I consider a developer working on an open-source blockchain-based software that can be used only in conjunction with a specific crypto-token. This token can be sold in an Initial Coin Offering (ICO) to raise funds, but can also be sold later on a frictionless financial market to earn a profit. I show that, if the developer raises funds in an ICO, in each post-ICO period there is a positive probability that the developer sells all of his tokens on the market and, as a consequence, no development occurs. If the developer does not need to raise funds via an ICO, the equilibrium will nonetheless be inefficient because the developer's payoff depends on the surplus generated by the protocol in a given period (when he expects to sell his tokens). He therefore fails to internalize that the protocol will be used (and generate surplus) over multiple periods.
This study investigates the possible diversification benefits of multiple cryptocurrencies (Bitcoin, Ethereum and Litecoin) in a diversified portfolio from the perspective of a South African investor over the period 30 July 2015 to 20 December 2017. Cryptocurrencies are mostly still in their infancy, and reliable information regarding their usefulness as an asset class in a diversified portfolio is scarce to come by. This study adopts a quantitative research methodology which incorporates the following statistical methods: i) mean-semivariance optimisation; ii) Kendall Tau-b correlations; and, iii) autocorrelation function for serial correlations. The JSE All Bond Index is used as bond investment proxy, a combination of the JSE Top 40, Resources Index and Financial-Industrials Index is used as an equity investment proxy, and the LBMA Gold PM is used as a gold investment proxy. The study found that all three cryptocurrencies under investigation yielded risk-return benefits for a diversified portfolio. The alternative cryptocurrencies (Ethereum and Litecoin) exhibited higher levels of downside risk (semideviation) than Bitcoin, but proportionately greater returns. Hence, the addition of these two cryptocurrencies to a portfolio that includes Bitcoin and traditional assets resulted in an expansion of the efficient frontier. Ethereum exhibited slightly lower correlations to Bitcoin than Litecoin, which is most likely attributed to its greater technological differences, but performed worse as a diversifier. All three cryptocurrencies yielded similar low to very low correlations to all traditional assets, including gold - representative of the potential diversification benefits. The autocorrelation function resulted in high positive serial correlations for all three cryptocurrencies, indicative of strong trending behaviour and high volatility.
Widersprüchliche Meinungen und Beurteilungen der Blockchain Technologie und ihrer Kryptowährungen werden momentan medial stark diskutiert. Die Komplexität des Konzepts und die weite Bandbreite an Themen die es begleiten, erschweren ein Urteil über sein Potential und seine Risiken. Da bereits Zeitungen, wie die New York Times oder die Financial Times regelmäßig über Kryptowährungen berichten und sowohl die Marktkapitalisierung als auch das Handelsvolumen eine erwähnenswerte Größe erreicht haben, ist die Leitfrage, ob Kryptowährungen eine neue Anlageklasse bilden, gerechtfertigt. Um diese Frage zu beantworten, sammelt diese Arbeit vorangegangene Studien, die Eigenschaften beschreiben, die Risiko und Rendite betreffen, und Kryptowährungen mit bereits etablierten Anlageklassen vergleichen und in Beziehung setzen. Gemäß dieser Analyse, können digitale Währungen durchaus als Anlageklasse betrachtet werden. Um das Bild zu vervollständigen, beleuchtet diese Arbeit auch Gegenargumente, wie das ernstzunehmende Problem von Marktmanipulation und fehlender Regulierung. Diese Belange müssen in naher Zukunft noch besser geklärt werden, doch die Blockchain Technologie und Kryptowährungen werden eine wesentliche Rolle in Finanzmärkten spielen.
All contracts are necessarily incomplete. The inefficiencies of bargaining over every contingency, coupled with humans’ innate bounded rationality, mean that contracts cannot anticipate and address every potential eventuality. One role of law is to fill gaps in incomplete contracts with default rules. The blockchain is a distributed ledger that allows the cryptographic recording of transactions and permits “smart” contracts that self-execute automatically if their conditions are met. Because humans code the contracts of the blockchain, gaps in these contracts will arise. Yet in the world of “smart contracting” on the blockchain, there is no place for the law to step in to supply default rules — no legal intervention point. The lack of a legal intervention point means that law on the blockchain works in a fundamentally different way from law in the corporeal world. Business organizational law provides a prime example of how the law uses default rules to fill gaps in an incomplete contract and how the law works differently in the blockchain context.
Creating standardized infrastructures for new technologies has become a frequent event in recent years, forcing competing firms to together collaborate in order to develop and mutually agree on a common standard. This is due to technologies such as blockchain (distributed ledger) technology that need interoperability to reach its full potential, making the collaboration aspect crucial for organizations that want to adapt to the technology. Therefore, this study’s purpose is to identify and analyze the challenges of creating such a standardized infrastructure. A case study was used to analyze these challenges, which involved experts of blockchain technology and three Nordic banks connected to the blockchain consortium R3. First, a pre-study took place with the help of blockchain experts, who helped identify potential problems regarding blockchain (distributed ledger) technology. Secondly, a main study was conducted consisting of four interviews with key persons representing the banks, in addition to collecting secondary data via news articles, and press releases. With the help of co-opetition theory and a technical description of blockchain (distributed ledger) technology, an analytical model was developed to support the analysis of the data collection. The analysis focus on aspects of co-opetition drivers, co-opetition capabilities, co-opetition dynamics and blockchain aspects, which were used to showcase the challenges of collaborating on creating a standardized infrastructure. The result of this study highlights the importance of learning and educational aspects, the size of a cooperation and threats from other competing solutions, which generates challenges. In addition to the identified challenges, this study has also contributed to an understanding of how these aspects can come to affect a collaboration.
Foteini Baldimtsi, Stefan Katzenbeisser, Volkmar Lotz, Edgar Weippl
This report documents the Dagstuhl seminar 18152 "Blockchains, Smart Contracts & Future Applications". While Bitcoin currently works well in practice, there are many open questions regarding the long-term perspective of blockchain technologies, for both public and private/permissioned blockchains. It is yet unclear how processes can be designed to work in predictive ways and how to embed security in the lifecycle of smart contract development and deployment. Furthermore, the distributed nature of the system needs to be considered when thinking about which groups or individuals can influence future developments. Similar to 'real-world' societies, blockchains are based on mutual recognition of conventions. Diverse academic disciplines as well as industry can and need to collaborate to advance research in blockchain and to fully understand how the technology might impact our future lives.
Apparently, a few people have become rich over Bitcoin. But there is no way to verify that claim and no one will really ever know if it is anything less than hype. But hype or no hype, the Bitcoin saga appears to have convinced thousands of people to “invest” or make purchases using this currency alternative through cyberspace. Financial technology (FinTech) engulfs modernity. FinTech is found in global financial hubs, institutions, markets and government agencies, FinTech is required to provide a wide range of services from mobile apps and ATM cash dispensers to stock markets and hedge funds in London, New York and Paris. Uncertainly is removed and reliability and predictability are enhanced when FinTech is adroitly applied. In Singapore the central bank also known as the Monetary Authority of Singapore encourages innovation and experimentation using FinTech under a controlled and restricted environment. The direct government regulation of FinTech in the financial industry proves that the political authorities are keen to ensure that the use of FinTech does not destabilize or weaken financial norms or encourage overt risk as seen in the Bitcoin saga.Bitcoin are digital coins that can be sent directly from one person to another without going through a central regulatory agency or state political apparatus. There is no need to go through a bank and hence it reduces the cost of bank fees or companies like PayPal to zero. The issues that one might have with PayPal or credit cards from banks evaporate. More importantly, almost every country has Bitcoin machines and accounts cannot be frozen. Anyone can open a bit without showing proof of identity or any other condition that a bank might impose. Therefore, Bitcoin is changing the financial landscape in a way that digital watches changes the price and cost as well as consumer tastes that were monopolized by Swiss watches [1]. The radicalization of the wristwatch market forced Swiss watchmakers to rethink, reduce and innovate in order to survive. How does Bitcoin work? Bitcoin uses miners to verify financial transactions without the controls imposed by a central authority or a private or commercial bank. Bitcoin uses open source FinTech so that in the end no one really owns or controls Bitcoin or written another way, everyone owns and controls Bitcoin. Bitcoin is therefore taking the world by storm because it provides an alternative to the currency system that is controlled by a few countries (that made use of political violence and force to ensure the survival of their political economies) [2]. There are also other advantages to the use of Bitcoin because unlike currencies which are subjected to inflation, devaluation, or even counterfeiting. Because Bitcoin is a crypto currency and hence virtual, it does not take on a physical form and cannot be physically carried around. Immigration and customs officials cannot inspect how much Bitcoin you have in your virtual wallet. This can be avoided if one uses Tor or other apps that are accessible through the Dark Web People should be aware of the serious drawbacks to Bitcoin. No one knows if Bitcoin has or is or will be used for terrorist financing [3]. Everyone knows how much a given account number has, the level of transactions and volume as well as the amounts paid and received. Bitcoin is not completely independent of the banking and currency system. Bitcoin is based on mutual trust and hence payments made cannot be refunded. You cannot get cash from Bitcoin “dispensing” machines but you can buy and sell Bitcoin as well as other products on such machines. You need to pay in cash for Bitcoin and that involves interfacing with a bank. So it isn’t that great an invention. In Singapore, the state police and regulatory authorities have a tight control over the people because of the small size of the population as well as the small size of the entire country. For example, in late 2017 fraudulent Bitcoin dispensing machines in Singapore were shut down. The price of Bitcoin was valued at US$0.39 in 2010 but is now worth US$12,000 as of January 2018 [4]. Bitcoin and Block Chain Block chain is the main innovation of Bitcoin. Block chain is a digital database of every transaction, address and wallet since Satoshi Nakamoto invented it. Satoshi Nakamoto is a fake name that is used to mask the authentic owner(s) of Bitcoin. The smallest amount of a Bitcoin is known as a Satoshi and is one-millionth of a Bitcoin. Bitcoin uses a simple node to propagate the blocks of transactions and automatically looks up relevant IP addresses to add to its database. Each block is connected together to form a ledger of all the transactions that occur at the precise date and time. Bitcoin miners are paid a small fee for notarizing a given transaction and for maintaining the Bitcoin ledgers. If anyone miner does not authenticate a transaction, then the transaction is not approved. Bitcoin is made up of mathematically complex algorithms and protocols. It should not be used without carefully studying its impact on. your money [5]. Bitcoin and its main innovative feature, Block Chain, is not merely a kind of crypto currency but may represent other common objects in the Internet of Things. A Bitcoin for example may represent or symbolize 10 million barrels of oil, the face used in a cosmetic product, 88GB of RAM or a basket of fruit. Bitcoin can be programmed, it is “programmable currency”, and hence can be controlled by the programmer. The representation can be verified through its history of its transactions that have been notarized by the Bitcoin miners. This is why many think that Bitcoin appears to provide transparency, reliability and efficiency by removing the middleman. An expert on financial matters Ravi Menon, who happens to be the chairman of the MAS, warned people of the hype over Bitcoin. In my own view, Bitcoin is indeed the flavor of the month and the hype will evaporate at some point. Also, Bitcoin miners cannot keep increasing the number of coins in circulation as it has been capped at a specific amount. This amount can be seen at the official website that claims to be, the official Bitcoin website. Bitcoin can be accessed from any part of the world that has access to such technology. Having explored the limits of the physical world and the limits of the human body to go beyond our planet, human beings are now looking deeper into virtual space and exploring and expanding those frontiers [6]. Conclusion: The Politics of Finance in Cryptocurrency There is a politics of finance in Cryptocurrency because of the imbalance of power across the Internet. There are many different Cryptocurrencies that compete for customers with different virtual financial goods and products. Some experts believe that it is a clever technological scam that makes use of fancy mathematical logic and algorithms to perhaps delude and mislead people into parting with their money. While there are many people who claim to have made unproblematic transactions, there does not appear to be any reliable evidence of people actually making physically convertible profits from transacting in Bitcoin. The fact that the governments and their agencies cannot or have not interfered in a big way to prevent Bitcoin or other currencies from setting up shop does not mean that there will be no political intervention in the future. The levels of uncertainty and risk in purchasing and selling Bitcoin appear to be about the same as one might have buying the state lottery or making a 4D bet on the Singapore governmentowned betting company named Singapore Pools. But there is also a politics of Bitcoin because it adds to the financial hype that has engulfed academics teaching FinTech in their undergraduate classrooms. FinTech is just a catchall phrase for technology used for financial products and services. It is not something really new or fancy. Bitcoin and Block Chain however are original innovations that are different from FinTech because the former is both new and innovative like a “strawberry” while the latter is just a category like “fruit”. The future of Bitcoin is limited and unknown and the bubble will eventually burst if not sooner than later. But what if it doesn’t burst and what if it stabilizes and provides a genuine alternative to immoral and ridiculous credit card interest rates, housing loans
The financial industry has witnessed the so-called “fintech revolution” in recent years. Due to the emergence of information technologies such as cloud computing, big data, blockchain and artificial intelligence, the landscape of the traditional financial industry has been largely transformed. The interplay between finance and technology has resulted in various new forms of financial services and products, like online P2P lending, digital-based banking, insurtech, bitcoin as well as the burgeoning mobile payment sector. Alipay, the mobile payment service arm of the Ant Financial Services Group (hereafter referred to as Ant Financial), is a perfect example to illustrate the ongoing fintech revolution and how it is disrupting the conventional retail banking model and payment industry. This article aims to introduce and analyse the world’s largest mobile payment system as well as some of the regulatory challenges it poses. It attempts to offer some guidance for legal practitioners in banking and finance, in particular, the multi-billion dollar fintech sector.<br/><br/>Key points:<br/>- Backed by the e-commerce giant Alibaba, Alipay has become the world’s largest mobile payment system. Together with Wechat Pay, they dominate China’s $5.7trn mobile payment sector. Alipay has a presence in over 70 countries including the UK, US, Japan, South Korea and Australia.<br/>- Due to the popularisation of mobile payment facilities, many Chinese cities have become a cashless (and cardless) society, as 40% of Chinese people carry almost no cash when going out.<br/>- Alipay relies on the Quick Response code (or QR code) technology, in contrast to the Near Field Communication (NFC) adopted by competitors like Apple Pay.<br/>- Mobile payments and fintech have provoked debate as to legal and regulatory issues such as the regulatory approval regime, data protection, fund security and fintech financing. Most recently, China has set up a unified clearing house for all mobile payment service providers to strengthen the industry supervision.
A blockchain is an open, decentralized ledger that provides a cryptographically secure way of \ntransacting without the need of trusted third parties. The technology has garnered a variety \nof claims and perceptions regarding the future of financial institutions. Originally introduced \nto circumvent the incumbent financial intermediaries, blockchain technology has increasingly \nattracted interest from the very institutions that it was meant to replace. \nIn this exploratory study, we seek to analyze the impact of blockchain technology on the \ncurrent market infrastructure by conducting a literature review and in-depth interviews with \nexperts and stakeholders from the financial industry. Our findings suggest that smart contracts \ncan automate and potentially decentralize a variety of transactions. Moreover, the \nintroduction of initial coin offerings has brought about a new means of peer-to-peer fundraising \nin a space previously dominated by venture capital firms, but financial intermediation \nwill likely remain to support the effective functioning of financial markets by resolving information \nasymmetry. \nFurthermore, we find that the distributed and immutable nature of blockchain technology \nprovides a robust and secure infrastructure by increasing the integrity of data. This will interconnect \ninstitutions across financial markets by streamlining settlement- and verification \nprocesses and potentially expanding global financial services in ways previously neglected. \nThe foundation of the financial system will, however, remain. We have considered various \naspects such as regulatory concerns and market designs to unfold the extent of potential \ngains and limitations provided by blockchain technology. \nWe conclude that there are yet many unknowns with respect to the extent and speed with \nwhich blockchain technology will impact financial services and intermediation. However, \nthe technology will improve efficiency in current infrastructures, as well as facilitate new \ndecentralized ways of transacting.
The almost meteoric rise of Bitcoin has brought with it an investment boom in cryptocurrencies. The cryptocurrency markets however, are not functioning entirely as one would expect. Markets seem to have mispriced assets on a scale that would not happen in the stock market. Perhaps the most notable of these phenomena is the KimChi Premium or the relative overvaluing of bitcoins in Korea when compared to international markets \n \nThe aim of the study will be to establish whether or not the KimChi premium exists, what is the scale of the premium and give some clues to why the premium has come about. \n \nThe first chapter is an introduction to the subject, where the subject is outlined. \n \nThen chapters 2-4 will explain the key ideas and concepts to understand the phenomena being examined as well as giving a backdrop against which the KimChi premium can be assessed. The chapters 2,3 and 4 seek to explain the price setting mechanisms, foreign exchange policy and Bitcoin as a larger phenomenon respectively. \n \nChapters 5-6 are the research and conclusion chapters where the data collected is assessed and analyzed and conclusions are drawn.
The fintech revolution, crowdfunding, and blockchain-based funding have dramatically reduced borrowing and lending transaction costs. Many have argued that ultimately this would lead to the complete disintermediation of financing for start-ups and SMEs. However, persistent asymmetric information and moral hazard problems have led to the creation of a new class of intermediaries that play a vital role in these new innovative financing methods. The authors review the new ecosystem built around initial coin offerings (ICOs), and in particular study the role of the ICO aggregators, and listing and rating portals. Using their hand-constructed database of all ICOs from inception in 2013 to September 2017, the authors find robust statistical confirmation that extensive coverage of a particular fundraising campaign in the ICO aggregators’ lists is associated with more successful token sales. However, ratings data seem and appear to vary considerably across different ratings websites and appears to be of mediocre quality. Investors should therefore treat such ratings with caution. <b>TOPICS:</b>Currency, information providers/credit ratings, risk management