BTCS Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis of financial condition and results of operations should be read in conjunction with our historical financial statements and the notes to those statements that appear elsewhere in this report. Certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Risk Factors and elsewhere in this report. When we refer to the “Fiscal 2025”, “Fiscal 2024” and the “Fiscal 2023” we are referring to the years ended December 31, 2025, December 31, 2024 and December 31, 2023, respectively. COMPANY OVERVIEW BTCS Inc., a Nasdaq-listed U.S.-based blockchain technology company, focuses on advancing blockchain infrastructure. With a primary emphasis on the Ethereum network, BTCS drives scalable growth through block-building and validator node operations, leveraging advanced technology and robust operational expertise. Blockchain Infrastructure BTCS’s blockchain infrastructure center on supporting the validation of transactions and securing proof-of-stake (“PoS”) and delegated proof-of-stake (“dPoS”) blockchain networks. The Company manages a network of cloud-based validator nodes that perform essential network functions, including transaction validation (“attestation”) activities and proposing new blocks. Through these activities, BTCS earns native token rewards by staking its own crypto assets on validator nodes operated by BTCS and third parties. Our evaluation of blockchain networks involves comprehensive due diligence procedures, including assessments of blockchain quality, reward potential, and the technical challenges associated with running validator nodes. Criteria for assessing blockchain quality encompass factors such as i) market and on-chain statistics, ii) liquidity, iii) potential blockchain utility, iv) history and milestones, v) growth and development roadmap, vi) use cases, vii) community interest, viii) quality of documentation, ix) decentralization, and x) any other publicly available information. This process ensures BTCS focuses on high-potential blockchain networks while mitigating technical and operational risks. Ethereum Block Building – Builder+ A central focus of BTCS’s current operations is its Ethereum block-building initiatives under Builder+, which commenced operations in 2024. Through Builder+ we purchase block space and leverage advanced algorithmic processes to construct blocks for on-chain validation. The goal of Builder+ is to maximize gas fee revenue by optimizing the contents and structure of each block. The Company aims to maximize the value of gas fees earned by increasing the number of blocks we purchase while minimizing the payments to validators required for purchasing block space. Builder+ has rapidly become a key driver of BTCS’s revenue growth, leveraging its scalable and efficient technology to expand its operational footprint within the Ethereum ecosystem. While Builder+ currently operates exclusively on Ethereum, its flexible design enables potential adaptation to other blockchain networks, aligning with BTCS’s vision to diversify its infrastructure operations over time. 17 Staking-as-a-Service – NodeOps BTCS operates a non-custodial Staking-as-a-Service (“StaaS”) business model that enables crypto asset holders to participate in network consensus mechanisms by staking and delegating to BTCS-operated validator nodes. As a non-custodial validator operator, the Company receives a percentage of a crypto asset holders’ staking rewards generated as a validator node fee, for our ministerial role in hosting the validator node. This creates an opportunity for scalable revenue and business growth with limited additional costs. The Company’s StaaS strategy provides a more accessible and cost-effective alternative for crypto asset holders to participate in blockchain networks’ consensus mechanisms, promoting the growth and adoption of blockchain technology. A StaaS provider maintains a ministerial role in validating transactions on a given dPoS network on behalf of its Delegators by (1) using open-source software to stake the relevant crypto assets; (2) monitoring and maintaining the nodes it is operating to ensure the computers remain online to validate transactions; and (3) verifying transactions on the network when required. As a non-custodial StaaS provider, we do not hold or take possession of any Delegator funds, crypto assets, or crypto asset rewards at any point during the staking or delegation process. Delegation does not involve the transfer of crypto asset ownership to a Validator. During the process of staking, delegated crypto assets remain in the Delegator’s digital wallets. The blockchain network calculates rewards earned, which are then distributed directly to the Delegator’s wallet. The blockchain network does not distribute any of the Delegator’s earned crypto rewards to BTCS. At no point does the Validator gain access, control, or custody of the original staked crypto assets or the earned crypto rewards through staking to its node. Therefore, the Company does not have any exposure to the custodial risks that a crypto exchange would have related to excessive redemptions or withdrawals of crypto assets, suspension of redemptions, or withdrawals. Further, we do not issue or hold crypto assets on behalf of third parties and have no exposure to the risks an exchange would have with respect to loans, rehypothecation, or margin. The following table details the blockchain networks on which BTCS operates nodes that support third-party delegations as part of our staking-as-a-service operations, including the amount of third-party crypto assets delegated to our non-custodial validator nodes, as of December 31, 2024. Blockchain Network Validator Fee Percentage % Delegated Crypto Assets (Native Tokens) Delegated Crypto Assets ($USD) Cosmos 5% 94,000 ATOM $ 580,248 Akash 5% 172,000 AKT $ 479,121 Kava 5% 20,000 KAVA $ 8,947 Avalanche 5% 300 AVAX $ 10,665 Total $ 1,078,981 Supporting Platforms: ChainQ To complement our core blockchain infrastructure, BTCS has developed “ChainQ,” an AI-powered blockchain data and analytics platform designed to increase accessibility and transparency within the blockchain ecosystem. Currently in beta, ChainQ simplifies on-chain data access and analysis for cryptocurrency holders, delivering deeper insights into blockchain activity. By indexing public data from our blockchain infrastructure operations, ChainQ provides an intuitive platform for exploring on-chain data. As of December 27, 2024, BTCS has discontinued its StakeSeeker platform to focus on Builder+ and NodeOps, reflecting the Company’s strategic emphasis on scalable blockchain infrastructure. 18 CRYPTO ASSETS The tables below detail BTCS’s quarterly crypto assets holdings as of the end of each fiscal quarter from the fourth quarter of Fiscal 2023 through the end of Fiscal 2024. Crypto Assets Held at the End of the Following Calendar Quarters: Asset 2023 Q4 2024 Q1 2024 Q2 2024 Q3 2024 Q4 Ethereum (ETH) 7,815 7,868 7,935 7,978 9,060 Cosmos (ATOM) 270,098 281,264 293,886 307,489 322,547 Solana (SOL) 7,845 7,964 6,821 6,936 7,038 Avalanche (AVAX) 17,842 17,842 18,510 18,510 19,085 Axie Infinity (AXS) 60,552 65,932 71,704 77,500 83,546 NEAR Protocol (NEAR) 80,267 80,981 82,867 84,748 86,650 Akash (AKT) 119,071 123,646 129,891 136,042 142,090 Kusama (KSM) 7,313 7,796 8,074 8,362 8,440 Kava (KAVA) 345,394 351,685 358,318 365,364 372,126 Polkadot (DOT) 8,650 9,010 9,386 9,784 9,904 Rocket Pool (RPL) - - - 584 599 Polygon (POL fka MATIC) 506,010 512,241 518,554 525,405 - Cardano (ADA) 265,254 266,543 268,582 270,264 - Mina (MINA) 90,017 92,897 95,777 96,497 - Tezos (XTZ) 26,174 26,492 26,845 27,440 - Evmos (EVMOS) 345,777 357,203 364,037 367,358 - Band Protocol (BAND) 992 992 992 992 - Oasis Network (ROSE) 2,647,629 2,663,766 - - - Fair Market Value of Crypto Assets at the End of the Following Calendar Quarters: Asset 2023 Q4 2024 Q1 2024 Q2 2024 Q3 2024 Q4 Ethereum (ETH) 17,829,264 28,700,380 27,235,107 20,767,299 30,198,638 Cosmos (ATOM) 2,860,870 3,455,299 1,975,032 1,452,240 1,995,181 Solana (SOL) 796,327 1,613,543 999,138 1,058,786 1,329,855 Avalanche (AVAX) 687,713 964,888 542,525 513,465 678,454 Axie Infinity (AXS) 535,546 726,572 434,956 390,911 517,820 NEAR Protocol (NEAR) 293,204 591,162 438,780 448,572 424,934 Akash (AKT) 291,574 592,956 466,154 376,836 396,659 Kusama (KSM) 329,353 377,395 191,929 167,245 277,773 Kava (KAVA) 301,429 374,932 158,376 131,275 164,889 Polkadot (DOT) 70,879 86,858 58,218 43,406 65,701 Rocket Pool (RPL) - - - 6,702 6,779 Polygon (POL fka MATIC) 491,138 514,187 290,027 208,271 - Cardano (ADA) 157,615 173,350 105,270 100,930 - Mina (MINA) 122,007 115,192 51,720 53,749 - Tezos (XTZ) 26,379 37,118 21,296 19,309 - Evmos (EVMOS) 43,886 28,612 11,249 7,310 - Band Protocol (BAND) 2,174 2,223 1,221 1,216 - Oasis Network (ROSE) 363,571 366,108 - - - Total 25,202,929 38,720,775 32,980,998 25,747,522 36,056,683 QoQ Change 53 % 54 % -15 % -22 % 40 % YoY Change 101 % 101 % 70 % 56 % 43 % Prices of Crypto Assets at the End of the Following Calendar Quarters: * Asset 2023 Q4 2024 Q1 2024 Q2 2024 Q3 2024 Q4 Ethereum (ETH) $ 2,281 $ 3,648 $ 3,432 $ 2,603 $ 3,333 Cosmos (ATOM) 10.59 12.28 6.72 4.72 6.19 Solana (SOL) 102 203 146 153 189 Avalanche (AVAX) 38.54 54.08 29.31 27.74 35.55 Axie Infinity (AXS) 8.84 11.02 6.07 5.04 6.20 NEAR Protocol (NEAR) 3.65 7.30 5.30 5.29 4.90 Akash (AKT) 2.45 4.80 3.59 2.77 2.79 Kusama (KSM) 45.04 48.41 23.77 20.00 32.91 Kava (KAVA) 0.87 1.07 0.44 0.36 0.44 Polkadot (DOT) 8.19 9.64 6.20 4.44 6.63 Rocket Pool (RPL) - - - 11.47 11.32 Polygon (POL fka MATIC) 0.97 1.00 0.56 0.40 - Cardano (ADA) 0.59 0.65 0.39 0.37 - Mina (MINA) 1.36 1.24 0.54 0.56 - Tezos (XTZ) 1.01 1.40 0.79 0.70 - Evmos (EVMOS) 0.13 0.08 0.03 0.02 - Band Protocol (BAND) 2.19 2.24 1.23 1.23 - Oasis Network (ROSE) 0.14 0.14 - - - * The prices have been rounded to the nearest whole dollar for prices above $100 19 The tables below detail BTCS’s quarterly crypto assets earned during each of the following quarters: Crypto Asset Rewards Crypto assets earned from blockchain infrastructure staking activities through NodeOps Asset 2023 Q4 2024 Q1 2024 Q2 2024 Q3 2024 Q4 Ethereum (ETH) 67 65 72 65 59 Cosmos (ATOM) 13,314 11,166 12,565 13,603 15,175 Axie Infinity (AXS) * 4,967 5,381 5,772 5,796 6,048 Akash (AKT) 3,337 4,575 6,246 6,151 5,771 Solana (SOL) * 93 119 139 97 64 Avalanche (AVAX) 18 - 668 - 569 NEAR Protocol (NEAR) * 1,200 714 1,886 1,881 1,960 Kava (KAVA) 17,532 6,292 6,632 7,046 7,174 Kusama (KSM) 67 10 279 288 75 Polygon (POL fka MATIC) * 6,462 6,230 6,314 6,851 1,575 Polkadot (DOT) * 366 360 376 398 110 Rocket Pool (RPL) - - - - 14 Tezos (XTZ) * 414 318 354 594 88 Mina (MINA) 5,760 2,880 2,880 720 - Oasis Network (ROSE) 21,029 16,137 10,431 - - Cardano (ADA) * 503 1,289 2,039 1,683 - Evmos (EVMOS) * 30,084 11,426 6,834 3,321 - * All or a portion of revenue earned from staking to third-party validator nodes Crypto assets earned from Ethereum block-building through Builder+ Asset 2023 Q4 2024 Q1 2024 Q2 2024 Q3 2024 Q4 Ethereum (ETH) - 11 23 152 700 Fair Market Value of Crypto Asset Rewards Earned Recognized as Revenue The following table summarizes the revenues earned from the Company’s operations by revenue segment during the following calendar quarters: Revenue by Segment 2023 Q4 2024 Q1 2024 Q2 2024 Q3 2024 Q4 Total revenue from blockchain infrastructure staking activities through NodeOps $ 326,125 $ 418,353 $ 485,340 $ 334,654 $ 381,958 Total revenue from Ethereum block-building through Builder+ - 33,033 75,852 404,503 1,939,825 Total revenue $ 326,125 $ 451,386 $ 561,192 $ 739,157 $ 2,321,783 The tables below detail the fair market value of BTCS’s quarterly crypto assets earned as revenue in each respective segment during the following calendar quarters: Revenue from blockchain infrastructure staking activities through NodeOps Asset 2023 Q4 2024 Q1 2024 Q2 2024 Q3 2024 Q4 Ethereum (ETH) $ 131,903 $ 188,078 $ 241,588 $ 180,487 $ 182,289 Cosmos (ATOM) 116,726 121,074 104,580 69,534 95,552 Axie Infinity (AXS) * 34,595 48,322 36,379 29,236 37,711 Akash (AKT) 5,341 18,746 26,740 17,763 18,043 Solana (SOL) * 3,620 15,372 21,353 14,414 11,071 Avalanche (AVAX) 714 - 18,491 - 20,764 NEAR Protocol (NEAR) * 1,834 4,422 12,500 8,802 10,733 Kava (KAVA) 13,033 5,252 4,305 2,508 3,198 Kusama (KSM) 1,193 474 8,108 5,782 1,382 Polygon (POL fka MATIC) * 5,143 5,731 3,758 2,716 523 Polkadot (DOT) * 1,999 2,957 2,619 1,980 465 Rocket Pool (RPL) - - - - 170 Tezos (XTZ) * 337 368 338 419 57 Mina (MINA) 4,818 3,646 2,439 319 - Oasis Network (ROSE) 1,688 2,218 1,036 - - Cardano (ADA) * 252 753 837 628 - Evmos (EVMOS) * 2,929 940 269 66 - Total revenue from blockchain infrastructure staking activities through NodeOps $ 326,125 $ 418,353 $ 485,340 $ 334,654 $ 381,958 * All or a portion of revenue earned from staking to third-party validator nodes Revenue from Ethereum block-building through Builder+ Asset 2023 Q4 2024 Q1 2024 Q2 2024 Q3 2024 Q4 Ethereum (ETH) $ - $ 33,033 $ 75,852 $ 404,503 $ 1,939,825 Total revenue from Ethereum block-building through Builder+ $ - $ 33,033 $ 75,852 $ 404,503 $ 1,939,825 20 RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 The following tables reflect our operating results for the years ended December 31, 2024 and 2023: For the Year Ended December 31, $ Change % Change 2024 2023 2024 2024 Revenues Blockchain infrastructure revenues (net of fees) $ 4,073,518 $ 1,339,628 $ 2,733,890 204 % Total revenues 4,073,518 1,339,628 2,733,890 204 % Cost of revenues Blockchain infrastructure costs 3,127,509 359,778 $ 2,767,731 769 % Gross profit 946,009 979,850 (33,841 ) (3 )% Operating expenses: General and administrative 1,672,276 1,450,724 $ 221,552 15 % Research and development 755,813 687,288 68,525 10 % Compensation and related expenses 6,598,348 2,542,336 4,056,012 160 % Marketing 80,993 12,153 68,840 566 % Realized (gains) losses on crypto asset transactions 767,375 604,269 163,106 27 % Total operating expenses 9,874,805 5,296,770 4,578,035 86 % Other income (expenses): Change in unrealized appreciation (depreciation) on crypto assets 7,683,772 12,135,648 $ (4,451,876 ) (37 )% Change in fair value of warrant liabilities (54,150 ) - (54,150 ) 100 % Other income 28,000 - 28,000 100 % Total other income (expenses) 7,657,622 12,135,648 (4,478,026 ) (37 )% Net income (loss) $ (1,271,174 ) $ 7,818,728 $ (9,089,902 ) (116 )% Revenues For the year ended December 31, 2024, revenue increased to approximately $4,073,000 compared to approximately $1,340,000 in 2023, primarily driven by the expansion of Builder+ operations. Builder+ contributed approximately $2,453,000 in revenue in 2024, while NodeOps revenue grew to approximately $1,620,000. The significant increase in revenue during Fiscal 2024 was primarily due to the launch and scaling of BTCS’s Ethereum block-building operations under Builder+, which resulted in a substantial increase in block rewards earned. Additionally, higher market prices for crypto assets during Fiscal 2024 contributed to the increased fair value of crypto asset rewards earned from both staking (NodeOps) and block-building (Builder+). While we anticipate continued growth in the number of block rewards and staking rewards earned, crypto asset market volatility may impact the fair value of rewards earned and recognized in future periods. Cost of Revenues Cost of revenues increased during Fiscal 2024, primarily due to higher Validator Payments made for purchasing block space as part of our Ethereum block-building activities under Builder+. Validator Payments totaled approximately $2,766,000 in 2024. These increased costs were partially offset by efficiency improvements in web service hosting fees related to NodeOps, which were reduced from approximately $325,000 in 2023 to approximately $142,000 in 2024. Cloud and server hosting costs related to Builder+ totaled approximately $125,000 in 2024. As we continue to expand block-building operations and increase block production, we expect cost of revenues to rise correspondingly. However, costs may grow at a greater rate than revenue in Fiscal 2025, likely reducing gross margins. 21 Operating Expenses General and Administrative Expenses General and administrative expenses increased during Fiscal 2024, primarily due to: ● Audit Fees: Increased by approximately $130,000, driven by a broader audit scope resulting from heightened operational complexity and services related to our Form S-3 registration during Fiscal 2024. ● Proxy Service Fees: Increased by approximately $120,000 related to our 2024 annual meeting and solicitation of shareholder vote. ● Order flow fees: Increase by approximately $104,000, attributed to purchases of order flow to support Ethereum block production as part of Builder+. These increases were partially offset by a $119,000 reduction in legal fees, which were elevated in Fiscal 2023 due to services related to the Series V Preferred Distribution and its related listing on the Upstream Exchange. We anticipate that audit fees may continue to rise due to expanding operational scope, while legal and proxy-related expenses are expected to decline in Fiscal 2025. Additionally, we anticipate future increases in order flow expenditures as we scale our block-building operations. Research and Development Expenses Research and development expenses increased during Fiscal 2024 as resources shifted from the beta release of our StakeSeeker platform in Fiscal 2023 to the launch of Builder+ operations and continued development of ChainQ, which launched in July 2024. We expect research and development costs to either increase or remain consistent, with a focus on cost management for third-party development services. Compensation and Related Expenses Compensation and related expenses increased significantly in Fiscal 2024, primarily due to higher equity-based compensation expenses, which totaled approximately $5,340,000, compared to approximately $1,643,000 for Fiscal 2023. A substantial portion of the equity-based compensation expense relates to performance bonus accruals for Fiscal 2024. These accruals primarily increased due to the Company’s exceeding the maximum revenue performance milestone of $3,712,500 during the year, triggering equity-based awards under employee incentive plans. While the total bonus amounts for officers approved for Fiscal 2024 were approximately $1,917,000 (as disclosed in Note 7 – Executive Compensation ), the portion allocated to incentive stock options was recognized at a higher GAAP expense, as required under U.S. GAAP. The stock-based compensation charges for the options component were determined using the Black-Scholes valuation model, resulting in a higher accrued amount. As part of the payment of accrued bonus compensation for the year ended December 31, 2024, the Company issued 1,312,068 options to employees and officers. The fair value of the options was estimated at approximately $2,872,000 using the Black-Scholes valuation model. Additionally, the increase in equity-based compensation expenses includes approximately $380,000 in payroll taxes primarily driven by costs related to the net settlement of shares issued upon the vesting of certain RSUs as well as increased salaries in Fiscal 2024. Looking ahead, we anticipate compensation expenses may decrease as the balance of unamortized stock-based compensation related to prior grants, as well as the balance of unvested RSUs, declines. However, equity-based incentives remain a key component of our compensation strategy, and future fluctuations in expense levels may occur based on the timing and structure of future grants. Marketing Costs Marketing expenses rose during Fiscal 2024 due to additional ad campaigns executed. We anticipate similar to more significant increases in advertising spend in Fiscal 2025. Realized Losses on Crypto Asset Transactions Realized losses on crypto asset transactions increased during Fiscal 2024 due to Validator Payments for block-building and sales of crypto assets to fund operations. The Company may realize additional gains or losses in the future depending on the sale of crypto assets to meet operational and cash needs as well as market conditions. Other Income (Expense) Changes in other income for Fiscal 2024 were primarily attributed to the recognition of unrealized appreciation on crypto assets due to favorable market conditions. However, the unrealized appreciation in Fiscal 2024 was lower compared to Fiscal 2023, which experienced greater increases in crypto asset market values. Changes in unrealized appreciation or depreciation of crypto assets are directly influenced by crypto market volatility, which can be challenging for management to predict. This volatility can significantly impact other income in future reporting periods. Net Income (Loss) The decline in net income for Fiscal 2024 compared to Fiscal 2023 is primarily due to smaller increases in the fair value of crypto assets during Fiscal 2024. Additionally, increased compensation expenses, including larger performance bonus accruals related to revenue milestones, contributed to the decline. Net income or loss may continue to fluctuate significantly due to crypto asset market volatility, impacting changes in fair value during future periods. 22 LIQUIDITY AND CAPITAL RESOURCES ATM Financing On September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may offer and sell, from time-to-time, shares of its Common Stock through H.C. Wainwright. Initially, the aggregate offering price of shares issuable under the ATM Agreement was $98,767,500. On October 4, 2024, the Company’s new Form S-3 registration statement became effective, increasing the total amount of securities that may be offered and sold under the prospectus to $250,000,000. From the period September 14, 2021 through March 17, 2025, the Company sold a total of 6,401,461 shares of Common Stock under the ATM Agreement for aggregate total gross proceeds of approximately $24,230,000 at an average selling price of $3.79 per share, resulting in net proceeds of approximately $23,445,000 after deducting commissions and other transaction costs. However, due to the SEC’s baby shelf requirements, the Company is currently limited in its sales of Common Stock under the ATM Agreement to no more than one-third of its public float (calculated as the aggregate market value of outstanding Common Stock held by non-affiliates) during any 12-month period, provided that the amount of securities that may be sold under the Form S-3 may fluctuate based on changes in the Company’s public float and stock price. As of March 17, 2025, the Company would be limited in its sale of shares under the ATM Agreement to approximately $13,747,000, subject to ongoing changes in the Company’s public float and stock price. Liquidit y The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and settlement of liabilities in the normal course of business. Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At December 31, 2024, the Company had approximately $1,978,000 of cash and working capital of approximately $33,893,000. As of March 17, 2025, the Company had approximately $261,000 of cash and cash equivalents and the fair market value of the Company’s liquid crypto assets was approximately $21,440,000. The Company has no outstanding debt. The Company believes that its existing cash and liquid crypto assets, in addition to the funds available to the Company from the issuance of additional stock through the ATM Agreement, provide sufficient liquidity to meet working capital requirements, anticipated capital expenditures and contractual obligations for at least the next twelve months from the filing date of this report. However, this belief is based on current market conditions, regulatory environment, and operational plans, all of which are subject to change. Certain of our staked crypto assets may be locked up for varying durations, depending on the specific blockchain protocol, and we may be unable to unstake them in a timely manner to liquidate to the extent desired, which could materially impact our liquidity position. Additionally, technical issues, network congestion, or regulatory changes could further restrict our ability to access or liquidate these assets. Lock-up periods for our staked crypto assets range from several hours to six months. During times of instability in the cryptocurrency markets, the Company may not be able to sell its crypto assets at prices reflecting their perceived value or at all, which could result in substantial losses given the historical volatility of cryptocurrency prices. As a result, our crypto assets may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. Cash Flows Cash Used in Operating Activities Cash used in operating activities was approximately $3,530,000 for Fiscal 2024, compared to approximately $3,562,000 for Fiscal 2023, reflecting consistent operating cash outflows year-over-year. Significant non-cash adjustments impacting operating cash flows included: ● Positive Adjustments: ○ Approximately $2,424,000 related to stock-based compensation, reflecting the issuance of equity-based awards to employees, including performance-based equity awards. ○ Approximately $2,766,000 related to Validator Payments made in ETH tokens as part of our Ethereum block-building operations. ● Negative Adjustments: ○ Approximately $7,684,000 in unrealized appreciation on crypto assets, driven by market value increases during Fiscal 2024. ○ Approximately $4,074,000 in revenue earned in native crypto assets, which does not result in immediate cash inflows. We expect equity-based compensation to either increase or remain consistent with Fiscal 2024 levels, given its central role in our compensation strategy. Non-cash adjustments related to revenue earned in crypto assets and Validator Payments are anticipated to grow as our Ethereum block-building activities scale, though these factors are influenced by crypto market volatility. Cash Used in Investing Activities Cash used in investing activities was approximately $2,632,000 for Fiscal 2024, compared to cash provided by investing activities of $186,000 in Fiscal 2023. The primary driver of the outflows in Fiscal 2024 was the purchase of crypto assets, primarily Ethereum, to support and expand our blockchain infrastructure operations. Fiscal 2023 investing activities included an atypically high volume of crypto asset sales, primarily from reallocating Ethereum rewards into other productive crypto assets for staking. Looking forward, we anticipate that purchasing activity will grow subject to additional financing or remain consistent. Cash Provided by Financing Activities Cash provided by financing activities was approximately $6,682,000 for Fiscal 2024 compared to approximately $2,688,000 for Fiscal 2023. The cash inflows from financing activities in Fiscal 2024 and Fiscal 2023 were entirely from proceeds of Common Stock sold pursuant to the ATM Agreement. The Company anticipates continuing to raise proceeds through Common Stock sales under the ATM Agreement to fund operational needs. Future financing activities will remain aligned with our strategic priorities, including the scaling of block-building operations and ongoing blockchain infrastructure development. Off Balance Sheet Transactions As of December 31, 2024, there were no off-balance sheet arrangements and we were not a party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations. 23 CRITICAL ACCOUNTING POLICIES AND ESTIMATES We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis: Accounting Treatment of Crypto Assets Fair Value Measurement The Company accounts for the fair value measurement for its crypto assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement. ASC 820 defines fair value as the price that would be received for an asset in a current sale, assuming an orderly transaction between market participants on the measurement date. Market participants are considered to be independent, knowledgeable, and willing and able to transact. It requires the Company to assume that its crypto assets are sold in their principal market or, in the absence of a principal market, the most advantageous market. Kraken serves as the principal market for the Company’s crypto assets, being the Company’s primary cryptocurrency exchange for both purchases and sales. Coinbase is designated as the secondary principal market. This determination results from a comprehensive evaluation considering various factors, including compliance, trading activity, and price stability. The fair value of crypto assets is primarily determined based on pricing data obtained from Kraken, the Company’s principal market. In the absence of Kraken data, pricing from Coinbase serves as a secondary source. While Kraken is designated as the primary exchange, the Company retains flexibility to conduct cryptocurrency transactions on other exchanges where it maintains accounts. This flexibility allows the Company to adapt to changing market conditions and explore alternative platforms when necessary to ensure cost-effective execution and fair value measurement using the most advantageous market. The selection of Kraken as the principal market reflects the Company’s commitment to informed decision-making and achieving the most accurate representation of fair value for its crypto assets. Regular reviews ensure alignment with the Company’s objectives and cryptocurrency market dynamics. Accounting for Crypto Assets The cost basis of the Company’s crypto assets is initially recorded at their fair value using the last close price of the day in the UTC (Coordinated Universal Time) time zone on the date of receipt. Crypto assets are measured at their respective fair market values at each reporting period end on the balance sheets and classified as either ‘Staked Crypto Assets’ or ‘Crypto Assets’ to distinguish their nature within the respective balances. Staked crypto assets are presented as current assets if their lock-up periods are less than 12 months, and as long-term other assets if the lock-up extends beyond one year. The majority of our crypto assets are staked, typically with lock-up periods of less than 21 days, and are considered current assets in accordance with ASC 210-10-20, Balance Sheet, due to the Company’s ability to sell them in a liquid marketplace, as we have a reasonable expectation that they will be realized in cash or sold or consumed during the normal operating cycle of our business to support operations when needed. The classification of purchases and sales in the consolidated statements of cash flows is determined based on the nature of the crypto assets, which can be categorized as ‘productive’ (i.e. acquired for purposes of staking) or ‘non-productive’ (e.g. bitcoin). Acquisitions of non-productive crypto assets are treated as operating activities, while acquisitions of productive crypto assets are classified as investing activities in accordance with ASC 230-10-20, Investing activities. Productive crypto assets staked with lock-up periods of less than 12 months are listed as current assets in the ‘Staked Crypto Assets’ line item on the balance sheet. Staked crypto assets with lock-up periods exceeding 12 months are categorized as long-term other assets. Non-productive crypto assets are included in the ‘Crypto Assets’ line item on the balance sheet. Effective January 1, 2023, the Company has elected to early adopt ASU No. 2023-08, resulting in a material change in accounting principle related to the Company’s accounting treatment of crypto assets. The impacts of the change in accounting principle are discussed further in Note 3 - Changes in Accounting Principle . The Company employs the specific identification method to determine the cost basis of our assets for the computation of gains and losses, in accordance with ASC 350-60-50-2a. This method involves identifying and using the actual cost of each individual asset sold or disposed of to calculate the gain or loss on its sale. Realized gains (losses) on sale of crypto assets are included in other income (expenses) in the consolidated statements of operations. The Company recorded realized losses on crypto assets of approximately $766,000 and $604,000 during the years ended December 31, 2024 and 2023, respectively. 24 Revenue Recognition The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer ● Step 2: Identify the performance obligations in the contract ● Step 3: Determine the transaction price ● Step 4: Allocate the transaction price to the performance obligations in the contract ● Step 5: Recognize revenue when the Company satisfies a performance obligation Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company generates revenue through 1) staking rewards generated from its blockchain infrastructure operations, and 2) gas fees earned from successful Ethereum block building through Builder+. These revenues are collectively termed ‘Blockchain infrastructure revenues’ in the consolidated statements of operations. The transaction consideration the Company receives - the crypto asset awards and gas fees - are a non-cash consideration, which the Company measures at fair value on the date received. Blockchain Infrastructure (NodeOps) The Company engages in network-based smart contracts by running its own crypto asset validator nodes as well as by staking (or “delegating”) crypto assets directly to both its own validator nodes and nodes run by third-party operators. Through these contracts, the Company provides crypto assets to stake to a node for the purpose of validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last from a few days to several weeks after it is cancelled (or “un-staked”) by the delegator and requires that the staked crypto assets remain locked up during the duration of the smart contract. In exchange for staking the crypto assets and validating transactions on blockchain networks, the Company is entitled to all of the fixed crypto asset awards earned from the network when delegating to the Company’s own node and is entitled to a fractional share of the fixed crypto asset awards a third-party node operator receives (less crypto asset transaction fees payable to the node operator, which are immaterial and are recorded as a deduction from revenue), for successfully validating or adding a block to the blockchain. The Company’s fractional share of awards received from delegating to a third-party validator node is proportionate to the crypto assets staked by the Company compared to the total crypto assets staked by all Delegators to that node at that time. On certain blockchain networks on which the Company operates a validator node, the Company earns a validator node fee (“Validator Fee”), determined as a node operator’s published percentage of the crypto asset rewards earned on crypto assets delegated to its node. Token rewards earned from staking, as well as tokens earned as Validator Fees, are calculated and distributed directly to BTCS digital wallets by the blockchain networks as part of their consensus mechanisms. The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized. 25 Ethereum Block Building (Builder+) The Company participates in the Ethereum blockchain network by engaging in the construction of blocks (“block building”) containing strategically bundled transactions from the Ethereum mempool and from searchers who connect to the Company’s endpoint with the intent of the Company’s builder proposing their transactions. Revenue recognition for these activities, conducted through Builder+, entails the recognition of gas fees (or “transaction fees”) earned in exchange for successfully constructing blocks of bundled transactions and having these blocks selected and proposed by a validator to the Ethereum network for validation and successfully finalized on the network. These gas fees are earned as a direct result of the Company’s fulfillment of its performance obligations, which include the construction of blocks by bundling transactions to maximize the value of the included fees and the proposal of that block by a Validator. Each constructed block under a smart contract with the Ethereum network signifies a distinct performance obligation. As part of the block construction and proposal process, the Company’s Builder purchases block space through a fixed non-negotiable fee paid to a Validator (a “Validator Payment”) embedded in each proposed block. The Validator Payment, predetermined by the Builder, is paid to Validators as compensation for selecting and proposing the Company’s block to the network for validation. The Validator Payment is intrinsically linked to the Company’s performance obligations and is disbursed in the block constructed by the Builder if the Builder’s block is both selected by a Validator and successfully proposed to, and finalized on, the Ethereum network; otherwise, our Validator Payment may be included in a subsequent block. The Validator Payment represents a direct and fixed pre-determined cost. The satisfaction of the performance obligation occurs at a point in time when the constructed block is both proposed by a Validator and successfully finalized on the Ethereum network. At this juncture, the Company has fulfilled its obligations, and the gas fees associated with the transactions included in the block become available and are transferred to the Company’s digital wallet. The Company recognizes revenue, reflecting the fair value of the total gas fees earned from the constructed block. Cost of Revenues The Company’s cost of revenues related to its blockchain infrastructure operations primarily includes direct production costs associated with transaction validation on the network, cloud-based server hosting expenses related to our validator nodes and Builders, and allocated employee salaries dedicated to node maintenance and support. Additionally, the cost of revenues encompasses Validator Payments made from our Builder to Validators as well as fees paid to third parties for their assistance in software maintenance and node operations. These costs directly related to the production of revenues are collectively termed ‘Blockchain infrastructure expenses’ in the consolidated statements of operations. 26 Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation . ASC 718 addresses all forms of share-based payment awards including shares issued under employee stock purchase plans and stock incentive shares. Under ASC 718, awards result in a cost that is measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest and will result in a charge to operations. Share-based payment awards exchanged for services are accounted for at the fair value of the award on the estimated grant date. Options Stock options issued under the Company’s equity incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Expected Volatility – The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. For options granted prior to January 1, 2025, historical volatility was based on the most recent volatility of the stock price over a period equivalent to the expected term of the option. For the most recent options granted on January 1, 2025, historical volatility was determined using a two-year lookback period. Management selected this approach to better reflect the Company’s current market conditions and exclude periods of non-representative volatility associated with significant changes in the Company’s business, market conditions, and capital structure. The two-year lookback period balances capturing industry and market cycles with avoiding outdated and non-representative data. Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the option. Expected Term – The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns. Expected Dividend – The Company has not historically declared or paid any cash dividends on its common shares and does not plan to pay any recurring cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. 27 Restricted Stock Units (RSUs) For awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. Stock-based compensation expense for the market-based restricted stock units with explicit service conditions is recognized on a straight-line basis over the longer of the derived service period or the explicit service period, regardless of whether the market condition is satisfied. However, in the event that the explicit service period is not met, previously recognized compensation cost would be reversed. Market-based restricted stock units subject to market-based performance targets require achievement of the performance target as well as a service condition in order for these RSUs to vest. The Company estimates the fair value of market-based RSUs as of the grant date and expected derived term using a Monte Carlo simulation that incorporates pricing inputs covering the period from the grant date through the end of the derived service period. Expected Volatility – The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the RSUs. Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the RSUs. Expected Term – The Company’s expected term represents the weighted-average period that the Company’s RSUs are expected to be outstanding. The expected term is based on the stipulated 5-year period from the grant date until the market-based criteria are achieved. If the market-based criteria are not achieved within the five-year period from the grant date, the RSUs will not vest and shall expire. Vesting Hurdle Price – The vesting hurdle prices are determined by taking the vesting Market Cap criteria divided by the shares outstanding as of the valuation dates. RECENT ACCOUNTING PRONOUNCEMENTS See Note 3 - Changes in Accounting Principle to the financial statements for a discussion of recent accounting standards and pronouncements. INFLATION We have experienced, and are experiencing, the impact of domestic and global inflationary pressures largely outside of our control. This inflationary pressure impacts our cost structure, leading to operational adjustments, and increasing the cost of retaining talent and certain professional costs, despite our continued focus on controlling our costs where possible. Management is unable to accurately predict when, or if, these national and global inflationary pressures will subside, or their long-term impacts on our business and results of operations. We are actively monitoring the situation and assessing potential mitigation strategies. 28 RISK FACTORS There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. The risks described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business. If any of these risks actually occur, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our Common Stock could decline substantially and investors could lose all or part of their investment. Summary Risk Factors Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. Set forth below is a summary of the principal risks we face: ● We have a limited operating history, particularly with respect to our blockchain infrastructure solutions business, Builder+ and ChainQ operations. ● We have an evolving business model which we may be unable to develop, adapt or execute effectively, and we may be unable to manage our growth or implement our business plan as intended or at all. ● We are highly dependent on our executive officers, particularly Charles Allen, our Chairman and Chief Executive Officer, Michal Handerhan, our Chief Operating Officer, and Michael Prevoznik, our Chief Financial Officer, and the loss of the services of any of these individuals could materially harm our business. ● We may be subject to regulatory actions, private causes of actions due to our operations in the cryptocurrency industry, and regulatory or other adverse developments in the cryptocurrency industry could otherwise adversely affect us. ● Because of our involvement in staking of crypto assets through delegations as part of our StaaS strategy, we are subject to risks inherent in engaging in activities involving financial instruments owned by third-party users, notwithstanding the non-custodial nature of our operations management believes to constitute meaningful distinctions for regulatory, compliance and other purposes. ● A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if we are unable to correctly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, sanctions, penalties and other adverse consequences, including potentially becoming subject to the Investment Company Act of 1940 which would impose significant regulatory burdens and compliance costs. ● Crypto assets and our related activities are characterized by numerous other risks and uncertainties, including the possibility for adverse developments such as regulatory actions, bans or restrictions, declines in the price of, demand for or public perception of crypto assets, theft, fraud, hacking, manipulation or malicious coding, price volatility, the potential for one cryptocurrency to branch into two, variations among and the potential for adverse changes to blockchain algorithms, and other external forces beyond our control described more fully below. ● The future development and growth of cryptocurrencies is subject to a variety of factors that are difficult to predict and evaluate, and the market for the crypto assets we obtain and hold may not grow as we expect or the prices may decline, including due to political or economic crises or other factors which we neither predict nor control. ● The cryptocurrency space is subject to continuous regulatory uncertainty, and any adverse regulatory changes or other developments with respect to our operations or the crypto assets with which we transact may require us to alter our business model or suspend or cease some or all of our operations. ● Our focus on PoS blockchain networks exposes us to risk of loss due to features unique to those networks, including by virtue of being locked in by smart contracts such that we cannot liquidate a portion of the relevant crypto assets for a period of time during and after the staking process, during which the price or value of the crypto assets may depreciate. ● We are subject to various other risks and uncertainties relating to our StaaS and other elements of our business, including potential loss of revenue if we experience excessive removal of delegated crypto assets on our validator nodes, potential shifts in the block building landscape, and competitive forces for Ethereum and other crypto assets for which our services are offered, technical failures, bugs, or vulnerabilities in our block builder software, and our efforts with respect to new features and services which were recently launched or are still under development. ● Our stock price has in the past and may in the future be subject to significant volatility due to a variety of factors, many of which are beyond our control, including its potential connection to the price of one or more of the crypto assets with which we are or may become involved. 29 Risks Related to Our Company in General We have a history of operating losses and expect to incur additional operating losses as we scale our business. BTCS has operated as a publicly traded company for over a decade and commenced its blockchain infrastructure operations in 2021. While the Company continues to expand its business model, the blockchain and cryptocurrency industries remain highly dynamic and subject to rapid technological, regulatory, and market changes. As a result, there is uncertainty regarding the future profitability of our operations. We incurred a net loss of $1.3 million for the year ended December 31, 2024, and we expect to incur additional losses in the near term as we invest in scaling our Ethereum block-building operations under Builder+ and expanding NodeOps validator operations. The amount and timing of future losses, and whether we will ultimately achieve sustained profitability, remain uncertain. Our ability to achieve profitability depends on various factors, including successfully scaling our Builder+ operations, improving margins, securing greater order flow, and managing infrastructure costs efficiently. If we fail to execute our business plan effectively or encounter unexpected challenges in the regulatory, competitive, or technological landscape, our business, financial condition, and results of operations could be materially adversely affected. We have an evolving business model which we may be unable to develop, adapt or execute effectively. As crypto assets and blockchain technologies continue to develop and achieve wider adoption, we expect the associated services and products to evolve rapidly and potentially in unpredictable ways. The SEC has brought enforcement actions with respect to crypto assets and related activities, including custodial staking-as-a-service models, and the SEC and courts have issued further orders and guidance as the crypto asset industry continues to develop and evolve, as more particularly described later in these Risk Factors. These or future developments may force or cause us to potentially change our future business in order to comply fully with the federal securities laws as well as applicable state securities laws. As a result, to stay current with the industry, our business model may need to evolve in the future as well. From time to time we may modify aspects of our business model relating to our product mix and service offerings. Our goals related to investments into development efforts may not come to fruition, including due to adverse developments in regulatory, technological, competitive or other aspects that are beyond our control. As the crypto industry and technology surrounding it continues to develop, new market entrants offering the same, similar or alternative products and services to ours could arise, challenging our business model and market share. For example, disruptive technologies such as generative artificial intelligence (AI) may fundamentally alter the use of crypto assets and related infrastructure in unpredictable ways. Because of the foregoing realities and uncertainties surrounding our business and industry, we may invest substantial resources towards developing additional ChainQ platform features, or new offerings such as Builder+, that ultimately fail to achieve the goals or benefits sought, or need to be suspended, due to competitive, regulatory, technological or other conditions or developments beyond our control. Further, any success we have achieved or may in the future achieve towards our goal could be stifled by these forces, particularly if we are unable to adequately or quickly adapt to them, which could render some or all of our offerings obsolete. We cannot offer any assurance that our current business plan or any other modifications or undertakings with respect thereto will be successful or will not result in harm to the business. In addition, we may not be able to manage our growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results. If we are unable to effectively develop, execute and adjust our business plan, or successfully manage our growth, you could lose some or all of your investment. The loss of our executive officers could have a material adverse effect on us. Our success depends on the continued services of our executive officers who have extensive technological and market knowledge and long-standing industry relationships. In particular, we have relied and will continue to rely on Charles Allen, our Chairman and Chief Executive Officer, Michal Handerhan, our Chief Operating Officer, and Michael Prevoznik, our Chief Financial Officer, to continue and grow our operations and execute our business plan. Our reputation among and our relationships with key cryptocurrency industry leaders are the direct result of a significant investment of time and effort by these individuals to build our credibility in a highly specialized industry. The loss of services of any of our executive officers could materially and adversely affect our business and growth opportunities, including by damaging our relationships with key leaders in the crypto asset industry, disrupting our operations, and impairing our ability to execute our business strategy. 30 Financial institutions may refuse to provide banking services to businesses engaged in cryptocurrency-related activities, and broader financial sector instability could materially and adversely affect us and our industry. Companies operating in the cryptocurrency sector, including blockchain infrastructure providers like BTCS, have historically faced challenges in securing and maintaining banking relationships. Some financial institutions remain hesitant to provide services to businesses engaged in crypto asset activities due to regulatory uncertainty, compliance concerns, and perceived risks associated with digital assets. This reluctance could limit our ability to access essential banking services, process transactions, or efficiently convert crypto assets to fiat currency. If financial institutions restrict or discontinue banking services for crypto-related businesses, it could disrupt our operations and negatively impact our liquidity and financial position. Additionally, broader financial instability, market volatility, or changes in banking regulations that restrict financial institutions from servicing cryptocurrency-related businesses could have adverse consequences for BTCS and the broader industry. Increased scrutiny from regulators, de-risking by banks, or policy shifts that limit financial sector engagement with digital assets could create barriers to capital access, slow industry growth, and harm public perception of cryptocurrencies as a legitimate financial system. If we are unable to obtain or maintain adequate banking relationships, we may experience delays in financial transactions, incur increased costs, or face operational inefficiencies that could materially and adversely affect our business, financial condition, and results of operations. 31 Risks Related to Crypto Assets General Risks Related to Crypto Assets Market Volatility and Adoption Risks The prices of crypto assets are highly volatile, and significant declines in their value may adversely affect our business and financial condition. The value of crypto assets is subject to extreme volatility due to various factors, including but not limited to: (i) market demand, (ii) regulatory developments, (iii) macroeconomic trends and monetary policies, and (iv) technological advancements and security vulnerabilities, and (v) market manipulation risks. Significant price declines in crypto assets can adversely affect our ability to generate revenue from staking and other blockchain infrastructure operations, as these activities are directly dependent on the valuations of the underlying assets. Additionally, prolonged periods of price volatility or declines may reduce market confidence, decrease participation in staking and validator services, and impact our financial condition. If the value of the crypto assets we stake or own decreases significantly, it could materially and adversely affect our business, results of operations, and prospects. The price of crypto assets may be affected by the sale of such crypto assets by other vehicles investing in crypto assets or tracking cryptocurrency markets. The global market for crypto assets is characterized by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical protocols under which certain cryptocurrencies are mined or minted permit the creation of a limited, predetermined amount of currency, while others have no limit established on total supply. To the extent that other vehicles investing in crypto assets or tracking cryptocurrency markets form and come to represent a significant proportion of the demand for crypto assets, large redemptions of the securities of those vehicles and the subsequent sale of crypto assets by such vehicles could negatively affect crypto asset prices and therefore affect the value of our crypto assets. Such events could have a material adverse effect on an investment in us. There is a lack of liquid markets, and possible manipulation of blockchain/cryptocurrency-based crypto assets. Crypto assets that are represented and trade on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have listing requirements and vet issuers; requiring them to be subjected to rigorous listing standards and rules, and monitor investors transacting on such platform for fraud and other improprieties. These conditions may not necessarily be replicated on a distributed ledger platform, depending on the platform’s controls and other policies. The laxer a distributed ledger platform is about vetting issuers of cryptocurrency assets or users that transact on the platform, the higher the potential risk for fraud or the manipulation of the ledger due to a control event. These factors may decrease liquidity or volume or may otherwise increase volatility or other assets trading on a ledger-based system, which may adversely affect us. Such circumstances could adversely affect an investment in us. Political or economic crises may motivate large-scale sales of crypto assets, which could result in a reduction in crypto asset values and adversely affect an investment in us. Geopolitical or economic crises may motivate large-scale sales of crypto assets, which could rapidly decrease the price of crypto assets. Such events include recessions, rising inflation, tariffs, social, political and economic risks, conflicts, acts of war and sanctions and other restrictive actions by the United States and/or other countries. For example, market analysts have indicated that in some cases, such as during large scale adverse economic events, trading and market prices of cryptocurrencies such as Bitcoin and Ethereum have correlated to some extent with the movement of equity markets, regardless of the stock or asset class. As an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in crypto assets as investors focus their investment on less volatile asset classes as a means of hedging their investment risk. As an alternative to fiat currencies that are backed by central governments, crypto assets such and Ethereum, which is relatively new, is subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of crypto assets either globally or locally. Large-scale sales of crypto assets would result in a reduction in crypto asset values and could adversely affect an investment in us. 32 Regulatory and Legal Risks Regulatory changes or actions may alter the nature of an investment in us or restrict the use of cryptocurrencies in a manner that adversely affects our business, prospects, or operations. As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while some jurisdictions, such as the United States, subject the mining, ownership and exchange of cryptocurrencies to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. In January 2025, U.S. President Donald Trump issued an executive order forming a presidential working group to establish a clear regulatory framework for digital assets, and leaders in both houses of the U.S. Congress have announced a bicameral working group with the objective of passing legislation to provide regulatory clarity for the industry. Committees in both houses of the U.S. Congress have held hearings to ensure fair access to financial services, including for companies operating in the digital asset space. Additionally, in early March 2025, President Trump announced the creation of a U.S. strategic crypto reserve, which will include Bitcoin Ethereum, Solana, XRP, and Cardano. This marks a shift from his previous stance of establishing a Bitcoin-only reserve. While these ongoing regulatory developments appear to be positive, and we anticipate greater regulatory certainty in the future, given the difficulty of predicting the outcomes of ongoing and future regulatory actions and legislative developments, it is possible that future developments could have a material adverse effect on our business, prospects, or operations. A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, with a growing number of regulators taking the position that certain crypto assets are securities and bringing enforcement actions accordingly, and if we are unable to properly characterize a crypto asset or comply with the applicable regulatory requirements, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition. The SEC and its staff have taken the position that certain crypto assets fall within the definition of a “security” under the U.S. federal securities laws. Legal tests to determine whether a crypto asset is a security have been established by the U.S. Supreme Court case law and the SEC has issued reports, orders, and statements that provide guidance on when a crypto asset may be a security for purposes of the U.S. federal securities laws. The process of determining whether a specific crypto asset qualifies as a security involves a nuanced analysis open to interpretation, making the outcome uncertain and challenging to predict. Despite regulatory developments in this field, some ambiguity persists, as the identification of crypto assets as securities or otherwise can be a complex matter. Moreover, based upon decided federal court cases, it appears that the federal courts of appeals, and possibly the U.S. Supreme Court, may ultimately settle unresolved legal issues with respect to the identification of certain crypto assets as securities. In separate SEC complaints, the SEC has alleged several crypto assets we hold, specifically Cardano, Tezos, Solana, Cosmos, Polygon, Axie Infinity, and NEAR Protocol are securities. Based on our current legal analysis, while the SEC’s identification of certain crypto assets held by us as securities could have a material adverse impact on our business, this conclusion is subject to significant uncertainty given the rapidly evolving regulatory landscape, financial condition, and results of operations. However, if our conclusions or any part thereof turn out to be incorrect, or new adverse regulatory developments occur, we could be adversely impacted and/or be forced to modify or cease certain aspects of our current and planned operations and business. 33 In February 2023, the SEC charged Kraken with failing to register the offer and sale of its staking-as-a-service program, whereby investors transferred crypto assets to Kraken for staking in exchange for advertised annual investment returns. Kraken settled this action by agreeing to cease its custodial staking business and to pay $30 million in disgorgement, prejudgment interest, and civil penalties. While there are material distinctions between Kraken’s staking model and ours, including the fact that we do not take custody of or exert control over the crypto assets that are staked using our platform, the SEC could disagree with our assessment and seek to enforce the federal securities laws and regulations against our operations. If we become subject to regulatory scrutiny or enforcement actions by securities regulators, it could result in expensive litigation and penalties and cessation of the allegedly noncompliant operations, which would materially adversely harm us, including due to our recent shift of focus to our non-custodial staking-as-a-service business and the costs and efforts deployed towards its development. These or additional developments that may arise underscore the risks in our business, particularly its reliance on the use of crypto assets and staking of users’ crypto asset holdings. Further, certain crypto assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of crypto assets as “securities.” As a result of the foregoing recent and potential developments, we may be forced to, or voluntarily elect to, limit, suspend or cease our staking services operations or certain aspects thereof in order to comply with applicable laws and regulations and avoid the regulatory scrutiny and adverse consequences that could result. While we do not currently, nor do we plan to, offer, sell, trade, and clear crypto assets or take custody of crypto assets as part of any potential staking-as-a-service operations we may undertake, crypto assets we stake and validate transactions for could be deemed to be a “security” under applicable laws. This could be the case even if we conclude that our activities are compliant with these laws and regulations. Our blockchain infrastructure operations which entails securing blockchains by validating blockchain transactions (most analogous to Bitcoin mining) could be construed as facilitating transactions in crypto assets; as such we could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a blockchain we secure is a “security” under applicable laws. Because our platform is not registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to secure blockchains. We recognize that the application of securities laws to the specific facts and circumstances of crypto assets is a complex and often unpredictable process and subject to change, and staking and securing a blockchain, while similar to Bitcoin mining, does not guarantee any conclusion under the U.S. federal securities laws, particularly given that each crypto asset and blockchain network is unique. Therefore, if we do conclude that a particular crypto asset is not a security on advice of our legal counsel, and the SEC or other government agencies or courts disagree with this assessment, we could be held liable for violation of securities laws. In addition, new laws may be implemented that prevent or hinder us from operating in the manner we currently conduct our business or plan to conduct our business, in which case our business may be materially harmed. Further, if any crypto asset is deemed to be a security under any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such crypto asset. For instance, the networks on which such crypto assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the crypto asset. Also, such a development may make it difficult for such supported crypto assets to be traded, cleared, and custodied as compared to other crypto assets that are not considered to be securities. These events could, among things, result in a decline in the market prices for the crypto assets on which our operations rely, and thereby reduce the demand for our solutions and the revenue generated therefrom. To the extent we hold crypto assets allegedly identified as securities by the SEC, it could have a material adverse effect on our business and our stock price. 34 Because crypto assets may be determined to be Digital Securities, we may inadvertently violate the 1940 Act and incur large losses as a result and potentially be required to register as an investment company. This would have a material adverse effect on an investment in us. We hold and plan to acquire a portfolio of crypto assets including Ethereum and other crypto assets, each of which may be subject to different and evolving regulatory treatment that could materially impact our ability to continue holding or transacting in such assets. There is an increased regulatory examination of crypto assets and Digital Securities. This has led to regulatory and enforcement activities. As described elsewhere in these Risk Factors, the SEC and certain state regulators have in recent years begun to take a more definitive and aggressive stance indicating that crypto assets and related activities, including custodial staking-based services, entail the offer and sale of securities subject to applicable securities laws and regulations. We cannot be certain as to how future regulatory developments will impact the treatment of Ethereum and other crypto assets, or our operations as they relate to such crypto assets or in general, under the law. Under the 1940 Act, a company may be deemed an investment company under if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on a consolidated basis. Crypto assets we may own in the future may be determined to be Digital Securities by the SEC or a court. Additionally, one or more states may conclude Ethereum, or other crypto assets held by us in the future are securities under state securities laws which would require registration under state laws including merit review laws. For example, California defines the term “investment contract” more strictly than the SEC. Future legislation, SEC rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Ethereum and other crypto assets owned by us are treated for classification and clearing purposes. If a crypto asset we hold were later determined to be a Digital Security, we could inadvertently become an investment company, as defined by the 1940 Act, if the value of the Digital Securities we owned exceeded 40% of our assets excluding cash. We are subject to the following risks: ● the SEC or a court may conclude that Ethereum, or other crypto assets we later acquire to be securities, notwithstanding differing conclusions we may draw on advice of counsel; ● based on legal advice, we may acquire other crypto assets which we have been advised are not securities but later are held to be securities; and ● we may knowingly acquire crypto assets that are securities and acquire minority investments in businesses which investments are securities. In the event that the crypto assets held by us exceed 40% of our total assets, exclusive of cash, we may inadvertently become an investment company. In order to limit our acquisition of Digital Securities to stay within the 40% threshold, we will examine the manner in which a crypto asset was initially marketed, the economic reality of the instrument, and apply the Howey test factors to determine if it may be deemed a Digital Security subject to federal and state securities laws. Even if we conclude that a particular crypto asset is not a security under the 1940 Act, certain states take a stricter view which means the crypto asset may have violated applicable state securities laws. Should the total value of securities which we hold exceed more than 40% of our assets (exclusive of cash) SEC Rule 3a-2 under the 1940 Act allows an issuer to prevent itself from being deemed an investment company if it reduces its holdings of securities to less than 40% of its assets (exclusive of cash) and does not go above the 40% threshold more than once every three years. Accordingly, if changes in the classification of crypto assets causes us to exceed the 40% threshold, we may experience large losses when we liquidate Digital Securities as a result of continued volatility. 35 The 40% requirement may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. In any event, we do not intend to become an investment company engaged in the business of investing and trading securities. To the extent that crypto assets held by us are deemed by the SEC or a state legislator to fall within the definition of a security, we may be required to register and comply with additional regulation under the Investment Company Act, including additional periodic reporting and disclosure standards and requirements and the registration of our Company as an investment company. Such additional registrations: i) would result in extraordinary, non-recurring expenses, ii) would be time consuming and restrictive, iii) would require a restructuring of our operations, and iv) would result in significant constraints in the kind of business we could do as a registered investment company, thereby materially and adversely impacting an investment in us. Further, if our examination of a crypto asset is incorrect, we may incur regulatory penalties and private investor liabilities since Section 5 of the Securities Act imposes strict liability for unregistered securities offerings, regardless of intent, and state securities laws generally impose liability for negligent misrepresentations. In order to comply with the 1940 Act, we anticipate having increased management time and legal expenses in order to analyze which crypto assets are securities and periodically analyze our total holdings to ensure that we do not maintain more than 40% of our total assets (exclusive of cash) as securities. If our view that the crypto assets we hold are not securities is challenged by the SEC and courts uphold the challenge, we may inadvertently violate the 1940 Act and incur substantial legal fees in defending our position. The cost of such compliance would result in the Company incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact to conduct our operations. If the SEC concludes that NodeOps our non-custodial staking business involves the offer and sale of a security in violation of Section 5 of the Securities Act of 1933 and the courts conclude the SEC is correct, we will be required to cease our staking as a service business and seek another business opportunity and may be subject to monetary and other penalties. The SEC has been successful in litigating against certain companies and individuals who have offered and sold various cryptocurrencies in violation of the registration provisions of the Securities Act of 1933 (the “Securities Act”) and the anti-fraud provisions of the Securities Act and the Securities Exchange Act of 1934 (the “Exchange Act”). While we believe that our non-custodial staking business does not involve the offer or sale of a security, we do not know if the SEC will agree or whether if we seek relief from the courts, we will be successful. If we are also found to have offered and sold securities in violation of the Securities Act and the Exchange Act, the SEC could sue us for acting as an unregistered dealer. Further, as discussed in the risk factor noted above, we may inadvertently violate the 1940 Act. Whether we voluntarily cease our current business or litigate and lose, we would be required to find another business opportunity whether through an acquisition or otherwise. We may also have to pay a civil monetary penalty if the SEC sues us and is successful or as a condition of any settlement. Current interpretations require the regulation of Bitcoin, Ethereum, and other crypto assets under the CEA by the CFTC, we may be required to register and comply with such regulations. To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in extraordinary, non-recurring expenses to us. We may also decide to cease certain operations. Any disruption of our operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors. Current and future legislation, CFTC and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which Ethereum, and other crypto assets we own are treated for classification and clearing purposes. In particular, derivatives on these assets are not excluded from the definition of “commodity future” by the CFTC. We cannot be certain as to how future regulatory developments will impact the treatment of Bitcoin, Ethereum, and other crypto assets under the law. 36 Bitcoin and Ethereum have been deemed to fall within the definition of a commodity and, we may be required to register and comply with additional regulation under the CEA, including additional periodic report and disclosure standards and requirements. Moreover, we may be required to register as a commodity pool operator and to register us as a commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting an investment in us. If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease certain of our operations. Any such action may adversely affect an investment in us. Our interactions with a blockchain may expose us to SDN or blocked persons or cause us to violate provisions of law that did not contemplate distributed ledger technology. The Office of Financial Assets Control of the U.S. Department of Treasury requires us to comply with its sanction program and not conduct business with persons named on its specially designated nationals (“SDN”) list. However, because of the pseudonymous nature of blockchain transactions we may inadvertently and without our knowledge engage in transactions, to the extent validation constitutes a transaction, with persons named on OFAC’s SDN list. While we do not believe validation constitutes a transaction, we can provide no assurances that regulators will agree with our interpretation. By way of example our Ethereum validator nodes only use block builders which remove wallet addresses found on the SDN list and Builder+ also screens out these SDN wallet addresses. Our Company’s policy prohibits any transactions with such SDN individuals, but we may not be adequately capable of determining the ultimate identity of the individual who delegate to our nodes. Additionally, the U.S Department of Treasury recently has added sanctions that prevent U.S. persons from using cryptocurrencies to circumnavigate financial sanctions placed on Russia. Because our business requires us to download and retain one or more blockchains to effectuate our ongoing business, it is possible that such digital ledgers contain prohibited depictions without our knowledge or consent. To the extent government enforcement authorities literally enforce these and other laws and regulations that are impacted by decentralized distributed ledger technology, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could harm our reputation and affect the value of our Common Stock. If federal or state legislatures or agencies initiate or release tax determinations that change the classification of Bitcoin, Ethereum or other crypto assets as property for tax purposes (in the context of when such crypto assets are held as an investment), such determination could have a negative tax consequence on our Company or our shareholders. Current IRS guidance indicates that crypto assets such as Ethereum should be treated and taxed as property, and that transactions involving the payment of Ethereum for goods and services should be treated as barter transactions. While this treatment creates a potential tax reporting requirement for any circumstance where the ownership of an Ethereum passes from one person to another, usually by means of Ethereum transactions (including off-blockchain transactions), it preserves the right to apply capital gains treatment to those transactions which may have adversely affect an investment in our Company. To the extent that a foreign jurisdiction with a significant share of the market of crypto asset users imposes onerous tax burdens crypto users, or imposes sales or value added tax on purchases and sales of crypto assets for fiat currency, such actions could result in decreased demand for crypto assets in such jurisdiction, which could impact the price of crypto assets and negatively impact an investment in our Company. 37 Technology and Ecosystem Risks The further development and acceptance of cryptographic and algorithmic protocols governing the issuance of and transactions in cryptocurrencies, which represent a rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The use of crypto assets to, among other things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs cryptocurrency assets based upon a computer-generated mathematical and/or cryptographic protocol. Large-scale acceptance of cryptocurrencies as a means of payment has not, and may never, occur. The growth of the cryptocurrency industry in general, and the use of crypto assets in particular, is subject to a high degree of uncertainty. The factors affecting the further development of the cryptocurrency industry include but are not limited to: ● continued worldwide growth in the adoption and use of crypto assets as a medium of exchange; ● government and quasi-government regulation of crypto assets and their use, or restrictions on or regulation of access to and operation of the crypto assets systems; ● the maintenance and development of the open-source software protocol of cryptocurrency networks; ● changes in consumer demographics and public tastes and preferences; ● the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies and digital forms of fiat currencies; ● general economic conditions and the regulatory environment relating to crypto assets; and ● the impact of regulators focusing on crypto assets and Digital Securities and the costs associated with such regulatory oversight. A decline in the popularity or acceptance of the Ethereum network or other blockchains networks we have exposure to could adversely affect an investment in us. The outcome of these factors could have negative effects on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations as well as potentially negative effect on the value of any Ethereum or other crypto assets we hold or acquire, which would harm investors in our securities. The decentralized nature of crypto asset systems may lead to slow or inadequate responses to crises, which may negatively affect our business . The decentralized nature of the governance of crypto asset systems may lead to ineffective decision making that slows development or prevents a network from overcoming emergent obstacles. Governance of many crypto asset systems is by voluntary consensus and open competition with no clear leadership structure or authority. To the extent lack of clarity in corporate governance of cryptocurrency systems leads to ineffective decision making that slows development and growth of such crypto assets, the value of our Common Stock may be adversely affected. Crypto exchanges are relatively new and therefore may be more exposed to fraud and failure than established, regulated exchanges for other products. To the extent that large crypto exchanges representing a substantial portion of the crypto asset volume are involved in fraud or experience security failures or other operational issues, such exchanges’ failures may result in a reduction in the price of crypto assets and adversely affect an investment in us. A number of crypto exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such exchanges were not compensated or made whole for the partial or complete losses of their account balances in such exchanges. While smaller exchanges are less likely to have the infrastructure and capitalization that make larger exchanges more stable, larger exchanges are more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access to private computer systems). A lack of stability in an exchange market and the closure or temporary shutdown of larger crypto exchanges due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in crypto assets overall and result in greater volatility in crypto asset values. These potential consequences of an exchange’s failure could adversely affect an investment in us. 38 Operational Risks Specific to BTCS’s Crypto Asset Activities Business Model Dependence and Revenue Risks Because our blockchain infrastructure business is dependent on the value of the crypto assets we stake to obtain blockchain rewards, and because those rewards are paid out in the form of the blockchain’s native crypto assets, low market values and/or continued or long-term declines in crypto asset prices will materially and adversely affect our results of operations. Our reliance on staking, which continues to increase as we continue to expand our non-custodial staking-as-a-service business, means that if the market values of the crypto assets we stake declines, the revenue we generate from staking will diminish. This is because the rewards for staking a given crypto asset are paid out in more of that same crypto asset. Therefore, if the market price for the crypto asset declines while staking is ongoing, unless the price later recovers, the rewards we receive may not cover the decline in value of the assets, potentially resulting in significant losses to our staking operations. If this trend continues, our operating results and financial condition will be materially adversely affected. Builder+, ChainQ , and our blockchain infrastructure operations including Company owned and run validator nodes on PoS blockchains, are subject to concentration risks due to reliance on a limited number of infrastructure providers. The development and operation of the Company’s validator nodes for non-custodial staking, as well as the Builder+ block-builders and the development of ChainQ, are hosted on a combination of cloud computing infrastructure provided by Amazon Web Services (“AWS”) and bare metal servers operated by a separate service provider, Latitude. While this diversification mitigates some concentration risks, significant portions of our proprietary technology and operations remain reliant on AWS and Latitude, which subjects us to cyber security and operational risks specific to these providers. We have limited control over the services provided by AWS and Latitude, including their safety and security measures. If either provider fails to maintain the continuous functionality or security of their networks and related hardware, our ability to operate could be compromised. For example, some PoS networks impose slashing penalties if a validator node is offline for an extended period, resulting in the loss of crypto assets staked for validation purposes. If validator nodes hosted on either AWS or bare metal servers experience outages or other disruptions, we may face significant losses, including slashing penalties, claims from Delegators, reputational harm, and loss of customer relationships. Any adverse developments affecting AWS or our bare metal server provider, including service outages, cyberattacks, or operational failures, could materially and adversely affect our ability to generate revenue, harm our reputation, and negatively impact our business, financial condition, and results of operations. Crypto assets staked on proof-of-stake blockchains are locked in smart contracts and may not be accessible and liquid. Crypto assets that utilize PoS consensus mechanisms are locked in smart contracts while staked, which limits the liquidity of the underlying crypto asset. This is because under PoS network protocols, in order to participate in the staking process validators such as us are required to enter into smart contracts which, among other things, require the validator to continue to keep a specified number of the crypto assets owned by the validator “locked-up” in the network for a specified period of time before they can again be transferred by such validator. This lock-up period often extends beyond the time at which the transaction is validated. We currently stake certain of our crypto assets and operate nodes on blockchain networks through our blockchain infrastructure services business. During times of high volatility or downturns, we may be unable to liquidate certain crypto assets to the extent desired. As such we may experience large losses when and if we are able to liquidate our crypto assets as a result of continued volatility. Further if we are unable to liquidate our crypto assets we could suffer material financial losses, which would adversely impact our business. Our staking-as-a-service business is dependent on consumer investment in crypto assets, and economic downturns or excessive removal of delegated crypto assets could materially and adversely impact our business. Our non-custodial staking-as-a-service business strategy depends on consumers purchasing crypto assets, holding them long-term, and staking them to our validator nodes. Economic downturns or a recession could significantly reduce delegation traffic to our nodes as consumers may reduce spending on investments or non-essential items such as crypto assets. Similarly, a decline in the popularity or public perception of crypto assets could yield a similar result. Crypto markets and stock prices have experienced substantial volatility in recent years, and in adverse market conditions, consumers may elect to sell their crypto assets or decline to increase their holdings, rather than hold and stake them to our nodes. Additionally, we may experience loss of revenue from the excessive removal of delegated crypto assets from our validator nodes, whether due to economic factors, declining market confidence, or changes in consumer preferences. Such removal would result in a loss of associated revenue, which could materially and adversely impact our financial condition. Prolonged or recurring recessionary conditions, turbulent market conditions, or a significant loss of delegated assets could harm our business, results of operations, and prospects. 39 Technology and Performance Risks We may suffer losses due to staking, delegating, and other related services. Crypto assets which utilize PoS consensus mechanisms enable holders to earn rewards by operating nodes and participating in decentralized governance, bookkeeping and transaction confirmation activities on their underlying blockchain networks. We stake certain of our crypto assets and operate nodes on blockchain networks through our blockchain infrastructure operations. Most PoS networks require crypto assets to be transferred into smart contracts on the underlying blockchain networks not under our or anyone’s control. If our validators, any third-party service providers, or smart contracts fail to behave as expected, suffer cybersecurity attacks, experience security issues, or encounter other problems, our crypto assets may be irretrievably lost. In addition, most PoS blockchain networks dictate requirements for participation in the relevant decentralized governance activity, and may impose penalties, or “slashing,” if the relevant activities are not performed correctly, such as if the node operator acts maliciously on the network, “double signs” any transactions, or experience extended downtimes. Slashing penalties can apply due to prolonged inactivity on a blockchain network and inadvertent errors such as computing or hardware issues, as well as more serious behavior such as intentional malfeasance. If we are slashed by an underlying blockchain network, our crypto assets may be confiscated, withdrawn, or burnt by the network, resulting in permanent and irrecoverable losses that could materially impact our financial position. Any penalties or slashing events could damage our brand and reputation, cause us to suffer financial losses, and adversely impact our business. Our business faces significant scaling obstacles due to its dependence on crypto assets and related infrastructure. Crypto assets on which our current and planned operations depend face significant scaling obstacles that can lead to high fees or slow transaction settlement times, and attempts to increase the volume of transactions may not be effective. Scaling of crypto assets is essential to the widespread acceptance of crypto assets as a means of payment or other uses that stakeholders have in the past cited in demonstrating interest in crypto assets. Many crypto asset networks, including those with which we are or may become involved in our operations, face significant scaling challenges. For example, crypto assets are limited with respect to how many transactions can occur per second. Participants in the crypto asset ecosystem debate potential approaches to increasing the average number of transactions per second that a network can handle and have implemented mechanisms or are researching ways to increase scale, such as increasing the allowable sizes of blocks, and therefore the number of transactions per block, and sharding (a horizontal partition of data in a database or search engine), which would not require every single transaction to be included in every single validator’s block. However, there is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement of crypto asset transactions will be effective. If adoption of crypto assets as a means of payment or other uses does not occur on the schedule or scale anticipated or at all, the demand for crypto assets may stagnate or decrease, which could adversely affect future prices of crypto assets we hold or otherwise rely upon in our operations, and our results of operations and financial condition, which could have a material adverse effect on our business or the market price for our securities. Our business operations involve running validator nodes for blockchain networks, including those associated with third-party staking ecosystems. This presents several risks that could materially affect our financial condition, results of operations, and business prospects. Operating validator nodes for third-party staking ecosystems presents significant risks, particularly around the security of staked tokens and governance uncertainties. Staked tokens are locked in smart contracts, and vulnerabilities in the blockchain protocol or smart contract code could result in loss or slashing of tokens. Additionally, many staking ecosystems operate under decentralized autonomous organizations (DAOs), where governance decisions—such as fee changes, validator selection criteria, or protocol upgrades—can be unpredictable and influenced by participants with concentrated voting power. Adverse governance outcomes or misalignment with DAO strategies could negatively impact the economic viability of our validator operations. Furthermore, any controversy or operational failures associated with third-party providers could harm our reputation, even if we are not directly involved. Finally, protocol updates or changes may require rapid technical adaptations, and failure to do so could result in penalties, operational disruptions, or removal from the validator set. Despite our efforts to mitigate these risks through security measures and governance monitoring, these challenges could materially affect our operations, the security of our crypto assets, our financial results, and the price of our stock. The inherent vulnerabilities in blockchain protocols or smart contract codes could lead to potential loss of staked tokens, while unpredictable governance decisions by decentralized autonomous organizations could impact our strategic alignment and economic viability. Consequently, any adverse outcomes or operational failures could have a material adverse effect on our company. Shifts in the Ethereum block-building landscape and market could increase the difficulty of remaining competitive and increase costs. Our Ethereum block builder, Builder+, faces competition from existing and potential entrants in the expanding market. New and existing competitors may emerge with superior algorithms or strategies, potentially eroding our current market share, potential growth, and revenue generation potential. Moreover, changes in the Ethereum ecosystem, including network upgrades or shifts to alternative networks, may impact the demand for our services. Staying competitive requires continuous innovation and adaptation to market dynamics, which may necessitate additional investments and resources. 40 Our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions is uncertain and untested, and we are subject to uncertainty with respect to our Ethereum block building and non-custodial staking-as-a-service businesses and we may be subject to investigations and enforcement actions by U.S. and non-U.S. regulators and governmental authorities. In addition to the securities laws and regulations discussed elsewhere in these Risk Factors, laws regulating financial services, the internet, mobile technologies, digital, and related technologies inside and outside of the U.S. may impose obligations on us, as well as broader liability. For example, we are required to comply with laws and regulations related to sanctions and export controls enforced by U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC, and U.S. anti-money laundering and counter-terrorist financing laws and regulations, enforced by FinCEN and certain state financial services regulators. U.S. sanctions laws and regulations generally restrict dealings by persons subject to U.S. jurisdiction with certain governments, countries, or territories that are the target of comprehensive sanctions, currently the Crimea Region of Ukraine, Russian Federation, Cuba, Iran, North Korea, Syria, and Venezuela as well as with persons identified on certain prohibited lists. In May 2019, FinCEN issued guidance on the application of FinCEN regulations to certain business models. While the guidance directly addressed Bitcoin mining, it did not address securing PoS blockchains, which, while similar to Bitcoin mining, has technical nuanced differences that could potentially alter the analysis. As such, there can be no guarantee that securing (staking) on PoS blockchain networks will be viewed as compliant, notwithstanding the May 2019 FinCEN guidance. In particular, the nature of blockchains make it technically impossible in all circumstances to prevent or identify transactions with particular persons or addresses. Our Builder+ block builder software is equipped with a filtering mechanism that screens transactions initiated by wallet addresses listed on OFAC’s Specially Designated Nationals And Blocked Persons (SDN) list, ensuring transactions from identified wallets are not included in the blocks we propose to validators. We actively monitor sanctioned jurisdictions to ensure that appropriate restrictions are maintained. If, notwithstanding these efforts, our current or planned activities are found to constitute “facilitating” or assisting the actions of non-U.S. persons that would be prohibited for U.S. persons to perform directly due to U.S. sanctions, despite the fact we don’t take custody of staked crypto assets nor pay delegator crypto rewards, it could result in material negative consequences for us, including costs related to government investigations, harsh financial penalties, and harm to our reputation. The impact on us related to these matters could be substantial. We’ve sought and are seeking additional legal guidance on what, if any, controls and procedures need to be put in place and whether our activities could constitute facilitation of any illicit activities under the current regulatory framework. Regulators worldwide frequently study each other’s approaches to the regulation of the digital economy. Consequently, developments in any jurisdiction may influence other jurisdictions. New developments in one jurisdiction may be extended to additional services and other jurisdictions. In addition, digital economies themselves are subject to rapid and unpredictable change so that regulators could decide warrants updates or additions to existing regulatory regimes. As a result, the risks created by any new law or regulation in one jurisdiction are magnified by the potential that they may be replicated, affecting our business in another place. Conversely, if regulations diverge worldwide, we may face difficulty adjusting aspects of our business. The complexity of U.S. federal and state and international regulatory and enforcement regimes, coupled with the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions. Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brands and business, and adversely affect our operating results and financial condition. Due to the uncertain application of existing laws and regulations, it may be that, despite our planned regulatory and legal analysis that certain products and services are currently unregulated, such products or services may indeed be subject to financial regulation, licensing, or authorization obligations that we have not obtained or with which we have not complied. As a result, we are at a heightened risk of litigation, regulatory, and legal scrutiny which could lead to sanctions, cease, and desist orders, or other penalties and censures which could significantly and adversely affect our continued operations and financial condition. 41 We may experience losses resulting from technical failures, bugs, or vulnerabilities in our block builder software. Our Ethereum block-building process heavily relies on advanced algorithms and technology. Technical failures, bugs, or vulnerabilities in our block builder software could lead to significant operational disruptions and potential financial losses that may be substantial and could materially impact our business. While we implement extensive testing and security measures, we cannot guarantee that all technical vulnerabilities will be detected and remediated before causing harm. Furthermore, the security of our operation is paramount, as vulnerabilities in smart contracts, blockchain infrastructure, or the Ethereum network could result in security breaches, data breaches, and financial harm to our clients and us. Ensuring the ongoing scalability and efficiency of our algorithms requires continuous investment in research and development. Malicious actors gaining 50% or greater control of a cryptocurrency network could manipulate the blockchain, leading to significant adverse effects on the network and indirectly on our business. If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power or staked assets dedicated to either mining or staking a cryptocurrency, it may be able to alter blockchains on which transactions of cryptocurrency reside and rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could control, exclude or modify the ordering of transactions, though depending on blockchain may not generate new units or transactions using such control. The malicious actor could “double-spend” its own cryptocurrency (i.e., spend the same crypto asset in more than one transaction) and prevent the confirmation of other users’ transactions for as long as it maintained control. To the extent that such malicious actor or botnet does not yield its control of the processing power or staked assets on the network, or the cryptocurrency community does not reject the fraudulent blocks as malicious, reversing any changes made to blockchains may not be possible. The foregoing description is not the only means by which the entirety of blockchains or cryptocurrencies may be compromised but is only an example and may differ from blockchain to blockchain. The possible crossing of the 50% threshold indicates a greater risk that a single validator could exert authority over the validation of network transactions. To the extent that a blockchain ecosystem including other validators do not act to ensure greater decentralization of validator voting power, the feasibility of a malicious actor obtaining control will increase because the botnet or malicious actor could compromise more than 50% voting power and thereby gain control of blockchain, whereas if the blockchain remains decentralized it is inherently more difficult for the botnet of malicious actor to aggregate enough voting power to gain control of the blockchain, may adversely affect an investment in our Common Stock. Such lack of controls and responses to such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any Ethereum or other crypto assets we acquire or hold, and harm investors. 42 Security Risks Related to Our Crypto Asset Holdings Our crypto assets may be subject to loss, damage, theft or restriction on access. There is a risk that part or all of our crypto assets could be lost, stolen, destroyed or become inaccessible. Our crypto assets are an appealing target to hackers or malware distributors seeking to destroy, damage, or steal our crypto assets, and we have experienced attempts to breach our security measures in the past. To minimize the risk of loss, damage and theft, security breaches, and unauthorized access we primarily hold our crypto assets in various cryptocurrency digital wallets utilizing industry-standard multi-signature security protocols and cold storage solutions, and hold minimal amounts (less than 1% of total holdings) at regulated exchanges. Nevertheless, the digital wallets and exchanges we utilize may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by us. Any of these events may adversely affect our operations and, consequently, an investment in us. To the extent that any of our crypto assets are held by crypto exchanges, we may face heightened risks from cybersecurity attacks and the financial stability of the exchanges. All crypto assets not held in a Company’s controlled digital wallet are held at crypto exchanges and subject to the risks encountered by those exchanges including DdoS Attacks, other malicious hacking, a sale of the exchange, loss of the crypto assets by the exchange, security breaches, and unauthorized access of our account by hackers. The Company may not maintain a custodian agreement with the exchanges with which it holds its crypto assets, and such exchanges do not provide insurance and may lack the resources to protect against hacking and theft. Less than 0.1% of the Company’s crypto assets are typically stored at exchanges; however, this may increase at or around the sales or purchase of crypto assets. We may be materially and adversely affected if the exchanges suffer cyberattacks or incur financial problems. The loss or destruction of a private key required to access a crypto asset may be irreversible. Our loss of access to our private keys could adversely affect an investment in our Company. Crypto assets are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the crypto assets are held. We are required by the operation of the crypto asset network to publish the public key relating to a digital wallet in use by us when it first verifies a spending transaction from that digital wallet and disseminates such information into the network. We safeguard and keep private the private keys relating to our crypto assets not held at exchanges by utilizing key sharing and multi-signature storage techniques; to the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is accessible, we will be unable to access the crypto assets held by it and the private key will not be capable of being restored by the network. Any loss of private keys relating to digital wallets used to store our crypto assets could adversely affect an investment in us. Security threats to us could result in a loss of Company’s crypto assets. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses, could harm our business operations or result in loss of our Ethereum and other crypto assets. Any breach of our infrastructure could result in damage to our reputation which could adversely affect an investment in us. Furthermore, we believe that, as our assets continue to grow, it may become a more appealing target for security threats such as hackers and malware. The security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of ours, or otherwise, and, as a result, an unauthorized party may obtain access to our, private keys, data, or Ethereum. Additionally, outside parties may attempt to fraudulently induce employees of ours to disclose sensitive information in order to gain access to our infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security system occurs, the market perception of the effectiveness of our security system could be harmed, which could adversely affect an investment in us. In the event of a security breach, we may be forced to cease operations, or suffer a reduction in assets, the occurrence of each of which could adversely affect an investment in us. Incorrect or fraudulent crypto asset transactions may be irreversible. Crypto asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction. Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of crypto assets or a theft of crypto assets generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our crypto assets could be transferred from us in incorrect amounts or to unauthorized third parties. To the extent that we are unable to seek a corrective transaction with such third party or are incapable of identifying the third party which has received our crypto assets through error or theft, we will be unable to revert or otherwise recover incorrectly transferred crypto assets. To the extent that we are unable to seek redress for such error or theft, such loss could adversely affect an investment in us. The limited rights of legal recourse against us, and our lack of insurance protection expose us and our shareholders to the risk of loss of our crypto assets for which no person is liable. The crypto assets held by us are not insured through any government program or private insurance policy. Any loss of our crypto assets, whether through security breaches, technical failures, or other causes, would not be covered by insurance and could result in permanent and unrecoverable losses that could adversely affect our operations and, consequently, an investment in us. Crypto assets held by us are not subject to FDIC or SIPC protections. We do not and will not hold our Ethereum and other crypto assets with a banking institution or a member of the FDIC or the Securities Investor Protection Corporation (“SIPC”) and, therefore, our crypto assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. 43 Risks Related to Our Development Efforts There is substantial doubt that we will be able to fully develop or commercialize our ChainQ platform as intended. We are continuing to develop our ChainQ platform with the ultimate goal of creating an advanced blockchain infrastructure tool to enhance user accessibility and operational efficiency. We may not successfully fully develop this platform as planned, in a cost-efficient manner, to the extent sought or at all. If we fail to develop a comprehensive platform for ChainQ as intended, it could have a material adverse effect on our business, especially to the extent that we allocate significant capital, labor, and other resources to this endeavor rather than focusing on other business opportunities which may prove to have been more lucrative in hindsight. Even if we do successfully develop our platform and bring it to the marketplace, there is no guarantee that we will attract enough users to generate revenue or become profitable. Our competitors, most of whom have greater capital and human resources than we do, may develop technologies that are superior to our platform or commercialize comparable technologies before us, in which case our ability to attract users and generate revenue therefrom could be rendered unlikely or even impossible. If we fail to obtain users for our platform or find an alternative means of commercializing our platform to recoup our investment therein, it will have a material adverse effect on our financial condition. Finally, even if we do fully develop the platform and attract users, events outside of our control such as regulatory actions against us or crypto assets on which our platform depend, or economic downturns, could force us to cease operating our platform or render it obsolete. If we fail to fully develop and commercialize our platform in a timely and effective manner, your investment in us could lose some or all of its value. Even if we develop and commercialize our ChainQ platform, we may not be able to generate material revenues. The continued development of ChainQ will require significant time and capital. Even if we do develop this platform and acquire a sufficient number of users to generate revenue, we cannot guarantee the revenue would be material or sufficient to justify the costs we anticipate incurring to develop the platform. While we are pursuing the development of additional features to make our platform more useful and attractive to consumers involved in blockchain technology, we may fail to develop these features effectively in an efficient manner, or within a timeframe that enables us to be or remain competitive. Our ability to capitalize on any platform we do develop will depend on a variety of factors and uncertainties beyond our control, including the competition we face and similar or superior services that may already exist by the time we begin marketing our platform, the volatile nature of the blockchain industry generally and the unknown demand for the services we plan to offer through our platform as it is currently envisioned, regulatory developments that have arisen or may arise in the future, and the advancement of new technologies which could arise in the future and render our platform partially or completely obsolete. If any of these or other risks come to fruition to prevent our platform from generating material revenue to justify its costs of production, it would have a material adverse effect on our business. The development of our ChainQ platform will depend on the successful efforts of our employees. Our platform development efforts are completely dependent on our infrastructure. We use internally developed systems for the platforms. Any future difficulties in developing aspects of our platforms may cause delays in bringing our platforms to market. If our data stored on AWS as well as bare metal servers, and the backups thereof, are compromised, our platform and prospects could be harmed. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, the occurrence of any of which could lead to interruptions, delays, loss of critical data, or the inability to launch our platform. The occurrence of any of the foregoing risks could materially harm our business. We are subject to cyber security risks and may incur delays in platform development in an effort to minimize those risks and to respond to cyber incidents. ChainQ is and will continue to be dependent on the secure operation of our website and systems as well as the operation of the Internet generally. The platform involves processing and storage of sensitive data, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. A number of large Internet companies have suffered security breaches, some of which have involved intentional attacks. From time to time, we and many other internet businesses also may be subject to a denial-of-service attacks wherein attackers attempt to block customers’ access to our website. If we are unable to avert a denial-of-service attack for any significant period, we could sustain delays in the development of the platform and when launched risk losing future users and have user dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us, our users, or exchanges we read data from in general or the communication infrastructure on which we depend. If an actual or perceived attack or breach of our security occurs, user perception of the effectiveness of our security measures could be harmed and we could lose our future user. Actual or anticipated attacks and risks may cause us to incur increasing costs, and delay development. A person who is able to circumvent our security measures might be able to misappropriate our or our users’ proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and platform. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business. 44 We may become subject to data privacy and data security laws and regulations by virtue of our ChainQ platform, which could force us to incur significant compliance costs and expose us to liabilities. By virtue of our platform, including planned additional functions, we may become subject to the various local, state, federal, and international laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer, and processing of personal data. These data protection and privacy laws and regulations and their applicability to our current and future operations and offerings are subject to uncertainty and continue to evolve in ways that could adversely impact our business. These laws could have a substantial impact on our operations, depending in large part on the location of our operations, users, employees and other stakeholders with which we are or become involved. In the United States, state and federal lawmakers and regulatory authorities have increased their attention on the collection and use of user data. For example, California enacted the California Rights Privacy Act, or CPRA, which augmented the California Privacy Rights Act, became effective in 2020. The CPRA requires covered companies to, among other things, provide new disclosures to California users, and affords such users new privacy rights such as the ability to opt-out of certain sales of personal information and expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is collected, used, and shared. The CPRA provides for civil penalties for violations, as well as a private right of action for security breaches that may increase security breach litigation. Potential uncertainty surrounding the CPRA may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a material adverse effect on our business, including how we use personal information, our financial condition, the results of our operations or prospects. Since the CPRA was enacted, a growing number of states have enacted similar legislation designed to protect the personal information of consumers and penalize companies that fail to comply, and other states have also proposed similar legislation. The costs of compliance with, and other burdens imposed by, the CPRA, and similar laws may limit our prospective customer base or the use and adoption of our products and services and/or require us to incur substantial compliance costs, which could have an adverse impact on our business. Additionally, many foreign countries and governmental bodies in which our users may reside, have laws and regulations concerning the collection, use, processing, storage, and deletion of personal information obtained from their residents or by businesses operating within their jurisdiction. These laws and regulations are often more restrictive than those in the United States. Such laws and regulations may require companies to implement new privacy and security policies, permit individuals to access, correct, and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, require that certain types of data be retained on local servers within these jurisdictions, and, in some cases, obtain individuals’ affirmative opt-in consent to collect and use personal information for certain purposes. There is a risk that as we develop and offer our platform and other services, we may become subject to one or more of these data privacy and security laws. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection, and information security, including by deploying geo-blocking features to limit the jurisdictions from which our platform can be accessed, it is possible that our practices, offerings, or platform, or third parties on which we rely, could fail. For instance, the overall regulatory framework governing the application of privacy laws to blockchain technology is still highly undeveloped and likely to evolve. Further, given the pseudonymous nature of activities involving crypto assets, we face unique and substantial challenges in our compliance efforts that are not present in traditional financial services, including difficulties in identifying and verifying the identity of transaction participants, monitoring suspicious activities, and maintaining effective know-your-customer (KYC) procedures. Our failure, or the failure by our third-party providers or partners, to comply with applicable laws or regulations and to prevent unauthorized access to, or use or release of personal data, or the perception that any of the foregoing types of failure has occurred, even if unfounded, could subject us to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, potential severe criminal or civil sanctions, fines or damages, reputational harm, or expensive and time-consuming proceedings by governmental agencies and private claims and litigation, any of which could materially adversely affect our business, operating results, and financial condition. We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing the ChainQ platform. Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third-parties, however, we may not always be able to determine that we are using or accessing protected information or software. For example, there could be issued patents of which we are not aware that our products infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. Because of the foregoing, we may be subject to legal claims of alleged infringement of the intellectual property rights of third parties. We expect this risk to increase as we continue to develop and roll-out additional functions for the ChainQ platform in the future. The ready availability of damages, royalties and the potential for injunctive relief has increased the defense litigation costs of patent infringement claims, especially those asserted by third parties whose sole or primary business is to assert such claims. Such claims, even if not meritorious, may result in significant expenditure of financial and managerial resources, and the payment of damages or settlement amounts. Accordingly, we could expend significant resources defending against patent infringement and other intellectual property right claims, which could require us to divert resources away from operations. Any damages we are required to pay or injunctions against our continued use of such intellectual property in resolution of such claims may cause a material adverse effect to our business and operations, which could adversely affect the trading price of our securities and harm our investors. Additionally, we may become subject to injunctions prohibiting us from using software or business processes we currently use or may need to use in the future or requiring us to obtain licenses from third parties when such licenses may not be available on financially feasible terms or terms acceptable to us or at all. In addition, we may not be able to obtain on favorable terms, or at all, licenses or other rights with respect to intellectual property we do not own in providing ecommerce services to other businesses and individuals under commercial agreements. 45 Risks Related to Our Public Company Reporting Requirements and Accounting Matters We may need to implement additional finance and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements . We are required to comply with a variety of reporting, accounting, and other rules and regulations. Compliance with existing requirements is expensive. We may need to implement additional finance and accounting systems, procedures, and controls to satisfy our reporting requirements and such further requirements may increase our costs and require additional management time and resources. For example, many crypto assets, including those on PoS blockchain networks with which we are or may become involved, demonstrate novel and unique accounting challenges, including due to smart contracts affecting the underlying crypto assets. Any deficiencies in our internal control over financial reporting, should they arise, could cause investors to lose confidence in our reported financial information, negatively affect the market price of our Common Stock, subject us to regulatory investigations and penalties, and adversely impact our business and financial condition. Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results . Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to revenue recognition, estimating valuation allowances and accrued liabilities (including allowances for returns, credit card chargebacks, doubtful accounts and obsolete and damaged inventory), internal use software and website development (acquired and developed internally), accounting for income taxes, valuation of long-lived and intangible assets and goodwill, stock-based compensation and loss contingencies, are highly complex and involve many subjective assumptions, estimates and judgments by our management. Additional complexities can arise with respect to crypto asset operations. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance. If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected. The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in Part II, Item 7 of this Annual Report on Form 10-K. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve the identification of performance obligations in revenue recognition, evaluation of tax positions, and the valuation of stock-based awards and crypto assets we hold, among others. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of analysts and investors, resulting in a decline in the trading price of our Common Stock. We are subject to the information and reporting requirements of the Exchange Act, and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to shareholders will cause our expenses to be higher than they would have been if we were privately held. It may be time-consuming, difficult and costly for us to develop, implement and maintain the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. 46 Risks Related to our Common Stock Our stock price may be volatile. The market price of our Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following: ● changes in our industry including changes which adversely affect crypto assets; ● adverse regulatory developments such as the recent actions brought by securities regulators on crypto assets activities; ● public announcements and corporate events; ● continued volatility in the price of crypto assets; ● our ability to obtain working capital financing; ● sales of our securities or those of other companies, or of crypto assets, due to external forces such as geopolitical turmoil, inflation, federal interest rate adjustments or other events; ● additions or departures of key personnel including our executive officers; ● sales of our Common Stock; ● exercise of our warrants and the subsequent sale of the underlying Common Stock; ● conversion of our convertible notes and the subsequent sale of the underlying Common Stock; ● our ability to execute our business plan; ● operating results that fall below expectations; ● loss of any strategic relationship; and ● economic and other external factors. In addition, the securities markets have, from time-to-time, experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock. As a result, you may be unable to resell your shares at a desired price. While we paid a cash dividend in 2022, and declared a Series V Preferred stock (“Series V”) dividend in 2023, we do not expect to pay regular or recurring dividends in the future. Any return on investment may be limited to the value of our Common Stock. While we declared and paid a cash dividend (which came with the option to be paid in Bitcoin if elected by the shareholder) payable to holders of our Common Stock as of March 17, 2022, and distributed Series V dividend to shareholders of our Common Stock of record as of May 12, 2023, we do not anticipate paying dividends on a regular or recurring basis for the foreseeable future. Any future payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only occur if our stock price appreciates. Our articles of incorporation allow for our Board to create new series of preferred stock without further approval by our shareholders, which could adversely affect the rights of the holders of our Common Stock. Pursuant to our articles of incorporation, our Board has the authority to fix and determine the relative rights and preferences of preferred stock without further shareholder approval. Our Board also has the authority to issue preferred stock without further shareholder approval. As a result, our Board could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, provide holders of the preferred anti-dilution protection, the right to receive dividend payments before dividends are distributed to the holders of Common Stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our Common Stock. For example, we issued a total of 15,033,231 shares of Series V Preferred Stock, which has a 20% liquidation preference over our Common Stock and also has certain rights to dividend and distributions at the discretion of the Board. In addition, our Board could authorize the issuance of a series of preferred stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative voting power of our Common Stock or result in dilution to our existing shareholders. The Conversion of Series V Preferred Stock to Common Stock Could Result in Substantial Dilution and Cause Market Volatility At the 2024 annual meeting, BTCS shareholders approved a proposal authorizing the Board of Directors, at its discretion, to convert each share of Series V Preferred Stock into one share of Common Stock. While the Board now has the authority to implement this conversion, it has not yet taken such action. If the Board decides to proceed with the conversion, the issuance of a substantial number of additional shares of Common Stock could result in significant dilution to existing common shareholders. As of December 31, 2024, there were 15,033,231 shares of Series V Preferred Stock outstanding. If all Series V shares are converted into Common Stock, the number of outstanding shares of our Common Stock would materially increase. Such an increase in our outstanding Common Stock could materially affect the market price of our shares and impact investor confidence. Additionally, the increase in the number of freely tradeable shares could create downward pressure on the stock price if investors decide to sell shares in response to the dilution or due to other market-related factors. Current and prospective investors may also perceive the conversion negatively, leading to increased volatility and reduced demand for our Common Stock. Furthermore, our ability to raise capital in the future through equity offerings may be affected by the potential overhang of additional shares. Substantial future sales of our Common Stock by us or by our existing shareholders could cause our stock price to fall. We have primarily financed our strategic growth through our ATM Agreement. Additional equity financings (in addition to the shares issued under the ATM Agreement) or other share issuances by us, including shares issued in connection with strategic alliances and corporate partnering transactions, could adversely affect the market price of our Common Stock. Sales by existing shareholders of a large number of shares of our Common Stock in the public market or the perception that additional sales could occur could cause the market price of our Common Stock to drop. Additionally, if we were not eligible to sell shares under our existing Registration Statement on Form S-3, we would be prohibited from selling under the ATM Agreement and may need to raise capital under terms less friendly to the Company and cause more dilution to existing and future shareholders. 47 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 15(a)(1) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None