Jason Scharfman - Cryptocurrency Compliance and Operations: Digital Assets, Blockchain and DeFi

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The market capitalization of cryptocurrencies and digital assets has grown in recent years at an exponential rate. There are a wide variety of reasons for this. Firstly, both retail and institutional investors are seemingly continually hungry for new types of non-traditional, also called alternative investments. Historically, these alternative investments have included vehicles such as hedge funds and private equity funds. Today these types of so-called alternatives are now well-established and well-funded. While hedge funds and private equity still continue to grow, the continued strong performance of large cryptocurrencies such as Bitcoin and Ethereum has reignited investor interest in the space.

Secondly, both technological and financial innovation continue to broaden the investible opportunity set in the crypto and digital space. Outside of simply well-established cryptocurrencies, there are a variety of emerging crypto-related investment options such as yield farming and newer digital investments such as stablecoins , non-fungible tokens (NFT), security tokens and DeFi tokens. As institutional and retail capital continue to invest in the crypto and digital space, the worldwide adoption and continued regulation of cryptocurrencies such as Bitcoin is inevitable.

Finally, cryptocurrencies and digital assets continue to become more accessible. In the early days of the space, there were a number of technical complexities making the direct purchase of cryptocurrencies complex. Today, retail investors can easily create accounts with a variety of well-established multi-billion dollar crypto exchanges and make purchases in a user-friendly way. Similarly, catering to the institutional investor space traditional asset managers are increasingly launching multi-million dollar, and in some cases multi-billion dollar, investment vehicles to invest in cryptocurrencies. Additionally, a whole host of industries and related service providers have developed to support these new capital flows into the space.

The goal of this book is to provide an introduction to both the operational and compliance aspects related to cryptocurrency investing . While this book does provide an introductory background to allow the reader to gain a basic understanding of the technical aspects of how cryptocurrencies work, the focus is not on technology. A key reason for this is that there are a myriad of technologies and computer languages supporting cryptocurrencies that are constantly evolving. Examples of these are blockchain , distributed ledger technology, Ethereum virtual machine (EVM) platform technology for smart contracts and Dapps . The specifics of these different technologies continue to be researched and refined as new applications for them are developed. New cryptocurrencies are being developed and rolled out on a regular basis and these evolving technologies are utilized to support them. Topic-specific books on these crypto -related technologies can be referenced to learn about each specific technology.

What is a cryptocurrency ? If you are reading this book you likely have some general idea of what the term cryptocurrency, often simply abbreviated as crypto , means but you might not be able to clearly come up with a universal definition of what crypto is specifically. A key reason for the difficulty in defining what crypto is relates to the fact that the space continues to rapidly evolve. These evolutions in the crypto space have across a number of fronts. From a technology perspective, there have been continued technological advances in the underlying capabilities of cryptocurrencies, the ways crypto is stored and traded as well as the technical applications of their use. From a capital markets perspective, the amount of money that has been invested in crypto has continued to increase exponentially in recent years and this has fueled a number of new advances with regard to the ways in which cryptocurrencies can be profited off of including increased platforms for the profitable lending of cryptocurrencies.

When most people are asked the question of what a cryptocurrency is, they immediately think of Bitcoin . This is understandable as Bitcoin has received not only the bulk of media attention related to the cryptocurrency markets, but also the bulk of capital in the space. Recent estimates mark Bitcoin as having a market capitalization of approximately $650 billion which makes up approximately 68% of the total cryptocurrency market. While Bitcoins percentage of the overall crypto markets has not always been so large, with this type of current market dominance it is no wonder, that Bitcoin has been at the forefront of investors initial interest in the cryptocurrency space.