Advanced Crypto Market: Structure, Tokenomics, and Risks

In the main video, we became familiar with the concept of crypto, blockchain, coins and tokens, Bitcoin and altcoins, crypto trading pairs, the difference between crypto spot trading and Forex, the difference between trading and investing, centralized and decentralized exchanges, and common misconceptions. This video is optional supplementary training — deeper, more professional. In other words, we are going to examine the remaining topics that can make your understanding of the crypto market deeper and more professional. In this training, we will focus more on market structure, token economics, asset storage and transfers, leveraged markets, evaluating exchanges and wallets, and the most important risks in the crypto market. The goal of this video is to help you understand exactly what structure and what risks lie behind a chart, a token, an exchange, or a wallet.

The idea of digital money existed even before Bitcoin, but one major problem remained: double spending, or spending the same unit of money twice. In the banking system, a central institution maintains the account ledger and checks that one balance is not spent twice. But if we want to remove the central intermediary, the network needs a way for thousands of participants to agree on the order and validity of transactions. 2008 — the Bitcoin paper, published under the name Satoshi Nakamoto, proposed a peer-to-peer system for value transfer. Using digital signatures, a distributed network, a chain of blocks, and proof of work, this system attempted to solve the double spending problem without relying on a central financial institution. Bitcoin was the starting point — later networks added smart contracts and programs on top.

In the main video, we examined blockchain in a simple way. Now, we want to understand several of its important components more precisely. Blockchain is a digital ledger recording information in Blocks, chained together in chronological order. Ledger: a record of transactions and changes in ownership. Banks also have ledgers and record account balances in their own systems. The difference is that a bank's ledger is controlled by that bank. A public blockchain's ledger is distributed across many computers, or Nodes. A node is a computer or program connected to the network that can receive, store, transmit, or validate information. However, not all nodes have the same role. Some hold a more complete version of the data, while others are designed for lighter access to the network.

A network with no central manager needs to agree on the valid state of its ledger. This process is called consensus. Two well-known consensus mechanisms are proof of work and proof of stake. In proof of work, miners compete to create a valid block using computing power. Bitcoin uses this mechanism. In proof of stake, validators commit (stake) the network's native asset. Reward for proper behavior, penalties for malicious behavior. Ethereum is a well-known Proof of Stake network. A hash is also the output of a cryptographic function converting input data into a fixed-length string. A very tiny input change creates a completely different output. Hashing is used to link blocks, verifies data integrity, and supports security structures.

A simplified blockchain transaction works like this: The user enters the destination, amount and info in the wallet. The wallet signs the transaction with your private key. Then, the transaction is sent to the network. Nodes check its initial validity. The transaction waits to be included in a Block. Then, a miner/validator includes it in a Block. The block is accepted — transaction receives confirmation. As new blocks are added or the network state becomes finalized, confidence in the irreversibility of the transaction increases. The details of this process are not identical across all networks.

Confirmation means that your transaction is in a Block, and more blocks have been added after it. Finality refers to the stage at which, based on the network's rules, reversing or changing a transaction is considered highly unlikely or practically final. The number of confirmations required depends on the network, the transaction value, the exchange's policy, and the consensus model. A transaction may be recorded in a blockchain explorer while the exchange is still waiting for more confirmations. In some networks, executing a transaction or a smart contract requires computational resources. The cost of these resources is calculated through a concept such as gas. Gas depends on: network congestion, operation complexity, space in a Block, price per unit of gas, and the network's economic rules. A network fee is NOT the same as a trading fee on an exchange.

No. Decentralization is not absolute or binary — a project can be decentralized in one area and centralized in another. To assess the degree of centralization, you need to ask important questions: Who develops the project's code? Who can upgrade the contracts? Who controls the administrative keys? How distributed are the validators? How much of the tokens are held by team/investors/whales? Can transactions be stopped or assets frozen? Who controls the interface/asset list? For example, a token may be transferred on a public blockchain, while its issuer still has the ability to freeze certain addresses. Using blockchain alone does not prove an asset or project is fully decentralized.

In the main video, we became familiar with the most important categories of crypto assets. Now, let's examine several other important categories as well. A Wrapped Token is a representation of an asset from another network. For example, WBTC was created to represent Bitcoin in the form of a token that can be used on the Ethereum network. In addition to the price risk of the underlying asset, a wrapped token holder also faces the risk of the custodian, smart contract, Bridge, or the mechanism maintaining the backing — on top of the underlying asset's own price risk. An NFT or Non-Fungible Token is a non-fungible token. This means that each unit has distinct characteristics or an individual identifier. An NFT may represent a digital work, a game item, membership, a license, or a right — but not necessarily full Copyright ownership. Owning an NFT ≠ owning Copyright to the associated work.

Some tokens may represent shares, debt, income rights, or traditional assets — may be subject to securities law. A token's NAME doesn't decide its legal classification. This category is sometimes called security tokens or tokenized assets. If a token has the legal characteristics of a security, it may be subject to the securities laws of the relevant jurisdiction. The legal classification of a token is not determined by the name that its project chooses for it. RWA (Real-World Asset) Tokens: represent a right or Exposure to bonds, real estate, credit, or commodities. With these types of assets, you need to examine the relationship between the token and the real asset, the custodian, the legal structure, and the possibility of redemption. A CBDC = Central Bank Digital Currency: digital money issued by a central bank — a liability of that bank, governed by its monetary policy. CBDCs should not be treated as the same as Bitcoin, private stablecoins, or decentralized crypto assets. A CBDC is a liability of the central bank, and its structure and control are related to the monetary policy and legal system of that country.

In the main video, we said that a stablecoin is a token that attempts to keep its value close to the dollar or another asset. But the word stable does not mean that stability is guaranteed. A stablecoin can move away from its target price, or in other words, depeg. One group of stablecoins is backed by traditional money and assets. The issuer claims to hold reserves (cash, deposits, securities) against issued tokens. USDT and USDC are well-known examples of this group. In this model, the quality and liquidity of reserves, the transparency of reports, issuer risk, the custodian bank, redemption limits, and the ability to freeze certain addresses are very important.

Another type of stablecoin is backed by crypto collateral. In this model, crypto assets are locked in a smart contract as collateral. Since the collateral itself is volatile, collateral worth more than the value of the issued token is usually used. The risks of this model include a rapid decline in collateral value, Liquidation, smart-contract errors, and Oracle failures. An algorithmic stablecoin also attempts to keep its price close to the target value through supply and demand mechanisms, econo