Douglas McWilliams, Cristian Niculescu-Marcu, Beatriz das Neves Abreu Marques da Cruz
Long Finance's Distributed Futures research programme is pleased to announce the publication of the report, “The Economic Impact Of Smart Ledgers On World Trade”, the latest in a series of exciting projects in the programme. The report, sponsored by the Cardano Foundation, came as a result of the the Worshipful Company of World Traders and the Distributed Futures' interest in quantifying the potential impact of Smart Ledger technology on international trade. Written by Douglas McWilliams, Cristian Niculescu-Marcu, and Beatriz Cruz from the Centre for Economics and Business Research (Cebr), it includes a Foreword by Michael Parsons FCA, Chairman of Cardano Foundation, and a Preface by Professor Michael Mainelli, Executive Chairman of Z/Yen Group.
The report features a description of the econometric approach that maps trade frictions that Smart Ledger technology might be able to offset, especially in the realm of non-tariff and bureaucratic barriers to trade. The authors draw the following conclusions:
Smart Ledger technology could boost world trade in goods by at least $35 billion dollars per annum.
The cost of importing a single container could, therefore, be reduced by around $46, by simplifying procedures.
These potential benefits are driven by a 2.5% cost claw-back assumption, supported by case studies on previous technological advancements in trade. One such case study is containerization, where the cost savings have been calculated to be in the range of 20%.
If reduced uncertainty is, also, taken into account, using option pricing theory, the potential gains become even larger, with a potential monthly net cost saving of $172 million (or, approximately, $2 billion per annum).
This would boost world GDP by $10 to $20 billion and could, potentially, add between 450,000 and 900,000 to the worldwide demand for labor, boosting wages and living standards worldwide. The World Bank estimates that 10.7% of the world’s population still lives in extreme poverty, with an income below $1.90 a day (2011 prices).
The report also includes the results of a global survey of 247 contract and commercial managers, focusing on the respondents' awareness and use of Smart Ledgers, the importance they attach to various aspects, and the areas of ‘pain’ that could be relieved by the adoption of Smart Ledger technology. There are some truly insightful results.
Smart Ledgers are based on a combination of mutual distributed ledgers (multi-organisational databases with a super audit trail) with embedded programming and sensing, thus permitting semi-intelligent, autonomous transactions. Smart Ledgers are touted as a technology for fair play in a globalized world. There are numerous projects building trade systems using this technology with announcements from governments, shipping firms, large IT firms, and the like.
As Michael Mainelli wrote in his Preface to the report: Trade reaps economic benefits from specialization and comparative advantage, creates prosperity, distributes success and wealth, and collectively enriches all of our societies and communities. Hopefully, knowing the scale of relative benefits can help speed adoption of some boring technology – ‘multi-organisational databases with a super audit trail’ - for the benefit of all of us.
Z/Yen and Long Finance would like to acknowledge the significant contribution of the Worshipful Company of World Traders, Cardano Foundation, IACCM, the City of London Corporation, and the Centre for Economics and Business Research.
The growing literature on Bitcoin can be divided in two groups. One performs an economic analysis of Bitcoin focusing on its monetary characteristics. The other one looks takes a financial look at the price of Bitcoin. Interestingly, both of these groups have not given much more than passing comments to the problem whether or not Bitcoin has the right monetary rule. This paper argues that Bitcoin in particular, and cryptocurrencies in general, do not have a good monetary rule, and that this shortcoming seriously limits its prospect of becoming a well-established currency.
The old school -which consists largely of middle-aged and elderly men- tend to claim that bitcoin is a "bubble", and seize on every downturn in the price of bitcoin as evidence that the bubble has burst or is about to burst. The bubble only gets fatter, and all of the anti-crypto arguments -notably the argument that currencies need themselves to possess, or to be based on something with "intrinsic" value, and cryptocurrencies lack intrinsic value- are fallacious. Here we propose that there are deep mathematical reasons why the conservatives are mistaken, and why cryptocurrencies will increasingly replace their traditional counterparts.
During the history there have been different examples of incorporating technology into economics. Some of them include SWIFT, e-banking, mobile payments, and many more. Technology had to be commercialized and put into service of facilitating economic processes. International finances underwent the process of development too. With the globalization process national economies became more interconnected and dependent from each other. Individuals demanded a faster and more convenient way to make international payments. Internet trade is on the rise, social media rule the contemporary world, and then appears the inception of so-called crypto currencies. The most famous is Bitcoin. Where lays its place in the economic science? It looks like that Bitcoin is going towards decentralization of the monetary system known by now. The goal of this paper is to raise the awareness of the changes happening in economy and in economic science.
Abstract This article reviews what cryptocurrencies are, and it frames them within the context of historical monetary experiences and contemporary monetary economics. The article argues that, as pure fiduciary private money, cryptocurrencies are a bubble without a fundamental value and they will not provide, in general, optimal amounts of money or deliver price stability. Nevertheless, cryptocurrencies can play a role in improving the current means of payments and in disciplining central banks into providing better government‐run fiduciary monies.
Abstract This paper documents inconsistent terminologies and misleading analogies in current discussions of digital money and payments. It offers a more consistent framework for understanding the potential of technological innovation in providing the functions of money and payments: as media of exchange, stores of value, and units of account and the implications of cryptographic technologies underpinning cryptocurrencies for the future of money and payments. These could support efficiency gains in money and payments, but decentralization is not inherent to their application. Radical reform leading to improved economic outcomes is conceivable, but not through disruptive displacement of existing institutional arrangements.
There has been a burgeoning Fintech literature in the past years, especially on cryptocurrencies. However, there is lack of research handling cryptocurrencies in a mainstream macroeconomic model. To bridge the gap, we develop a model for Bitcoin-like cryptocurrency as risky and costly bubbles in an infinite-horizon production economy. This model is consistent with the following facts: i) the surging Bitcoin market presents enormous volatility, ii) its price dynamics are significantly sensitive to both market sentiment and policy stances. Entrepreneurial firms choose to hold Bitcoins as liquid assets to buffer idiosyncratic investment distortions. The intrinsically worthless Bitcoins can emerge as rational bubbles when the market sentiment is optimistic enough. On the one hand, bubbly Bitcoins provide market liquidity to facilitate investment in the real sector, while on the other hand, they deteriorate the investment efficiency and crowd out aggregate production. Our quantitative exercise produces various cyclical features of Bitcoin bubbles and find that the collapse of Bitcoin bubbles can improve social welfare by decreasing distortion-driven real investment.
Do Bitcoin and other cryptocurrencies play a useful social role, or do they represent a social waste? Bitcoin is a decentralized recordkeeping system, with updating of the record of transactions in the blockchain.
We characterize various currencies according to their control structure, focusing on cryptocurrencies such as Bitcoin and government-issued fiat money. We then argue that there is a large unmet demand for a liquid asset that allows households and firms to save outside of the private financial sector. Central banks could offer such an asset by simply allowing households and firms to open accounts with them. Finally, we conclude that a central bank will not issue cryptocurrencies in the sense of a truly decentralized and permissionless asset that allows users to remain anonymous.
In a novel model of an endowment economy, we analyze coexistence and competition between traditional fiat money (Dollar) and another intrinsically worthless medium of exchange, not controlled by a central bank, such as Bitcoin. Agents can trade consumption goods in either currency or hold on to currency for speculative purposes. A central bank ensures a Dollar inflation target, while Bitcoin mining is decentralized via proof-of-work. We analyze Bitcoin price evolution and interaction between the Bitcoin price and monetary policy which targets the Dollar. We obtain a fundamental pricing equation, which in its simplest form implies that Bitcoin prices form a martingale. We derive conditions, under which Bitcoin speculation cannot happen, and the fundamental pricing equation must hold. We show that the block rewards are not a tax on Bitcoin holders: they are financed by Dollar taxes imposed by the Dollar central bank. We discuss monetary policy implications and characterize the range of equilibria.
ÄlĂĄnek pomocĂ simulace provedenĂŠ v programu Minsky zkoumĂĄ efekty pĹeddefinovanĂŠ a nemÄnnĂŠ monetĂĄrnĂ politiky podle vzoru fungovĂĄnĂ kryptomÄny Bitcoin a porovnĂĄvĂĄ je s vĂ˝sledky souÄasnĂŠho mÄnovĂŠho systĂŠmu kreditnĂ fiat mÄny. Minsky je specializovanĂ˝ software pro tvorbu SFC ekonomickĂ˝ch modelĹŻ. Pracuje ve spojitĂŠm Äase. Bitcoin je na rozdĂl od eura aktivnĂ mÄna, kterĂĄ nenĂ vytvĂĄĹenĂĄ ĂşÄetnÄ proti dluhu a neumoĹžĹuje fiduciĂĄrnĂ emisi. Studie zkoumĂĄ komplexnÄ ekonomiku EU se zamÄĹenĂm na jejĂ mÄnovĂ˝ systĂŠm, a to za pouĹžitĂ dat poskytovanĂ˝ch Eurostatem. NĂĄslednÄ mÄnĂ pravidla systĂŠmu tak, aby odpovĂdala pravidlĹŻm protokolu Bitcoinu. ProvedenĂŠ simulace ukazujĂ po Äase odliĹĄnĂŠ dopady tÄchto systĂŠmovĂ˝ch nastavenĂ na rozdÄlenĂ bohatstvĂ mezi jednotlivĂŠ skupiny ekonomickĂ˝ch agentĹŻ a na stabilitu ekonomiky jako celku.
This thesis will begin with a critique to the orthodox paradigm in monetary economics. Secondly, I will offer a theoretical, economic, structural and biopolitical analyses of the origin, nature and effects of money on society. After a critique to conventional paradigm of money, I will then propose a semiotic genealogy of money followed by an analysis of the Common, the Multitude together with a tentative fourfold proposal for monetary reform, i.e. a monetary dispositif for the socio-economic emancipation of the Multitude from the rule of capital to build a new paradigm of money. In particular, I will discuss the literatures on basic income and the emerging notion for bottom-up welfare named Commonfare; the Neo-Chartalist approach to money; complementary, viz. subaltern currencies; and crypto-currencies and distributed ledgers technology. In turn, I will present the two qualitative methodologies that I endorsed to design and research four sites of inquiry in Iceland, Spain, Finland and Italy: Participatory Action Research and Critical Muti-Sited Ethnography. A discussion of fieldwork findings will follow. Moreover, I will offer a comparative analysis on fieldwork findings by identifying not only commonalities and differences among the four sites, but also by eliciting the limits of methodological choices. I will conclude this thesis by arguing to refine the theoretical framework introduced in the literature review; and notwithstanding personal and objective limitations to the application of the monetary dispositif in the real world, I will advocate for further inquiry on Money for the Common Wealth of the Multitude to increase the quality and effectiveness of the debate on suggestions for monetary reform.
A controvérsia acerca da emergência do bitcoin como um novo meio de troca e sua conciliação com o teorema da regressão de Mises tem se intensificado nos últimos tempos. A questão principal do debate pode ser assim formulada: teria o bitcoin um valor de uso direto? O presente estudo afirma que o teorema da regressão não tem aplicabilidade à questão da gênese do bitcoin, pois o teorema limita-se a explicar a emergência de um novo meio de troca sob uma economia de troca pura ou escambo. O debate, portanto, está fundamentado em um erro de interpretação do teorema. Entretanto, a questão do valor de uso direto do bitcoin, se é que se pode afirmar que exista, tem sim importância para a avaliação da probabilidade de o bitcoin tornar-se um meio de troca generalizadamente aceito – isto é, dinheiro.
Shuba Olena А., Honcharova Yuliia Yu., Bulygina Anastasia V.
The article is aimed at researching bitcoin, the digital currency. It has been found that Bitcoin is a cryptocurrency, that is, the virtual money, which has no material equivalent. The history of creation and development of cryptocurrency was reviewed. There is a reduction in volatility, which guarantees the security of currency, as well as the increase in currency volume and the inability to estimate the profitability of bitcoins. The dynamics of the value of digital currency in US dollars over recent years has been analyzed. Improvement of attitude of many countries to the considered cryptocurrency, in particular the USA, Germany, Spain, Canada, Australia, Israel and Scandinavian countries has been identified. The reasons of Ukraine’s interest in Bitcoin have been considered. Possibilities of creation of cryptocurrency on the territory of Ukraine have been analyzed, i.e. cost of electricity for mining, the legal status of mining firms, and the attitude of the National Bank of Ukraine to the digital currency. It has been concluded that the recognition of Bitcoin by the world countries in the future will allow it to be granted the status of world-wide currency.
Despite its increasing popularity, no official guidance on the financial reporting of Bitcoin transactions has been provided by standard setters, although tax accounting guidance began to appear in 2014. Designed as a decentralised currency, Bitcoin is not intended to become a reporting currency and will instead complement fiat money. We argue that in the case of Bitcoin the accounting principle of faithful representation requires interpretation of the economic substance for financial reporting that varies with reporting entity: trading firms recognise Bitcoin like a foreign currency and measure the revenue, or expense, at the equivalent amount of the reporting currency and digital currency exchanges recognise Bitcoin as goods in line with tax accounting treatment. An Economica paper by Radford (1945), which describes the use of cigarettes as commodity money in a prisoner of war camp alludes to this economic basis. This paper applies accounting principles to a practical issue and contributes to the process by which standard setters may issue an interpretation.
We introduce blockchains and distributed ledgers and describe their potential applications to money and banking. The analysis compares public and private ledgers and outlines the suitability of various types of ledgers for different purposes. Furthermore, a few historical prototypes of blockchains and distributed ledgers are presented, and results of their hard forking are illustrated. Next, some potential applications of distributed ledgers to trading, clearing and settlement, payments, trade finance, etc. are outlined. Monetary circuits are argued to be natural applications for blockchains. Finally, the role of digital currencies in modern society is articulated and various forms of digital cash, such as central bank issued electronic cash, bank money, bitcoin and P2P money, are compared and contrasted. Keywords: blockchains, distributed ledgers, digital currencies, modern monetary circuit; credit creation banking; interconnected banking network.
The agencies of money gain new currency as new privately owned systems for creating and transferring value occupy the imagination of industry players and regulators, as well as us everyday folk. Experts have predicted the end of cash and coin almost as soon as modern governments standardized their issue. But before there was coin, there were records of transactions warranting other transactions and literally inscribing (in clay, stone, papyrus) the distributed agencies of human interaction. Asking after the infrastructures facilitating that transfer leads to the role of accounting not as a record of monetary interaction, but as that interaction itself. It is precisely a question of the distribution of agency: who shall make entries into the great ledger of human transaction and exchange? As the ledger pluralizes, who controls the cross-referencing, the gateways between newly dispersed accounts?