Cryptocurrencies

Oonagh Mcdonald

Description

The advent of new digital currencies has challenged our notions about money, its function and purpose, and our faith in the financial and banking structures that underpin its legitimacy. Oonagh McDonald charts the spectacular rise of cryptocurrencies over the past decade and considers the opportunities and threats that cryptocurrencies pose to existing fiat currencies. This revised edition includes a new chapter dealing with the high-profile bankruptcies of the recent “crypto winter”.

The book considers how regulatory bodies have been slow to respond to a technology that is evading existing regulatory frameworks. Urgent and more robust protection is needed from fraudulent initial coin offerings, scams and hacks. Throughout her analysis, McDonald shows that trust is fundamental to the operation of finance and that this will ultimately protect commercial bank money from the threat of new digital currencies. The book offers readers an insightful appraisal of the future of money and the challenges facing regulatory bodies.

1. Introduction: Bitcoin beginnings

2. New cryptocurrencies and new developments

3. Stablecoins: the search for stability

4. Initial coin offerings: the “Wild West”

5. The regulatory response to ICOs

6. Global stablecoins: Libra

7. Reactions to stablecoins

8. Central banks and central bank digital currencies

9. The decline of cash

10. Credit and trust

11. Epilogue: the crypto winter

Appendix: smart contracts

Sujets

• Cryptocurrencies
• Banking
• Economie gestion
• Bitcoin
• Bank
• Libra
• Ripple
• Foreign exchange
• General officer
• Gerolamo Cardano
• Economics
• Currency
• Business
• General
• Diem
• Finance
• Balance (constellation)

Informations

• Publié par: Agenda Publishing
• Date de parution: 28 février 2023
• Nombre de lectures: 1
• EAN13: 9781788216449
• Langue: English
• Poids de l'ouvrage: 3 Mo

Extrait

“A must-read or anyone wo as a stake în te uture o money. ït îs an îstorîca tour de orce tat paînstakîngy teases out o every corner o te cryptocurrency word te crîtîca îssues tat governments, poîcy-makers, and consumers must consîder beore abandonîng government Iat money.” homas P. Vartanîan, Proessor o aw, George Mason Unîversîty

“Oonag McDonad, pîosoper and ormer parîamentarîan wît extensîve knowedge and experîence o Inancîa reguatîon, sows wy ît îs trust and not tecnoogy tat determînes wat îs money. As bîîonaîres ose teîr eads casîng cryptos, trust McDonad to guîde you troug te tanged woods o dîgîta Inance.” ord Desaî, Emerîtus Proessor o Economîcs, ondon Scoo o Economîcs

“ïn tîs ambîtîous book, McDonad eps te rest o te word catc up wît er on te opportunîtîes and rîsks assocîated wît stabecoîns. Even î one may dîsagree wît er about teîr uture, tîs book îs an învauabe resource, especîay as a teacîng too, because o er abîîty to syntesîze and înterpret a vast amount o înormatîon about compex and nove practîces.” Cares Caomîrîs, Henry Kauman Proessor o Fînancîa ïnstîtutîons, Coumbîa Busîness Scoo

“An erudîte and readabe book on a very compex and puzzîng îssue … wat sets tîs book apart îs te cear and împartîa anaysîs combîned wît a very good understandîng o te nuts and bots o dîgîta currencîes. ït wî prove a vauabe companîon or te ay reader wît an înterest în te rîse o aternatîve money and a good source o study or te expert.” Emîîos Avgoueas, Caîr o ïnternatîona Bankîng aw and Fînance, Unîversîty o Edînburg

“An exceent revîew o te key îssues around cryptocurrencîes and money. ït takes a very broad perspectîve and covers te essentîa tecnîca, reguatory, economîc and poîcy îssues în a very înormed and crîtîca way.” Robert Hudson, Proessor o Fînance, Unîversîty o Hu

“Oonag McDonad, aways a voîce o Inancîa reason, provîdes a toroug consîderatîon o cryptocurrency îdeas and reaîty, togeter wît te întertwîned îssues o tecnoogy, reguatîon, trust, and government monetary power. hîs îs a very însîgtu and înstructîve guîde or te întrîgued.” Aex J. Poock, ormer Prîncîpa Deputy Dîrector, Oice o Fînancîa Researc, US Treasury

“An engagîng and progressîve assessment o cryptocurrency deveopments, wîc detaîs many o te requîred condîtîons and urdes to be overcome to ensure te uture stabîîty o tese payment systems. Requîred readîng or bot poîcy-makers and academîcs workîng în tîs Ied.” Jon Aston, Proessor o Bankîng, Bangor Unîversîty

Cryptocurrencies

MONEY, TRUST AND REGULATION

Oonagh McDonald

© Oonag McDonad 2021, 2023

hîs book îs copyrîgt under te Berne Conventîon. No reproductîon wîtout permîssîon. A rîgts reserved.

Fîrst pubîsed în 2021 by Agenda Pubîsîng Revîsed edîtîon pubîsed în paperback 2023

Agenda Pubîsîng îmîted heCore Bat ane Newcaste Heîx Newcaste upon Tyne NE4 5TF www.agendapub.com

ïSBN 978-1-78821-639-5

British Library CataloguinginPublication Data A cataogue record or tîs book îs avaîabe rom te Brîtîs îbrary

Typeset by JS Typesettîng td, Portcaw, Mîd Gamorgan Prînted and bound în te UK by TJ Books

Preace Acronyms

 1  2  3  4  5  6  7  8  9 10 11

Contents

ïntroductîon: Bîtcoîn begînnîngs New cryptocurrencîes and new deveopments Stabecoîns: te searc or stabîîty ïnîtîa coîn oferîngs: te “Wîd West” he reguatory response to ïCOs Goba stabecoîns: îbra Reactîons to stabecoîns Centra banks and centra bank dîgîta currencîes he decîne o cas Credît and trust Epîogue: te crypto wînter

Appendîx: smart contracts

Notes Index

v

vîî xî

1 25 49 69 81 109 127 139 163 175 195

225

229 249

Preface

Untî recenty, we tougt we were pretty cear about money. ït was quîte sîmpy te notes and coîns în our waets, or our debît and credît cards, or te wecome addîtîons to our bank accounts, appearîng as credîts on our screens or on our bank statements. We never doubted tat a sop woud accept cas, or cards, wen we pay or goods and servîces. We transer money to oter peope’s bank accounts eîter în te same country or to anoter, rarey doubt- îng tat ît wî arrîve, even î we mîgt consîder te process sow and expen- sîve. Most peope în deveoped economîes do not gîve te orm o money or te underyîng processes wîc ensure ît unctîons a moment’s tougt. heîr ony concern îs very îkey te need or desîre or more money! he arrîva o new orms o “money” – so-caed “cryptocurrencîes” – as created muc înterest and consîderabe controversy. he purpose o tîs book îs to descrîbe, expaîn and evauate te attempts to provîde tese new curren- cîes as aternatîves to Iat money, te government-îssued currencîes. We sa examîne în detaî tese varîous orms o new currencîes and consîder weter or not tey can reay count as “money” and can repace te amîîar orms. Concerns about te saety and reîabîîty o dîgîta assets and teîr împact on Iat money and monetary poîcy as ed to many centra banks exporîng te possîbîîty o îssuîng teîr own dîgîta currency. he book sa aso assess te possîbe emergence o a centra bank dîgîta currency and wat tat mîgt mean or money.

vîî

CRYPTOCURRENCIES

he key teme trougout tîs book îs tat tese varîous eforts to repace Iat currency wît cryptocurrencîes aî because teîr structures cannot estab- îs trust, wîc îs essentîa or money to operate as a means o excange and vaue. ït îs îronîc tat “trust” was a key motîvatîon beînd te Irst “peer-to-peer eectronîc cas systems”, desîgned în te wake o te goba Inancîa crîsîs wen aît în centra banks and te goba Inancîa system was at îts weakest. Satosî Nakamoto, te deveoper beînd Bîtcoîn, wrote în one o îs posts în February 2009:

he root probem wît conventîona currency îs a te trust tat’s requîred to make ît work. he centra bank must be trusted not to debase te currency … Banks must be trusted to od our money and transer ît eectronîcay, but tey end ît out în waves o credît bubbes wît barey a ractîon în reserve. We ave to trust tem wît 1 our prîvacy, trust tem not to et îdentîty tîeves draîn our reserves.

he book begîns wît Bîtcoîn, by ar and away te most we-known cryp- tocurrency. Capter 1 outînes te deveopment o Bîtcoîn and îdentîIes some o te probems wît ît. he oowîng capters ten examîne te broader îdea o a dîgîta currency and îts deveopment over te ensuîng decade or more. Capter 2 examînes attempts to overcome te vunerabîîtîes o Bîtcoîn, by întroducîng new varîants o Bîtcoîn – “atcoîns” – and te deveopment o Etereum, te decentraîzed, open source bockcaîn. Capter 3 ooks at “sta- becoîns”, an attempt to overcome te extreme voatîîty o Bîtcoîn by înkîng ît to a Iat currency, suc as te US doar or pysîca assets suc as god or to some kînd o agorîtm. he caracterîstîcs o stabecoîns and weter or not tey meet te îdea standards are examîned. Capter 4 carts te proîeratîon o înîtîa coîn oferîngs în te eady years o 2017–18, wîc ed to te întro- ductîon o a vast array o stabecoîns, many o wîc dîd not actuay come înto exîstence and oters wîc were used to deraud potentîa învestors. he era o unreguated ïCOs ed to încreased reguatory attentîon and te întroductîon o reguatîons to cover stabecoîns, wîc are dîscussed în Capter 5. he ocus on stabecoîns and ten especîay, goba stabecoîns, was sarpened by te potentîa întroductîon o îbra/Dîem, te goba sta- becoîn announced by Facebook în 2019. Capters 6 and 7 consîders tîs sîgnîIcant deveopment and te întense reguatory and poîtîca scrutîny te proposas ave receîved rom înternatîona standard settîng bodîes.

vîîî

PREFACE

he potentîa arrîva o îbra (now caed Dîem) ad anoter, probaby unoreseen, efect. Centra banks and reguatory autorîtîes began to deveop teîr own proo-o-concept projects to understand te core tecnoogy o cryptocurrencîes, bockcaîn and dîstrîbuted edger tecnoogy (DT) and ow ît mîgt be used în cearîng and settement. hese were undertaken, party to understand te use and rîsks o te tecnoogy, and party to ensure tat suc deveopments were under te purvîew o te centra banks. hese projects ed, peraps înevîtaby, to te centra banks temseves consîderîng teîr own centra bank dîgîta currency (CBDC), wîc are consîdered, aong- sîde te decîne în cas, în Capters 8 and 9. he Ina capter returns to te notîons o trust and credît and examînes te unresoved caenges o prîvacy and te concentratîon o economîc power tat cryptocurrencîes, încudîng CBDCs, exîbît. ï woud îke to express my gratîtude to Davîd Back at OakHC/FT or îs expertîse on tecnîca aspects and aso to two anonymous reerees. Needess to say, any remaînîng errors remaîn my responsîbîîty.

îx