Trends in crypto-currencies and blockchain technologies: A monetary theory and regulation perspective (1508.04364v1)

Abstract: The internet era has generated a requirement for low cost, anonymous and rapidly verifiable transactions to be used for online barter, and fast settling money have emerged as a consequence. For the most part, e-money has fulfilled this role, but the last few years have seen two new types of money emerge. Centralised virtual currencies, usually for the purpose of transacting in social and gaming economies, and crypto-currencies, which aim to eliminate the need for financial intermediaries by offering direct peer-to-peer online payments. We describe the historical context which led to the development of these currencies and some modern and recent trends in their uptake, in terms of both usage in the real economy and as investment products. As these currencies are purely digital constructs, with no government or local authority backing, we then discuss them in the context of monetary theory, in order to determine how they may be have value under each. Finally, we provide an overview of the state of regulatory readiness in terms of dealing with transactions in these currencies in various regions of the world.

• The paper provides a comprehensive examination of cryptocurrencies by analyzing historical trends, monetary roles, and regulatory challenges.
• It employs a detailed evaluation of blockchain as a decentralized ledger, highlighting issues like volatility and limited acceptance in traditional finance.
• The paper outlines varied global regulatory responses and explores broader applications of blockchain in asset management, smart contracts, and governance.

Trends in Crypto-Currencies and Blockchain Technologies: A Monetary Theory and Regulation Perspective

The paper "Trends in crypto-currencies and blockchain technologies: A monetary theory and regulation perspective" provides a comprehensive examination of the rise of cryptocurrencies and blockchain technologies, especially from the vantage point of monetary theory and regulatory concerns.

Historical Context and Development of Cryptocurrencies

The manuscript begins by tracing the historical roots that led to the emergence of cryptocurrencies. Initially, electronic money (e-money) served as a solution for low-cost, anonymous, and rapid transactions demanded by the internet era. Nevertheless, the past decade has witnessed the rapid growth of virtual and cryptocurrencies—distinct digital constructs not affiliated with any governmental authority. Virtual currencies, often centralized, emerged in online economies such as those in gaming. Conversely, cryptocurrencies like Bitcoin, which employ decentralized peer-to-peer networks, eschew financial intermediaries by employing blockchain technology—a public ledger verified by network participants through cryptographic means.

Theoretical and Practical Examination

The paper rigorously examines cryptocurrencies from a monetary theory perspective. It challenges these digital currencies to fulfill traditional monetary roles: as a medium of exchange, a unit of account, and a store of value. Currently, cryptocurrencies face challenges in these areas due to issues like volatility and limited acceptance. Nonetheless, potential changes in uptake could alter their economic role dramatically.

Furthermore, the manuscript deliberates on the scarcity principle and potential deflationary spiral issues within bitcoin's monetary framework, exploring how these features align or conflict with established economic theories. Notably, it discusses how market-driven cryptocurrency values derive from the consumption of computational resources during the mining process—an aspect reminiscent of metallist values that associate money with tangible commodities.

Regulatory Landscape

Regarding regulation, the paper outlines varied global responses to cryptocurrency innovations. Nations range from outright bans, as noted in China's handling of Bitcoin, to proposals aligning cryptocurrencies more closely with traditional currencies, as seen in Australia's stance. Regulatory focus is predominantly on financial stability risks, anti-money laundering, and consumer protection while also recognizing the innovative potential of underlying blockchain technologies beyond mere currency applications.

Implications and Future Trajectories

Practically, cryptocurrencies offer a new mode of conducting transactions with reduced friction and increased privacy. Theoretically, they challenge traditional conceptions of money by introducing non-state-backed currency models into economic systems. This transformation holds implications for global monetary policy and financial systems as regulators grapple with overseeing these decentralized currencies.

The paper also highlights blockchain's potential beyond currency, suggesting applications in asset management, smart contracts, and governance by consensus—opening research areas into optimizing these technologies for broader economic use cases.

Conclusion

This work calls for continued scholarly exploration into aligning cryptocurrency frameworks with economic models and regulatory structures, emphasizing the balance between fostering innovation and mitigating systemic risks. As cryptocurrencies evolve and regulatory landscapes adapt, future developments in cryptocurrency technology show promise in reshaping financial paradigms. This realigns interest towards sustainable integration of these technologies into existing infrastructures, paving the way for transformative advancements in global economic systems.