In my previous post ‘Paypal is to Ebay what Bitcoin is to the dark-net’ I discussed the both positive and negative uses and potentials of cryptocurrencies for the future. This post will delve further into exisiting research surrounding cryptocurrencies and what will eventually become an extension of the digital artefact conducted by previous student of university subject BCM325 (Future Cultures) @eddiesmedia, which can be found here.
Bitcoin was first conceived by an anonymous person/people called Satoshi Nakamoto (the true identity of which remains unknown) in 2008 through the paper ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. It describes an electronic payment system based on cryptographic proof (the art of communication via coded messages) allowing any two willing parties to transact directly with each other without the need for a trusted third party (Nakamoto, 2008, p1).
Much of the existing literature on cryptocurrencies focuses on the how of bitcoin. Technologist and computer scientist, Andreas Antonopoulos’s book ‘The Internet of Money’ (2016) focuses on the why. Antonopoulos makes very big claims such as “Bitcoin is the most important technological invention in computer science of the last 20 years” (Dahlen, 2017). Antonopoulos explains that Bitcoin was made for the internet age, he compares it to credit cards and the deeply flawed nature of companies storing their customer’s credit card information, making it vulnerable to hackers. Bitcoin is completely decentralised and Antonopolous makes the claim that because the Bitcoin network is distributed, “it is immune to mass theft and data breaches” (Dahlen, 2017).
But still there are risks involved with creating a ‘wallet’ and trading and investing in cryptocurrencies. E-currencies are inherently volatile, their value routinely spikes and plummets much more frequently than widely used currencies, making investing a gamble. It is because of this instability and threats to the Bitcoin community such as inevitable bugs and accidents, that Kroll, Davey and Felten (2013) argue the Bitcoin system will require mechanisms for governance and that such governance is already emerging, which will eventually lend itself to influence by government regulators. It is known that Bitcoins are used to facilitate a significant trade in illegal goods on the dark web, an anonymous online marketplace that has over $8 million in monthly sales (Kroll, 2013, p.2.).
There has been multiple suggestions of how to regulate virtual currencies such as Kevin Tu’s paper ‘Rethinking Virtual Currency Regulation in the Bitcoin Age’ (2015) which notes it is nothing new for regulation to lag behind the rapid growth of a new technology. Tu divulges that current efforts such as that in the United States are taking a limited approach to the treatment of virtual currencies under existing legislation and believes a new cohesive framework for regulating cryptocurrencies must be forged. However, Low (2017) discusses the prospects of trying to regulate something that is an obscure asset, in other words there is no tangible property. It seems inevitable that the question of what private law rights a bitcoin holder has over his bitcoins will eventually have to be answered.
In March 2018, Binance, the world’s biggest cryptocurrency exchange announced it would be moving its headquarters to Malta with Malta trying to position itself as a ‘crypto-friendly’ country. With this, Malta has taken the step to establish the Malta Digital Innovation Authority, given the task of regulating the crypto markets as well as attracting more investors into the country. Similarly, Bermuda has proposed a bill, the Initial Coin Offerings Act, that will require businesses facilitating the sale of or providing services relating to cryptocurrencies to collect and retain key information about their customers. New regulations in Australia make it mandatory, as of April 3rd, for digital currency exchanges to “report suspicious activity to AUSTRAC, maintain certain records for at least seven years and verify the activities of their customers” (Munro, 2018) in an effort to counteract money laundering and terrorism financing (NewsBTC, 2018). Nolan Bauerle, head of research at CoinDesk, notes that the new regulations officially bring cryptocurrency exchanges in line with banks and other responsible financial service providers. But Brian Kelly explains in his 2015 book, ‘The Bitcoin Big Bang’, that “Bitcoin was created to remove third parties from the financial system, whether they are government agencies or money centre banks” (Kelly, 2015, p. 139). Regulating, in many ways, is counter productive to Satoshi Nakamoto’s original vision. Whilst these agencies have the ability to declare digital currencies illegal, as China and South Korea have done, Kelly admits that any type of regulation, “will be an implicit nod of legitimacy” (Kelly, 2015, p.140).
You can find here many other countries stance on cryptocurrencies.
There is so much speculation, hype, confusion and prophesying surrounding cryptocurrencies that it is extremely hard for the average person to understand the risks, potential uses and history of cryptocurrencies. Whether bitcoins or other cryptocurrencies herald the future of money or if they remain a niche form of electronic money, there is no denying that they are having a significant impact on economies and regulators. My aim is to follow on from @eddiesmedia’s succinct library of quality literature, industry research and news media to educate people unfamiliar with the technology behind Bitcoin and other cryptocurrencies and continue on learning the world of Bitcoin.
Dahlen, M ‘The Internet of Money (Volume One)’ Objective Standard: A journal of culture and politics, Volume 12 issue 4, 2018, p.97-100
Kelly, B, The Bitcoin Big Bang, John Wiley & Sons, Incorporated, Hoboken, New Jersey, 2015
Kroll, J & Davey, I & Felten, E ‘The economics of Bitcoin Mining, or Bitcoin in the Presence of Adversaries’, The Twelfth Workshop on the Economics of Information Security, Washington, DC, June 11-12, 2013 http://www.econinfosec.org/archive/weis2013/papers/KrollDaveyFeltenWEIS2013.pdf
Low, K ‘Bitcoins and other cryptocurrencies as property? Law, Innovation and Technology, 2017, pp.235-268
Nakamoto, S ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, 2008, https://bitcoin.org/bitcoin.pdf viewed April 27 2018