Module III·Article II·~1 min read
Blockchain and Cryptocurrencies: Technology and Applications
Fintech and Digital Finance
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How Blockchain Works
Blockchain is a distributed ledger, in which records are: immutable, transparent, decentralized, cryptographically secured.
Mechanism: transactions are grouped into blocks → each block contains the hash of the previous one → changing any block changes all subsequent ones → the entire network verifies → impossible to forge.
Proof of Work vs Proof of Stake: Bitcoin uses PoW (mining) — huge energy expenditure, slow. Ethereum switched to PoS (staking) — 99% reduction in energy consumption.
Bitcoin: Digital Gold
Bitcoin (2009, Satoshi Nakamoto) is the first decentralized cryptocurrency. Limited issuance (21 million coins) → argument as "digital gold" (hedge against inflation). Institutional investors: Spot Bitcoin ETF (BlackRock, Fidelity, approved by SEC in January 2024). MicroStrategy is the largest corporate holder of Bitcoin.
Ethereum and Smart Contracts
Ethereum is a blockchain with "smart contracts": self-executing code stored on the blockchain. Deal terms are written in code — executed automatically without a middleman.
Smart contract applications: DeFi (decentralized finance) — lending, exchanging without banks; NFT (Non-Fungible Tokens) — unique digital assets; DAO (Decentralized Autonomous Organizations) — governance through tokens.
DeFi: Finance Without Intermediaries
DeFi protocols allow: borrowing and lending without a bank (Aave, Compound); trading tokens without an exchange (Uniswap — AMM); earning yield on stablecoins (Curve).
DeFi risks: smart contracts with errors → hacks ($3+ billion stolen in 2022); liquidation when collateral drops; regulatory uncertainty.
Practical Assignment
A development company wants to use blockchain for tokenizing commercial real estate. Investors will be able to purchase "tokens" representing a share in the property and receive rental income. (1) How to implement technically? (2) What are the regulatory requirements in the UAE (ADGM Virtual Asset Framework)? (3) Advantages vs traditional REIT?
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