network hashrate.
Hardware
Given the economic incentives, the mining industry
is perpetually in an arms race to develop next
generation hardware that increases hashrate
output. Early bitcoin miners started with central
processing units (CPUs), which evolved to
graphics processing units (GPUs) and then field
programmable gate arrays (FPGAs). But in 2013,
single-purpose application specific integrated
circuits (ASICs) optimized to hash the SHA-256
algorithm became prevalent. The difficulty level of
bitcoin mining was pushed up significantly when
ASICs were widely distributed to miners. The
hashrate performance of ASICs and consequent
difficulty jumps made all other hardware types
obsolete. Other types of hardware are still used
in the mining of other cryptocurrency protocols,
especially those not based on SHA-256.
The key inputs to successful mining are low
power cost and access to competitive equipment
(ASICs, servers). To build a business of size and
scale, particularly for the most popular/competitive
cryptocurrencies like bitcoin, miners take on
sizable risk in the form of upfront investment and
capital expenditure in long-term power contracts,
real estate, large volume mining equipment/ASICs,
and energy efficient and temperature-controlled
data centres to host the mining equipment. The
upfront investment is often sized with certain
assumptions about crypto market prices, which
can be volatile and not guaranteed to materialize.
Given the statistics of success, miners frequently
collaborate through participation in a mining pool.
Participating in a mining pool enables a miner
to have certainty of bitcoin mining rewards on a
consistent schedule.
Despite the investment risk and challenges
associated with industrial cryptocurrency mining,
individuals can set up smaller scale mining
operations to participate fully in cryptocurrency
networks and may even discover more productivity
by mining less mainstream and less competitive
cryptocurrencies.
Getting started with PoW mining

– Acquire equipment: Selection of equipment
depends on the triangulation of cost,
availability, hashrate performance and power
consumption. You may choose either a bitcoin-
specific ASIC or hardware that can be used
to mine multiple different cryptocurrencies,
which have varying algorithms. While it
may be difficult to procure equipment from
manufacturers, there are secondary markets
for used miners available for purchase. As the
mining hardware can be loud and hot, often
running more than one miner may require
finding a data centre hosting location with
a low cost of power – factors include the
location, source of power (renewable energy
based), cost per kilowatt (kWh), as well as
whether or not the facility incurs additional
costs like cooling requirements to ensure
maximum efficiency of the miners.

– Select and contribute hashrate to mining pool:
Once the hardware is set up, this can be
helpful to ensure consistent returns. Factors to
selecting a mining pool include cryptocurrency
specialization, reputation, size of the pool and
its overall percentage of global hashrate, fees
paid to the pool and minimum payout sizes.
For alternative coins seeking a less power-intensive
approach to securing the network than PoW
mining, various consensus models have emerged
such as Ethereum’s move to Proof of Stake (PoS)
and Algorand’s Pure Proof of Stake (PPoS), which
require miners to stake their native coins to become
network validators, ordering transactions and
creating new blocks driving all nodes to agreement
on the state of the network.
In addition to less power usage, proponents for
PoS suggest that barriers to entry are lower as
specialized equipment is not required to mine
successfully and as more network participants are
able to mine with general hardware, the network
composition may be more decentralized as well.
However, there is some suggestion that PoS may
lead to network mining inequality and may unfairly
benefit well-resourced network participants since

2.6
Permissioned
blockchain
improves
efficiency and
latency while also
reducing energy
consumption.
their ability to mine successfully is directly related
to the amount of native coin owned. PPoS seeks
to address both PoW’s energy consumption
and PoS’s miner inequity by enabling all network
participants the opportunity to propose and
validate blocks (with only the probability of mining
successfully directly related to the amount of
native coin owned). In selecting the consensus
mechanism and mining protocol, cryptocurrency
networks must trade-off between decentralization,
scale and network security.
For more information on the evolution of mining and
how to get started, visit:

– Evolution of Mining by Marshall Long, Tales from
the Crypt

– Beginner’s Guide to Mining, MasterDC

– Choosing a Mining Pool, Make Tech Easier

– Getting Started with Mining, Compass Mining

– Global Hash Rate, BTC.com

– Mempool & Transaction Fees, Mempool.Space

– How Blockchain Works, MIT
Energy consumption
As explained above, in order to participate in
PoW, significant computational energy is required.
Upfront capital expenditure and ongoing electricity
bills are costs of running a node to participate in
PoW networks (e.g. Bitcoin). Energy consumption
depends on the difficulty of the cryptographic
puzzle to be solved by a mine in PoW. Nonetheless,
the Cambridge Centre for Alternative Finance
estimates bitcoin’s total electricity consumption to
be about 126.98 terawatt hours (TWh) per year.8
The proof-of-work scheme is thus compute-
intensive and energy demanding, but it is key
to addressing the double-spending problem
and ensuring the security of the blockchain, as
it costs money to attack the network. It is hard
to mitigate the energy consumption of PoW
blockchains because even if more transactions
are added to one block, the cryptographic puzzle
difficulty ultimately defines the amount of energy
required to participate. In PoW blockchain, energy
consumption correlates to market capitalization.9
Alternative consensus mechanisms such as PoS
consensus and permissioned blockchain consensus
consume less energy than PoW blockchains.10
PoS blockchains are a good alternative to PoW
blockchains and entail a participant “staking”
capital. This consensus mechanism consumes
much less energy and provides adequate security.
However, PoS consensus is less battle-tested than
PoW so it cannot be said with full certainty that
the PoS consensus provides the same security
level as PoW.11
Permissioned blockchain improves
efficiency and latency while also reducing energy
consumption. Permissioned blockchains are
especially suitable for public institutions aiming to
decentralize some of their operations. However,
they do not give the same flexibility when it comes
to decentralization of participants.
Thus, when a user is participating in a blockchain
network, they should assess what the economic
benefit is of choosing a specific type of consensus
mechanism and ensure the energy consumption is
weighed sufficiently against benefits.

Programmability
3

3.1
3.2
Ethereum is the
first, and most
widely used,
blockchain that
allows for the
development of
programmable
applications.
Ethereum
Ethereum is the first, and most widely used,
blockchain that allows for the development of
programmable applications which operate on its
network. It was inspired by Bitcoin and was publicly
launched in 2016.
There are a few key components to Ethereum and
similar programmable blockchains:

– A smart contract is code on a blockchain that
executes when predefined conditions are met.
For example, one could write a programme
permitting payment of $10 for a specific digital
audio file, but only if transferred before a certain
date. Because this code is publicly auditable and
verifiable, it allows strangers to have the trust
to transact without the involvement of any third
parties. Contrast that with today where a handful
of third parties operate behind the scenes: a
platform ensuring rights ownership, the bank
ensuring a buyer has funds and the database
which hosts the file.

– Solidity is Ethereum’s high-level programming
language for coding smart contracts, which are
then recorded and executed on the Ethereum
blockchain.

– Ether (ETH) is the native currency used to pay
for transaction fees. Running and verifying
smart contracts requires energy and computing
resources. ETH is the native token that pays
network nodes for their resource contributions
(and therefore provides an incentive for other
nodes to participate).

– Decentralized applications (abbreviated as
“dApps”), in turn, are programmes that use
blockchain-based data and smart contracts,
rather than centralized databases and computing
environments.
Therefore, what may sound like an arcane innovation –
smart contracts recorded on a public ledger – has the
potential to enable entirely new ways of interacting on
the internet. For example, users can have full control
over their own data and use a smart contract to require
payment for access to that data. This inverts ad-based
internet monetization, where platforms sell user data to
advertisers and share little if any profit or control with
users. In addition, a blockchain is by nature a globally
synchronized database stored across many computers
rather than servers owned by the few. This makes it
more difficult to curtail access or alter data according to
national origin or other motivations.
Programmable blockchain infrastructure is an area
of robust technical innovation and competition
among numerous protocols in an effort to increase
the speed, capacity and security of distributed
infrastructure to compete with the performance of
centralized internet infrastructure.
To get started with Ethereum, visit Ethereum.org.
Languages and reference implementations
Different blockchains use unique languages and
reference implementations – each with its own set
of attacks and defences. Among the most common
languages used for blockchain are C++, Solidity,
Java, JavaScript and Python.
Taking the example of the Ethereum blockchain
discussed above, we will examine challenges, types
of languages and verifications. Exploitations emerge
when there is an error in the smart contract code;
it arises when developers fail to identify code errors
in the decentralized application. Examples include
re-entrancy, smart contract overflow/underflow,
short address attack, delegate call, default visibilities,
transaction ordering dependency and timestamp
dependence. The listed attacks can allow attackers
to drain smart contracts or manipulate smart contract
vulnerabilities to favour them.
Defences have been made on Ethereum through
analysis of smart contracts to mitigate attacks,
including: Slither, a static analysis framework for smart
contract code; MythX, a security analysis service that
scans Ethereum Virtual Machine (EVM) based smart
contracts for vulnerabilities; and Mythril, a security
tool that analyses smart contracts written by Solidity.
Various other types of smart contract languages have
been created, such as Vyper, which was designed
to be more simple, secure and easier to audit than
Solidity, Psamathe, Casper, Simplicity and IELE.
Formal analysis and verification of compilers further
assists resistance to attacks on Ethereum, done by
giving a formal model of the program-to-verify, either
by a manual construction in a language which can
be interpreted by theorem provers such as Coq or
Isabelle, or by a translation of the source code to
some intermediate verification language (IVL) such as
Boogie. Formal verification can provide the highest
level of confidence about the correct behaviour of
smart contracts.
Different smart contract languages each have unique
vulnerability vectors. Tools for analysing bugs in
blockchain languages are still nascent and research
is ongoing.

Governance
4

Governance
activities include
making decisions,
resolving conflicts
and making
changes to the
protocol.
While “corporate governance” refers to how
corporations are managed, software protocols
generally have varying governance structures that
are very different from traditional corporations.
Governance activities include making decisions,
resolving conflicts and making changes to the
protocol. Having a governance system in place is
important to mitigate risk and ensure functionality
and operational success. “Decentralized
governance” refers simply to frameworks that
function by way of multiple community participants
governing transparently, without one centralized
authority with exclusive hierarchical power over
these activities.
Within decentralized governance, there exists a
spectrum of arrangements. On one end, developers
relinquish considerable control to token-holders.
This often takes the form of establishing a
decentralized autonomous organization (DAO) to
run the protocol without input or interference from
the team that led the software development of
the protocol. Such an approach may result in too
little leadership and slow down decision-making.
Another version of decentralized governance might
allow developers to implement code which is then
voted on by token-holders. A final common version
features developers that implement code and make
a wide range of decisions, while reserving other
decisions or override rights for token-holders.
There also exist a variety of voting arrangements.
Two common mechanisms are:

– One token, one vote: Allows for token-holders
to express opinions through their tokens with
one token allowing one vote. Thus, those with
larger token holdings possess a larger share of
voting power. Many protocols allow delegation
of tokens for voting purposes so that token-
holders can combine votes.

– Quadratic voting: Allows token-holders to
express both direction of preference and degree
of preference through allocation of votes.
Quadratic voting can lead to smaller holders
having relatively more say than they would
under a one token, one vote model.
To learn more about governance of open source
projects and to get involved in cryptocurrency
governance, you may get started with
these resources:

– A guide to open source project governance
models, Redhat

– Leadership and Governance, Open Source
Guides

– Decentralized Network Governance: Blockchain
Technology and the Future of Regulation, Andrej
Zwitter and Jilles Hazenberg

– Governance on Ethereum, EtHub

– What is Ethereum Governance? Complete
Beginner’s Guide, Unblock

– Tally

– 0x Governance

Throughput and
scalability
5

Scalability is a comparative term within blockchain
technology, most notably for assessing throughput.
Throughput approximates the number of transactions
that can be processed per second. However, with
many new and innovative blockchain technologies
and underlying protocols, throughput is just one
factor to consider in assessing the overall scalability
of a network. The following outlines the throughput of
various networks and provides resources for learning
more about their scalability features.
Algorand
Algorand is an open-source, permissionless, PPoS
blockchain protocol. The network enables traditional
finance and decentralized financial businesses to build
decentralized applications. Algorand allows for 1,000
transactions per second with a ledger close time of
approximately five seconds. The following resources are
available to learn more about scalability on Algorand:

– Website: https://www.algorand.com

– Developer docs: https://developer.algorand.org/
docs

– GitHub: https://github.com/algorand
Cardano
Cardano is an open-source PoS blockchain network
and smart contract platform that aims to provide
multiple features through layered design and
modularity. It allows for 257 transactions per second.
The following resources are available to learn more
about scalability on Cardano:

– Website: https://www.cardano.org

– Developer docs: https://docs.cardano.org

– GitHub: https://github.com/input-output-hk
Celo
Celo is a mobile-first, open-source, PoS blockchain
network. Their tech stack and suite of financial tools
are designed for smartphone users to send, receive,
and store money. Celo has a ledger close time of
approximately five seconds, with 1000 transactions
per second. The following resources are available to
learn more about scalability on Celo:

– Website: https://celo.org/

– Developer docs: https://docs.celo.org/v/master/
developer-guide/overview/introduction

– GitHub: https://github.com/celo-org/celo-
monorepo
XRPL
The XRP Ledger (XRPL) is a global open-source
public blockchain that focuses on payments as
a use case. XRP boasts 1,500 transactions per
second, costs $0.0003 per transaction and settles in
3 seconds. The following resources are available to
learn more about scalability on XRPL:

– Website: https://xrpl.org

– Developer docs: https://xrpl.org/docs.html

– GitHub: https://github.com/ripple/rippled
Solana
Solana is a PoS blockchain network, with a focus
on scale for mainstream adoption modelled after
mobile broadband data services and hardware. It
enables fast transaction times with the ability to
scale as usage of the protocol grows without relying
on Layer-2 systems or sharding.12
The following
resources are available to learn more about scalability
on Solana:

– Website: https://solana.com

– Developer docs: https://docs.solana.com

– GitHub: https://github.com/solana-labs/solana
Stellar
Stellar is a global, public blockchain network built
for interoperability between traditional and digital
financial infrastructure, most notably for cross-border
payments. Stellar’s ledger limit is currently set at
1,000 operations per ledger. With ledgers closing
approximately every 5 seconds, that’s a limit of 250
transactions per second. The following resources are
available to learn more about scalability on Stellar:

– Website: https://stellar.org

– Developer docs: https://developers.stellar.org/
docs

– GitHub: https://github.com/stellar

Compliance and regulatory
considerations
6

Regulation
and compliance
requirements
related to
financial crime
are particularly
relevant.
Those who wish to use or interact with
cryptocurrencies must keep several legal, regulatory
and compliance considerations in mind.
Overview of considerations
First, given nascent technologies, there is still a lot
of debate around taxonomy and classifications.
This has significant implications across policy and
regulation including, but not limited to, taxation,
consumer protection and even which regulators are
relevant within the space.
Regulation and compliance requirements related to
financial crime are particularly relevant, with Know
Your Customer (KYC), Anti-Money Laundering
(AML) and Countering the Financing of Terrorism
(CFT) schemes at the centre of many national and
international policy and regulation decisions related
to cryptocurrencies. In an attempt to prevent
financial crime and illicit activity, identification is
often a core component, which may be at odds
with cryptocurrencies’ pseudonymity. In an attempt
to reconcile the gap, some policy-makers and
regulators have imposed identification requirements
for service providers, such as exchanges.
Current state of regulation
In the past, regulation of blockchain and
cryptocurrencies has lagged behind, as regulators
globally have found it difficult to regulate a
technology that is borderless. To date, there has
been no internationally coordinated regulation
of blockchain and cryptocurrencies, though
international bodies such as the Financial Action
Task Force, Financial Stability Board, International
Organization of Securities Commissions and Bank
of International Settlements have been working
towards international standards and guidance in
service of this aim.
Globally, there has been a spectrum of responses
to cryptocurrencies. Some have banned
cryptocurrencies entirely, while others are adopting
novel models such as sandboxes to better
understand the technology and how to regulate it.
Some jurisdictions are consolidating regulation
towards blockchain and cryptocurrencies. For
example, the European Union (EU) announced
their Markets in Crypto Assets (MiCa) proposal,
its response to the emergence of crypto-assets.
With MiCa, the EU is examining the effect of
blockchain in financial markets and assessing
how to mitigate typical crypto-asset risks such
as fraud, cyberattacks and market manipulation.
This type of cross-border regulation is positive
reinforcement towards the potential of blockchain
and cryptocurrencies. Whereas it is a positive sign,
there is still some uncertainty about blockchain’s
immutable property complying with the EU General
Data Protection Regulation (GDPR).
As cryptocurrencies are still an emerging financial
instrument, regulation is constantly evolving.
Therefore, it is recommended to consult with your
appropriate jurisdiction for updated regulation
before starting a blockchain or cryptocurrency
project. A forthcoming publication from the World
Economic Forum’s Global Future Council on
Cryptocurrencies will provide guidance on global
cryptocurrency regulation.
To learn more about policy, regulation and
compliance, consult the following resources:

– State of Crypto Newsletter, CoinDesk

– Virtual Currency Report (and associated
tracker), Perkins Coie

– Blockchain Blog, Steptoe

– Global Standards Mapping Initiative, Global
Blockchain Business Council and World
Economic Forum

– Crypto Regulation Blog, Elliptic

– Coin Center

– Chamber of Digital Commerce

Conclusion
7
This manual represents only the first steps of
getting started working with cryptocurrency.
The processes, considerations and resources
imparted in this guide only skim the surface
of the opportunities that exist in working with
cryptocurrency. Indeed, one of the key challenges
of putting this guide together came down to the
need to be fastidious about what to include.
As you continue to explore the cryptocurrency
ecosystem, you can engage more broadly by
experimenting with or using open blockchain
protocols not mentioned here. You can also
engage in more depth, diving further into the
possibilities around programmability, governance
and scalability.
No matter what your reason for using this guide, it
is critical to understand these technologies, their
trade-offs and implications, and how they might be
leveraged to transform industries. The best way to
be prepared to speak to these subjects, advocate
for sensible approaches to the new technology,
and build products is to develop a first-hand
understanding of cryptocurrency systems.
We encourage you to open your computer and get
hands-on with everything that has been covered
here and see for yourself the promises, and indeed
the limitations, of this technology.

Contributors
Subject lead
Jill Carlson
Co-Founder, Open Money Initiative, USA
Co-authors
Marvin Ammori
Chief Legal Officer, Uniswap, USA
Denelle Dixon
Chief Executive Officer, Stellar Development
Foundation, USA
Christina Lomazzo
Innovation Fund Lead, United Nations Children’s
Fund (UNICEF), New York
Lily Liu
Co-Founder, Aiden Health, USA
Christine Moy
Managing Director, Global Head of Liink and
Blockchain, J.P. Morgan, USA
Sebastian Serrano
Chief Executive Officer, Ripio, Argentina
Arianna Simpson
Partner, Andreessen Horowitz, USA
Mariana Gomez de la Villa
Program Director, Distributed Ledger Technology,
ING, Netherlands
Council manager
Clarisse Awamengwi
Project Specialist, Blockchain and Digital Assets, World Economic Forum
Reviewers
Marwan Al Zarouni
Chief Executive Officer, Dubai Blockchain Center,
United Arab Emirates
Sebastian Banescu
Senior Research Engineer, Quantstamp, USA
Ben Borodach
Vice-President, Strategy and Operations, Team8, USA
David Carlisle
Director, Policy and Regulatory Affairs, Elliptic, USA
Matthew Davie
Chief Strategy Officer, Kiva, USA
Sumedha Deshmukh
Platform Curator, Blockchain and Digital Assets,
World Economic Forum
Evgeniia Filippova-Karlusch
Associate Professor, Management Center
Innsbruck, Austria
Brad Garlinghouse
Chief Executive Officer, Ripple, USA
Ashley Lannquist
Project Lead, Blockchain and Digital Assets, World
Economic Forum
Jose Fernandez da Ponte
Vice-President, Blockchain, Crypto and Digital
Currencies, PayPal, USA
Sheila Warren
Deputy Head, Centre for the Fourth Industrial
Revolution Network, World Economic Forum
Yan Xiao
Project Lead, Digital Trade, World Economic Forum

Endnotes
1 World Economic Forum, Crypto, What Is It Good For? An Overview of Cryptocurrency Use Cases, 2020,
http://www3.weforum.org/docs/WEF_Cryptocurrency_Uses_Cases_2020.pdf.
2 Coin Market Cap, 28 April 2021, https://coinmarketcap.com.
3 DeFi Pulse, 28 April 2021, https://defipulse.com.
4 The Block, Weekly Trade Volumes of NFTs, 28 April 2021, https://www.theblockcrypto.com/data/nft-non-
fungible-tokens/nft-overview/weekly-trade-volume-of-nfts.
5 Find an Ethereum Wallet, https://ethereum.org/en/wallets/find-wallet; Choose Your Bitcoin Wallet, https://
bitcoin.org/en/choose-your-wallet.
6 You may also consider wallet providers including, but not limited to, MetaMask, Casa and MyCrypto.
7 Monero is currently working to ensure its own liquidity through the Bitcoin–Monero cross-chain Atomic
Swap.
8 Cambridge Bitcoin Electricity Consumption Index, https://cbeci.org.
9 Many critics and sceptics focus on the energy consumption of PoW blockchains, and as noted, the energy
required is significant. However, it has been found that energy consumption in Bitcoin is still below that
of gold mining (around 131.9 Twh) and the banking system as a whole (around 140 Twh); Wintermeyer,
Lawrence, “Bitcoin’s Energy Consumption Is A Highly Charged Debate – Who’s Right?” Forbes, 10 March
2021, https://www.forbes.com/sites/lawrencewintermeyer/2021/03/10/bitcoins-energy-consumption-is-a-
highly-charged-debate--whos-right/?sh=54d6ec457e78.
10 Sedlmeir, J., Buhl, H.U., Fridgen, G. et al. “The Energy Consumption of Blockchain Technology: Beyond
Myth.” Business & Information Systems Engineering, vol. 62, 2020, pp. 599–608,
https://doi.org/10.1007/s12599-020-00656-x.
11 Borzi, E. and Salim, D. “Energy Consumption and Security in Blockchain”, KTH, School of Electrical
Engineering and Computer Science (EECS), 2020,
http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-285901.
12 Sharding is a technique whereby a blockchain network splits its database into smaller partitions known
as “shards” for the purpose of scalability. Each shard stores its own distinct data and enables more
transactions to be processed per second.

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Tel.: +41 (0) 22 869 1212
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contact@weforum.org
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