Blockchain-technology promises to have far-reaching economic and social implications, which are not yet foreseeable in its extent. It threatens to disintermediate many well-established sectors of the economy, and incumbent businesses might be overtaken by ambitious newcomers. The financial services industry is particularly âripe for disintermediationâ since blockchain-technology has with Bitcoin and other cryptocurrencies its first real-world use case. Incumbent businesses have to react if they do not wish to perish. However, technological evolution also affects the State and other governmental bodies: institutional frameworks or territorial arrangements can become obsolete or detrimental to business activity and may need to be amended. This chapter aimed to examine ongoing technology-induced reconfigurations in the financial services industry through a four lenses framework. The technology, actors and their discourses, as well as the regulatory environment and affected territories, need to be considered all at once. We have applied this framework to the case of Switzerland: a country with an influential financial services industry that has seen better days. We have found that (1) the Swiss Confederation has swiftly adapted its institutional framework to the new reality in order to foster competition and innovation; (2) there are some raucous controversies between challengers and incumbent businesses. However, a tacit compromise allows them to co-exist; (3) four âcrypto-clustersâ are emerging. These are located in traditional banking centers (Zurich, Zug, Lake Geneva region, Chiasso) that are seeking to strengthen their international visibility and improve their competitiveness.
Background: The use of bitcoin in South Africa is fairly new, but has increased as several online retailers now accept bitcoin as a means of payment. The South African Revenue Service has released a media statement regarding the normal tax treatment of cryptocurrencies (such as bitcoin), but policy regarding the value-added tax (VAT) treatment of cryptocurrencies is still pending.Aim: The objective of the study is to determine the output tax consequences for a South African VAT vendor who receives bitcoins in exchange for the supply of goods or services that are subject to VAT, and when the same South African VAT vendor exchanges the bitcoins for South African rand at a local exchange platform.Setting: This article examines existing literature in a South African VAT environment.Method: A non-empirical study based on existing literature is performed.Results: It is found that when interpreting the (current) VAT Act No. 89 of 1991, the receiving of bitcoin in exchange for the supply of goods or services, as well as the exchange of bitcoin for South African rand, is subject to output tax at the standard rate of 14%, which will lead to âdouble taxationâ.Conclusion: It was shown through this study that the proposed treatment as explained in the previous section would impose âdouble taxationâ.
This study examines whether the efficiency of cryptocurrency markets (Bitcoin and Ethereum) evolve over time based on Lo's (2004) adaptive market hypothesis (AMH). In particular, we measure the degree of market efficiency using a generalized least squares-based time-varying model that does not depend on sample size, unlike previous studies that used conventional methods. The empirical results show that (1) the degree of market efficiency varies with time in the markets, (2) Bitcoin's market efficiency level is higher than that of Ethereum over most periods, and (3) a market with high market liquidity has been evolving. We conclude that the results support the AMH for the most established cryptocurrency market.
Traditional payment systems have standards designed to keep transaction data secure, but blockchain systems are not in scope for such security standards. We compare the Payment Application Data Security Standard's (PA-DSS) applicability towards transaction-supported blockchain platforms to test the standard's applicability. By highlighting the differences in implementation on traditional and decentralized transaction platforms, we critique and adapt the standards to fit the decentralized model. In two case studies, we analyze the QTUM and Ethereum blockchain platforms' industry compliance, as their payment platforms support transactions equivalent to that of applications governed by the PA-DSS. We determine QTUM's and Ethereum's capabilities to properly ensure secure data handling with respect to current security standards. After adapting the PA-DSS and analyzing the QTUM and Ethereum platforms, we revise the new set of standards to create a set of best-practices for ensuring data security on both traditional and blockchain payment systems. We report the security gaps identified on each platform based on the final revision of the standards, presenting a conclusive perspective that neither platform is suitable for business adoption based on the PA-DSS standard's results. Finally, we discuss open research issues.
Alex Murray, Scott Kuban, Matthew Josefy, Jon E. Anderson
This paper explores blockchain technologyâs potential to alter contracting both in the market and within organizations. We identify and discuss how blockchain reduces certain types of transaction costs while introducing additional costs that have not been present in traditional contracts. Blockchain technology also presents a new method to mitigate or avoid certain types of agency costs that stem from contracting with agents inside the firm. Through this theoretical discussion, our paper proposes several avenues for future research on how blockchain may alter contracting.
Bitcoin is one of the original cryptocurrencies. It was introduced by an anonymous author who goes by the pseudonym of Satoshi Nakamoto (Nakamoto, n.d.). His genius proposal was based on the premise of user anonymity and decentralization (Barber, Boyen, Shi, Uzun, 2012). Bitcoin started out as a payment system among a small group of enthused users and was then mass-adopted. Most users employ it for legal activities such as investments and purchases, while some use it for illegal activities, products, and services like gambling, money laundering, tax evasion, kidnap ransoms, drugs, and prostitution (Kristoufek, 2015). In regard to reasons for using Bitcoin, studies have shown that the majority of Bitcoin owners view it as an investment rather than a currency for purchases or other financial transactions (Henry, Huynh, & Nicholls, 2018; Glaser, Zimmermann, Haferkorn, Weber & Siering, 2014). The purpose of this study was to determine what attracts and motivates consumers to own Bitcoin cryptocurrency and to fill a gap in the academic literature. The findings indicate that there is a strong relationship between owning Bitcoin and a desire for financial profit. This study concludes that the main motivation is of course profit which was driven by both finances and innovative technology led Bitcoin users to mining and installing Bitcoin clients, and then investing and trading afterwards.
Eder J. Scheid, Bruno Rodrigues, Lisandro Zambenedetti Granville, Burkhard Stiller
Service Level Agreements (SLA) are documents that specify what Service Providers (SP) are delivering to customers. They contain information about the service, such as target performance level or monthly availability, and penalties for the violations of the SLA. The information about the penalties is essential because if the SP does not deliver what is defined, the customer must be compensated accordingly. However, the current compensation process is cumbersome and complex because of the amount of involved manual effort. To address this issue, it is proposed in this paper an approach based on blockchain and Smart Contracts (SC) to automate the compensation process while enabling dynamic payments during the SLA lifetime. The proposed approach was evaluated in an use case that simulates the management of a Quality of Service SLA between an SP and a customer. Based on the performed evaluation, parts of the SLA management process were successfully automated using a decentralized solution, and the payment of the compensation occurred without the intervention of a third party.
the blockchain is an emerging technology with a core of a distributed ledger of connected blocks consisting of immutable transactions with decentralized management. The importance of blockchain technology and its impact in different domains highlights the need for understanding and evaluation of this technology. Understanding and evaluating technology from different aspects requires identifying the characteristics and specific criteria of that technology. In this regard, in this paper, after discussing the subject literature, the concept of the blockchain platform is described and a number of selected blockchain platforms are examined. Besides, the high-level benchmarking of the platform is evaluated from two aspects of the expected features of the platforms and their architectural components. Finally, due to the importance and significance of the criteria and their frequency, a set of effective criteria is chosen and accordingly, selected platforms of the blockchain are analyzed.
Cryptocurrencies are developed as a decentralized and trustless payment system, in which participants should be able to conduct payments across borders with acceptable latency. However, the fluctuation of the exchange rate between crypto and fiat currencies has raised significant concerns and thwarted the prevalence of cryptocurrency payment adoption. Existing solutions require merchants to liquidate the received cryptocurrency on an exchange platform. To compensate for the exchange rate risk, merchants tend to charge a higher price in cryptocurrencies compare to in fiat currency, which dampens the incentive of customers to choose cryptocurrencies as the means of payment. This paper proposes an architecture bolstered by smart contracts to transfer the risk from the merchants to the cryptocurrency issuer. This narrows the gap between prices denominated in cryptocurrencies and fiat currencies, and thus increases the adoption of cryptocurrencies as a payment method. The Ethereum blockchain is chosen as the experimental environment in this work, yet the architecture can be migrated to other decentralized systems without additional efforts. This work devises a novel ERC1standard to resolve the payment at a predetermined exchange rate that can be employed by any existing cryptocurrency. Immutable events on the blockchain will be generated upon the issuance and settlement of a payment, which are considered as the receipts for granting rights to the merchants to settle the payment at a regular basis. The architecture demonstrates a notable reduction on the exchange rate risk for the merchants, solving the primary problem of cryptocurrency payment adoptions nowadays.
This paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, i.e., "proof-of-work." Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via "double-spending" attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive. Second, the transaction market cannot generate an adequate level of "mining" income via fees as users free-ride on the fees of other transactions in a block and in the subsequent blockchain. Instead, newly minted bitcoins, known as block rewards, have made up the bulk of mining income to date. Looking ahead, these two limitations imply that liquidity is set to fall dramatically as these block rewards are phased out. Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality. Second-layer solutions such as the Lightning Network might help, but the only fundamental remedy would be to depart from proof-of-work, which would probably require some form of social coordination or institutionalisation.
Christopher S. Henry, Kim P. Huynh, Gradon Nicholls
This article provides an update of the results of the 2017 Bitcoin Omnibus Survey (BTCOS) conducted by the Bank of Canada from December 12 to 15, 2017. The BTCOS was previously conducted in November and December 2016 and the results were reported in Henry, Huynh, and Nicholls (2017, forthcoming). The 2017 survey took place in an interesting time, as Bitcoin prices were increasing and reached an all-time high on December 17, 2017. During this period, the level of awareness of Bitcoin increased from 64 percent in the 2016 BTCOS to 85 percent in the 2017 BTCOS, while ownership rose from 2.9 to 5.0 percent respectively. The main reason cited by survey participants for owning Bitcoin changed from transactional purposes in 2016 to investment purposes in 2017. Further, only about half of Bitcoin owners were found to regularly use Bitcoin to buy goods or services or to send money to other people. <b>TOPICS:</b>Currency, portfolio construction, wealth management
Mario Arias-Oliva, Jorge PelegrĂn Borondo, Gustavo MatĂas-Clavero
The first commercial transaction with the first cryptocurrency in 2010 marked the start of a revolution in transactions. Blockchain and cryptocurrencies will dramatically transform how we do transactions, just as the Internet revolutionized how we communicate. Currently, more than 2,000 cryptocurrencies are quoted on the market, and many more are being launched in initial coin offerings for use as an exchange method in a specific business ecosystem or as rights to assets or liabilities. As an emerging fintech, cryptocurrencies open up many opportunities, but they also pose significant challenges and limitations. This paper analyzes the key factors for the successful development of a cryptocurrency from a consumer-behavior perspective. Using a technology acceptance theoretical framework, we test a model able to explain almost 85% of the intention to use cryptocurrencies. Surprisingly, risk was not a significant factor. This could be because most of the respondents considered operating with cryptocurrencies to be risky; the lack of variability in their responses to the questions about perceived risk would explain this lack of explanatory power. However, willingness to manage cryptocurrency risk could be a precondition for adoption. The performance expectancy for a given cryptocurrency was the most important factor for its success. The research was conducted in Spain with college-educated adults with basic knowledge of the Internet.
The aim of this work is to study the use of decentralization and smart contracts on blockchain networks. We investigate the implementation and use of smart contracts on the platforms Bitcoin, Ethereum and Hyperledger Fabric. Additionally, we have researched consensus algorithms and their respective uses, mentioning both advantages and disadvantages where necessary. To conclude, there is an example contract that is meant to be a close to direct translation of a generic legal house rental contract to show how a legal contract can be translated.
The proposal of this paper is to present a summary of ten years of research at the P2P Foundation, including by our own P2P Lab but also by our partners in common research programs, of what we know today about the emerging commons economy. It includes a basic account of why the âinventionâ of the blockchain has been important, but stresses that the needed distributed ledgers may take other forms in the future. This section may not offer a lot of new elements for those that are already technologically savvy about the topic, but it does offer a critical engagement with the qualities and flaws of the current model, and suggests how it can be tweaked and transformed, to also serve as a basis for a post-capitalist, commons-centric economy.
The blockchain architecture is often envisioned as a potential mechanism for the automation microtransactions between interconnected IoT applications, as transactions could be directly enforced through the technical governance structure it provides. However, this chapter draws attention to the limitations of the blockchain architecture in providing tools for conflict management, which is here considered to be a vital for both governance and the legitimacy of the system. Although blockchainâs potential for conflict prevention is often emphasised, experiences from public blockchain networks such as Ethereum demonstrate that prevention is not sufficient but instead dispute resolution mechanisms are needed for addressing unpredictable events. To this end, alternative conflict management strategies have been developed for blockchain-related disputes. We assess these emergent redress mechanisms from the perspective of conflict management with specific attention to fairness of outcomes and due process rules. By making a distinction between systemic disputes and low intensity disputes we demonstrate how conflict management, governance and technological infrastructure converge on blockchain networks. This convergence, in turn, influences how fairness expectations and due process safeguards are formulated, causing concern for the fairness of emergent conflict management. The design of blockchain-based IoT applications should take into consideration the need for conflict management and particular attention should be paid to the fairness of such mechanisms, as these contribute to the fulfillment of fairness expectations, the legitimacy and predictability of governance structures and, in the end, feasibility of mainstream use.
Florian Wessling, Christopher Ehmke, Ole Meyer, Volker Gruhn
Blockchain-based applications usually consist of centralized elements (e.g., web servers and back-end logic) connected to decentralized elements such as smart contracts. The engineering of such hybrid software architectures poses a challenge as it is unclear which elements should be centralized or decentralized. Furthermore the impact of this decision (or the balance between those two areas) on software quality attributes such as security, maintainability, performance or costs is currently unknown. The goal is to build a software architecture using the benefits and handling the challenges of blockchain technology while fulfilling the relevant quality attributes. While there are several approaches examining the relation between architectural decisions and quality attributes in centralized systems, research is at an early stage for decentralized elements in software architectures. This paper presents a first step towards architectural blockchain tactics. With a simplified experiment comparing two implementation variants of an Ethereum smart contract we show that software design patterns are not always beneficial and that the expected usage scenarios have a strong impact on the operational costs. We argue that further research and validation is necessary for gaining more qualitative and quantitative insights to make informed architectural design decisions when using blockchain technology and give a first outline on how to achieve this.
We describe the design and implementation of GNU Taler, an electronic payment system based on an extension of Chaumian online e-cash with efficient change. In addition to anonymity for customers, it provides the novel notion of income transparency, which guarantees that merchants can reliably receive a payment from an untrusted payer only when their income from the payment is visible to tax authorities. Income transparency is achieved by the introduction of a refresh protocol, which gives anonymous change for a partially spent coin without introducing a tax evasion loophole. In addition to income transparency, the refresh protocol can be used to implement Camenisch-style atomic swaps, and to preserve anonymity in the presence of protocol aborts and crash faults with data loss by participants. Furthermore, we show the provable security of our income-transparent anonymous e-cash, which, in addition to the usual anonymity and unforgeability proper- ties of e-cash, also formally models conservation of funds and income transparency. Our implementation of GNU Taler is usable by non-expert users and integrates with the modern Web architecture. Our payment platform addresses a range of practical issues, such as tipping customers, providing refunds, integrating with banks and know-your-customer (KYC) checks, as well as Web platform security and reliability requirements. On a single machine, we achieve transaction rates that rival those of global, commercial credit card processors. We increase the robustness of the exchangeâthe component that keeps bank money in escrow in exchange for e-cashâby adding an auditor component, which verifies the correct operation of the system and allows to detect a compromise or misbehavior of the exchange early. Just like bank accounts have reason to exist besides bank notes, e-cash only serves as part of a whole payment system stack. Distributed ledgers have recently gained immense popularity as potential replacement for parts of the traditional financial industry. While cryptocurrencies based on proof-of-work such as Bitcoin have yet to scale to be useful as a replacement for established payment systems, other more efficient systems based on Blockchains with more classical consensus algorithms might still have promising applications in the financial industry. We design, implement and analyze the performance of Byzantine Set Union Consensus (BSC), a Byzantine consensus protocol that agrees on a (super-)set of elements at once, instead of sequentially agreeing on the individual elements of a set. While BSC is interesting in itself, it can also be used as a building block for permissioned Blockchains, whereâjust like in Nakamoto-style consensusâwhole blocks of transactions are agreed upon at once, increasing the transaction rate.
Daniel Traian Pele, Miruna Mazurencu-Marinescu-Pele
In this paper, the authors investigate the statistical properties of some cryptocurrencies by using three layers of analysis: alpha-stable distributions, Metcalfeâs law and the bubble behaviour through the LPPL modelling. The results show, in the medium to long-run, the validity of Metcalfe's law (the value of a network is proportional to the square of the number of connected users of the system) for the evaluation of cryptocurrencies; however, in the short-run, the validity of Metcalfeâs law for Bitcoin is questionable. As the results showed a potential for herding behaviour, the authors then used LPPL models to capture the behaviour of cryptocurrencies exchange rates during an endogenous bubble and to predict the most probable time of the regime switching. The main conclusion is that Metcalfeâs law may be valid in the long-run, however in the short-run, on various data regimes, its validity is highly debatable.
High-tech enables payment evolution and global competition. The ambiguities surrounding of the digital currency still leave enough space for the analysis of its unreserved acceptance, trust and anticipation, which are the main driver for the spread of the network. Banks should carefully consider the technology underlying these cryptocurrencies as a potential generic new way of transferring ownership of the value over the long term. The chapter provides an analysis of the use of cryptocurrencies in general, especially Bitcoin as the technology adoption in the presence of network externalities. The objective attitude is the future of the digital currency in the moment is still unsolved issue due to the existence of âcritical massâ. Further, the chapter explores financial privacy which is very sensitive issue in using digital currency (or cryptocurrency) and discuss about private choices versus political rules. The research has shown that the future of cryptocurrencies can be bright if some institutional-formal conditions are met due to the fact that success evolution of e-money requires building safety payments through three criteriaâstandardization, compatibility and innovation.
Decentralization is heralded as the most important technological design aspect of distributed ledger technologies (DLTs). In this chapter weâll analyze the concept of decentralization, with the goal to understand the social, legal, and economic forces that produce more or less decentralized techno-social systems. We first give an overview of decentralization as a political ideology and as an ideal and natural endpoint in the development of digital technologies. We then move beyond this discourse and treat decentralization, its extent, its mode, and the systems which it can refer to as the products of particular economic, political, and social dynamics around and within these techno-social systems. We then point at the concrete forces that shape the actual degree of (de)centralization. Through this, we show that the extent to which a techno-social system is (de)centralized at any given moment should not be measured by its distance from an ideological ideal of total decentralization but should be seen as the sum of all the social, economic, political, and legal forces that impact a techno-social system.