The meteoric rise of Bitcoin has led to heightened investment, academic, commercial, numismatic, transactional, and practitioner interest in that cryptocurrency, as well as in the growing array of such instruments worldwide. This leads to an accentuated need for an examination of the historical evolution of Bitcoin as the seminal instrument in the development of cryptocurrencies, and this discussion paper seeks to address that gap.
The recent spike in the price of bitcoin to over $7,600 has delighted cryptocurrency speculators and early investors the world over. Many consider the windfalls as vindication of their belief that bitcoin is not just an experimental currency but a viable asset class in its own right.Adding credence to that view was the decision last week by one of the world’s top derivatives exchanges, CME Group, to launch bitcoin futures in the fourth quarter of 2017.Yet there is an irony here. The further bitcoin mutates into a price-defying asset class, the less useful it becomes as a medium of exchange and, worse still, the more expensive and energy intensive it becomes to maintain. This is an awkward situation for investors who are supposedly becoming more aware of the implications for environmental, social and corporate governance (ESG) when making allocation decisions. When I recently asked a room of approximately 50 students how many had heard of bitcoin, almost all raised their hands. Asked how many had bought bitcoin, about a third of them raised their hands. But when I asked how many had used bitcoin actually to buy something, only one raised a hand.That people would prefer to hang on to their bitcoin than spend it is not surprising given its soaring value. This clingy behaviour is an instance of Gresham’s law, which states that bad money always drives out the good, and that if there are two forms of commodity money in circulation, the more valuable one will disappear as it is hoarded. But these days there are other reasons to hang on to your bitcoin. The era of costless bitcoin transactions is long gone. For some time, fees have ranged from $3 to $6 per transaction, depending on the network’s available capacity. The situation makes small, day-to-day payments from coffee purchases to bus ticket sales increasingly impractical.In energy terms, meanwhile, a recent analysis by Motherboard estimated that a single bitcoin transaction requires 215 kilowatt-hours of electricity to process. That is the equivalent of what an average American household consumes in one week.Add this energy wastage to the reputation bitcoin already has for opaque governance, cyber crime and dark market trade, and you can see how, from an ESG perspective, bitcoin proves an even more controversial investment than a holding in a developing world commodity-extracting company. In that light, CME’s plans to list bitcoin futures might not be enough to dissuade responsible investment managers from shunning the asset class in ESG-friendly indices in the long term. Remy Briand, head of ESG for index creator MSCI, says: “If we assume that consumption will continue to increase roughly in line with the bitcoin price . . . then we could end up in a situation within a few years where the electricity consumption of bitcoin mining would be equivalent to a country like the Netherlands or Switzerland.”In Mr Briand’s opinion that would make a lot of the efforts to reduce emissions in the context of the Paris Climate Agreement entirely pointless. Bitcoin enthusiasts retort that the energy consumption is justified if it amounts to less than all that of existing processors and banks combined. But for this to be true, incumbents would have to be eliminated by competitive forces — a big ask for a system which already charges well in excess of rivals, implying relative inefficiency. Moreover, for bitcoin — which is capital intensive, decentralised and opaque by design — to become more sustainable, powerful vested interests who have an incentive in keeping the system inefficient would have to be taken onAnd even if all that were possible, none of it changes the fact that if bitcoin’s primary use is for speculation rather than transaction, the energy wastage serves very little constructive social purpose at all.
Mario Draghi, president of the European Central Bank (ECB), has indicated that his institution does not have the authority to regulate cryptocurrencies.Making his statements to the European Parliament’s Committee on Economic and Monetary Affairs, Draghi said that “it would actually not be in our powers to prohibit and regulate” bitcoin and other digital currencies.The comments came in response to a question from the committee over whether ECB intends to issue a regulatory framework or an all-out ban on cryptocurrencies, and whether Draghi felt that higher capital requirements for fintech were required to protect the banking sector.Draghi revealed that the ECB has yet to discuss the potential impact of cryptocurrencies, but likely areas of analysis include the risk posed by cryptocurrency due to its scale, usage and economic impact.”We have to ask what effects cryptocurrencies have on the economy,” Draghi stated, adding that they are still too immature to be considered a viable method of payment.The primary concern for the ECB surrounding cryptocurrencies, and digital innovation more generally, is cybersecurity, he went on, stressing that protecting against cyber risks is central to the ECB’s agenda.Earlier this month, Draghi also criticised the proposed initiative by Estonia’s e-Residency project to launch a national cryptocurrency called “estcoin,” reportedly stating: “I will comment on the Estonian decision: no member state can introduce its own currency. The currency of the Eurozone is the euro.”Draghi is not the only senior ECB official to comment on cryptocurrencies in recent days.The central bank’s vice president, Vitor Constancio, made headlines last week when he stated that cryptocurrencies were a purely speculative asset, and compared them to “tulip mania” – the 17th century trading bubble experienced in the Netherlands. Constancio stated that the ECB doesn’t see the technology as a “threat to central bank policy.”Mario Draghi image via Shutterstock
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Cryptocurrencies are portrayed as a more anonymous and less traceable method of payment than credit cards. So if you shop online and pay with Bitcoin or another cryptocurrency, how much privacy do you have? In a new paper, we show just how little.Websites including shopping sites typically have dozens of third-party trackers per site. These third parties track sensitive details of payment flows, such as the items you add to your shopping cart, and their prices, regardless of how you choose to pay. Crucially, we find that many shopping sites leak enough information about your purchase to trackers that they can link it uniquely to the payment transaction on the blockchain. From there, there are well-known ways to further link that transaction to the rest of your Bitcoin wallet addresses. You can protect yourself by using browser extensions such as Adblock Plus and uBlock Origin, and by using Bitcoin anonymity techniques like CoinJoin. These measures help, but we find that linkages are still possible.
Paolo Tasca is a Digital economist specialising in P2P financial systems. An advisor on blockchain technologies for different international organisations including the EU Parliament and the United Nations. Paolo is founder and Executive Director of the Centre for Blockchain Technologies (UCL CBT) at University College London. Prior to this, he was Lead Economist on digital currencies and P2P financial systems at Deutsche Bundesbank, Frankfurt working on digital currencies and P2P lending.
Source: Paolo Tasca – UCL Blockchain
The anarcho-capitalist incentive method is a bypass of societal payment systems. It allows bitcoin billionaires to make a fortune with crime and speculation on crime, or alternatively speculation on speculation on crime, without ever being traced (except maybe by the NSA), nor taxed.
Let me explain this reasoning in more detail, so you can let me know if any of it is wrong. All of the societally harmless uses of Bitcoin and Ethereum can be implemented in a safer manner using TALER, without bypassing the tax system which is, as flawed as it may be, the only instrument society has to redistribute from the wealthy to the poor. Without such a redistribution, the capitalist architecture collapses and humanity’s ability to exist on the planet dies with it. If everyone just cares about themselves, a future comes when the rich get chased by pitchforks while global challenges such as pollution and climate change would not be tackled by anyone.
Dark web finds bitcoin increasingly more of a problem than a help, tries other digital currencies 13 Hours Ago | 00:53Criminals are dropping bitcoin in favor of other digital currencies that are harder for law enforcement to use in tracking activities in an anonymous corner of the internet known as the dark web, analysts said.Although hard numbers on criminal activity in digital currencies are difficult to pin down, Shone Anstey, co-founder and president of Blockchain Intelligence Group, estimates that illegal transactions in bitcoin have fallen from about half of total volume to about 20 percent last year.
Just discovered an on-page advert was mining bitcoin in my browser.
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— Published Author Adam O'Grady (@adamjogrady) August 29, 2017
Just discovered an on-page advert was mining bitcoin in my browser.Remember kids: always use an adblocker