The invention and role of cryptocurrencies

Abstract

This chapter recounts the creation of Bitcoins through blockchain technology and how Bitcoins were mimicked by thousands of other cryptocurrencies. It shows how cryptocurrencies became tradable assets with a market capitalization that reached $3 trillion in 2021, before melting down to under $1 trillion in 2022. It describes various cryptocurrency trading platforms and the trading abuses associated with this market. This chapter relates the debate over whether cryptocurrencies are simply a new form of gambling or whether they serve a valuable function by acting as a store of value that cannot be inflated like a government-issued fiat currency. This chapter then shows how widespread abuses in cryptocurrency trading led regulators to apply their existing regulations to this unique market. That effort soon led to competition by regulators to assert jurisdiction over this new asset class. That competition caused much confusion and inhibited further development of blockchain technology.