Tag Archives: Crypto currency

A Taxonomy of Money

In a BIS Quarterly Review article, Morten Bech and Rodney Garratt offer a taxonomy of money, with special emphasis given to central bank issued digital and crypto currency. They stress four dimensions:

issuer (central bank or other); form (electronic or physical); accessibility (universal or limited); and transfer mechanism (centralised or decentralised). The taxonomy defines a CBCC as an electronic form of central bank money that can be exchanged in a decentralised manner known as peer-to-peer, meaning that transactions occur directly between the payer and the payee without the need for a central intermediary. This distinguishes CBCCs from other existing forms of electronic central bank money, such as reserves, which are exchanged in a centralised fashion across accounts at the central bank.

Should a Central Bank Issue Cryptocurrency?

On Alphaville, Izabella Kaminska asks why a central bank would want to issue cryptocurrency rather than conventional digital currency.

… if anonymity is not the objective of issuing a centrally supervised cryptocurrency, what really is the point of using blockchain or crypto technology? Just issue a conventional digital currency and be done with it. If, on the other hand, anonymity is the objective of issuing a centrally supervised cryptocurrency, how can this be justified by a central bank in light of years of regulatory policy focused on making sure cashflows are more easily tracked and monitored … The idea it should be the central bank unwinding this trend is utterly bizarre.

And:

… the only incentive central banks really have for introducing cryptocurrencies is in performing a giant monetary bait and switch. “Hey guys! We’re offering this amazing anonymous central bank currency which is as strong and stable as the dollar and yet just as anonymous as bitcoin!!! Come, all you illicit users of physical cash, come use our amazing new currency! We swear it’s absolutely anonymous and will never lead to prosecutions. Honest!!”

Her post relates to a recent BIS Quarterly Review article by Morten Bech and Rodney Garratt.

Corporate Governance of Crypto Currencies

The Economist reports about conflicting strategies among important Bitcoin players; the struggle aligns pragmatists against libertarian ideologists. It also reports about attempts by competing crypto currencies to strengthen corporate governance:

Tezos, another blockchain, will … not only have regular votes on competing proposals for how to change the system, but a more scientific approach to evaluating them and a way to compensate the developers for coming up with ideas. If their proposals are accepted, they will get paid in Tezos coins. The approach appears to have resonated within the crypto world: when Tezos closed its ICO earlier this month, it had raised a record $232m.

“Wer hat Angst vor Blockchain? (Who’s Afraid of the Blockchain?),” NZZ, 2016

NZZ, November 29, 2016. HTML, PDF. Longer version published on Ökonomenstimme, December 14, 2016. HTML.

Central banks are increasingly interested in employing blockchain technologies, and they should be.

  • The blockchain threatens the intermediation business.
  • Central banks encounter the blockchain in the form of new krypto currencies, and as the technology underlying new clearing and settlement systems.
  • Krypto currencies bear the risk of “dollarization,” but in the major currency areas this risk is still small.
  • New clearing and settlement systems benefit from central bank participation. But central banks benefit as well; those rejecting the new technology risk undermining the attractiveness of the home currency.

Zcash

The Economist reports about a new digital currency platform, Zcash. The platform could handle more transactions than for example, Bitcoin. The open-source project backed by outside investors offers confidentiality:

Bitcoin obscures the identity of currency owners, but the “blockchain”, the ledger that keeps track of all the coins, is open and can be analysed to see the flows of funds. This is a serious barrier for banks: blockchains could reveal their trading strategies and information about their customers. Zcash, by contrast, shields transactions from prying eyes with a scheme based on “zero-knowledge proofs” (hence the “Z” in its name). These are cryptographic protocols proving that a statement (who owns coins, for instance) is true without revealing any other information (how many and where the money came from). And it is by selling this technology—called “zk-SNARK” (don’t ask)—to banks that Zcash, the company, wants to earn its keep.

“Central Banking and Bitcoin: Not yet a Threat,” VoxEU, 2016

VoxEU, October 19, 2016. HTML.

  • Central banks are increasingly interested in employing blockchain technologies.
  • The blockchain threatens the intermediation business.
  • Central banks encounter the blockchain in the form of new krypto currencies, and as the technology underlying new clearing and settlement systems.
  • Krypto currencies bear the risk of “dollarization,” but in the major currency areas this risk is still small.
  • New clearing and settlement systems benefit from central bank participation. But central banks benefit as well; those rejecting the new technology risk undermining the attractiveness of the home currency.
  • See the original blogpost.