What’s “crypto”? The time period “crypto” is shorthand for “cryptographic asset,” which is usually understood to be a digital asset whose options and possession are coded on a blockchain and guarded by cryptography. The primary notable crypto asset was bitcoin,[1] created on January 3, 2009. Different bitcoin-based crypto belongings have been created since then. Bitcoin Money (BCH), Bitcoin Satoshi’s Imaginative and prescient (BSV) and Litecoin (LTC) are forks of the unique Bitcoin protocol and associated belongings, whereas Wrapped Bitcoin (WBTC) is a digital asset backed by bitcoin however with enhanced performance. However 1000’s of different crypto belongings don’t have anything to do with bitcoin. Just a few well-known examples are Ethereum (ETH), Ripple (XRP), Avalanche (AVAX), Cardano (ADA), USD Coin (USDC), Tether (USDT), Hyperliquid (HYPE), Stellar (XLM), Zcash (ZEC), Polkadot (DOT) and Dogecoin (DOGE). Dogecoin was initially a joke, however now has a market cap exceeding $20 billion. Every one in every of these, and innumerable others, has options that differ markedly from all others. I’ve personally analyzed greater than 100 of them.
Is crypto lawful? It appeared like varied federal companies had been very lively in enforcement actions within the business after the FTX debacle. The SEC investigated and sued varied corporations and leaders within the crypto business, however many groups continued to create and launch new blockchains, apps and tokens. There have been various vital courtroom instances that ended favorably, and in addition unfavorably, for market individuals. Extra importantly, and maybe pushed by the change in federal administration, many SEC lawsuits in opposition to crypto exchanges, buying and selling corporations, crypto growth labs and infrastructure suppliers have been dropped. This doesn’t imply that every one crypto actions are lawful always and all over the place. Quite the opposite, the relevant regulation is advanced, involving securities regulation, commodities and derivatives regulation, banking regulation, taxation, cash transmission regulation, and sanctions compliance, to call just some subjects. With the notable shift in strategy by the U.S. federal authorities, the crypto business is rising once more.
What’s the major distinction between the standard monetary system and decentralized finance that’s related to crypto belongings? Conventional finance (generally referred to as TradFi) differs from decentralized finance (DeFi) with respect to regulate. TradFi is managed by banks and governments. DeFi is managed by code. U.S. greenback deposits, shares, and bonds are historically custodied in and by banks, broker-dealers and clearing companies and are purchased, transferred, and offered utilizing exchanges and different TradFi establishments. The belongings are managed by centralized entities and identifiable human beings. Most crypto belongings, in distinction, will be held and transferred with out an middleman. They are often transferred utilizing private computer systems and the web from one particular person’s “pockets” to a different’s pockets. Metamask and Ledger are two well-known pockets suppliers. It is a “peer-to-peer” switch. That mentioned, there are centralized crypto exchanges, comparable to Coinbase and Crypto.com, that can be utilized to switch and custody crypto belongings. And there are decentralized exchanges, comparable to Uniswap, the place crypto belongings are purchased and offered peer-to-peer, with no human involvement apart from the client and the vendor. The Dice Trade is a hybrid alternate, combining centralized order-matching with decentralized custody and settlement.
What do “miners” do? What’s Proof of Work? Proof of Stake? Miners run nodes that allow the Bitcoin protocol (and some others) to validate and execute a switch of crypto belongings. Because of these actions, they create new bitcoin, which is the primary and largest crypto asset (by market cap and dispersion), and some different crypto belongings. Miners “earn” bitcoin (or the opposite asset) by racing to the right resolution of a math downside whose resolution requires large compute. That is referred to as “Proof of Work.” The primary miner to unravel a given math downside (i.e., full the Proof of Work) wins the best to create the subsequent block on the blockchain, which is then validated, via consensus, by others on the blockchain community. The miner earns bitcoin by creating the brand new block. By way of this course of, miners collectively validate the distributed ledger that accounts for the possession of all excellent belongings and the prior historical past of transfers of these belongings. The miner additionally collects transaction charges from community customers. Most blockchains, nevertheless, don’t depend on Proof of Work to attain consensus. As a substitute, they depend on “Proof of Stake,” of which there are a number of varieties. In a Proof of Stake system, token homeowners lock their tokens in a pockets, referred to as a “stake,” which features like collateral. For instance, 32 ETH (market-valued at roughly US$100,000) will be purchased and locked as much as run an Ethereum validator. A “stake” in that quantity bestows the best to take part in Ethereum validation. As a result of greater and older stakes usually tend to be chosen as a lead validator by a protocol’s algorithm, some validators solicit delegations of authority from different validators and act for the delegators collectively. In doing so, the delegates promise to share rewards with their delegators. The validator chosen by the algorithm for the subsequent block will create that new block and broadcast it to the community. Different validators will then confirm its legitimacy. When consensus is reached, the lead validator will obtain a reward, which (within the case of Ethereum) shall be paid in ETH. Sincere and speedy validation is incentivized as a result of everybody is aware of that unhealthy conduct shall be punished by “slashing” (forfeiture) of staked tokens. The important thing level is that each Proof of Work and Proof of Stake are decentralized consensus mechanisms which are used to validate the state of a blockchain.
Are all crypto belongings based mostly on blockchain, and do they use large quantities of knowledge middle capability and power? All crypto belongings are associated to specific blockchains in a technique or one other. Some blockchains are permissioned, which means that they’re managed by an individual or identifiable group. Others, such because the Bitcoin blockchain, are permissionless, as a result of they’re decentralized. Proof of Work consumes large quantities of power, however the power could be renewable. An instance is using hydro-electric energy for bitcoin mining in northern New York. The usage of power by the business as a complete is commonly overstated by critics as a result of Proof of Stake makes use of solely about one p.c of the power consumed by Proof of Work and nearly all crypto belongings at the moment are Proof of Stake belongings.
What’s a “stablecoin,” and the way does it evaluate to crypto belongings like BTC and ETH? Stablecoins are digital belongings denominated in a fiat foreign money (normally U.S. {dollars}) which are usually backed by redeemable arduous belongings held in reserve. USDC, for instance, is a stablecoin issued by a personal get together that’s backed by Treasury payments and different short-term federal debt obligations. Stablecoins are usually overcollateralized. Consequently, they commerce at or very near their US greenback goal worth. Within the case of USDC, that worth is US$1.00. Deviations from the goal worth are short-lived as a result of arbitrageurs maintain the market worth near worth. Notably, stablecoin know-how shouldn’t be decentralized, like Bitcoin and Ethereum. Quite the opposite, stablecoin know-how is managed by identifiable sponsors and banks. Those that use stablecoins deal with them as proxies for fiat foreign money. BTC and ETH, in distinction, do not need secure worth, however are valued for different causes. BTC is often considered as a retailer of worth. Some take into account it a partial hedge in opposition to fiscal and financial irresponsibility by governments, significantly since it’s hard-capped: There can by no means be greater than 21 million bitcoin. ETH is used as “gasoline” on the Etherium blockchain, which is a decentralized, permissionless blockchain that serves as the bottom layer (L-1) for app growth and deployment (L-2 and L-3).
What are “utility tokens”? Tokens which have a number of particular “makes use of” are generally referred to as “utility tokens.” An instance is Filecoin (FIL), which is used as fee for decentralized information storage. (Storage charges are each paid and earned in FIL quite than US {dollars}.) Some utility tokens have been deemed securities below the SEC v. W.J. Howey Co., 328 U.S. 293 (1946), and its progeny. Presents and gross sales of securities should adjust to the securities legal guidelines. Different utility tokens are extra precisely categorized as non-security commodities, as to which the securities legal guidelines don’t apply. The road between “safety” and “non-security commodity” is fuzzy.
What are the advantages of DeFi over TradFi? The principle advantages of decentralized finance relative to banks and brokerage corporations are pace and price of execution and the upkeep of monetary privateness. For example, stablecoins valued at US$100 million will be transferred to many areas all over the world in lower than a minute and at a transaction value which will be lower than US$1.00. Monetary privateness is particularly vital when sending or receiving funds from troubled areas, like Ukraine. A extra pedestrian use is remittances, which are sometimes paid in crypto belongings. Different crypto belongings have options that fiat foreign money doesn’t replicate. Specific crypto belongings are used for reductions and funds inside digital ecosystems the place fiat foreign money is solely not accepted. When crypto business advocates speak about “reinventing cash,” these are among the options that they take into account.
Ought to company treasuries allocate capital to crypto belongings? Early adopters embrace some fee corporations and gaming corporations. Different corporations ought to take into account the potential use of stablecoins for funds (particularly worldwide funds), idle money (as a result of they do generate yield) and gross sales to new clients. Monetary corporations have a wider vary of potential makes use of together with commerce settlement, 24/7/365 modifications to collateral positions, funding administration, capital markets, and extra. Banks, asset managers, funds corporations, insurance coverage corporations and retailers with worldwide clients that don’t at present have a stablecoin plan or working group are already behind their opponents and may attain out for assist. Main stablecoin sponsors, crypto exchanges and different business specialists are working with company treasuries and their authorized advisors. International corporations particularly want to contemplate the pace and price benefits of stablecoins for not less than some funds to and from areas which are under-served by dependable banks. Utilizing stablecoins for transactions allows settlement to happen outdoors hours when ACH transfers will be made. Offers of each nature and measurement will be closed on weekends, utilizing stablecoins for fee. Crypto belongings apart from stablecoins are much less more likely to be held in treasury, given their volatility, except administration and the board determine to put money into a selected asset or group of belongings as a part of the corporate’s evolving enterprise technique. An organization may select to do that so as to align itself with the crypto business, or a part of it, or due to a bullish conviction a few specific crypto asset. “Technique,” based by Michael Saylor, is the best-known and largest public firm of that style. All corporations that select to interact in transactions utilizing crypto belongings ought to be conscious of issues that embrace tax, accounting, controls, techniques and broader regulatory compliance.
When will extra corporations use crypto? Corporate use of crypto belongings is growing with the latest passage of the GENIUS Act. Keep in mind that there have been no notable crypto belongings earlier than the creation of bitcoin. The business is barely 17 years outdated. For the primary 16 years, crypto has confronted various challenges from legislators and regulators all over the world, together with the USA. Blockchain is disruptive know-how. The adoption curve of disruptive know-how is claimed to be like this: “First they ignore you. Then they snigger at you. Then they battle you. Then you definitely win.” Notable progress was achieved a couple of months in the past, in the summertime of 2025, when the GENIUS Act was enacted with overwhelming bipartisan assist, creating a category of legally permitted stablecoins within the US. Broader “market construction” laws is pending in Congress whereas the SEC and Nasdaq focus on learn how to “tokenize” publicly traded widespread inventory and the federal companies problem clarifying authorized interpretations. As statutes are enacted and guidelines are written by the companies and exchanges, broad lawful paths ahead have gotten clearer, thereby enabling and inspiring broader adoption.
[1] Patrick Daugherty leads the digital belongings regulation apply of Foley & Lardner LLP (“Foley”). An adjunct professor at Northwestern Regulation (beforehand at Cornell Regulation), he additionally directs an annual symposium on digital belongings on the College of Chicago Regulation College. Daugherty thanks his associate Nick O’Keefe for feedback on a draft of this FAQ, which derives from Daugherty’s remarks to “The Board Circle” in Palo Alto on December 8, 2025. Daugherty additionally thanks Austin Campbell of Zero Data Group for conversations and Campbell’s posted insights about stablecoins.
[2] On this FAQ, “Bitcoin” with an higher case “B” refers back to the protocol whereas “bitcoin” with a decrease case “b” (or “BTC”) refers back to the asset.
