An award-winning reference work that provides complete coverage on the emerging phenomenon of digital currencies.

Table of Contents

• Contributors
• Preface and Acknowledgments
• Part 1 Digital Currency and Bitcoin
• Section One Bitcoin and Alternative Cryptocurrencies
• Introduction to Bitcoin
• 1.1 The Next Generation of Money and Payments
• 1.2 Digital Currency as Alternative Currency
• 1.2.1 “Digital” versus “virtual”
• 1.2.2 Classifying alternative currencies
• 1.2.3 Why alternative currencies
• 1.3 Cryptocurrency
• 1.3.1 The nature of cryptocurrency
• 1.3.2 The beginning: eCash
• 1.3.3 Pioneering Internet payments with digital gold
• 1.3.4 Revival of cryptocurrency
• 1.3.5 The rise of Bitcoin
• 1.4 General Features of Bitcoin
• 1.4.1 Network and digital currency
• 1.4.2 Genesis and decentralized control
• 1.4.3 How Bitcoin works
• 1.4.4 Buying and storing bitcoins
• 1.4.5 Mining to create new bitcoins and process transactions
• 1.4.6 Security and cryptography
• 1.4.7 Pseudoanonymity
• 1.5 Benefits and Risks
• 1.5.1 Freedom of payments
• 1.5.2 Merchant benefits
• 1.5.3 User control
• 1.5.4 Platform for further innovation
• 1.5.5 Internal change and volatility
• 1.5.6 Facilitation of criminal activity
• 1.5.7 Legal regulatory attitude
• 1.5.8 Economic risk
• 1.6 Impact of the Digital Currency Revolution
• 1.7 Conditions for a Successful Cryptocurrency
• 1.7.1 Ecosystem
• 1.7.2 Incentives
• 1.7.3 Identification
• 1.8 Future Prospects and Conclusion
• Acknowledgments
• References
• Is Bitcoin a Real Currency? An Economic Appraisal
• 2.1 Introduction
• 2.2 History and Background of Bitcoin
• 2.3 Bitcoin’s Weaknesses as a Currency
• 2.3.1 Medium of exchange
• 2.3.2 Unit of account
• 2.3.3 Store of value
• 2.4 Conclusion: Obstacles Faced by Bitcoin
• Acknowledgments
• References
• Bitcoin Mining Technology
• 3.1 Introduction
• 3.1.1 A distributed or decentralized network?
• 3.2 Technology Behind Bitcoin
• 3.2.1 Block
• 3.2.2 Blockchain
• 3.2.3 Block-hashing mechanism
• 3.2.4 Bitcoin address
• 3.3 Mining Process
• 3.4 Mining Possibilities
• 3.4.1 Solo mining
• 3.4.2 Hardware
• 3.4.3 Software
• 3.4.4 Factors to consider
• 3.4.5 Mining contracts
• 3.5 Mining Pools
• 3.5.1 Reward types
• 3.6 Threats to Mining
• 3.7 Recent Advancements
• 3.8 Conclusion
• References
• Further Reading
• National Cryptocurrencies
• 4.1 The First Wave
• 4.1.1 AuroraCoin
• 4.1.1.1 SpainCoin
• 4.1.1.2 PesetaCoin
• 4.1.1.3 GreeceCoin
• 4.1.1.4 ScotCoin
• 4.1.2 AphroditeCoin
• 4.1.3 GaelCoin
• 4.1.4 IrishCoin
• 4.1.5 CryptoEscudo
• 4.1.6 Deutsche eMark
• 4.1.7 Ekrona
• 4.1.8 eGulden
• 4.1.9 MazaCoin
• 4.1.10 MapleCoin
• 4.1.11 IsraCoin
• 4.2 The Future of National Cryptocurrency
• 4.2.1 More than currency
• 4.3 Conclusion
• Sources
• Evaluating the Potential of Alternative Cryptocurrencies
• 5.1 Introduction
• 5.2 Different Types of Altcoins
• 5.3 Launching an Altcoin
• 5.4 Data Collection and Altcoin Evaluation Strategy
• 5.5 Altcoin Evaluation Results
• 5.5.1 Community support
• 5.5.2 Developer activity
• 5.5.3 Liquidity
• 5.5.4 Market capitalization
• 5.5.5 Overall rank
• 5.6 Empirical Research Using Social Network Data
• 5.7 Empirical Analysis Using Time Series and Cross-Section Data
• 5.8 Conclusion
• Appendix: Empirical Analysis of Bitcoin and Altcoins
• 5A.1 Time Series Data Analysis of Bitcoin: Cointegration Analysis Through VECM and Granger Causality Test
• 5A.1.1 Data
• 5A.1.2 Methodology
• 5A.1.2.1 Unit root test
• 5A.1.2.2 Cointegration test
• 5A.1.2.3 Vector error-correction model
• 5A.1.3 Empirical results
• 5A.1.3.1 Unit root test results
• 5A.1.3.2 Granger causality test on developer activity and community strength system
• 5A.1.3.3 VECM for liquidity system
• 5A.2 Cross-Sectional Data Analysis on Altcoins: Linear and Quantile Regression
• 5A.2.1 Data
• 5A.2.2 Methodology
• 5A.2.2.1 Linear regression
• 5A.2.2.2 Quantile regression
• 5A.2.3 Linear regression estimation
• 5A.2.4 Quantile regression estimation
• Key Factors’ Analysis
• 5A.3 Conclusion and Issues
• Appendix
• Key Factors’ Analysis
• References
• Section Two E-Payment and Security
• The Effect of Payment Reversibility on E-commerce and Postal Quality
• 6.1 Introduction
• 6.2 The Model
• 6.3 Basic Case
• 6.4 Results with Postal Quality
• 6.5 Conclusion
• References
• Blockchain and Digital Payments: An Institutionalist Analysis of Cryptocurrencies
• Acknowledgments
• 7.1 Introduction
• 7.2 Definition
• 7.3 The Structure and the Incentives Behind the Supply and Demand of Cryptocurrencies
• 7.4 Understanding Institutional Change
• 7.5 The Ceremonial Encapsulation of Cryptocurrencies in the Established Model of Regulation for Digital Payments
• 7.6 Cryptocurrencies as Mature Payment Technologies: Challenges in the Near Future
• 7.7 Conclusions
• References
• Counterfeiting in Cryptocurrency: An Emerging Problem
• 8.1 Chapter Overview
• 8.2 Introduction: Cryptocurrency Has Virtually Evolved from Hard Currency
• 8.3 The Basic Function of Currency: A Medium of Exchange
• 8.3.1 Ownership and transferability
• 8.3.2 The ability to store value
• 8.3.3 Security in property rights
• 8.4 Counterfeiting: Methods, Motivation, and Opportunities
• 8.5 The Global Anticounterfeiting Initiative
• 8.6 Deterring Counterfeiting in the Future
• 8.7 Summary
• References
• Section Three Big Data and Network Effect
• Emergence, Growth, and Sustainability of Bitcoin: The Network Economics Perspective
• 9.1 Network Economics and Cryptocurrencies
• 9.1.1 Gaining critical mass
• 9.1.1.1 Direct externalities
• 9.1.1.2 Indirect externalities
• 9.1.1.3 Other implications of network externalities
• 9.2 Sustainability of a Cryptocurrency Network
• 9.2.1 Incentives of mining
• 9.2.2 An agent-based simulation of miners' incentive over time
• 9.2.3 On Bitcoins and red balloons
• 9.3 Discussion/Conclusion
• References
• Cryptocurrencies as Distributed Community Experiments
• 10.1 Introduction
• 10.2 From Bitcoin as Single Cryptocurrency to an Ecosystem of Cryptocurrencies
• 10.3 Altcoins as Evolutionary Problem Solving and “Proof of Concepts”
• 10.4 Overview of the Main Critique and Discourse on Cryptocurrencies
• 10.4.1 From a distributed system to possible centralization: The mining arms race
• 10.4.2 The “Goldfinger Attack” and the “Tragedy of the Commons”
• 10.4.3 Block generation time and transaction speed
• 10.4.4 Energy usage
• 10.4.5 Velocity of circulation and the deflationary spiral
• 10.4.6 Anonymity and privacy in cryptocurrencies
• 10.4.7 Social currencies
• 10.5 The Future of the Blockchain
• 10.5.1 The Bitcoin blockchain does not scale (yet)
• 10.6 Conclusion
• References
• Extracting Market-Implied Bitcoin's Risk-Free Interest Rate
• 11.1 Introduction
• 11.2 A Model for the Determination of Bitcoin's Risk-Free Interest Rate
• 11.2.1 Uncovered interest rate parity
• 11.2.2 Monetary economic theory
• 11.2.3 A time-varying premium model
• 11.3 Application to US$ and Euro Data
• 11.4 Perspective on Bitcoin Interest Rate
• 11.5 Conclusion
• References
• A Microeconomic Analysis of Bitcoin and Illegal Activities
• Acknowledgments
• 12.1 Introduction
• 12.2 The Baseline Model
• 12.2.1 Compliant consumers
• 12.2.2 Noncompliant consumers
• 12.2.3 Production technologies
• 12.3 Market Equilibrium
• 12.4 Demand for Bitcoins
• 12.5 Extensions
• 12.5.1 Variable fines
• 12.5.2 Bitcoin theft
• 12.6 Concluding Remarks
• References
• Part 2 Finance Markets and Bitcoin
• Section Four Regulation and Taxation
• Legal Issues in Cryptocurrency
• 13.1 Introduction
• 13.2 Legality Versus Illegal
• 13.2.1 Validity of transaction as a currency
• 13.2.2 Validity of transaction as a foreign currency
• 13.2.3 Tax incidences and stamp duty
• 13.2.4 Filing suit in cases of legal disputes
• 13.2.5 Organizational status of promoters and participators
• 13.2.6 Monetary and fiscal policies
• 13.3 Global Regulatory Movement
• 13.4 Conclusion
• References
• How to Tax Bitcoin?
• 14.1 Introduction
• 14.2 Characteristic and Nature of Bitcoin
• 14.3 Income Tax
• 14.3.1 Concept of taxable income
• 14.3.2 Challenges to income tax compliance
• 14.4 Consumption Tax
• 14.4.1 Initial comments
• 14.4.2 Taxable person
• 14.4.3 Taxable transaction
• 14.4.4 Place of supply
• 14.4.5 Exemptions
• 14.5 National Approaches
• 14.6 Conclusions
• References
• Cryptocurrency and Virtual Currency: Corruption and Money Laundering/Terrorism Financing Risks?
• 15.1 Corruption: A Social Evil
• 15.2 Review of Financial Action Task Force on Money Laundering Compliance on PEPs
• 15.2.1 Noncompliant and partially compliant jurisdictions
• 15.2.2 Recommendations
• 15.3 Cryptocurrencies and Virtual Currencies and Their Potential to be Misused for Money Laundering
• 15.4 The Way Forward: A Conceptual Intelligence-led AML/CTF Strategy
• References
• A Light Touch of Regulation for Virtual Currencies
• 16.1 Introduction
• 16.1.1 Virtual currency
• 16.1.2 Decentralized cryptocurrency
• 16.1.3 Market participants in a virtual currency system
• 16.2 Legitimate Uses
• 16.3 Potentially Regulated Risks
• 16.3.1 Counterparty risk in a virtual, decentralized system
• 16.3.2 Consumer protection: loss and theft
• 16.3.3 Financial crime
• 16.3.4 Risk of facilitating money laundering and terrorist financing
• 16.4 Survey of Regulatory Approaches in Tackling These Risks
• 16.4.1 Restrictive regulation
• 16.4.2 Discourage participation to allow time to develop comprehensive regulation
• 16.4.3 Regulate under existing structures
• 16.4.4 Encouragement with self-regulation
• 16.4.5 Active engagement for multicurrency coexistence
• 16.4.6 Laissez-faire or no regulation yet
• 16.4.7 Lack of international uniformity
• 16.5 Highlight on US Regulation
• 16.5.1 FinCEN
• 16.5.2 New York's BitLicense
• 16.5.3 Commentary on BitLicense
• 16.6 Toward a Light-Touch Approach to Regulation
• 16.6.1 General policy considerations
• 16.6.2 A light touch with three lenses
• 16.6.3 This is only the beginning
• References
• Real Regulation of Virtual Currencies
• 17.1 Introduction
• 17.2 Background
• 17.2.1 How Bitcoin works
• 17.2.1.1 The public ledger
• 17.2.1.2 Mining
• 17.2.1.3 Peer-to-peer network
• 17.2.1.4 Cryptography
• 17.2.1.5 Speculation
• 17.2.1.6 Wallets
• 17.2.1.7 Using Bitcoins
• 17.2.2 Major vendors dealing bitcoins
• 17.3 Bitcoin Prosecutions
• 17.3.1 E-gold
• 17.3.2 Liberty Reserve
• 17.3.3 Western Express
• 17.3.4 Silk Road
• 17.4 FinCEN Regulation of Virtual Currencies
• 17.4.1 Virtual currency and Money Service Businesses
• 17.4.2 Real currency and virtual currency
• 17.4.3 Regulated persons and entities
• 17.4.4 Users, exchangers, and administrators
• 17.4.4.1 Users of virtual currency
• 17.4.4.2 Administrators and exchangers of virtual currency: generally
• 17.4.5 Persons and entities excluded from regulation
• 17.4.6 Duties of money transmitters
• 17.4.7 Recent FinCEN administrative rulings
• 17.4.7.1 The hotel payment system
• 17.4.7.2 The convertible virtual currency trading system
• 17.5 SEC Regulation of Virtual Currencies
• 17.5.1 What is a security?
• 17.5.2 Is Bitcoin a security?
• 17.5.3 SEC treatment of Bitcoins
• 17.5.4 The SEC's concerns
• 17.5.5 The SEC's focus
• 17.6 CFTC Regulation of Virtual Currencies
• 17.6.1 Bitcoins as commodity futures
• 17.6.2 Bitcoins as foreign exchange, currency swaps, or forwards
• 17.6.3 Regulation of Bitcoin “Spot” transactions
• 17.6.4 Bitcoin as foreign exchange or derivatives
• 17.6.5 CFTC and BSA compliance
• 17.6.6 Recent CFTC statements on Bitcoin
• 17.6.7 CFTC approval of TeraExchange
• 17.7 IRS Treatment of Virtual Currencies
• 17.8 FINRA Concerns Regarding Virtual Currencies
• 17.9 Congressional Concerns Regarding Virtual Currencies
• 17.10 Conclusions
• References
• A Facilitative Model for Cryptocurrency Regulation in Singapore
• 18.1 Introduction
• 18.2 Background to Cryptocurrencies
• 18.2.1 Bitcoin
• 18.2.2 The ecosystem
• 18.2.3 Benefits and future applications
• 18.3 Clear and Targeted Regulation
• 18.3.1 Antimoney laundering and counter-terrorist financing
• 18.3.1.1 Justification for AML/CTF regulation
• 18.3.1.2 AML/CTF regulation in Singapore
• 18.3.2 Securities and financial regulation
• 18.3.3 Theft or misappropriation
• 18.4 A Self-regulatory Framework
• 18.5 International Coordination and Harmonization
• 18.6 Conclusion
• References
• Section Five Financial Innovation and Internet of Money
• Advancing Egalitarianism
• 19.1 Introduction
• 19.2 Development of Centrally Controlled Money Systems
• 19.3 A New Paradigm: Decentralization of Authorities
• 19.4 Practicalities
• 19.4.1 Blockchains
• 19.4.2 Cryptographic hashing
• 19.4.3 The blockchain as consensus data
• 19.4.4 Proof-of-work and proof-of-stake voting
• 19.4.5 Public-private key pair cryptography aka digital signatures
• 19.5 The Future of Blockchain-Based Systems
• 19.6 Conclusion
• References
• How Digital Currencies Will Cascade up to a Global Stable Currency: The Fundamental Framework for the Money of the Future
• 20.1 Introduction
• 20.2 Commodity-Backed Digital Mint
• 20.3 Derived Commodities
• 20.4 Cascading
• 20.4.1 Composite backing (ground cascading)
• 20.4.2 Digital cascading
• 20.4.3 Illustration
• 20.4.4 Cascading stability
• 20.5 Outlook
• 20.5.1 Financial Panacea
• References
• Bitcoin-Like Protocols and Innovations
• 21.1 The Bitcoin System and the Element of Trust
• 21.2 A New Digital Commodity
• 21.3 Pseudonymous Ownership and Trades
• 21.4 An Open and Decentralized Ledger System
• 21.5 Blockchain, Mining, Block Time, and Forks
• 21.6 Validation of Transaction Over a Peer-to-Peer Network
• 21.7 Operation via Open-Source Protocols
• 21.8 The Anatomy of Bitcoin
• 21.8.1 Key components of bitcoin
• 21.8.2 Uniqueness of bitcoin
• 21.8.3 Monetary anachronism or a harbinger of financial innovations?
• 21.9  Bitcoin Ecosystem
• 21.9.1 Bitcoin exchanges
• 21.9.2 Bitcoin wallets
• 21.9.3 Specialized security services
• 21.9.4 Prepaid card, merchant, and ATM solutions
• 21.10 Benefits of Bitcoin: An Assessment
• 21.10.1 Transaction irreversibility
• 21.10.2 Identity theft
• 21.10.3 Cheaper transactions
• 21.10.4 More and faster innovation
• 21.11 Future-Proofing Bitcoin: Addressing Key Risks
• 21.11.1 Stabilizing bitcoin value
• 21.11.2 Regulating bitcoin use
• 21.11.3 Efficiency of the mining process
• 21.11.4 Technical robustness
• 21.12 Potential Demand Drivers for Bitcoin
• 21.12.1 Speculative motive: value appreciation
• 21.12.2 Anonymity motive: privacy
• 21.12.3 Precautionary motive: capital flight
• 21.12.4 Convenience motive: payments
• 21.13 Conclusions: The New Vistas Opened Up by Bitcoin
• References
• Blockchain Electronic Vote
• 22.1 The Problem with Proprietary Voting Systems
• 22.2 Open-Source, Free Software Electronic Transaction and Voting Systems
• 22.2.1 Preelection: Know the list of candidates
• 22.2.2 Check the list of voters
• 22.2.3 Prepare the ballot
• 22.2.4 Counting votes on election day
• 22.2.5 Postelection: Showing independently verifiable results
• 22.3 Conclusion
• References
• Translating Commons-Based Peer Production Values into Metrics: Toward Commons-Based Cryptocurrencies
• 23.1 Introduction
• 23.2 Commons-Based Peer Production
• 23.3 Value Metrics
• 23.3.1 Universal indicator of value
• 23.3.2 Alternative value metrics
• 23.3.3 Competing value systems
• 23.4 Complementary Currencies
• 23.4.1 Commons-based cryptocurrencies
• 23.4.2 Translating CBPP values into metrics
• 23.4.2.1 Systemic value of CBPP
• 23.4.2.2 Value of CBPP contributions
• 23.5 Conclusion
• References
• The Confluence of Bitcoin and the Global Sharing Economy
• 24.1 2008 Stimulus
• 24.2 Confluence of Bitcoin and the Global Sharing Economy
• 24.3 Sharing Economy
• 24.4 Resource Ownership Versus Access
• 24.5 Mental Accounting
• 24.6 Bitcoin
• 24.7 Distributed Network
• 24.8 Token Lifecycle
• 24.9 Device Level Resources
• References
• What Does Cryptocurrency Mean for the New Economy?
• Acknowledgment
• 25.1 Introduction
• 25.1.1 Bank money
• 25.1.2 Company money
• 25.1.3 Community money
• 25.2 Bitcoin
• 25.2.1 Frictionless low-value payments
• 25.2.2 Anonymity
• 25.2.3 Assassination markets
• 25.2.4 Beyond government control
• 25.3 A Money Narrative
• 25.4 Beyond Money
• 25.5 Conclusions
• References
• Bitcoin: A Look at the Past and the Future
• 26.1 Reasons for Success and Failure
• 26.2 A Numismatic Approach
• 26.3 The End of Money
• 26.4 The Role of the Government
• 26.5 The Role of Banks
• 26.6 Future Possibilities
• References
• Sources
• Section Six Investments and Crowdfunding
• Bitcoin IPO, ETF, and Crowdfunding
• Acknowledgment
• 27.1 Introduction
• 27.2 IPO: Digital CC
• 27.2.1 History
• 27.2.2 Effect of Macro Energy acquiring Digital CC
• 27.2.3 Proposed business
• 27.2.3.1 Bitcoin mining
• 27.2.3.2 Digital currencies trading and investment
• 27.2.3.3 Consumer products
• 27.2.3.4 Others
• 27.2.4 Corporate structure and material business contracts
• 27.2.4.1 Share purchase agreement between the company and the vendors
• 27.2.4.2 Loan facility agreement between the company and Digital CC
• 27.2.4.3 CloudHashing agreement between Digital CC and Technology IQ
• 27.2.4.4 Bitfury agreement
• 27.2.4.5 Lease of goods agreement
• 27.2.4.6 Development agreement between Digital CC IP Pty Ltd (a wholly owned subsidiary of Digital CC) and Mpire Media Pty Ltd
• 27.2.4.7 Intellectual property license agreements
• 27.2.4.8 Shareholders’ and directors’ loan agreement and deed of variation between Digital CC and the entities associated with certain vendors and proposed directors
• 27.2.4.9 Facility agreement between Digital CC and one of the vendors, Lydian Enterprises Pty Ltd ATF Lydian Trust
• 27.2.4.10 Trading account agreements between Digital CC Management Pty Ltd (a wholly owned subsidiary of Digital CC) and Alex Karis, NRB International LLC, and William Brindise
• 27.2.4.11 Other agreements
• 27.3 ETF: WBT
• 27.3.1 Introduction
• 27.3.2 How the trust operates
• 27.3.3 Reasons for investing in WBT
• 27.3.3.1 Reduced risks of holding bitcoins
• 27.3.3.2 Transparency
• 27.3.3.3 Cheaper
• 27.3.4 Trust structure
• 27.3.4.1 Roles of the sponsor and the trustee
• 27.3.4.2 Custody of WBT bitcoins in cold storage
• 27.3.4.3 Segregated custody accounts for temporary live storage
• 27.3.4.4 Valuation
• 27.3.4.5 Share arrangements
• 27.3.4.6 Redemption of shares by authorized participants
• 27.3.5 Risk factors
• 27.3.5.1 Private key loss or destruction
• 27.3.5.2 Exchange market and WinkDex risks
• 27.3.5.3 Trust risks
• 27.3.5.4 Conflicts of interest
• 27.3.6 Termination events
• 27.4 Crowdfunding
• 27.4.1 History of crowdfunding
• 27.4.2 Developments in crypto crowdfunding
• 27.4.3 Counterparty
• 27.4.4 Maidsafe, Safecoin, Mastercoin
• 27.4.5 Swarm
• 27.4.6 Ethereum
• 27.4.7 Storj
• 27.4.8 Gems, BitShares Music Foundation
• 27.4.9 Namecoin, BitShares, Colored Coin, and Ripple
• 27.5 Conclusion
• References
• Relevant Websites
• Bitcoin Exchanges
• 28.1 Introduction
• 28.2 Bitcoin Exchanges
• 28.3 Exposure to Risk of Exchange Failure
• 28.3.1 Bitcoin exchange closure due to security breach
• 28.3.2 Lost/stolen BTCs
• 28.4 Survival Time of an Exchange
• 28.4.1 Transaction volume
• 28.4.2 Experiencing a security breach
• 28.4.3 Compliance capabilities
• 28.4.4 Backroom and settlement support
• 28.4.5 Financial strength
• 28.5 Discussion
• 28.6 Conclusion
• References
• Additional Readings