Crypto-Currency Evolution - F3

Copyright © 2017 The Financial Freedom Foundation - All Rights Reserved - Page 1 of 30
Table of Contents
INTRODUCTION ....................................................................................................................................3
I. EPIC CHANGES....................................................................................................................................4
A. HISTORICAL TREND OF MONEY..............................................................................................4
A.1. MONOPOLY OF MONEY CREATION & DISTRIBUTION.................................................4
A.2. DISTRIBUTED MONEY CREATION & DISTRIBUTION...................................................6
A.3. EPIC WEALTH TRANSFER DURING THE TRANSITION.................................................7
B. THE EARLY STAGES OF THE EPIC WEALTH TRANSFER......................................................8
II. SELECTED TECHNICAL TERMINOLOGY - EXPLAINED..........................................................10
A. CRYPTO-CURRENCY.................................................................................................................10
A.1. SMART CONTRACTS..........................................................................................................10
A.2. PUBLIC KEYS AND PRIVATE KEYS.................................................................................11
A.3. CRYPTO-COINS....................................................................................................................11
A.4. BLOCK-CHAINS...................................................................................................................11
A.5. LEDGER................................................................................................................................12
A.6. COIN VS. TOKEN.................................................................................................................13
B. MINERS.........................................................................................................................................13
B.1. MINING POOLS....................................................................................................................13
B.2. CLOUD MINING...................................................................................................................14
B.3. PROOF-OF-WORK ...............................................................................................................14
B.4. PROOF-OF-STAKE...............................................................................................................15
C. TYPES OF COINS.........................................................................................................................16
C.1. BITCOIN................................................................................................................................16
C.1.1. BITCOIN'S LIMITATIONS............................................................................................16
C.2. ETHEREUM...........................................................................................................................17
C.3. ALT-COINS............................................................................................................................19
D. CRYPTO-CURRENCY EXCHANGES........................................................................................20
E. INITIAL COIN OFFERINGS (ICOs)............................................................................................21
F. WALLETS.......................................................................................................................................22
F.1. FIRST-TIME COIN PURCHASE...........................................................................................23
III. PASSIVE INVESTMENT OPPORTUNITIES..................................................................................24
A. MINING RIGS...............................................................................................................................24
B. BUY-AND-HOLD..........................................................................................................................26
C. AUTO-TRADING..........................................................................................................................27
D. HEDGE FUNDS............................................................................................................................28
E. SYSTEMIC RISKS........................................................................................................................28
CONCLUSION........................................................................................................................................29
The Crypto-Currency Evolution
The financial repercussions of the crypto-currency evolution will be epic. Crypto-currencies are
“the internet of money”. It is like the go-go days of the dot.com era of the 1990s when the
internet was new and millions were made by both large and small investors alike.
INTRODUCTION
The crypto-currency evolution has progressed to the point that it is no longer just a fad, cannot be
suppressed, and is actually ready for widespread commercial use, although it is still in the early stages
where opportunity abounds. 1,000% returns will not be uncommon, although the number of scams will
be increasingly prevalent.
We have prepared this high-level special report to offer F3 Mastermind Group members a framework
for understanding what is going on and guidance on how to correctly position themselves for maximum
benefit.
In this report we will first describe the epic nature of this monetary-system change. In doing so, we will
use some technical terms which may not be familiar to you, yet.
Those technical terms are explained in the second part of this special report. However, it is important
to understand the big picture first, and then drill down into the details second.
In the third section of this special report, after covering the technical terms so that you can understand
what is being said, we will then explain several ways to convert your understanding of the epic
monetary-system change into epic profits, using passive investment methods.
In other words, after reading this special report, you should be able to …
1. Understand the technical jargon used in videos and news reports about Bitcoin
2. Impress your friends at a cocktail party with how much you know about this hot topic
3. Make some serious coin (no pun intended) as Bitcoin and others virtual currencies become
mainstream.
On that note, crypto-currencies are beginning to be referred to as “cryptos”, so for the rest of this
report, we will also refer to them as cryptos.
I. EPIC CHANGES
Why does this matter? Why should I care? What difference could this make in my day-to-day life,
aside from some profits from speculating on the price of Bitcoin?
Why does this matter? Why should I care? What difference could this make in my day-to-day life,
aside from some profits from speculating on the price of Bitcoin?
A. HISTORICAL TREND OF MONEY

The crypto evolution is another facet of the greater trend of moving away from a centralized fiat-
currency system and moving towards a more distributed economic system. Ever since President
Nixon shocked the world in 1971 when he canceled the convertibility of the US Dollar to gold, the
world monetary system has been based on fiat currencies that have no intrinsic value and are printed
exclusively by privately-owned monopolistic “Central Banks”.
Money is something that functions as a medium of exchange, is a store of value, serves as an

accounting unit, can be subdivided, and is defensible. Historically, a variety of things have functioned
as money, from cowrie shells to wampum beads, to tulip bulbs, gold and silver coins, paper receipts on
the storage of gold and silver, and over the past several decades debt instruments called “Notes” that
have no intrinsic value, but are issued by central governments and private banks (Federal Reserve).
A.1. MONOPOLY OF MONEY CREATION & DISTRIBUTION

In recent centuries, the monopoly of creating money has been reserved for those at the top of the
wealth/power pyramid. The wealthy power brokers of the early 1900s created the Federal Reserve
Bank. Then, through the Bretton Woods Agreement after World War II, they gained control of the
world financial system. The US Dollar became the world reserve currency, and only wealthy power
brokers have had permission to print or digitize that money into existence; then they have the gall to
lend that money to the world and charge interest on the money they had just created!
Since Bretton Woods, the world financial system has functioned as a tool to create wealth for those at
the top of the economic pyramid. They call it the “trickle-down” effect, but the wealth never trickles
down very far. The well-connected, wealthy individuals and mega-corporations use low-interest debt
from central banks and private banks to purchase income-producing assets. More recently, the trend
has also included Fortune 500 companies buying back their publicly-traded stock at an accelerated rate
(as a way to artificially boost their earnings-per-share), as well as cutting jobs by using the low-interest
debt to invest in labor-saving automation.
This is why the past 15 years in the US has been marked by trillions of dollars of new debt, stock
market growth despite the absence of real earnings growth, and no increase in the median income of
the workers. The current system of money creation and distribution IS THE VERY CAUSE of the
concentration of wealth and the destruction of jobs. What's worse, those who are not already wealthy
are charged a higher rate of interest, which effectively transfers a large chunk of their income to the
banks.
In other words, the current world financial system is a system designed by the wealthy to funnel money
to the rich and siphon money away from the poor. The only possible outcome of such a system is a
concentration of wealth and power, and rising inequality, as history has demonstrated to be true.
The current fiat-currency system is, at its core, a centralized global system that relies on large financial
institutions acting as "trusted third parties" to regulate the creation of money and the flow of money
(lending, payment processing and settlement, clearinghouses for financial instruments). While there
does exist paper money, most of the money in the system is digital currency created by computers at
the banks.
However, the monopoly on creating digital money is starting to be challenged by technology that
enables the decentralized/distributed creation of digital currency in the form of cryptos. Money no
longer has to be created by banks. It does not have to be borrowed into existence and distributed
through those at the top of the economic pyramid. Now, it can be created digitally and distributed
through decentralized/distributed networks. This is game-changing.
Here is a graphic that illustrates the difference between centralized, de-centralized, and distributed
systems.
Distributed systems are more robust and more egalitarian than centralized systems because in a
distributed network, the responsibilities and rewards are shared more equally, and if any node in the
system fails, the system does not fail.
The distributed cryptos systems are re-defining the way we create money, distribute that money, and
finance projects. The two main cryptos, Bitcoin and Ethereum, are new global currencies that are not
yet widely circulated. The users currently number in the millions, but it is rapidly growing towards the
billions.
Disruptive technologies can create booms that exceed our wildest dreams. Cryptos are unique in their
scale, their scope of application, and their speed of adoption. The new crypto technology has the
potential to be even more disruptive than the internet, making it a once-in-a-generation investment
opportunity. These new “digital assets” are not correlated with traditional investments. Cryptos are an
entirely new asset class, with superior returns. With the current growth rate of adoption of this new
technology, it is not unusual for one of these cryptos to generate 30% returns in a single day.
A.2. DISTRIBUTED MONEY CREATION & DISTRIBUTION

Banks currently have a limited role in the creation or distribution of this new money. Banks have been
working to produce their own versions of this type of currency (Ripple, FedCoin, etc.), but have not
seen mass adoption, because those who are already in the crypto space are aware of the bigger picture
to begin with, which is why the new cryptos do not need banks to clear and process electronic
payments in this new system. It is a distributed peer-to-peer financial system, albeit still in its infancy
stages. Bitcoin was just the first of several cryptos to gain the attention of the general public, and it
already has banks and governments being forced to adapt and scramble as they attempt to control it.
Incentives are everything. A system's outcome is determined by the system's incentives, not by the
individual players. If you change the players in a system, you change nothing, no matter how altruistic
the new players might be. The only possible outcome of the centrally-controlled fiat-currency system
is concentration of power and greater inequality.
However, if you change a system's rules, then you change the outcome.
The genius behind cryptos are the underlying game-theory incentives. The designers of the new crypto
platforms changed the rules of the monetary system, thereby changing the incentives, which changes
behaviors, which changes the outcome.
There is no 3rd party trusted authority required (instead it requires trust of public open-source networks
and encryption coding). Trusting a central party, or even the other party at the other end of the
transaction, is not required. Double-spending and reversing transactions is not possible. The source
and destination of every transaction is protected and confirmed by multiple confirmations. The ledger
therefore becomes extremely difficult or near impossible for attackers to manipulate. This is why the
current functions filled by Wall Street and big banks are some of the first to get automated in the new
system.
The Occupy Wall Street movement was a symbolic gesture. The evolution of the crypto economy is
Wall Street's fatal blow.
A.3. EPIC WEALTH TRANSFER DURING THE TRANSITION
Internet-enabled cryptos are going to take out the finance industry as we know it. The finance industry
will transition to smart contracts and cryptos, such that large financial institutions no longer have the
monopolies they currently possess, similar to how the newspaper industry and the movie industry have
been transformed. Virtual currency miners (owners of nodes/servers in the crypto networks) are the
new bankers, the suppliers of liquidity. The holders of the virtual coins and tokens are the owners of
the new monetary system. This displaces the ultra-wealthy power-broker elite and the private banks
that feed them.
Anyone can become a miner. Miners do not have any contractual agreements with the networks, and
they can point their computers to whatever currency network they want. A transaction is only
considered valid if it has the consensus of over 51% of the nodes/miners. Control over the system is in
the hands of the masses, yet individual control and profit are still involved.
Virtual currency networks are user-owned financial systems, where the benefits accrue to the public
users, instead of just to a few well-connected elite. The new crypto system is economic governance by
the people, for the people. Oddly enough, in a way it is a combination of the best aspects of theoretical
socialism (social or cooperative ownership and democratic control) and the best aspects true capitalism
(private free-enterprise and individual choice in pursuit of profit) at its finest.
Since Bretton Woods, the US Dollar/ US Federal Government has been the primary beneficiary of the
money monopoly. After WWII the US was the dominant exporter to the world, so its currency enjoyed
worldwide reserve-currency status. This was later reinforced by the Petro-Dollar system, which is the
pricing of oil sales exclusively in US Dollars.
However, the Petro-Dollar system is beginning to crack, as China, Russia, and Iran are already
purchasing and selling oil without using US Dollars to do so. Also, the US is no longer the dominant
exporter to the world (now China is). Ironically, the US is now the world's largest importer, and for
the past decade the US has relied on money printed out of thin air (Quantitative Easing) to buy those
imported goods.
These economic fundamentals have placed tremendous pressure on other countries and have cracked
the reserve-currency status of the US Dollar. We suspect that as the money monopoly continues to
fracture, these publicly-created cryptos will increasingly fill in the void.
It is vitally important to gain an understanding of what is occurring through the emergence of crypto
economies, as the creation of new cryptos can be included in more advanced humanitarian project
design, where distributed money creation can accompany distributed food production, distributed
health-care, sustainable housing, distributed entrepreneurship... distributed/decentralized economies.
When those at the bottom of the economic pyramid are given the opportunity to create value and
control over the means of exchanging that value, then the pyramid shaped structure of the economy
changes, permanently. This is especially true of humanitarian projects that include networks of self-
sustaining EcoVillages with Entrepreneurship Hubs. They can be designed with their own custom
virtual currency systems.
As ownership of the means of production becomes more widely distributed, more jobs are created,
incomes rise, the size of the economic pie expands, and the income disparity between the rich and the
poor shrinks, making the economic pyramid look more like a pancake... wealth accumulation by the
masses instead of just the elite.
B. THE EARLY STAGES OF THE EPIC WEALTH TRANSFER

We are at the early stages of the evolution of crypto use for more-secure digital currency transactions in
everyday business. In the US, the “Regulation of Virtual Currencies Businesses Act” is establishing a
regulatory framework so that business can get licensed to use cryptos for payments and other business
transactions.
Each state is in the process of creating their state-level regulatory frameworks. Over the next 5 to 10
years, the amount of commerce transacted using cryptos instead of government-issued fiat currencies is
poised to explode, and so will the investment opportunities associated with it.
Cryptos are increasingly being viewed by institutions as the alternative to government debt-money, and
when the debt-money systems show signs of weakness, this serves to boost the demand and prices of
cryptos.
News of large companies accepting cryptos as a form of payment serves to boost demand and prices of
cryptos.
News of large corporations using the crypto platforms to launch new products serves to boost the
demand and prices of cryptos.
News of countries passing legislation to allow cryptos as a form of payment serves to boost demand
and prices of cryptos.
News and leaks of corruption and exposure of crimes in the governance bodies of Western civilization
serve to boost the demand and prices of cryptos.
News of political instability, resignations, jailings, and disappearances/suicides among government and
finance insiders serves to boost demand and prices of cryptos.
News of corruption in the banking system and political scandals spilling over into the world of money
serves to boost demand and prices of cryptos.
News of corruption in the Federal Reserve System serves to boost demand and prices of cryptos.
News of governments oppressing their people serves to boost demand and prices of cryptos.
News of governance failure and inter-agency governmental breakdowns serves to boost demand and
prices of cryptos.
News of slowing real estate markets, with lower sales volumes (and potential downturn like 2008),
serves to boost demand and prices of cryptos.
News of large shifts in economic power and collapsing markets serves to boost demand and prices of
cryptos.
With all these news events beginning to occur on a more frequent basis, humanity's combined
consciousness is being exposed to cryptos as an alternative to government debt-money, and as certain
thresholds of awareness are met, the rate of growth increases exponentially.
Think back to the early days of Facebook, when it reached the tipping point and went from a few
million users to hundreds of millions of user, and now billions of users daily. In this case, however,
instead of the wealth accruing to some young billionaire who owns the company, the crypto-wealth
boom accrues to the coin holders who are the new owners of the emerging distributed monetary
system.
Once 1% of all human adults alive have some awareness, cryptos then slip into mainstream thought. At
3% awareness, cryptos begin to be adopted globally, and the rate of transfer of planetary wealth from
government debt-money to cryptos escalates.
The global banking system is not very liquid, so as this transfer from government debt-money to
cryptos occurs, we could experience a banking liquidity freeze globally. This could result in major
political organizations and nation-states failing. This would only serve to accelerate the process.
Bitcoin was conceptualized in 2008, motivated by the fallout of the 2008 financial crisis. Bitcoin first
launched in January 2009. It took 8 years to approach the 1% awareness level. It may only take 8
months to reach the 2% awareness level, and perhaps only 8 weeks to reach the 3% awareness level.
Some suggest that by 2020, we may have reached the 10% awareness and involvement threshold,
integrating peer-to-peer crypto systems as a substitute for the centrally controlled systems.
This could result in each month being a record-breaking month for wealth transfers, month after month,
for years and years to come.
II. SELECTED TECHNICAL TERMINOLOGY - EXPLAINED
A. CRYPTO-CURRENCY
A crypto-currency (crypto) is a digital asset designed to work as a medium of exchange, using
cryptography to secure the transactions and to control the creation of additional units of the currency.
The term "crypto" means cryptography, or data encryption through complex mathematical formulas
and security tokens/keys called hash keys. There is a public key and a private key. The public key
must be correctly matched to the corresponding private key to create a "digital signature". Adding your
signature to a document is a way to link your identity to that document and to do so in a way that is
difficult to forge. In a similar way, by matching your public and private keys, your digital signature
then gets added to a public ledger, using a trickle-down process known as the Merkel Tree process.
Every party must have the same signatures as everyone else in order to move the process forward.
So when a statement such as, “Party A will pay XYZ Bitcoin to Party B" goes into this system, it is like
a fly caught in a piece of amber. The fly is the contract, and that contractual statement goes through the
recording process, along with all other transactions during that "block of time". This time-stamped
block of transactions cycles through the system to be verified by multiple sources before being
accepted as part of the official ledger.
Depending on the number of computers working on confirming the block of transactions, this can take
several minutes to compute. Once verified, the block-time cycles function like the amber surrounding
the fly, making it impossible to deny that the agreement took place and is "set in stone", so to speak, as
part of the equation forever. This type of encryption is near impossible to hack through brute force.
A.1. SMART CONTRACTS

“Smart contracts” are agreements whose clauses can be codified and verified mathematically by
computer software in such a way that it does not require trust on either party's end. It is trust neutral. A
real world application of this might be a cross-border transaction where neither party knows or trusts
each other, or the sale of a financial instrument like an option contract.
“Dry clauses” are clauses that can be verified mathematically. The classic example is the vending
machine where you put in a coin, you push the button to purchase a product, the vending machine
verifies the mathematical input triggered when the coin passed by a sensor and confirms that the
amount of money was sufficient to cover the cost of the product selected, then the machine dispenses
the product.
“Wet clauses” are those elements that require "wet" human verification, such as multiple signatures by
different decision makers or verifiers, such as an insurance adjuster. The terms and fulfillment of smart
contracts can be encoded into what is called a “block-chain” (more on this later).
A.2. PUBLIC KEYS AND PRIVATE KEYS
A “security key” is a string of letters and numbers. In relation to cryptos, a person gets a “public
security key” and a “private security key”. Public keys and private keys are paired together. The
public key portion is shared with the public. The private key portion is known only to the owner. Your
public key is your identity in the system. Any person can encrypt a message using the public key of the
receiver, but only the person with the corresponding private key can decrypt the message. This means
that it is safe to share the public key with the public, but security depends upon keeping the
corresponding private key private (this is where hardware wallets come into play... more on that later).
Trаnѕасtiоnѕ аrе "signed" digitally bу combining the public аnd private keys; a mаthеmаtiсаl funсtiоn
iѕ applied and a certificate is gеnеrаtеd, рrоving that thе uѕеr initiated thе trаnѕасtiоn. Digital
ѕignаturеѕ are unique tо еасh trаnѕасtiоn аnd cannot be rе-uѕеd or forged.
A.3. CRYPTO-COINS
An electronic coin or “crypto-coin” is NOT like a physical coin that moves from one person's hand to
another, even though on the surface it may appear that way. Instead, a crypto-coin is a collection of
entries into a global ledger, a chain of digital signatures (public keys) representing assignments of value
on that ledger. A physical coin has no recorded transaction history,. In contrast, a crypto-coin is itself a
record of transaction history.
A transaction takes place when an owner assigns a value of coin to the next person by digitally signing
(attaching their public and private key to) an encrypted version of the previous transaction, and adds to
the global ledger the public security key of the next owner.
These digital signatures are then added to the end of the crypto-coin global ledger. When someone
“sends” or assigns you the coin, they are adding your public key to the transaction records on the global
ledger. However, in order for you to “send” or assign the value of the coin to someone else, you first
must match your public key to your private key, which is how you digitally approve the transaction.
The private key is what keeps attackers from being able to “steal” the recorded assignment of coin from
you.
In other words, your assignment of “coin” exists in the transaction records stored on hundreds of
thousands of computers around the world, and you can access your “coins” from anywhere in the
world, simply by logging into the internet and using your public and private keys to make transactions.
There is no more need to “send a wire transfer” or transport money, even when traveling or transacting
internationally.
A.4. BLOCK-CHAINS
Stated simply, a new group of transactions within a certain period of time is called a “block”. Each
new block contains an encrypted version of the previous blocks, thus the term “block-chain”. In other
words, a block-chain is a series of time bound computations (blocks) of a specific size where each
block of time is filled up with data (transactions, records, etc.), each of which must be mathematically
verified by multiple sources before being accepted and encased in the growing chain of events (the
block-chain/ledger) that is publicly distributed and accepted as valid.
It is essentially a record-keeping service using a mathematical ledger. Think of it like building a stone
structure which requires everyone to know and verify all the other stones in the structure before being
able to add a new one (the block-chain). Each successive "block" of stone becomes part of the whole
structure that cannot go away. Each recorded transaction or record thus becomes “set in stone” and
mathematically improbable for an attacker to unwind or falsify.
A.5. LEDGER
A ledger is a record of transactions that have taken place. In the crypto context, the block-chain itself is
the ledger, a distributed ledger copied to millions of participants, with each and every one of these
participants having the same record of data, serving as "nodes" (servers) all over the world. Anyone
with a copy of this record can perform a full validation of the entire ledger up to that point, and anyone
could systematically recreate the entire block-chain from any one of these copies, if for some reason
the remaining servers/nodes were to all be wiped out (solar flare, EMP pulse, etc.). This makes for a
robust system.
Everybody with a full node has a copy of the entire ledger, with records of all the data from Day 1 to
the present time. A transaction is only considered valid if it has the consensus of over 51% of the
nodes/miners, so a potential attacker would have to have more computational power than all the other
computers in the network combined, making it near impossible for a hacker to overtake the system. In
the rare case that an attacker did have more computational power than all the other computers in the
network combined, the transaction fees and new coin awards provides economic incentive for the
attacker to behave honestly.
In a world of increasing security threats from hackers (government sponsored and private groups alike),
where traditional financial institutions experience both identity theft and fraudulent transactions, the
crypto networks are emerging as the safer, better designed alternative. This is one reason why they are
gaining acceptance by major institutions and are now becoming mainstream.
There is a downside to this however, in that technically there is no privacy, because all transactions are
transparent. There is a false idea that no one knows who you are or what you are doing in the crypto
space. While that may be true of transactions themselves (meaning the transactions carry no personally
identifiable information), it is not true of any information associated with the accounts from which the
transactions occur, if these accounts are on a currency exchange platform, as these require names,
associated bank accounts, uploaded IDs, etc. There is also collection of meta data (IP address,
browser, geo-location, etc.) which, when combined with other systems, can create means of
identification.
A.6. COIN VS. TOKEN
A crypto-token is a crypto-currency that does not have its own block-chain. At the time of this writing,
most tokens are built on the Ethereum network and use the Ethereum block-chain, which also means
they can be stored in an Ethereum wallet (we'll discuss wallets later). In contrast, the crypto-coins have
their own platform/computer network and block-chain.
When launching a new token through a crowdsale, it is called an Initial Coin Offering (ICO), even
though it is not technically a coin. Tokens do, however, still represent a tradeable good, like
certificates, points, in-game items, a share in a company, or a voting right. Because tokens are created
by raising funds in a crowdsale, they are also referred to as crypto assets or crypto equity.
B. MINERS
Stated simply, “mining” is the act of recording the new transactions. The nodes/servers in the virtual
currency networks are called “miners”. Miners (aka mining rigs) are computers that collect and verify
the newly broadcast transactions and group them into a block. The act of computationally adding a
new block to the block-chain is accompanied with the creation of a few new coins (new coin award) to
compensate the miners for their work, plus some small transaction fees.
In other words, instead of digital money being created at a whim and distributed into the economy by a
monopolistic private bank (central bank), the creation of most cryptos is linked to a work-based
mathematical puzzle that is being solved by network nodes/servers called “miners”. These “proof-of-
work” puzzles each have a known difficulty and a specified rate of distribution or limited supply of
coins once they are solved, which coins are then awarded to the first miner to solve the puzzle for that
particular block (note: Some cryptos are pre-mined or pre-allocated or do not have a limited supply
since they are consumable, ex: Ripple, Ethereum). The crypto puzzle equation slowly gets solved by
the miners as part of the transaction confirmation / block-chain validation process.
Some coins are best mined using ASICs, which are application-specific integrated circuits customized
for a particular use, rather than for general-purpose use. Other coins are mined using GPUs, which are
Graphic Processing Units. Some coins are mined using the SHA-256 hashing algorithm, and some use
SCRYPT, or ETHASH, or EQUIHASH, or X11.
B.1. MINING POOLS

Due to the increasing computational difficulty in mining and the need for better hardware, it is common
for miners to come together as a “mining pool”, operating like a super-computer. Their combined
computational power enables them to increase their frequency of being the ones who generate the new
blocks. Also, since new coins are only awarded to the first miner to solve the “proof-of-work” puzzle
for any particular block, miners are able to reduce the volatility of their returns by working together
with other miners in a mining pool. Your share in the earnings of the mining pool is based upon your
percentage of the pool's total mining power (if your mining rig is 5% of the pools total hash capacity,
then you would receive 5% of the transaction fees and new coins awarded to members of the mining
pool). The mining pool membership fees are usually 1% to 2% of your earnings.
B.2. CLOUD MINING
“Cloud mining” is when someone buys a mining contract from a mining farm, which basically gives
them rights to a certain amount of computing/hash power for a certain period of time. In this context,
miners/investors are basically leasing servers/hashing power in someone's data-center, and paying
maintenance fees to cover the operating expenses (rent, electricity, internet). This is the most “hands-
free” version of mining and has the lowest cost of entry.
The cloud mining companies claim the ability to buy equipment in bulk and run their machines in low-
cost locations, but they may charge much more than what it would cost for a knowledgeable person to
take a mother board, central processing unit, hard drive, power supply unit, riser cards, and build a rig
from scratch. Also, the equipment may last much longer than the length of the contract, and when
someone owns their own mining rig, they can run it for the life of the equipment or sell the computer
parts if mining becomes no longer profitable.
B.3. PROOF-OF-WORK
In order to discourage an attacker from trying to make a fraudulent block, the block-chain must also
contain something called “proof-of-work”, which is the act of finding a randomly generated arbitrary
number called a "nonce". For a new-block to be accepted by the rest of the network, it must contain
the proof-of-work. This proof-of-work consists of miners finding the nonce, such that when the block
content is hashed/computed along with the nonce, the result is numerically smaller than the network's
difficulty target.
Does this mean that the miner with the greatest amount of computational hash-power will always be
the first one to find the nonce, complete the block, and receive the award coin? No, this isn't the case,
because the nonce for any given block is different for each miner, making it more like a lottery than a
race. This means that small miners will also get lucky with a nonce that is easier to find.
Even so, the total amount of hash-power a miner or mining pool has will greatly increase their
probability of being the ones to find the nonce, on average. With Bitcoin, every 2,016 blocks (which is
about every 14 days) the level of difficulty is changed to adjusted for the total hash-power of the
network, so that it takes an average of 10 minutes for someone to find the nonce and complete a block.
This means that as more people decide to mine Bitcoin, everybody else in the network will find that
their proportion of the total computing power, and thus their earning power, gets diluted.
The proof-of-work is easy for any node in the network to verify, but extremely time-consuming to
generate. To give you an idea of just how difficult the proof-of-work is, by March 2015 the average
number of nonces the miners had to try before creating a single new block on the Bitcoin network was
200.5 quintillion, and that number is continually increasing.
This makes the block-chain computationally improbable to hack. The level of difficulty in completing
the proof-of-work is adjusted and becomes increasingly difficult over time, as the number of miners in
the network grow. Miners are compensated for their work with transaction fees and new coin. For
example, as of July 2016, Bitcoin miners received 12.5 new coins per block added to the block-chain.
This is how new coins come into existence.
In other words, the act of economic exchange using cryptos actually creates more currency to facilitate
the increased volume of economic exchange. The increase in money supply more closely matches the
economic growth, thus minimizing inflation. This is a de-centralized version of monetary policy,
without a central bank needed.
B.4. PROOF-OF-STAKE
With the proof-of-work model, a lot of computational power and electricity is spent on completing the
proof-of-work puzzle, and the computational power and electricity are substantial transaction costs
(some experts speculate that by 2020 Bitcoin transactions may consume as much electricity as
Denmark). These transaction costs are passed on to the end-users of the currency network as
transaction fees. Furthermore, the reward coin only goes to the miner who was first to complete the
proof-of-work puzzle. Once a block is completed and broadcast to the rest of the network, all the other
miners in the network scrap the work they had done on the block and move on to the next one, even if
they were 99% done with their proof-of-work puzzle. This results in a lot of wasted duplicated effort,
and all this wasted computational power and electricity cost gets passed on to the end-users of the
network, as transaction fees.
A different method for obtaining consensus among network nodes is “proof-of-stake”. It was first
proposed in 2011 and has already been adopted by a few coin networks, like Peercoin, ShadowCash,
Nxt, BlackCoin, NuShares/NuBits, Qora, and Nav Coin.
Proof-of-stake uses less electricity and less computational effort, making the network several thousand
times more cost-effective, resulting in lower transaction fees for the end-users. This would make the
crypto itself a more appealing payment option for commercial transactions, especially when compared
to the transaction fees of credit cards, ACH, and wire transfer systems.
The proof-of-stake consensus model has ways to maintain the security and integrity of the currency
network, and is still an algorithm with the same purpose as proof-of-work, but the process to reach that
goal is very different. Instead of rewarding miners who solve mathematical puzzles as the way to
validate transactions and create new blocks, the proof-of-stake approach assigns each new block of
transactions to nodes/validators based upon how much of the total coin issuance they possess (the size
of their wealth or “stake” in the system). Every node/validator gets a block assignment, but those with
the greatest stake in the system get blocks assigned to them more frequently. They are not rewarded
coin, just transaction fees. This is why nodes/validators in the proof-of-stake system are called
“forgers” instead of miners, because they are not mining new coin.
C. TYPES OF COINS
C.1. BITCOIN
At the time of this writing, the most widely known crypto is Bitcoin, being a coin made of bits of
computer code. It was conceptually outlined in 2008 in a whitepaper titled, “Bitcoin: A Peer-to-Peer
Electronic Cash System,” by an anonymous group who called themselves Satoshi Nakamoto.
Here is a link to that whitepaper. It is only 9 pages long. Please read it!
Even if you understand only 10% of the content, this is critical base-line knowledge for understanding
the purpose and function of the Bitcoin platform, and all the other cryptos that have followed since
then.
If you would like to double your whitepaper comprehension potential, after you finish reading our
Crypto-Currency Evolution report you can watch this 8 video Bitcoin segment on Khan Academy that
takes about 100 minutes to go through (but if you watch it at 2x speed it takes less than an hour).
On the exchanges, the current symbol for Bitcoin is BTC. Due to Bitcoin's first-mover advantage,
BTC currently has the largest market capitalization and is often referred to as having a reserve-currency
status among cryptos, although this can change at any time.
C.1.1. BITCOIN'S LIMITATIONS

Even though Bitcoin came first, its design has some governance issues. They pioneered the proof-of-
work model. The volume of computing power and the amount of time it takes to complete the proof-
of-work for new blocks means that Bitcoin is best suited for large, infrequent transactions.
For smaller transactions, people can use fractional amounts of Bitcoin. A microBitcoin is one-millionth
(0.000001) of a Bitcoin, and the smallest unit is a satoshi, which is one-hundred-millionth
(0.00000001) of a Bitcoin (if Bitcoin goes to $500,000 USD per BTC, this small denomination might
actually come in handy). However, there is limited block space, and the cost of the increasingly
complex computations is growing exponentially (the computations are now measured in terabytes
instead of gigabytes).
Also, there is a fixed number of Bitcoins that can be mined, as the total supply of Bitcoins is capped at
21 million, and the computations get longer as each transaction is settled and added to the block-
chain/ledger. The network designers hoped that once there are enough Bitcoin users and transactions
that 21 million Bitcoin have been created, the miners would then be able to be compensated by the
transaction fees alone. If not modified, it is currently estimated that the last Bitcoin will take over 100
years to mine, however there are a number of scheduled changes to the code that are designed to
improve this.
One solution is to increase the size of the ledger/blocks so that it can hold more transactions. Another
solution is to add a 2nd layer, a segregated layer, for smaller transactions that only periodically settle on
the block chain. However, the required software upgrades have become very politicized and there have
been and likely will be multiple splits or “forks” among the miners that make up the Bitcoin network..
The reason for the forks is that the computer code is open sourced and consensus driven, meaning that
in order for something to take effect, it requires over 80% of all those using the software to make the
same change to their code base. Otherwise, it will result in a “forking” or splitting of the currency and
generate a spin-off of the block chain from that point forward. This has happened several times
already, resulting in Bitcoin XT, Bitcoin Classic, Bitcoin Unlimited, Parity Bitcoin, and as of August 1,
2017, Bitcoin Cash.
It is difficult to determine which fork the majority of the network will move forward with, and this is
where the relative size of computing power that a mining pool has can have direct influence on which
way miners vote and which version of currency is perceived as the "original". This is something to
keep in mind as there are major technical advances in store for each crypto, and with each update there
is a potential for this type of event to occur, although the majority seek to avoid these forks or splits in
the code as it can drastically impact the perceived value of their coin.
C.2. ETHEREUM
These Bitcoin governance issues were anticipated and addressed ahead of time by an 18 year old
prodigy named Vitalik Buterin in his 2013 whitepaper, “Ethereum White Paper: A Next Generation
Smart Contract & Decentralized Application Platform.” Please read this whitepaper as well!
Instead of trying to fix Bitcoin, he came up with a whole new platform, called Ethereum. The
Ethereum network has a token (coin) named Ether, but the general public still refers to it as Ethereum.
On the exchanges, the symbol currently is ETH.
Bitcoin is like a restricted computer with only certain functions. Ethereum is like a full-purpose
computer and was designed looking 10 years ahead. The Ethereum network executes smart contracts
better than the Bitcoin network does. Ethereum was designed as a platform upon which other coins or
tokens can be setup to operate as a DAPP (Decentralized Application), which is basically a piece of
software consisting of a user interface (UI) and a decentralized back-end, typically making use of the
Ethereum block-chain and smart contracts. This use-case gives the Ethereum network a tremendous
advantage. However, they have also had their share of hiccups.
The Ethereum network experienced a hard fork in 2016. The Ethereum network of miners split as a
result of a significant theft from a group known as “The DAO”, which is short for Distributed
Autonomous Organization. The DAO raised $150 million USD in Ether (at the time) and was hacked,
and a large amount of their Ether coins were stolen.
What began as an attempt to rescue investor funds in this high-profile project ended up causing a
schism that effectively split the Ethereum community. They held a vote, and the majority of
participants agreed that they wanted to change Ethereum’s code, as a way to get the funds back to
investors – and away from the attacker.
Those holding onto the original design retained the system as “Ethereum Classic” (ETC). Those
miners who adopted the new software process brought with them the brand name “Ethereum” (ETH),
because Vitalik Buterin and the other founders of the Ethereum network were part of this group.
This resulted in users now having access to two slightly different versions of the platform – Ethereum,
the 'official' version of the block-chain maintained by its original developers, and Ethereum Classic, an
'alternative' block-chain (but with the original design) maintained by a wholly new team.
In other words, ‘Ethereum Classic’ is the original block-chain where funds were never returned to
Ether owners who lost funds in the hacking of The DAO. The current Ethereum, by contrast, is a
parallel version of the block-chain that took measures to make the massive hoard of stolen funds
unusable on their network.
Regardless of this unique one-off event, the Ethereum network is solid in its design and is being used
as a platform by others. A large percentage of new tokens/coins are being developed on the Ethereum
network using the “ERC-20” token standard. As central governments and state governments pass their
Virtual Currency Regulation Acts, the number of businesses using these tokens and coins could begin
to avalanche.
Once the virtual coin concept goes mainstream, an increasing number of specialty design firms are
expected to integrate more functionality with traditional commerce. For example, retailers like
Walmart could use secure unforgeable coupon tokens to replace paper coupons. These will most likely
be developed on the Ethereum and Ethereum Classic networks.
Since many of the tokens/coins being developed on the two Ethereum networks have strong use- cases,
they can become (and in some cases have already become) more valuable than the underlying
Ethereum/Ethereum Classic coins themselves. Over the next several years, the price of ETH/ETC or
any one of these other tokens/coins could far exceed Bitcoin in value, due to their speed of execution
and usefulness.
Some speculators believe that every major company in the world will eventually have to use block-
chains for their transactions, because it is the only way to guarantee that they do not have a hacker in
their system or a rogue employee.
Many platforms and banks already are accepting Ethereum in exchange for US Dollars, so any token
created by a company could be exchanged for Ethereum, which can then be exchanged for USD,
meaning that Ethereum could also function as a reserve currency, although with significant differences
between it and Bitcoin.
The designers of the Ethereum network have not set an official limit to the total number of Ethereum
coins that can be issued, as there is a portion of coins that are being consumed as "gas" in order to
complete transactions. Initially, they made the mistake of giving too many coins to stakeholders and
designers, and did not reserve enough coins for miners. Miners do not have any contractual
agreements, and if people stop mining, the system shuts down. If there is no compensation for serving
as the backbone of the network, then the miners will start pointing their rigs to other coins.
This is why there are a number of proposals to modify the system by changing how coins are issued,
used, and/or consumed. Currently, the Ethereum community is discussing a shift to a "proof of stake"
model as opposed to a "proof-of-work" model. If this proposal goes forwards, and there is not a
unanimous vote among network nodes, this might result in another fork in the Ethereum network.
Ethereum Classic is going through other proposed additions to the original system. Ethereum Classic
also has not picked a limit for the number for additional coins yet, and some speculate that the stability
level will probably be a hard cap of 210 million ETC, leaving over 110 million coins to be mined over
the next 20 years. Ethereum Classic currently plans to stick with the proof-of-work model. This means
there are currently HUGE opportunities for mining ETC (big tip here). Also, ETC shares in the brand
name recognition of Ethereum, so wherever Ethereum becomes mainstream, Ethereum Classic will
soon follow in popularity.
C.3. ALT-COINS
While Bitcoin and Ethereum are the most trusted and widely used cryptos, there are several alternative
coins (Altcoins) as well.
CoinMarketCap lists over 900+ cryptos and their market capitalization, based in USD. It is technically
challenging to separate out the bad eggs without specifically researching the use-case, offering, and
technical design of each coin and token. There is an increasing number of junk coins that have no use-
case nor product, or are pre-mined or pre-allocated or have back-doors that enable the developers to
create more coins for themselves at-will.
With that said, here some of the currently most notable cryptos, based on their current market cap
and/or some unique use-cases:
* Litecoin has a different way to process transactions and is like a Bitcoin 2.0, with superior
speed and stability. It was designed to be the optimal solution for day to day transactions,
meaning this coin might be a good long-term hold as more and more daily transactions migrate
over to crypto systems. It could also be a good one for mining (big tip here).
* Dash offers the same features as Bitcoin, but also has advanced capabilities, including instant
transactions, private transactions, and decentralized governance. It was originally called Xcoin,
then changed its name to Darkcoin, and in 2015 was re-branded as Dash, which is a
combination of the two words Digital Cash.
* Veritaseum is a token application built on the Ethereum platform, created to enable capital
markets without brokerage firms, banks, or traditional exchanges, and has already had
successful tests in integrating its system to replace some country's exchanges (this may be
another good one for a long-term hold, since lots of institutional money will would going
towards it if it proves successful).
* Ripple was created by conventional banks for bank settlement. This is the "bankster coin", as
far as anyone in the crypto industry is concerned. It is not mined and is very pre-allocated, but
with no information as to how much or to whom. Many think it has potential to rise since "big
money" is behind it, but it is part of the very system that caused our current economic problems.
Consider it a crypto-extension of the current global fiat system.
* InsureX was created to handle smart contracts for the insurance industry and is one that has
interesting potential if it gains first-mover advantage in the insurance industry.
* Zcash is on the Bitcoin network, but with a different privacy routine so that people cannot look
into the ledger and identify you as easily, meaning the entire ledger is opaque, but it is
computationally expensive to validate (higher transaction costs/fees). It has a very loyal user
base, but the same governance issues as Bitcoin.
* Monero is also on the Bitcoin network and has enhanced privacy features, but not to the same
extent as Zcash.
Here is a list of the dominant use-cases, and the primary currencies in each category:
1. Smart Contracts: Ethereum, Ethereum Classic, Ardor, Lisk

2. Payments: Bitcoin, Litecoin, Ripple, Stellar
3. Data Storage: Sia, Storj, MaidSafe
4. Privacy: Zcash, Dash, Monero
5. Governance: Tezos, Decred
6. Inter-chain Transfer: Cosmos
7. Computing: Golem
D. CRYPTO-CURRENCY EXCHANGES
Several currency exchanges have been created by entrepreneurs to enable more functionality in the
emerging crypto economy. Currently, the primary crypto exchanges are Coinbase, Poloniex, Kraken,
and Bitfinex. However, several early exchanges have been hacked, gone bankrupt (Mt. Gox), or
actually stolen their customers’ digital currencies.
It is fine to use exchanges to purchase currencies, but DO NOT trust them to act as a bank account.
They still have many technical issues, outages, and are susceptible to attack. Many exchanges are
offshore and don’t have insurance, and you must remember that cryptos are different in that once a
transaction is confirmed, it cannot be reversed. Therefore, it would be unwise to leave a majority of
one's crypto in an account on an exchange. It is much safer to hold and control your crypto offline in a
hardware or paper wallet (more on that later), in case the exchange goes under.
CoinMarketCap lists the major exchanges, by trading volume. If one were to actively trade a certain
currency, they should do it on one of the top 5 exchanges for that particular currency.
Below is more information on the primary exchanges:
* Coinbase has raised over $100M in venture funding. They are a highly-trusted digital wallet
service that allows you to buy and sell Bitcoin and Ethereum, but not the Altcoins. They make it
really easy for the average person to get started with digital currencies. In fact, you can link
your Coinbase account to your credit card or checking account, and quickly transfer money to
and from the exchange (instantly for cards, 5-7 days for bank deposits). However, Coinbase
charges hefty fees and restricts new users to very low weekly transaction amounts.
* Poloniex is a newer exchange that gained popularity because they offer margin trading and
shorting on many of the most popular Altcoins. This is a great exchange for trading Ethereum.
It also has lower fees than Coinbase and is fairly user-friendly, once you understand the user
interface. However, you cannot make purchases using USD, only using virtual currency, so you
would first need to purchase crypto elsewhere, then transfer it to your account at Poloniex, in
order to exchange/trade the Altcoins.
* Kraken was founded in 2011 in San Francisco and is touted as one of the more secure Bitcoin
exchanges and has a wide offering of Altcoins.
* Bitfinex is a very liquid exchange with the ability to short Bitcoin. Aside from a few technical
glitches in the past, this exchange is a reliable place for active traders. Currently, they
consistently rank as one of the top exchanges by trading volume.
* Coinigy is a company that aggregates all the crypto pairs into one trade platform and lets traders
access over 45 of the most popular exchanges from one single account. For investors who do
want to actively trade cryptos, Coinigy functions as an all-in-one trading platform that has
charting and order execution for all of the important digital currencies and exchanges. Investors
can link their various currency exchange accounts to Coinigy, actually place orders, and track
their trades in one single location.
E. INITIAL COIN OFFERINGS (ICOs)

An initial coin offering is when a group of developers first launches their new coin or token to the
general public, similar to how an Initial Public Offering (IPO) on the stock market works. However,
unlike an IPO, which uses investment banks to interface with investors, the Initial Coin Offering are
carried out directly by each Coin/Token company itself through a crowdsale, with the primary source
of information being their website. There are several companies that list current and upcoming ICOs
(we'll talk more about this later).
As a potential investor, once you find out about an ICO, you will have to pay for the new coin or token
using the existing cryptos that the group specifies, and send those to the groups' public contact address.
Once ICO developers have enough commitments, they launch the new coin or token onto one or more
of the exchanges and deposit the new coin or token into your wallet. As their token or coin gains more
popularity, or if their project needs more funds, they will convert the other existing coins they received
(such as Bitcoin or Ethereum) on the exchanges, in addition to converting their own coins or tokens
that they had reserved for themselves. If vendors and other users see that new coin as a source of
value, then you can actually purchase goods and services with that new coin and/or trade it at the
currency exchanges.
F. WALLETS
A natural question is, “How do I hold virtual currency, if I can't keep it in a bank account and I cannot
physically hold a virtual coin my hand?”
The solution is software known as a “wallet”, which stores the digital credentials of your virtual coin
holdings. The wallet is a collection of your public keys and also your private keys, which no one else
has access to. Instead of being a leather wallet in your pocket, it can be software on your laptop, PC, or
smart phone, or an account at a crypto Exchange or online wallet service.
However, each of these options run the risk of being hacked. In fact, if you have a software wallet on
your smart phone, PC, or laptop, you should expect to get hacked (whistle-blower leaks have
demonstrated that key-loggers have been shown to exist on all smart phones).
It is important to remember that the virtual currencies are not actually stored in your wallet. The
Bitcoin, for example, are stored in the block-chain/ledger that is on every single mining computer in
the Bitcoin network. What is stored in your wallet is your private key that gives you control over your
assignment of coin recorded on the block-chain/ledger. If an attacker gets a copy of your private
key, you lose control over your virtual currency.
Software wallets have inherent security risks, but software wallets are not the only option. You could
alternatively write your private encryption keys on paper and put that paper in a vault, or you can just
memorize them and, in this sense, store your virtual money in your head. However, if you forget or
lose your private encryption keys, your virtual currency will be forever inaccessible, as networks will
not recognize any other evidence of ownership. There are NO recovery mechanisms in place for your
private keys (with a few exceptions).
One of the safest and most secure ways to store your public and private keys, the digital credentials of
your virtual coin holdings, is to have what is called a “Hardware Wallet”, which is a physical device
with encryption software on it. The most secure kind of hardware wallet is one that is not always
connected to the internet.
When using a hardware wallet, you plug it into a USB port to temporarily go online to make and
receive payments, and then you disconnect the wallet and physically keep it safe. What's more
important, though, is that your private encryption key is only on your hardware wallet and it is not
visible to anyone on the internet at any time, nor do you have to type it into a device, making it safe,
even if you use a smart-phone that has key-logger software on it.
If you type your private keys online, then you are giving them to any hacker that wants to access your
wallet. Hackers remotely plant screen recorders and key logging software on people's devices for this
purpose. The most secure hardware wallet we know of currently is Trezor. The Trezor device hosts
your private keys offline on its tiny screen, not on your smart phone or online wallet, so that you avoid
this type of exposure whenever you complete a transaction.
The easiest way to buy Trezor is at Amazon.com and have it delivered to your doorstep in just a couple
of days. Once it arrives, it is easy to set up, using the instructions at https://trezor.io/start/.
Completing your first crypto transaction, securely, can very intimidating. Here is a link to a detailed
step-by-step video of how to set up a Trezor wallet and how to send and receive coin with it.
At the time of this writing, Trezor supports Bitcoin, Ethereum, Ethereum Classic, Litecoin, Zcash, and
Dash. They have planned software upgrades to handle additional Altcoins in the future.
The Trezor device is only accessed using a Personal Identification Number (PIN) you create, which can
be up to 9 digits long, so that even if someone steals your hardware wallet, they still cannot access the
private keys you stored on it. Because of the PIN feature, you can use your hardware wallet even with
computers you do not trust.
Another bonus to using a Trezor hardware wallet is that if you forget your private key, or your
hardware wallet gets lost or stolen, you have “recovery seed” that you can use to restore your wallet.
Recovery seed is a 24-word long recovery phrase that Trezor gives you so that you can restore your
Trezor wallet (this is the only exception we know of when it comes to recovering control over your
coins after forgetting or losing your private keys).
F.1. FIRST-TIME COIN PURCHASE

If you have never purchased any virtual currency, then here is the simplest and most secure process for
the newbie looking to make their first crypto purchase:
1. Order a Trezor
2. Set up your Trezor following the set-up instructions they give you: https://trezor.io/start/
3. Go to Coinmama to set up an account and purchase Bitcoin using USD or EURO (you can use a
credit card or debit card)
1. Note #1: For new accounts at Coinmama, the maximum you can purchase per week when
using a credit card or debit card is $10,000 USD worth of virtual currency, after uploading a
picture ID, and the max per transaction is $5,000 USD
2. Note #2: Expect to complete lots of verification steps
4. If you want to purchase Ethereum or one of the other Altcoins, you have to use Bitcoin to make
the purchase, so here's how you do that:
1. Set up an account/wallet at Poloniex,
2. Transfer BTC from your Trezor to your Poloniex wallet,
3. Then use the BTC you have in Poloniex to purchase any of the Altcoins.
4. Once the transaction is settled, you can then transfer your Altcoins to your Trezor wallet
5. Note: At the time of this writing, Trezor only supports wallets for Bitcoin, Ethereum,
Ethereum Classic, Litecoin, Zcash, and Dash. You'll have the keep the other Altcurrencies
in your Poloniex wallet until Trezor releases software upgrades. This is one of the
drawbacks of being an early adopter... the systems are still being built out.
III. PASSIVE INVESTMENT OPPORTUNITIES

A. MINING RIGS
One of the most obvious investment opportunities to participate in the evolving crypto economy is to
build (or purchase) a mining rig for a particular currency, and to become a node in the network, earning
currency for having dedicated hardware and software that carries out the mathematical calculations. If
miners are the new banks, the distributed suppliers of liquidity, then it makes sense to own a
bank/mine, so that you can participate in the creation and distribution of money, too.
However, be aware that the proof-of-work level of difficulty increases as more mining rigs come online
and more transactions take place, which means that mining difficulty also increases over time, and the
amount of award coin decreases over time, until it reaches zero. This means that over time, mining
could become less profitable. Also, currency values can change, and if the currency being mined goes
down in value, that could also make mining that currency less profitable.
Due to Bitcoin's popularity, it is tempting to jump into Bitcoin mining, but in reality it takes millions of
dollars of capital to effectively mine Bitcoin. In our opinion, the best long-term mining plays are
Ethereum Classic and Litecoin. When looking at purchasing mining hardware, it is important to
consider expense factors (like price of equipment, power consumption), and revenue factors (like
hashrates per second), in order to gauge your potential profitability.
We are currently vetting companies that build mining rigs for investors, and we are testing the efficacy
of their machines, to see if their projected output is accurate. Aside from the cost of the machine, other
factors such as the cost of electricity, cooling, physical space, internet utilities, and increasing difficulty
of the algorithms must also be considered, as these create a profitability reduction effect over time, as it
becomes more and more difficult to mine any one particular coin. We will post an update on our F3
Mastermind Group site as soon as our testing is complete. If you know of any other companies who
build custom mining rigs and provide technical assistance for investors, please let us know.
CryptoCompare is a good resource for investors looking to get into mining, as it provides summary
information on companies that provide mining services, it reviews mining equipment for the different
currencies, lists their price and hash rate (computing speed) and what your potential returns could be,
its lists cloud mining offerings, and it also lists mining pools that miners can join (here is a good article
the posted on what to watch out for when selecting a mining pool).
CryptoCompare is a fairly new comparison site and there are very few user reviews on equipment and
companies, so it will take a good amount of research and experiential risk to find out who the actual
best performers are.
If you have a small budget and aren't ready to buy and run your own equipment, here are some of the
more noteworthy cloud mining companies, at the time of this writing:
1. Genesis Mining is a large mining farm that leases out its equipment, thus enabling average
people to mine Bitcoin as well as Altcoins that use the same algorithm and equipment as
Bitcoin (SHA-256). They now offer the equipment and algorithm to mine Ethereum as well.
Their facility is in Iceland, which has low energy costs due to the abundance of geothermal
power. Tip: If you want to get a 3% discount from them, use the discount code H3U2As.
* Note: In August 2014 Genesis stopped mining Bitcoin because of low profitability, but instead
switched to the more profitable Altcoins that use the same equipment and algorithm. However,
because of the number of newbie investors still fixated on Bitcoin, they decided to re-enable the
service, as long as it can cover the maintenance fees.
2. HashFlare has great transparency and allows investor to participate in mining pools with their
leased equipment. Their facility is in Estonia.
3. Eobot is a cloud mining company that has a mining farm, but can also enable investors to use
their ordinary everyday computer as a mining server, by running their Eobot software in the
background, for free.
4. Minergate is newer, but has the ability to do “merged mining” as well. Merged mining is
simultaneously mining two currencies that use the same algorithm, like Bitcoin and Namecoin,
or Litecoin and Dodgecoin, without losing efficiency in either, but it is more complex to set up
and manage.
It is important to note that several cloud mining services have turned out to be scams, but that doesn't
mean that all of them are. It is therefore important to do proper due diligence, and to place extra value
on transparency.
When comparing the offers of cloud mining services, here are 4 simple steps you can use to make an
informed decision:
1. First, decide which coin(s) you want to mine.

2. Second, compare their equipment's hashrate per dollar invested.
1. The quoted fee in big bold numbers is the up-front fee.
2. The speed is usually measured as Kilo-hash per second (KH/s), Mega-hash per second
(MH/s) or Giga-hash per second (GH/s). 1 Giga-hash = 1,000 Mega-hash = 1,000,000 Kilo-
hash = 1 billion hashes per second.
3. The higher your hashrate per second for that particular coin, the higher your likelihood of
payout.
3. Third, the “term” is for how long you can expect to get paid, so if the up-front cost is the same,
and the hashrate per dollar invested is the same, a 2 year term is better than a 1 year term. An
unlimited or open ended term is for as long as they can cover their maintenance fees.
4. Fourth, make sure you are clear on what their maintenance fees are, because this is the small
print that can make the big difference.
B. BUY-AND-HOLD
Another basic approach is to buy-and-hold cryptos. Bitcoin has doubled in value every year since
inception. Some speculators claim that it will go to $500,000 USD per Bitcoin within a couple of
years. Others think that Ethereum or Litecoin have a better structure for handling the computational
volume of millions of everyday transactions and thus will overtake Bitcoin in popularity and value.
Part of the value is dictated by the inherent functionality of the crypto, and part of the value is dictated
by how well it is marketed to the general public. As a crypto gets more coverage in the major news
outlets and becomes accepted by more businesses, the demand for the currency rises, and thus its
relative price rises too.
In our opinion, the safest and best currencies for buy-and-hold in a hardware wallet are currently
1. Bitcoin,
2. Ethereum, and
3. Litecoin
However, Bitcoin and Ethereum are already well established, and their price reflects it. Bitcoin is
currently worth thousands, and Ethereum is worth hundreds. However, many experts think that
Ethereum has more long-term potential than Bitcoin, because of the design of its framework (big tip
here).
For the short-term, some technical analysis experts see Bitcoin reaching almost $6,800 USD before a
major correction of over 35%, and reaching a high near $13,800 USD by March 2018 before the next
major correction, and then a rise back to around $6,800 USD.
In our opinion, some of the best Altcoins for long-term buy-and-hold, at the time of this writing, are
1. Veritaseum,
2. Dash,
3. EOS,
4. Populous,
5. NEM,
6. Bitcoin Cash, and
7. Ethereum Classic
Another, more speculative approach is a shot-gun approach, investing a couple hundred dollars into
dozens of ICOs, buying the coins for pennies and holding them for the long term, so that the few coins
that become worth thousands of dollars will make-up for the losses on the ones that were duds.
There are hundreds of cryptos, and hundreds more will be created. It is reported that ICO investors
made 82,000% return on Ethereum, 56,000% return on IOTA, 21,000% on Spectrecoin. ICO Stats is a
continually updated list of ICO performance. Three good sources of information on upcoming ICOs
are ICO Alert, CoinSchedule, and Smith & Crown.
When investing in ICOs, it is possible to ride the hype, but the long-term investor would look at user
empowerment enabled by cryptos. In our opinion, the currencies with the best business-cases deserve
the most attention. Here is an interesting lecture by Vitalik Buterin, founder of the Ethereum Network,
on that topic, “The Cryptoeconomic Way”.
Keep in mind that the US Government recently ruled that ICOs are securities offerings and are trying to
regulate and control them. It will require some creativity in order for a US citizen to participate in
ICOs, as many companies are not accepting known US clients, so that they do not fall under the
scrutiny of the US trying to force their laws upon other jurisdictions.
If you do want to implement this approach, an offline (like Trezor) and an online wallet at one of the
major exchanges like Poloniex or Kraken will be necessary, as the hardware wallets are only designed
to hold the established top-tier currencies. You will have to send your purchase currency (usually BTC
or ETH) directly to the ICO group from a private wallet, in many cases, if you want to participate, and
they will send their ICO currency to your online wallet at the major exchange.
Keep a look out if Amazon, Apple, or a similar mega-company launches their own tokens, as that ICO
would definitely be worth a buy-and-hold consideration (another big tip here).
C. AUTO-TRADING
Due to the small trading volume of most cryptos, the price volatility in this market is tremendous.
Furthermore, most new ICOs only accept Ethereum as their form of payment, so the demand and price
of Ethereum surges before the more popular ICOs, then normalizes afterwards. This predictable
movement can make for good returns for a virtual currency day-trader.
Some of this movement might be able to be captured through auto-trading. There are several groups
with open-source auto-trading software that people can use to create their own trading algorithms, such
as TradeWave.
We at F3 only engage in PASSIVE investing, so we have NO plans to create our own auto-trading
software, but we have researched a number of auto-trading services willing to accept US investors. So
far, almost all of the ones we have found have network marketing built into their business model,
without any verifiable trading performance, meaning they're just pyramid schemes riding the wave of
crypto hype. RED FLAG... stay away from those, in spite of their massive hype.
Nevertheless, we are currently vetting former currency traders who are now virtual currency traders
and have been getting double digit monthly returns. We'll update all F3 Mastermind Group members
once our vetting process is complete.
Also, if you know of a crypto auto-trading service that appears to be legit and DOES NOT have a
network marketing compensation plan associated with it, then please let us know so that we can add it
to our due- diligence list. As soon as we find the ones that demonstrate solid performance based on
trading activity alone, we will let F3 Mastermind Group members know.
D. HEDGE FUNDS
If you prefer professionally-managed closed-end investment pools, here is a list of over 15 hedge funds
in the crypto space. Some of them do auto-trading, others do mining, others invest in ICOs. Some
accept accredited US investors, many do not accept US investors at all. We are not endorsing any of
these funds. They may have risk management and security issues. We are not allowed to give financial
advice nor do we want to be perceived as soliciting investments, so we cannot give you details on any
of these hedge funds, but we can give you their public access websites, for information purposes only.
1. Alphabit Fund
2. Ayurn Capital
3. Block Tower
4. Block View Capital
5. Brian Kelley Capital Management
6. Global Advisors Coinshares
7. Crypto Asset Fund
8. Crypto Assets Fund
9. Crypto Lotus
10. Cryptocurrency Fund
11. General Crypto
12. Grasshopper Capital
13. MetaStable Capital
14. Pantera Capital's ICO Fund
15. Pollinate Capital
16. Polychain Capital
17. SuperBloom Capital
E. SYSTEMIC RISKS
One risk to the crypto system is that governments and private institutions are attempting to regain their
monopoly over the money-creation system by creating their own cryptos and/or trying to regulate,
control, pump-and-dump, or make all other cryptos illegal. Another tactic is to send their government
hackers to attack enough crypto miners/nodes to destabilize the integrity of the larger crypto systems
(like Bitcoin and Ethereum), and then tout their government created cryptos as the only “safe”
alternatives.
In our opinion, the substantial disclosure by WikiLeaks in the release of the government hacking tactics
has given the computer-security community enough knowledge to measurably close the security gap
and to create security protocols to prevent such a coup or make them substantially more difficult at the
software level (although at the hardware level there is still corporate collusion with governments in
embedding hardware-based vulnerabilities). The vast number of nodes that make up the larger crypto
platforms, and the diversity of platforms and international jurisdictions in which those nodes operate,
provides “safety in numbers” as well as safety in diversity. In our opinion, the crypto movement has
reached critical mass and now has a permanent role in the modern economy.
CONCLUSION
Every major company, government, and organization in the world today is beginning to make use of
block-chains for their transactions and big-data systems. This is being done for both good and bad.
Some are doing it to root out variance and theft, because it is the only way to guarantee that they do not
have a hacker in their system, or a rogue employee. Others are using it to attempt to create global IDs
for every single person on the planet and use it as a means of tracking every activity and data point that
they can, to create the 1984 dystopian surveillance system.
Central banks are using it to re-establish their monopoly on money creation and distribution in an effort
to rescue themselves and transition from the failing fiat system under which we are currently trapped.
Do not be mistaken and consider this a small or passing event. It has long-term global ramifications. It
is akin to the wild-west dot.com boom of the 1990s, right before anyone knew what the real impact of
the internet was, and it is being built now, right before our eyes.
If, after reading this special report, you are still wondering what is the best thing for you to do, we
cannot give you financial advice. We can only help you build your financial intelligence, so that you
can make better financial decisions yourself.
If someone has limited funds, we did outline that what we think has potential, and using the Cloud
Mining Services, someone can get started with as little as $1.20, or can even download free mining
software that converts their existing computer into an entry-level mining rig. Or, someone can go to a
Crypto Exchange and get Altcoins for less than $10.00, without requiring input from any kind of broker
or intermediary. We hope that you might consider doing something, but we cannot give financial
advice, as the decision ultimately lies with you.
The bottom line is that cryptos are a way to manage the financial risks associated with the global fiat-
currency system that is continuing to degrade. It is a complement to holding gold and silver coins.
One huge different is that cryptos are easier to transport and to transact with in a digital world than gold
and silver coins are.
The best approach to any investment is a diversified approach, which would mean considering several
of the ideas mentioned in our special report, such as owning several mining rigs for the most profitable
Altcoins, investing in the ICOs with the best business-cases, or having a portfolio of crypto auto-
traders that benefit from all of the volatility inherent in the evolving crypto economy.
This special report is our way to help you transition through what will be the complete re-shaping of
the financial and digital world, for the next several years to come. We hope that you, too, can make
epic profits from these epic changes, courtesy of TheFinancialFreedomFoundation.org
Required Legal Disclaimer: The Financial Freedom Foundation and F3 Mastermind Group are not a United States
Securities Dealer, Broker, US Investment Adviser, Financial Planning Firm, Accounting Firm, or Law Firm and do not offer
legal, tax, investment, or accounting recommendations. Nothing contained herein should be construed as legal, tax,
investment, or accounting advise. We do not sell investments. We do not and will not provide personalized investment
advice. We only offer research in wealth-enhancement ideas and financial education and publish opinionated information
about finance and trading that we believe our subscribers may be interested. No representation is being made that any
account will or is likely to achieve profits or losses similar to those shown by any of our programs. We are not liable for any
losses you may incur that are directly or indirectly related to the purchase and use of our information, products, or services.
Any actions taken in regards to the information contained in this message, our website, or products or services should be
undertaken only upon the counsel of a trained legal and/or accounting professional. Past results are not necessarily
indicative of future results. There is a substantial risk of loss trading leveraged instruments with or without this or any other
advertised product, service, or system. Trading forex, virtual currencies, futures, stock, and options are not appropriate for
everyone. Trading and investing in the virtual currency, stock, forex, futures, and options markets have large potential
rewards. However, there is also a substantial risk of loss associated with trading these markets. Losses can and will occur.
You are solely responsible for any losses as a result of trading. Never put your money on the line without an understanding
of what you are doing, and why you are doing it, based on your own personal knowledge and experience. Results, depicted
above are unique to the user. Your personal results will vary. Some of the performance results on some of our programs
may include simulated results. Simulated performance results have certain inherent limitation. Unlike actual performance
record, simulated results to not represent actual trading. Also, since the trades were not actually executed, the results may
under-or-over compensate for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading
programs in general are also subject to the fact that they are designed with the benefit of hindsight. You could make more,
less, or even lose money. No system or methodology has ever been developed that can guarantee profits. No representation
or implication is being made that using the information will generate profits or ensure freedom from losses. Traders should
consult their own financial advisers regarding any securities transaction, and be responsible for their own investment
decisions.

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Copyright © 2017 The Financial Freedom Foundation - All Rights Reserved - Page 1 of 30

A. HISTORICAL TREND OF MONEY

Money is something that functions as a medium of exchange, is a store of value, serves as an

A.1. MONOPOLY OF MONEY CREATION & DISTRIBUTION

A.2. DISTRIBUTED MONEY CREATION & DISTRIBUTION

B. THE EARLY STAGES OF THE EPIC WEALTH TRANSFER

A.1. SMART CONTRACTS

B.1. MINING POOLS

C.1.1. BITCOIN'S LIMITATIONS

1. Smart Contracts: Ethereum, Ethereum Classic, Ardor, Lisk

Below is more information on the primary exchanges:

E. INITIAL COIN OFFERINGS (ICOs)

F.1. FIRST-TIME COIN PURCHASE

III. PASSIVE INVESTMENT OPPORTUNITIES

1. First, decide which coin(s) you want to mine.

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